[Federal Register Volume 76, Number 131 (Friday, July 8, 2011)]
[Rules and Regulations]
[Pages 40223-40229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17132]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 240 and 260

[Release Nos. 33-9232; 34-64800; 39-2476; File No. S7-02-09]
RIN 3235-AK26


Extension of Temporary Exemptions for Eligible Credit Default 
Swaps To Facilitate Operation of Central Counterparties To Clear and 
Settle Credit Default Swaps

AGENCY: Securities and Exchange Commission.

ACTION: Final temporary rules; extension.

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SUMMARY: We are extending the expiration dates in our temporary rules 
that provide exemptions under the Securities Act of 1933, the 
Securities Exchange Act of 1934, and the Trust Indenture Act of 1939 
for certain credit default swaps in order to continue facilitating the 
operation of one or more central counterparties for those credit 
default swaps as we consider rules implementing the clearing provisions 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

DATES: Effective Date: These amendments are effective July 8, 2011, and 
the expiration dates in the temporary rules and amendments published 
January 22, 2009 (74 FR 3967), extended in a release published on 
September 17, 2009 (74 FR 47719), and further extended in a release 
published on November 26, 2010 (75 FR 72660), are further extended from 
July 16, 2011 to April 16, 2012. If the Commission adopts permanent 
exemptions for security-based swaps

[[Page 40224]]

issued by certain clearing agencies before April 16, 2012, the 
Commission will terminate the effectiveness of the temporary rules as 
part of that rulemaking.

FOR FURTHER INFORMATION CONTACT: Andrew Schoeffler, Special Counsel, 
Office of Capital Market Trends, Division of Corporation Finance, at 
(202) 551-3860, U.S. Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are adopting amendments to the following 
rules: temporary Rule 239T and Rule 146 under the Securities Act of 
1933 (``Securities Act''),\1\ temporary Rule 12a-10T and Rule 12h-1(h)T 
under the Securities Exchange Act of 1934 (``Exchange Act''),\2\ and 
temporary Rule 4d-11T under the Trust Indenture Act of 1939 
(``TIA'').\3\
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    \1\ 15 U.S.C. 77a et. seq.
    \2\ 15 U.S.C. 78a et. seq.
    \3\ 15 U.S.C. 77aaa et. seq.
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I. Background

    In January 2009, we adopted interim final temporary Rule 239T and a 
temporary amendment to Rule 146 under the Securities Act, interim final 
temporary Rules 12a-10T and 12h-1(h)T under the Exchange Act, and 
interim final temporary Rule 4d-11T under the TIA (collectively, the 
``Temporary Rules''), and in September 2009, we extended the expiration 
dates in these rules from September 25, 2009 to November 30, 2010 and 
in November 2010, we further extended the expiration dates in these 
rules to July 16, 2011.\4\ We adopted these rules in connection with 
temporary exemptive orders \5\ we issued to clearing agencies acting as 
central counterparties (``CCP''), which exempted the CCPs from the 
requirement to register as clearing agencies under Section 17A of the 
Exchange Act \6\ solely to perform the functions of a clearing agency 
for certain credit default swap (``CDS'') transactions. The CCP 
exemptive orders also exempted certain eligible contract participants 
\7\ and others from certain Exchange Act requirements with respect to 
certain CDS.\8\ Also at that time, we temporarily exempted any exchange 
that effects transactions in certain CDS from the requirements under 
Sections 5 and 6 of the Exchange Act \9\ to register as a national 
securities exchange, and any broker or dealer that effects transactions 
on an exchange in certain CDS from the requirements of Section 5 of the 
Exchange Act.
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    \4\ See Temporary Exemptions for Eligible Credit Default Swaps 
to Facilitate Operation of Central Counterparties to Clear and 
Settle Credit Default Swaps, Release No. 33-8999 (Jan. 14, 2009), 74 
FR 3967 (Jan. 22, 2009) (the ``Temporary CDS Exemptions Release''); 
Extension of Temporary Exemptions for Eligible Credit Default Swaps 
to Facilitate Operation of Central Counterparties to Clear and 
Settle Credit Default Swaps, Release No. 33-9063 (Sep. 14, 2009), 74 
FR 47719 (Sep. 17, 2009); and Extension of Temporary Exemptions for 
Eligible Credit Default Swaps to Facilitate Operation of Central 
Counterparties to Clear and Settle Credit Default Swaps, Release No. 
33-9158 (Nov. 19, 2010), 75 FR 72660 (Nov. 26, 2010).
    \5\ See Order Granting Temporary Exemptions under the Securities 
Exchange Act of 1934 in Connection with Request on Behalf of ICE 
Clear Europe Limited Related to Central Clearing of Credit Default 
Swaps, and Request for Comments, Release No. 34-60372 (Jul. 23, 
2009), 74 FR 37748 (Jul. 29, 2009), Order Extending Temporary 
Conditional Exemptions Under the Securities Exchange Act of 1934 in 
Connection With Request on Behalf of ICE Clear Europe, Limited 
Related to Central Clearing of Credit Default Swaps, and Request for 
Comments, Release No. 34-61973 (Apr. 23, 2010), 75 FR 22656 (Apr. 
29, 2010), and Order Extending Temporary Conditional Exemptions 
under the Securities Exchange Act of 1934 in Connection with Request 
on Behalf of ICE Clear Europe, Limited Related to Central Clearing 
of Credit Default Swaps and Request for Comment, Release No. 34-
63389 (Nov. 29, 2010), 75 FR 75520 (Dec. 3, 2010); Order Granting 
Temporary Exemptions under the Securities Exchange Act of 1934 in 
Connection with Request on Behalf of Eurex Clearing AG Related to 
Central Clearing of Credit Default Swaps, and Request for Comments, 
Release No. 34-60373 (Jul. 23, 2009), 74 FR 37740 (Jul. 29, 2009), 
Order Extending and Modifying Temporary Conditional Exemptions Under 
the Securities Exchange Act of 1934 in Connection With Request on 
Behalf of Eurex Clearing AG Related to Central Clearing of Credit 
Default Swaps, and Request for Comment, Release No. 34-61975 (Apr. 
23, 2010), 75 FR 22641 (Apr. 29, 2010), and Order Extending 
Temporary Conditional Exemptions under the Securities Exchange Act 
of 1934 in Connection with Request on Behalf of Eurex Clearing, AG 
Related to Central Clearing of Credit Default Swaps and Request for 
Comment, Release No. 34-63390 (Nov. 29, 2010), 75 FR 75518 (Dec. 3, 
2010); Order Granting Temporary Exemptions Under the Securities 
Exchange Act of 1934 in Connection With Request of Chicago 
Mercantile Exchange Inc. and Citadel Investment Group, L.L.C. 
Related to Central Clearing of Credit Default Swaps, and Request for 
Comments, Release No. 34-59578 (Mar. 13, 2009), 74 FR 11781 (Mar. 
19, 2009), Order Extending and Modifying Temporary Exemptions under 
the Securities Exchange Act of 1934 in Connection with Request of 
Chicago Mercantile Exchange Inc. Related to Central Clearing of 
Credit Default Swaps, and Request for Comments, Release No. 34-61164 
(Dec. 14, 2009), 74 FR 67258 (Dec. 18, 2009), Order Extending 
Temporary Exemptions under the Securities Exchange Act of 1934 in 
Connection with Request of Chicago Mercantile Exchange Inc. Related 
to Central Clearing of Credit Default Swaps, and Request for 
Comments, Release No. 34-61803 (Mar. 30, 2010), 75 FR 17181 (Apr. 5, 
2010), and Order Extending Temporary Conditional Exemptions under 
the Securities Exchange Act of 1934 in Connection with Request of 
Chicago Mercantile Exchange Inc. Related to Central Clearing of 
Credit Default Swaps and Request for Comment, Release No. 34-63388 
(Nov. 29, 2010), 75 FR 75522 (Dec. 3, 2010); Order Granting 
Temporary Exemptions Under the Securities Exchange Act of 1934 in 
Connection With Request on Behalf of ICE US Trust LLC Related to 
Central Clearing of Credit Default Swaps, and Request for Comments, 
Release No. 34-59527 (Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009), 
Order Extending and Modifying Temporary Exemptions under the 
Securities Exchange Act of 1934 in Connection with Request from ICE 
Trust U.S. LLC Related to Central Clearing of Credit Default Swaps, 
and Request for Comments, Release No. 34-61119 (Dec. 4, 2009), 74 FR 
65554 (Dec. 10, 2009); Order Extending Temporary Exemptions under 
the Securities Exchange Act of 1934 in Connection with Request of 
ICE Trust U.S. LLC Related to Central Clearing of Credit Default 
Swaps, and Request for Comments, Release No. 34-61662 (Mar. 5, 
2010), 75 FR 11589 (Mar. 11, 2010), and Order Extending and 
Modifying Temporary Exemptions under the Securities Exchange Act of 
1934 in Connection with Request of ICE Trust U.S. LLC Related to 
Central Clearing of Credit Default Swaps and Request for Comment, 
Release No. 34-63387 (Nov. 29, 2010), 75 FR 75502 (Dec. 3, 2010); 
and Order Granting Temporary Exemptions Under the Securities 
Exchange Act of 1934 in Connection with Request of LIFFE 
Administration and Management and LCH.Clearnet Ltd. Related to 
Central Clearing Of Credit Default Swaps, and Request for Comments, 
Release No. 34-59164 (Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009). 
LIFFE A&M and LCH.Clearnet Ltd. allowed their order to lapse without 
seeking renewal.
    \6\ 15 U.S.C. 78q-1.
    \7\ See 7 U.S.C. 1a(12).
    \8\ See generally the actions noted in footnote 5, supra.
    \9\ 15 U.S.C. 78e and 78f.
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    We adopted the Temporary Rules and the CCP exemptive orders to help 
foster the prompt development of CCPs for CDS because we believed and 
continue to believe that the existence of CCPs for CDS would be 
important in helping to reduce counterparty risks inherent in the CDS 
market. Today, CDS agreements generally are negotiated and entered into 
bilaterally, but eligible trades may be submitted to the CCP for 
novation, which results in the bilateral contract being extinguished 
and replaced by two new contracts where the CCP is the buyer to the 
original seller and the seller to the original buyer.\10\ The operation 
of a well-regulated CCP can significantly reduce counterparty risks by 
preventing the failure of a single-market participant from having a 
disproportionate effect on the overall market, since bilateral 
counterparty risk is eliminated as the creditworthiness of the original 
counterparties is replaced by the creditworthiness of the CCP.
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    \10\ ``Novation'' is a ``process through which the original 
obligation between a buyer and seller is discharged through the 
substitution of the CCP as seller to buyer and buyer to seller, 
creating two new contracts.'' Committee on Payment and Settlement 
Systems, Technical Committee of the International Organization of 
Securities Commissioners, Recommendations for Central Counterparties 
(Nov. 2004) at 66.
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    At the time of the adoption of the Temporary Rules and the CCP 
exemptive orders, the OTC market for CDS was a source of concern to us 
and other financial regulators due to the systemic risk posed by CDS, 
the possible inability of parties to meet their obligations as 
counterparties under the CDS, and the potential resulting adverse 
effects on other markets and the

[[Page 40225]]

financial system.\11\ In response, in January 2009, we took action to 
help foster the prompt development of CCPs for CDS, including granting 
conditional exemptions from certain provisions of the Federal 
securities laws. Since the adoption of the Temporary Rules and the CCP 
exemptive orders, several clearing agencies have been actively engaged 
as CCPs in clearing CDS transactions in accordance with our exemptions.
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    \11\ In addition to the potential systemic risks that CDS pose 
to financial stability, we were concerned about other potential 
risks in this market, including operational risks, risks relating to 
manipulation and fraud, and regulatory arbitrage risks.
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    We subsequently extended the expiration dates in the Temporary 
Rules from September 30, 2009 to November 30, 2010 \12\ and then from 
November 30, 2010 to July 16, 2011.\13\ The latter extension was 
adopted to enable the CCPs to continue to clear eligible CDS in 
accordance with the Temporary Rules and the CCP exemptive orders 
pending implementation of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the ``Dodd-Frank Act'').\14\ Title VII of the 
Dodd-Frank Act (``Title VII'') is intended to address regulatory gaps 
in the existing regulatory structure for the over-the-counter (``OTC'') 
derivatives markets by providing the Commission and the Commodity 
Futures Trading Commission (``CFTC'') with the authority to regulate 
OTC derivatives. The primary goals of Title VII, among others, are to 
increase the transparency, efficiency and fairness of the OTC 
derivatives markets, improve investor protection and to reduce the 
potential for counterparty and systemic risk.\15\ To this end, Title 
VII imposes a comprehensive regime for the regulation of ``swaps'' and 
``security-based swaps'' (as those terms are defined in Title VII), 
including the clearing, exchange trading, and reporting of transactions 
in security-based swaps.\16\ Certain CDS are security-based swaps as 
defined under Title VII.
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    \12\ See Extension of Temporary Exemptions for Eligible Credit 
Default Swaps to Facilitate Operation of Central Counterparties to 
Clear and Settle Credit Default Swaps, Release No. 33-9063 (Sep. 14, 
2009), 74 FR 47719 (Sep. 17, 2009). In September 2009, we extended 
the expiration dates in the Temporary Rules to November 30, 2010 
because, among other reasons, a number of legislative initiatives 
relating to the regulation of derivatives, including CDS, had been 
introduced by members of Congress and recommended by the United 
States Department of the Treasury (``Treasury''), and Congress had 
not yet taken definitive action with respect to any of the 
legislative initiatives or the Treasury proposals.
    \13\ See Extension of Temporary Exemptions for Eligible Credit 
Default Swaps to Facilitate Operation of Central Counterparties to 
Clear and Settle Credit Default Swaps, Release No. 33-9158 (Nov. 19, 
2010), 75 FR 72660 (Nov. 26, 2010).
    \14\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \15\ Id. at preamble.
    \16\ Section 761(a)(6) of the Dodd-Frank Act defines a 
``security-based swap'' as any agreement, contract, or transaction 
that is a swap based on a narrow-based security index, a single 
security or loan, including any interest therein or on the value 
thereof; or the occurrence, nonoccurrence, or extent of the 
occurrence of an event relating to a single issuer of a security or 
the issuers of securities in a narrow-based security index, provided 
that such event directly affects the financial statements, financial 
condition, or financial obligations of the issuer.
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    Title VII amends the Exchange Act to require, among other things, 
that security-based swaps be cleared through a clearing agency that is 
registered with the Commission or that is exempt from registration if 
the security-based swap is of a type that the Commission determines is 
required to be cleared, unless an exception from mandatory clearing 
applies.\17\ Title VII also provides that a depository institution 
registered with the CFTC that cleared swaps as a multilateral clearing 
organization or a derivatives clearing organization registered with the 
CFTC that cleared swaps pursuant to an exemption from registration as a 
clearing agency prior to the date of enactment of the Dodd-Frank Act is 
deemed registered as a clearing agency for the purposes of clearing 
security-based swaps (the ``Deemed Registered Provision'').\18\ The 
Deemed Registered Provision and the other general provisions of Title 
VII become effective on July 16, 2011.\19\
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    \17\ See Public Law 111-203, Sec.  763(a) (adding Exchange Act 
Section 3C(a)(1)).
    \18\ See Public Law 111-203, Sec.  763(b) (adding Exchange Act 
Section 17A(l)). Section 763(b) of the Dodd-Frank Act provides that 
certain security-based swap clearing agencies will be deemed 
registered as clearing agencies for the purpose of clearing 
security-based swaps. Currently, four security-based swap clearing 
agencies have temporary conditional exemptions from clearing agency 
registration under Section 17A solely to perform the functions of a 
clearing agency for certain CDS, and three of these security-based 
swap clearing agencies will be subject the Deemed Registered 
Provision. While the Deemed Registered Provision eliminates the need 
to extend our temporary exemptive orders relating to registration of 
clearing agencies, it does not resolve other issues addressed by our 
temporary exemptive orders relating to Sections 5 and 6 of the 
Exchange Act.
    \19\ Public Law 111-203, Sec.  774 states ``[u]nless otherwise 
provided, the provisions of this subtitle shall take effect on the 
later of 360 days after the date of the enactment of this subtitle 
or, to the extent a provision of this subtitle requires a 
rulemaking, not less than 60 days after publication of the final 
rule or regulation implementing such provision of this subtitle.''
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    The Dodd-Frank Act also directs us to adopt regulations regarding, 
among other things clearing agencies for, and the clearing of, 
security-based swaps, which include CDS. Under Title VII, all security-
based swaps, including certain types of CDS, are defined as securities 
under the Securities Act and the Exchange Act. As part of our review of 
the applications of the Securities Act, the Exchange Act and the TIA to 
security-based swaps and the implications for the clearing and exchange 
trading provisions of the Dodd-Frank Act and our rules implementing 
them, we are evaluating the necessity and appropriateness of exemptions 
from the registration requirements of the Securities Act and Exchange 
Act and the indenture qualification provisions of the TIA for security-
based swaps that will be cleared by clearing agencies. To this end, we 
have proposed exemptions under the Securities Act, the Exchange Act, 
and the TIA for security-based swaps issued by certain clearing 
agencies satisfying certain conditions.\20\ The Temporary Rules are an 
interim measure pending final action on the proposed permanent 
exemptions. However, the Temporary Rules are needed upon the effective 
date of Title VII to continue facilitating the operation of the CCPs in 
clearing eligible CDS as we consider rules implementing the clearing 
provisions of Title VII, including any applicable permanent exemptions.
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    \20\ See Exemptions For Security-Based Swaps Issued By Certain 
Clearing Agencies, Release No. 33-9222 (June 9, 2011), 76 FR 34920 
(June 15, 2011). The permanent exemptions would exempt transactions 
by clearing agencies in security-based swaps from all provisions of 
the Securities Act, other than the Section 17(a) anti-fraud 
provisions, as well as exempt these security-based swaps from 
Exchange Act registration requirements and from the provisions of 
the TIA, provided certain conditions are met.
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    The implementation of Title VII is a substantial undertaking and we 
are working toward fulfilling its requirements in a thorough and 
deliberative manner that includes significant public input and 
coordination with other regulators. To date, we have adopted an interim 
final rule regarding the reporting of outstanding security-based swaps 
entered into prior to the date of enactment of the Dodd-Frank Act \21\ 
and proposed thirteen other rulemakings required by Title VII, 
including the permanent exemptions noted above,\22\ rules regarding 
standards for the operation and governance of clearing agencies,\23\ 
the obligations of security-

[[Page 40226]]

based swap data repositories,\24\ the registration and regulation of 
security-based swap execution facilities,\25\ the confirmation of 
security-based swap transactions,\26\ trade reporting, data elements, 
and public dissemination of trade information for security-based 
swaps,\27\ the exception to the mandatory clearing requirement for end 
users,\28\ the mandatory clearing of security-based swaps,\29\ 
definitions and interpretive guidance for key terms in Title VII,\30\ 
and the mitigation of conflicts of interest involving security-based 
swaps.\31\ We have also proposed anti-fraud and anti-manipulation rules 
regarding security-based swaps.\32\ Title VII also calls for additional 
rulemakings regarding the registration procedures and external business 
conduct standards for security-based swap dealers and major security-
based swap participants.
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    \21\ See Reporting of Security-Based Swap Transaction Data, 
Release No. 34-63094 (Oct. 13, 2010), 75 FR 64643 (Oct. 20, 2010).
    \22\ See footnote 20, supra.
    \23\ See Clearing Agency Standards for Operation and Governance, 
Release No. 34-64017 (Mar. 3, 2011), 76 FR 14472 (Mar. 16, 2011).
    \24\ See Security-Based Swap Data Repository Registration, 
Duties, and Core Principles, Release No. 34-63347 (Nov. 19, 2010), 
75 FR 77306 (Dec. 10, 2010).
    \25\ See Registration and Regulation of Security-Based Swap 
Execution Facilities, Release No. 34-63825 (Feb. 2, 2011), 76 FR 
10948 (Feb. 28, 2011).
    \26\ See Trade Acknowledgment and Verification of Security-Based 
Swap Transactions, Release No. 34-63727 (Jan. 14, 2011), 76 FR 3859 
(Jan. 21, 2011).
    \27\ See Regulation SBSR--Reporting and Dissemination of 
Security-Based Swap Information, Release No. 34-63346 (Nov. 19, 
2010), 75 FR 75208 (Dec. 2, 2010).
    \28\ See End-User Exception to Mandatory Clearing of Security-
Based Swaps, Release No. 34-63556 (Dec. 15, 2010), 75 FR 79992 (Dec. 
21, 2010).
    \29\ See Process for Submissions for Review of Security-Based 
Swaps for Mandatory Clearing and Notice Filing Requirements for 
Clearing Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4 
Applicable to All Self-Regulatory Organizations, Release No. 34-
63557 (Dec. 15, 2010), 75 FR 82490 (Dec. 30, 2010).
    \30\ See Further Definition of ``Swap Dealer,'' ``Security-Based 
Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-Based 
Swap Participant'' and ``Eligible Contract Participant'', Release 
No. 34-63452 (Dec. 7, 2010), 75 FR 80174 (Dec. 21, 2010); and 
Further Definition of ``Swap,'' ``Security-Based Swap,'' and 
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap 
Agreement Recordkeeping, Release No. 33-9204 (Apr. 29, 2011), 76 FR 
29818 (May 23, 2011), corrected in Release No. 33-9204A (June 1, 
2011), 76 FR 32880 (June 7, 2011).
    \31\ See Ownership Limitations and Governance Requirements for 
Security-Based Swap Clearing Agencies, Security-Based Swap Execution 
Facilities, and National Securities Exchanges with Respect to 
Security-Based Swaps under Regulation MC, Release No. 34-63107 (Oct. 
14, 2010), 75 FR 65882 (Oct. 26, 2010).
    \32\ See Prohibition Against Fraud, Manipulation, and Deception 
in Connection with Security-Based Swaps, Release No. 34-63236 (Nov. 
3, 2010), 75 FR 68560 (Nov. 8, 2010).
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    At the time of adoption of the Temporary Rules in January 2009, we 
requested comment on various aspects of the Temporary Rules. We 
received a total of 15 letters, only two of which commented 
specifically on the Temporary Rules.\33\ Although those two letters 
generally supported allowing CCPs to clear and settle CDS transactions 
in accordance with the terms of the Temporary Rules, neither of the 
commenters specifically addressed the duration of the Temporary Rules 
and temporary amendments.\34\ The other commenters raised issues not 
directly related to this rulemaking. No comments have been submitted to 
us regarding the Temporary Rules since that time.
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    \33\ The public comments we received are available for Web site 
viewing and printing at the Commission's Public Reference Room at 
100 F St., NE., Washington, DC 20549 in File No. S7-02-09. They are 
also available online at http://www.sec.gov/comments/s7-02-09/s70209.shtml.
    \34\ See letters from the Yale Law School Capital Markets and 
Financial Instruments Clinic (Mar. 23, 2009) and from IDX Capital 
(Mar. 23, 2009).
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    Throughout the entire Title VII implementation process, we have 
sought to engage in an open and transparent implementation process, 
seeking input on the various rulemakings from interested parties even 
before issuing formal rule proposals. We have enhanced our public 
consultative process by expanding the opportunity for public comment 
beyond what is required by law. For instance, we have made available to 
the public a series of e-mail boxes to which interested parties can 
send preliminary comments before rules are proposed and the official 
comment periods begin.\35\ These e-mail boxes are on the Commission's 
Web site, organized by topic. We also specifically solicited comment, 
along with the CFTC, on the definitions contained in Title VII.\36\ In 
addition, our staff has sought the views of affected parties. This 
approach has resulted in meetings with a broad cross-section of 
interested parties. To further this public outreach effort, our staff 
has held joint public roundtables and hearings with the CFTC staff on 
select key topics, including most recently discussing the schedule for 
implementing final rules for swaps and security-based swaps under Title 
VII.\37\
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    \35\ See Public Comments on SEC Regulatory Initiatives Under the 
Dodd-Frank Act, available at http://www.sec.gov/spotlight/regreformcomments.shtml.
    \36\ See Definitions Contained in Title VII of Dodd-Frank Wall 
Street Reform and Consumer Protection Act, Release No. 34-62717 
(Aug. 13, 2010), 75 FR 51429 (Aug. 20, 2010) (advance joint notice 
of proposed rulemaking regarding definitions).
    \37\ Roundtable on Clearing and Listing of Swaps and Security-
Based Swaps (Aug. 20, 2010); Roundtable on Swap and Security-Based 
Swap Matters (Sep. 14-15, 2010); Roundtable to Discuss Issues 
Related to Clearing of Credit Default Swaps (Oct. 22, 2010); 
Roundtable to Discuss Issues Related to Capital and Margin for Swaps 
and Security-Based Swaps (Dec. 10, 2010); and Roundtable on 
Implementation Phasing for Final Rules for Swaps and Security-Based 
Swaps Under Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (May 2-3, 2011).
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    We are still in the process of proposing and adopting numerous 
rulemakings relating to the implementation of Title VII, including the 
provisions relating to the clearing of security-based swaps. While we 
have taken significant steps to implement the rulemaking required by 
Title VII, we do not expect to complete the rulemaking we are directed 
to carry out under Title VII before July 16, 2011, the current 
termination date for the Temporary Rules. Due to the uncertainty of the 
timing regarding the adoption of final rules implementing the clearing 
provisions of Title VII, including any applicable permanent exemptions, 
we believe that it is important that the CCPs continue to be able to 
clear eligible CDS without concern that the Temporary Rules are 
unavailable. As such, we have determined that it is necessary and 
appropriate to extend the expiration dates in the Temporary Rules to 
April 16, 2012. If the Commission adopts permanent exemptions for 
security-based swaps issued by certain clearing agencies before April 
16, 2012, the Commission will terminate the effectiveness of the 
temporary rules as part of that rulemaking.
    We are only extending the expiration dates in the Temporary Rules; 
we are not making any other changes to the Temporary Rules. The 
Temporary Rules were modeled on other exemptions we have provided in 
the past to facilitate trading in certain securities.\38\ They are 
limited in scope; in general, they facilitate the operation of the CCPs 
in clearing eligible CDS.
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    \38\ See, e.g., Securities Act Section 3(a)(14) [15 U.S.C. 
77c(a)(14)], Securities Act Rule 238 [17 CFR 230.238]; Exchange Act 
Section 12(a) [15 U.S.C. 78l(a)], and Exchange Act Rules 12h-1(d) 
and (e) [17 CFR 240.12h-1(d) and (e)] (providing similar exemptions 
from provisions of the Federal securities laws for standardized 
options and securities futures products).
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II. Amendment of Expiration Dates in the Temporary Rules

    In January 2009, we adopted the Temporary Rules on a temporary 
basis until September 25, 2009. We subsequently extended the expiration 
dates in the Temporary Rules to November 30, 2010 and we further 
extended the expiration dates to July 16, 2011 to allow CCPs that were 
clearing and settling CDS transactions in the U.S. and in Europe to 
continue to clear and settle CDS transactions. Since the adoption of 
the Temporary Rules and the issuance of the CCP exemptive orders, 
several clearing agencies have

[[Page 40227]]

been actively engaged as CCPs in clearing CDS transactions in reliance 
on our exemptions. We believe that the clearing of CDS transactions by 
these clearing agencies has contributed and we anticipate it will 
continue to contribute to increased transparency and the reduction of 
systemic risk in the CDS market.
    Since the adoption of the Temporary Rules and issuance of the CCP 
exemptive orders, ICE Trust U.S. LLC (``ICE Trust'') and ICE Clear 
Europe, Ltd. (``ICE Clear Europe'') have been actively engaged as CCPs 
in clearing CDS transactions in reliance on our exemptions. Most 
cleared CDS transactions have cleared at ICE Trust or ICE Clear 
Europe.\39\ However, Eurex Clearing AG and the Chicago Mercantile 
Exchange Inc. are also authorized to operate as CCPs pursuant to the 
CCP exemptive orders.\40\ We believe that the clearing of CDS 
transactions by the CCPs subject to the CCP exemptive orders has 
contributed and we anticipate will continue to contribute to increased 
transparency and the reduction of systemic risk in the CDS market.
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    \39\ As of June 3, 2011, ICE Trust U.S. LLC has cleared 249,249 
CDS transactions with a notional value of $11.1 trillion. As of June 
3, 2011, ICE Clear Europe, Ltd. has cleared 272,612 CDS transactions 
with a notional value of [euro]5.5 trillion. See https://www.theice.com/marketdata/reports/ReportCenter.shtml.
    \40\ See footnote 5, supra.
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    The extension of the Temporary Rules is designed to facilitate the 
continued operation of CCPs for eligible CDS, which we believe is in 
the public interest. Once we adopt final rules implementing the 
clearing provisions of Title VII, including any applicable permanent 
exemptions, the Temporary Rules affecting solely eligible CDS will no 
longer be necessary. However, until such time, the Temporary Rules are 
needed to continue facilitating the operation of the CCPs in clearing 
eligible CDS without being required to comply with the registration 
requirements of the Securities Act and Exchange Act and the indenture 
qualification provisions of the TIA. Therefore, due to the limited time 
the Temporary Rules will be needed, and our ongoing efforts to 
implement the provisions of Title VII, we are extending the expiration 
dates in the Temporary Rules to April 16, 2012. If the Commission 
adopts permanent exemptions for security-based swaps issued by certain 
clearing agencies before April 16, 2012, the Commission will terminate 
the effectiveness of the temporary rules as part of that rulemaking.

III. Certain Administrative Law Matters

    Section 553(b) of the Administrative Procedure Act (``APA'') \41\ 
generally requires an agency to publish notice of a proposed rule 
making in the Federal Register. This requirement does not apply, 
however, if the agency ``for good cause finds (and incorporates the 
finding and a brief statement of reasons therefore in the rules issued) 
that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.'' \42\ For the reasons 
we discuss throughout this release, we believe that there is good cause 
to extend the expiration dates in the Temporary Rules to April 16, 
2012. If the Commission adopts permanent exemptions for security-based 
swaps issued by certain clearing agencies before April 16, 2012, the 
Commission will terminate the effectiveness of the temporary rules as 
part of that rulemaking.
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    \41\ 5 U.S.C. 553(b).
    \42\ 5 U.S.C. 553(b)(B).
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    We sought comment on the Temporary Rules and as noted above, we 
received little comment when they were originally promulgated. In 
addition to the specific comments that we sought and received in 
connection with the Temporary Rules in January 2009, we have sought 
public input on implementing the provisions of Title VII, which 
requires extensive public notice and comment rulemaking regarding 
proposals that will supplant and subsume the exemptive rules we have 
crafted as a temporary measure.\43\ Further, we have sought and will 
continue to seek public comment in connection with proposed rulemakings 
to implement the specific provisions of Title VII relating to the 
treatment of security-based swaps under the Securities Act and the 
Exchange Act, including any applicable permanent exemptions. Commenters 
have full opportunity to provide their views on this new comprehensive 
regulatory regime.
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    \43\ See footnote 35, supra. None of these comments addressed 
the Temporary Rules.
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    Absent an extension, the Temporary Rules will expire on July 16, 
2011. The Temporary Rules have been in place since January 2009, and 
CCPs have relied on them in clearing eligible CDS. Extending the 
expiration dates in the Temporary Rules will not affect the substantive 
provisions of the Temporary Rules. Extending the expiration dates in 
the Temporary Rules will allow CCPs to continue to clear eligible CDS 
without compliance with the registration requirements of the Securities 
Act and Exchange Act and indenture qualification provisions of the TIA 
as we consider rules implementing the clearing provisions of Title VII, 
including any applicable permanent exemptions. Therefore, we believe 
there is good cause to extend the expiration dates in the Temporary 
Rules and find that notice and solicitation of comment on the extension 
to be impracticable, unnecessary, or contrary to the public 
interest.\44\
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    \44\ This finding also satisfies the requirements of 5 U.S.C. 
808(2), allowing the rule amendments to become effective 
notwithstanding the requirements of 5 U.S.C. 801 (if a Federal 
agency finds that notice and public comment are ``impractical, 
unnecessary or contrary to the public interest,'' a rule ``shall 
take effect at such time as the Federal agency promulgating the rule 
determines.'').
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    The APA also generally requires that an agency publish an adopted 
rule in the Federal Register 30 days before it becomes effective.\45\ 
However, this requirement does not apply if the agency finds good cause 
not to delay the effective date.\46\ For reasons similar to those 
explained above, the Commission finds good cause not to delay the 
effective date.
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    \45\ 5 U.S.C. 553(d).
    \46\ 5 U.S.C. 553(d)(3).
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IV. Paperwork Reduction Act

    The Temporary Rules do not impose any new ``collections of 
information'' within the meaning of the Paperwork Reduction Act of 1995 
(``PRA''),\47\ nor do they create any new filing, reporting, 
recordkeeping, or disclosure reporting requirements for a CCP that is 
or will be issuing or clearing eligible CDS. Accordingly, we did not 
submit the Temporary Rules to the Office of Management and Budget for 
review in accordance with the PRA when we adopted them in January 
2009.\48\ We requested comment on whether our conclusion that there are 
no collections of information is correct, and we did not receive any 
comment. The extension of the expiration dates in the Temporary Rules 
does not change our analysis.
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    \47\ 44 U.S.C. 3501 et seq.
    \48\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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V. Cost-Benefit Analysis

    In January 2009, we adopted the Temporary Rules, which exempt 
eligible CDS that are or will be issued or cleared by a CCP and offered 
and sold only to eligible contract participants from all provisions of 
the Securities Act, other than the Section 17(a) anti-fraud provision, 
as well as from the registration requirements under Section 12 of the 
Exchange Act and from the provisions of the TIA. In September 2009, we 
adopted amendments to such rules to extend their expiration date to 
November 30, 2010. We subsequently

[[Page 40228]]

adopted amendments to such rules to further extend their expiration 
date from November 30, 2010 to July 16, 2011. The Temporary Rules were 
intended to facilitate the operation of one or more CCPs to act as a 
clearing agency in the CDS market to reduce some of the risks in the 
CDS market. Today, we are adopting amendments to the Temporary Rules to 
further extend the expiration dates. Since the adoption of the 
Temporary Rules and the issuance of the exemptive orders, ICE Trust and 
ICE Clear Europe have been actively engaged as a CCP in clearing CDS 
transactions in accordance with our exemptions.
    The Dodd-Frank Act was enacted on July 21, 2010. Among other 
things, the Dodd-Frank Act amends the Exchange Act to require that 
transactions in security-based swaps be cleared through a clearing 
agency that is either registered with the Commission or exempt from 
registration if the transactions are of a type that the Commission 
determines must be cleared, unless an exemption from mandatory clearing 
applies. As noted above, the Dodd-Frank Act directs us to regulate, 
among other things, clearing agencies for, and the clearing of, 
security-based swaps, which include certain CDS, and in separate 
rulemakings we have and will propose rules to implement the clearing 
provisions of the Dodd-Frank Act, among others. Extending the 
expiration dates in the Temporary Rules will continue to facilitate the 
operation of the CCPs in clearing eligible CDS as we consider rules 
implementing the clearing provisions of Title VII, including any 
applicable permanent exemptions.

A. Benefits

    Absent the exemptions provided by the Temporary Rules, a CCP may 
have to file a registration statement covering the offer and sale of 
eligible CDS that are security-based swaps, may have to satisfy the 
applicable provisions of the TIA, and may have to register the class of 
eligible CDS that are security-based swaps that it has issued or 
cleared under the Exchange Act. The Temporary Rules and the CCP 
exemptive orders have facilitated the operation of CCPs in the CDS 
market. Since the adoption of the Temporary Rules, several clearing 
agencies have been actively engaged as CCPs in clearing CDS 
transactions in accordance with our exemptions. We believe that 
extending the expiration dates in the Temporary Rules will continue to 
facilitate the operation of CCPs \49\ and the use by eligible contract 
participants of CDS CCPs. We believe that the operation of the CCPs in 
accordance with our exemptions has increased transparency,\50\ 
increased available information about exposures to particular reference 
entities or reference securities,\51\ and reduced risks to participants 
in the market for CCP-cleared CDS.\52\ Not extending the expiration 
dates in the Temporary Rules could cause significant disruptions in 
this market. Therefore, we believe that extending the expiration dates 
in the Temporary Rules provides important benefits to CDS market 
participants.
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    \49\ See Karen Brettell, Banks to submit 95 pct of eligible CDS 
for clearing (Sep. 1, 2009), available at http://www.reuters.com/article/euRegulatoryNews/idUSN0150814420090901?pageNumber=1&virtualBrandChannel=10522.
    \50\ See Testimony of Mark Lenczowski, Managing Director and 
Assistant General Counsel at JPMorgan Chase & Co., to the Senate 
Agriculture Committee (Jun. 4, 2009) (In his testimony, Mr. 
Lenczowski indicated, in the context of CDS clearing by ICE Trust, 
that ``[c]learing is a highly transparent process * * * '').
    \51\ See footnote 35, supra. None of these comments addressed 
the Temporary Rules.
    \52\ See Press Release, IntercontinentalExchange, ICE Clear 
Europe Clears Euro 51 Billion in Third Week of European CDS 
Processing; Announces New CDS Clearing Member (Aug. 17, 2009), 
available at http://ir.theice.com/releasedetail.cfm?ReleaseID=403509. See also, Press Release, Eurex 
Clearing AG, Eurex Credit Clear Clears First Single Name CDS 
Worldwide (Aug. 28, 2009), available at http://www.eurexclearing.com/about/press/press_647_en.html.
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B. Costs

    We recognize that a consequence of extending the exemptions will be 
the unavailability of certain remedies under the Securities Act and the 
Exchange Act and certain protections under the TIA. While an investor 
will be able to pursue an antifraud action in connection with the 
purchase and sale of eligible CDS under Exchange Act Section 10(b),\53\ 
it will not be able to pursue civil remedies under Sections 11 or 12 of 
the Securities Act.\54\ We could still pursue an antifraud action in 
the offer and sale of eligible CDS issued or cleared by a CCP.\55\ We 
believe that the incremental costs from the extension of the expiration 
dates in the Temporary Rules will be minimal because the amendments are 
merely an extension of the expiration dates in the Temporary Rules and 
such extension will not affect information and remedies available to 
investors as a result of the Temporary Rules.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78j(b).
    \54\ 15 U.S.C. 77k and 77l.
    \55\ See 15 U.S.C. 77q and 78j(b).
---------------------------------------------------------------------------

VI. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    Section 23(a)(2) of the Exchange Act \56\ requires us, when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. Section 23(a)(2) prohibits us from 
adopting any rule that would impose a burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. In addition, Section 2(b) \57\ of the Securities Act and Section 
3(f) \58\ of the Exchange Act require us, when engaging in rulemaking 
where we are required to consider or determine whether an action is 
necessary or appropriate in the public interest, to also consider, in 
addition to protection of investors, whether the action will promote 
efficiency, competition, and capital formation.
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    \56\ 15 U.S.C. 78w(a)(2).
    \57\ 15 U.S.C. 77b(b).
    \58\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Temporary Rules we are extending today exempt eligible CDS 
issued or cleared by a CCP from all provisions of the Securities Act, 
other than the Section 17(a) antifraud provision, as well as from the 
registration requirements under Section 12 of the Exchange Act and the 
provisions of the TIA. Because these exemptions are available to any 
registered or deemed registered CCP offering and selling eligible CDS, 
we do not believe that extending the exemptions imposes a burden on 
competition. We also anticipate that extending the ability to settle 
CDS through CCPs will continue to improve the transparency of the CDS 
market and provide greater assurance to participants as to the capacity 
of the eligible CDS counterparty to perform its obligations under the 
eligible CDS. ICE Trust, for example, makes available on its Web site 
information about open interests, or net exposure, volume and pricing 
of CDS transactions. We believe that increased transparency in the CDS 
market could help to minimize market disruption and thereby facilitate 
the capital formation process.

VII. Regulatory Flexibility Act Certification

    The Commission hereby certifies pursuant to 5 U.S.C. 605(b) that 
extending the Temporary Rules will not have a significant economic 
impact on a substantial number of small entities. The Temporary Rules 
exempt eligible CDS that are or will be issued or cleared by a CCP. 
None of the entities that are

[[Page 40229]]

eligible to meet the requirements of these exemptions is a small 
entity.

VIII. Statutory Authority and Text of the Rules and Amendments

    The amendments described in this release are being adopted under 
the authority set forth in Sections 18, 19 and 28 of the Securities 
Act; Sections 12(h), 23(a) and 36 of the Exchange Act; and Section 
304(d) of the TIA.

List of Subjects in 17 CFR Parts 230, 240 and 260

    Reporting and recordkeeping requirements, Securities.

Text of the Rules and Amendments

    We are temporarily amending 17 CFR parts 230, 240, and 260 as 
follows and the expiration dates in the temporary rules and amendments 
published January 22, 2009 (74 FR 3967), extended in a release 
published on September 17, 2009 (74 FR 47719), and further extended in 
a release published on November 26, 2010 (75 FR 72660), are further 
extended from July 16, 2011 to April 16, 2012.

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. The authority citation for part 230 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.
* * * * *


Sec. Sec.  230.146 and 230.239T  [Amended]

0
2. In Sec.  230.146(c)T, in the last sentence, remove the words ``July 
16, 2011'' and add, in their place, the words ``April 16, 2012''.

0
3. In Sec.  230.239T(e), remove the words ``July 16, 2011'' and add, in 
their place, the words ``April 16, 2012''.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
4. The authority citation for part 240 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78o-4, 78p, 78q, 78s, 
78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 
80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350; and 12 U.S.C. 
5221(e)(3) unless otherwise noted.
* * * * *


Sec. Sec.  240.12a-10T and 240.12h-1  [Amended]

0
5. In Sec.  240.12a-10T(b), remove the words ``July 16, 2011'' and add, 
in their place, the words ``April 16, 2012''.

0
6. In Sec.  240.12h-1(h)T, in the last sentence, remove the words 
``July 16, 2011'' and add, in their place, the words ``April 16, 
2012''.

PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 
1939

0
7. The authority citation for part 260 continues to read as follows:

    Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-3, 
80b-4, and 80b-11.
* * * * *


Sec.  260.4d-11T  [Amended]

0
8. In Sec.  260.4d-11T, in the last sentence, remove the words ``July 
16, 2011'' and add, in their place, the words ``April 16, 2012''.

    By the Commission.

    Dated: July 1, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-17132 Filed 7-7-11; 8:45 am]
BILLING CODE 8011-01-P