[Federal Register Volume 76, Number 240 (Wednesday, December 14, 2011)]
[Proposed Rules]
[Pages 77728-77738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31646]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 37 and 38

RIN 3038-AD18


Process for a Designated Contract Market or Swap Execution 
Facility To Make a Swap Available To Trade

AGENCY: Commodity Futures Trading Commission.

ACTION: Further notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
proposing regulations that establish a process for a designated 
contract market (``DCM'') or swap execution facility (``SEF'') to make 
a swap ``available to trade'' as set forth in new Section 2(h)(8) of 
the Commodity Exchange Act (``CEA'') pursuant to Section 723 of the

[[Page 77729]]

Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank 
Act''). Only comments pertaining to the regulations proposed in this 
document will be considered as part of this further notice of proposed 
rulemaking (``Notice'').

DATES: Submit comments on or before February 13, 2012.

ADDRESSES: You may submit comments, identified by RIN number 3038-AD18 
and Process for a Designated Contract Market or Swap Execution Facility 
to Make a Swap Available to Trade, by any of the following methods:
     Agency Web site, via its Comments Online process at 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 the instructions for submitting comments.

Please submit your comments using only one method.
    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 may be exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the established procedures in 
Sec.  145.9 of the Commission's regulations, 17 CFR 145.9.
    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 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.

FOR FURTHER INFORMATION CONTACT: Bella Rozenberg, Associate Director, 
Division of Market Oversight (``DMO''), (202) 418-5119, 
[email protected], Amir Zaidi, Special Counsel, DMO, (202) 418-6770, 
[email protected], or Nhan Nguyen, Attorney Advisor, DMO, (202) 418-5932, 
[email protected], Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

    The Dodd-Frank Act \1\ requires that swap transactions subject to 
the clearing requirement \2\ must be executed on a DCM or SEF,\3\ 
subject to certain exceptions. Under Section 2(h)(8)(B) of the CEA, the 
exceptions to the trade execution requirement are if no board of trade 
\4\ or SEF ``makes the swap available to trade'' or the related 
transaction is subject to the clearing exception under Section 2(h)(7) 
(i.e., the end-user exception).\5\
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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ Section 723(a)(3) of the Dodd-Frank Act amended the CEA to 
add a clearing requirement. This clearing requirement, under new 
Section 2(h)(1)(A) of the CEA, provides that ``[i]t shall be 
unlawful for any person to engage in a swap unless that person 
submits such swap for clearing to a derivatives clearing 
organization that is registered under this Act or a derivatives 
clearing organization that is exempt from registration under this 
Act if the swap is required to be cleared.''
    \3\ Section 723(a)(3) of the Dodd-Frank Act amended the CEA to 
add a trade execution requirement. This trade execution requirement, 
under new Section 2(h)(8)(A) of the CEA, provides that with respect 
to transactions involving swaps subject to the clearing requirement 
of Section 2(h)(1), ``counterparties shall (i) execute the 
transaction on a board of trade designated as a contract market 
under section 5; or (ii) execute the transaction on a swap execution 
facility registered under 5h or a swap execution facility that is 
exempt from registration under section 5h(f) of this Act.''
    \4\ The logical interpretation of the phrase ``board of trade'' 
in Section 2(h)(8)(B) means a board of trade designated as a 
contract market given such reference in Section 2(h)(8)(A).
    \5\ Section 2(h)(7) of the CEA provides an exception to the 
clearing requirement (``the end-user exception'') if one of the 
counterparties to a swap (i) is not a financial entity, (ii) is 
using the swap to hedge or mitigate commercial risk, and (iii) 
notifies the Commission how it generally meets its financial 
obligations associated with entering into a non-cleared swap.
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    On January 7, 2011, the Commission published proposed rules, 
guidance, and acceptable practices (``SEF NPRM'') to implement certain 
statutory provisions for SEFs enacted by Title VII of the Dodd-Frank 
Act.\6\ In the SEF NPRM, the Commission proposed, among other rules, 
Sec.  37.10 related to implementation of the available to trade 
provision under Section 2(h)(8) of the CEA.\7\ Proposed Sec.  37.10 
requires each SEF to conduct an annual review and assessment of whether 
it has made a swap available for trading and to provide a report to the 
Commission regarding its assessment.\8\ In its review and assessment, 
the SEF may consider the frequency of transactions, open interest, and 
any other factor requested by the Commission.\9\ Proposed Sec.  37.10 
also requires that all SEFs are required to treat a swap as made 
available for trading, if at least one SEF has made the same or an 
economically equivalent swap available for trading.\10\
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    \6\ Core Principles and Other Requirements for Swap Execution 
Facilities, 76 FR 1214 (Jan. 7, 2011).
    \7\ 76 FR at 1241.
    \8\ Id.
    \9\ Id.
    \10\ Id.
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    The SEF NPRM sought general public comment regarding the meaning of 
the phrase ``made available for trading.'' \11\ The Commission also 
asked for comment on two specific questions: (1) Whether SEFs should 
consider the number of market participants trading a particular swap, 
and, if so, whether there should be a required minimum number of 
participants (e.g., two or three participants); and (2) whether SEFs 
should consider any other factors or processes to make the 
determination that swaps are made available for trading.\12\ The 
Commission received 26 comments on the proposed ``available to trade'' 
process.\13\ The Commission has considered these comments, which are 
discussed below in the next section, in developing this Notice.
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    \11\ 76 FR at 1222. Comments on all aspects of the SEF NPRM were 
due by March 8, 2011. On May 4, 2011, the Commission reopened the 
SEF NPRM's comment period through June 3, 2011, as part of the 
global extension of comment periods for various rulemakings 
implementing the Dodd-Frank Act to allow the public additional time 
to comment on the proposed new regulatory framework for swaps. See 
Reopening and Extension of Comment Periods for Rulemakings 
Implementing the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, 76 FR 25274 (May 4, 2011).
    \12\ 76 FR at 1222.
    \13\ These comments are available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=955.
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    On December 22, 2010, the Commission also published proposed rules, 
guidance, and acceptable practices (``DCM NPRM'') to implement certain 
statutory provisions for DCMs enacted by Title VII of the Dodd-Frank 
Act.\14\ The DCM NPRM did not establish any obligation for DCMs under 
Section 2(h)(8) of the CEA, but it did establish certain swap reporting 
obligations.\15\
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    \14\ Core Principles and Other Requirements for Designated 
Contract Markets, 75 FR 80572 (Dec. 22, 2010).
    \15\ See e.g., proposed Sections 38.8, 38.10, and 38.451. Core 
Principles and Other Requirements for Designated Contract Markets, 
75 FR 80572 (Dec. 22, 2010).

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[[Page 77730]]

II. Notice

A. Introduction

    In this Notice, the Commission is proposing regulations to 
establish a process for a DCM or SEF to make a swap ``available to 
trade'' under Section 2(h)(8) of the CEA.\16\ The proposed regulations 
would be included in proposed parts 37 and 38 of the Commission's 
regulations to implement the available to trade provision in Section 
2(h)(8) of the CEA.
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    \16\ Sections 5(d)(1) and 5h(f)(1) of the CEA require DCMs and 
SEFs, respectively, to comply with any requirement that the 
Commission may impose by rule or regulation pursuant to Section 
8a(5) of the CEA, 7 U.S.C. 12a(5), which authorizes the Commission 
to promulgate such regulations as, in the judgment of the 
Commission, are reasonably necessary to effectuate any of the 
provisions or to accomplish any of the purposes of the CEA. In 
addition, Section 721(b) of the Dodd-Frank Act provides the 
Commission with authority to adopt rules to define ``[any] term 
included in an amendment to the Commodity Exchange Act * * * made by 
[the Dodd-Frank Act].''
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B. Process for a Designated Contract Market or Swap Execution Facility 
To Make a Swap Available To Trade Under Section 2(h)(8) of the CEA

1. Procedure To Make a Swap Available to Trade--Proposed Sec. Sec.  
37.10(a) and 38.12(a)
a. Comments Regarding Available To Trade Process
    A key theme to emerge from the SEF NPRM comments is that the 
Commission should establish a process for determining when a swap is 
available to trade that includes greater Commission involvement.\17\ 
For example, one commenter suggested that a SEF certify to the 
Commission those swaps that qualify as available to trade and that, 
following a public notice and comment period, the Commission confirm 
(or reject) the SEF's certification.\18\ Similarly, another commenter 
recommended that a SEF submit to the Commission those swaps it 
determines to be available to trade and that the Commission review the 
submission and provide at least a thirty-day public comment period 
regarding its decision.\19\ Another commenter encouraged the Commission 
to institute a process through which market participants could petition 
the Commission to review the appropriateness of a SEF's determination 
that a swap is available to trade.\20\
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    \17\ E.g., Letter from Edward Rosen, Cleary Gottlieb Steen & 
Hamilton LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 
18-19; Letter from Kevin Gould, Markit, dated Mar. 8, 2011 at 3; 
Letter from Andrew Ertel, Evolution Markets Inc., dated Mar. 8, 2011 
at 9; Letter from Wholesale Market Brokers' Association, Americas, 
dated Mar. 8, 2011 at 17-18.
    \18\ Letter from Edward Rosen, Cleary Gottlieb Steen & Hamilton 
LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 19.
    \19\ Letter from Kevin Gould, Markit, dated Mar. 8, 2011 at 3.
    \20\ Letter from Andrew Ertel, Evolution Markets Inc., dated 
Mar. 8, 2011 at 9.
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    Some commenters requested that the Commission determine whether a 
particular swap is available to trade \21\ while other commenters 
requested that SEFs make this determination.\22\ Many commenters that 
supported a Commission determination noted that SEFs may have 
incentives to prematurely make certain swaps available to trade in 
order to mandate trading in these instruments on or through SEFs.\23\ 
The commenters that supported a SEF determination stated that SEFs 
should have some discretion whether a swap is made available to 
trade.\24\
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    \21\ E.g., Letter from Craig Donohue, CME Group Inc., dated Mar. 
8, 2011 at 10; Letter from Patrick Durkin, Barclays Capital, dated 
Mar. 8, 2011 at 11; Letter from Kevin Budd and Todd Lurie, MetLife, 
dated Mar. 8, 2011 at 4; Letter from Richard McVey, MarketAxess 
Corporation, dated Mar. 8, 2011 at 27; Letter from Timothy Cameron, 
Securities Industry and Financial Markets Association Asset 
Management Group, dated Mar. 8, 2011 at 11; Letter from Richard 
Whiting, Financial Services Roundtable, dated Mar. 8, 2011 at 8; 
Letter from R. Martin Chavez, Goldman, Sachs & Co., dated Mar. 8, 
2011 at 3; Letter from Warren Davis, Sutherland Asbill & Brennan 
LLP, on behalf of the Federal Home Loan Banks, dated Jun. 3, 2011 at 
14; Letter from Wayne Pestone, FX Alliance Inc., dated Nov. 4, 2011 
at 9-10.
    \22\ E.g., Letter from Wholesale Market Brokers' Association, 
Americas, dated Mar. 8, 2011 at 17-18; Letter from Lee Olesky and 
Douglas Friedman, Tradeweb Markets LLC, dated Mar. 8, 2011 at 8-9; 
Letter from Coalition for Derivatives End-Users, dated Mar. 8, 2011 
at 7-8.
    \23\ E.g., Letter from Craig Donohue, CME Group Inc., dated Mar. 
8, 2011 at 10; Letter from Patrick Durkin, Barclays Capital, dated 
Mar. 8, 2011 at 11; Letter from Kevin Budd and Todd Lurie, MetLife, 
dated Mar. 8, 2011 at 4; Letter from Timothy Cameron, Securities 
Industry and Financial Markets Association Asset Management Group, 
dated Mar. 8, 2011 at 11; Letter from Wayne Pestone, FX Alliance 
Inc., dated Nov. 4, 2011 at 9-10.
    \24\ E.g., Letter from Wholesale Market Brokers' Association, 
Americas, dated Mar. 8, 2011 at 17-18; Letter from Lee Olesky and 
Douglas Friedman, Tradeweb Markets LLC, dated Mar. 8, 2011 at 8-9; 
Letter from Coalition for Derivatives End-Users, dated Mar. 8, 2011 
at 7-8.
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    In light of these comments and the fact that the DCM NPRM did not 
establish any obligation for DCMs under Section 2(h)(8) of the CEA, the 
Commission has determined to issue this Notice.
b. Rule Submission Filing Procedure--Proposed Sec. Sec.  37.10(a) and 
38.12(a)
    Proposed Sec. Sec.  37.10(a) and 38.12(a) set forth the filing 
procedure that SEFs and DCMs would utilize in order to demonstrate that 
a swap is available to trade. Under this proposed procedure, a DCM or 
SEF would initially determine that a swap is available to trade. The 
Commission views such determination as a trading protocol issued by a 
DCM or SEF. Such trading protocol falls under the definition of a rule 
under Sec.  40.1 of the Commission's regulations.\25\ Therefore, 
pursuant to Section 5c(c) of the CEA, DCMs and SEFs would be required 
as ``registered entities'' \26\ to submit make available to trade 
determinations to the Commission, either for approval or self-
certification, pursuant to the filing procedures of part 40 of the 
Commission's regulations.\27\
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    \25\ Section 40.1(i) defines rule as ``any constitutional 
provision, article of incorporation, bylaw, rule, regulation, 
resolution, interpretation, stated policy, advisory, 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, 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, in whatever form adopted.''
    \26\ The term ``registered entity'' is defined in the CEA to 
include both DCMs and SEFs. See Section 1a(40) of the CEA, 7 U.S.C. 
1a(40).
    \27\ See Sections 40.5 and 40.6 and Provisions Common to 
Registered Entities, 76 FR 44776 (Jul. 27, 2011). The Commission 
notes that the proposed procedures to make a swap available to trade 
are different than the procedures to list a swap for trading. A DCM 
or SEF may list a swap for trading by complying with the 
certification or approval procedures under Sec. Sec.  40.2 or 40.3 
of the Commission's regulations. Under the certification procedures 
of Sec.  40.2, a DCM or SEF may list a product on the business day 
following the Commission's receipt of the submission, if received by 
the open of business. Under the approval procedures of Sec.  40.3, a 
product is deemed approved by the Commission 45 days after receipt 
by the Commission or at the conclusion of an extended review period. 
A DCM or SEF may list the submitted product at that time. The 
Commission notes, however, the mere listing or trading of a swap on 
a DCM or SEF would not mean that the swap is available to trade 
within the meaning of Section 2(h)(8) of the CEA. The Commission 
further notes that a DCM or SEF must submit an available to trade 
filing at the same time or after submitting a filing under Sections 
40.2 or 40.3.
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    Specifically, under this proposal, a DCM or SEF would be required 
to submit its determination that a swap is available to trade under 
Sec.  40.5 or Sec.  40.6 of the Commission's regulations. Under Sec.  
40.5, a registered entity may request Commission approval of a new rule 
prior to its implementation.\28\ Section 40.5(a) requires, among other 
things,\29\ that a registered entity that requests Commission prior 
approval provide an explanation and analysis of that

[[Page 77731]]

proposed rule and its compliance with applicable provisions of the CEA, 
including core principles, and the Commission's regulations 
thereunder.\30\ This explanation and analysis would detail the manner 
in which the SEF or DCM considered the factors under proposed 
Sec. Sec.  37.10(b) or 38.12(b). Sections 40.5(c) and (d) provide the 
Commission a 45-day review period, which may be extended for an 
additional 45 days in specified circumstances.\31\ At any time during 
its review, the Commission may notify the registered entity that it 
will not, or is unable to, approve a rule because it is inconsistent or 
appears to be inconsistent with the CEA or the Commission's 
regulations.\32\
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    \28\ Section 40.5(a).
    \29\ E.g., Section 40.5(a)(6) requires a registered entity to 
post notice and a copy of the rule submission on its Web site, 
Section 40.5(a)(7) requires a registered entity to provide 
additional information which may be beneficial to the Commission in 
analyzing a new rule, and Section 40.5(a)(8) requires a registered 
entity to provide in the rule submission a brief explanation of any 
substantive opposing views.
    \30\ Section 40.5(a)(5). This provision also requires, if 
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.
    \31\ Sections 40.5(c) and (d). In determining whether to extend 
the review period, the Commission will consider whether the proposed 
rule raises novel or complex issues, the submission is incomplete, 
or the requestor does not respond completely to Commission questions 
in a timely manner. Section 40.5(d)(1).
    \32\ Section 40.5(e).
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    Similar to the approval procedures under Sec.  40.5, if a 
registered entity chooses to submit its available to trade 
determination under the certification procedures of Sec.  40.6, then 
the registered entity must provide to the Commission an explanation and 
analysis of the proposed rule and a certification that the rule 
complies with the CEA and the Commission's regulations thereunder.\33\ 
As in Sec.  40.5, the explanation and analysis would detail the manner 
in which the SEF or DCM considered the factors under proposed 
Sec. Sec.  37.10(b) or 38.12(b). Sections 40.6(b) and (c) provide the 
Commission 10 business days to review a rule before it is deemed 
certified and can be made effective, unless the Commission issues a 
stay of the certification for additional 90 days from the date of 
notification to the registered entity.\34\ If the Commission issues a 
stay of certification, then it must provide a 30-day public comment 
period for the proposed rule.\35\ During a stay period, the Commission 
may notify the registered entity that it objects to the proposed 
certification on the grounds that the proposed rule is inconsistent 
with the CEA or the Commission's regulations.\36\
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    \33\ Section 40.6(a). Section 40.6(a)(2) requires a registered 
entity to post notice and a copy of the rule submission on its Web 
site, Section 40.6(a)(7)(vi) requires a registered entity to provide 
in the rule submission a brief explanation of any substantive 
opposing views, and Section 40.6(a)(8) requires a registered entity 
to provide, if requested by Commission staff, additional evidence, 
information, or data that may be beneficial to the Commission in 
conducting due diligence of the filing.
    \34\ Sections 40.6(b) and (c). In determining whether to stay a 
certification, the Commission will consider whether the rule 
presents novel or complex issues, is accompanied by inadequate 
explanation, or is potentially inconsistent with the CEA. Section 
40.6(c)(1).
    \35\ Section 40.6(c)(2).
    \36\ Section 40.6(c)(3).
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    Under this Notice, if the Commission either approves a DCM's or 
SEF's rule providing that a swap is available to trade or permits a 
certified available to trade filing to become effective, then the swap 
involved would be deemed available to trade.\37\ If that swap also is 
subject to the clearing requirement, pursuant to CEA Section 2(h)(8), 
the swap must be executed pursuant to the rules of a DCM or SEF.\38\ 
Under this Notice, until such time, the swap is not subject to the CEA 
Section 2(h)(8) trade execution requirement.
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    \37\ See proposed Sec. Sec.  37.10(c) and 38.12(c). Under these 
sections, if a SEF or DCM makes a swap available to trade, all other 
SEFs and DCMs listing or offering for trading such swap and/or any 
economically equivalent swap, shall make those swaps available to 
trade for purposes of the trade execution requirement. The 
Commission notes that if a DCM or SEF makes a swap available to 
trade, these proposed provisions would not require other DCMs and 
SEFs to list or offer that swap, or an economically equivalent swap, 
for trading.
    \38\ See Swap Transaction Compliance and Implementation 
Schedule: Clearing and Trade Execution Requirements under Section 
2(h) of the CEA, 76 FR 58186 (Sep. 20, 2011), for the time frame in 
which a swap would be subject to the trade execution requirement. 
The Commission notes that the available to trade determination may 
precede the clearing requirement and vice versa; however, the trade 
execution requirement would not be in effect until the clearing 
requirement takes effect.
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    The Commission views the proposed procedure for DCMs and SEFs to 
make a swap available to trade as a balanced approach whereby a DCM or 
SEF--the facilities that may be most familiar with the trading of these 
swaps--has responsibility to make a swap available to trade, while the 
Commission has a role in reviewing such determination. Additionally, 
this proposed procedure is responsive to comments that the Commission 
should establish a process for DCMs and SEFs to make a swap available 
to trade, with Commission involvement in the determination. The 
Commission notes that as it gains experience with its oversight of 
swaps markets, it may decide, in its discretion, to determine that a 
swap is available to trade.
2. Factors To Consider To Make a Swap Available To Trade--Proposed 
Sec. Sec.  37.10(b) and 38.12(b)
a. Comments Regarding Factors To Consider
    Many commenters to the SEF NPRM supported a liquidity requirement 
for a determination that a swap is available to trade.\39\ One 
commenter, for example, stated that ``Congress intended for the 
Commission[] to establish a higher liquidity threshold for mandatory 
execution than for mandatory clearing, and that a swap is not 
`available to trade' merely because it is listed on a DCM/exchange or 
SEF.'' \40\ However, other commenters said that a minimum level of 
liquidity should not be required for a determination that a swap is 
available to trade.\41\ One commenter noted that a determination that a 
swap is available to trade should apply to each swap that is subject to 
the clearing requirement and that the determination should not require 
a minimum level of trading activity.\42\
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    \39\ E.g., Letter from Edward Rosen, Cleary Gottlieb Steen & 
Hamilton LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 
18; Letter from Kevin Gould, Markit, dated Mar. 8, 2011 at 2; Letter 
from Jeremy Barnum and Don Thompson, J.P. Morgan, dated Mar. 8, 2011 
at 9; Letter from Robert Pickel and Kenneth Bentsen, International 
Swaps and Derivatives Association and Securities Industry and 
Financial Markets Association, dated Mar. 8, 2011 at 8; Letter from 
R. Martin Chavez, Goldman, Sachs & Co., dated Mar. 8, 2011 at 3; 
Letter from Craig Donohue, CME Group Inc., dated Mar. 8, 2011 at 9.
    \40\ Letter from Edward Rosen, Cleary Gottlieb Steen & Hamilton 
LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 18.
    \41\ Letter from Dennis Kelleher, Better Markets, Inc., dated 
Mar. 8, 2011 at 10-11; Letter from Wholesale Market Brokers' 
Association, Americas, dated Mar. 8, 2011 at 17-18; Letter from Ian 
K. Shepherd, Alice Corporation, dated May 31, 2011 at 7.
    \42\ Letter from Dennis Kelleher, Better Markets, Inc., dated 
Mar. 8, 2011 at 10-11.
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    Many commenters also recommended specific liquidity factors that a 
SEF should consider in determining whether a swap is available to trade 
such as trade frequency and average transaction size, bid/offer 
spreads, number and types of market participants, and volume.\43\ Some 
commenters further suggested that the Commission set mandatory 
objective and transparent liquidity factors based upon an empirical 
analysis of swap

[[Page 77732]]

trading data.\44\ One commenter stated that the Commission should 
undertake empirical analyses of swap market liquidity to set specific 
quantitative thresholds for metrics, such as minimum average daily 
trading volume and number of transactions.\45\ Another commenter 
asserted that objective measures for determining when a swap is 
available to trade will provide for a consistent and meaningful 
assessment.\46\
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    \43\ E.g., Letter from Kevin Gould, Markit, dated Mar. 8, 2011 
at 2; Letter from Craig Donohue, CME Group Inc., dated Mar. 8, 2011 
at 10; Letter from John Gidman, Association of Institutional 
Investors, dated Jun. 10, 2011 at 3; Letter from Mark Vonderheide 
and Robert Creamer, Geneva Energy Markets, LLC, dated Jul. 29, 2011 
at 2; Meeting between Commission staff and Evolution Markets and 
Ogilvy Government Relations, dated Jan. 19, 2011.
    \44\ E.g., Letter from Edward Rosen, Cleary Gottlieb Steen & 
Hamilton LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 
18; Letter from Ben Macdonald, Bloomberg L.P., dated Jun. 3, 2011 at 
3; Letter from Stuart Kaswell, Managed Funds Association, dated Mar. 
8, 2011 at 3-4; Letter from American Benefits Council and Committee 
on Investment of Employee Benefit Assets, dated Mar. 8, 2011 at 4-5.
    \45\ Letter from Edward Rosen, Cleary Gottlieb Steen & Hamilton 
LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 18.
    \46\ Letter from Ben Macdonald, Bloomberg L.P., dated Jun. 3, 
2011 at 3.
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b. Factors To Consider--Proposed Sec. Sec.  37.10(b) and 38.12(b)
    Proposed Sec. Sec.  37.10(b) and 38.12(b) state that, to make a 
swap available to trade, for purposes of Section 2(h)(8) of the CEA, a 
SEF or DCM shall consider, as appropriate, the following factors with 
respect to such swap: (1) Whether there are ready and willing buyers 
and sellers; (2) The frequency or size of transactions on SEFs, DCMs, 
or of bilateral transactions; (3) The trading volume on SEFs, DCMs, or 
of bilateral transactions; (4) The number and types of market 
participants; (5) The bid/ask spread; (6) The usual number of resting 
firm or indicative bids and offers; (7) Whether a SEF's trading system 
or platform or a DCM's trading facility will support trading in the 
swap; or (8) Any other factor that the SEF or DCM may consider 
relevant.\47\ No single factor would be dispositive, as the DCM or SEF 
may consider any one factor or several factors to make a swap available 
to trade. The Commission notes that, as the swaps markets evolve and 
the Commission gains experience with overseeing these markets, it may 
consider setting objective factors based upon an empirical analysis of 
swap trading data in a future rulemaking.
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    \47\ As noted above, the mere listing or trading of a swap on a 
DCM or SEF does not mean that the swap is available to trade.
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3. Economically Equivalent Swap--Proposed Sec. Sec.  37.10(c) and 
38.12(c)
a. Comments Regarding Economically Equivalent Swaps
    In the SEF NPRM, the Commission proposed that all SEFs are required 
to treat a swap as ``made available for trading,'' if at least one SEF 
has made the same or an economically equivalent swap available for 
trading.\48\ Many commenters to the SEF NPRM requested that the 
Commission clarify the term economically equivalent swap and some 
commenters provided recommendations as to how it should be defined.\49\ 
Several commenters recommended a stringent fungibility test to 
determine whether a particular swap is economically equivalent to one 
made available to trade on another SEF, such that a derivatives 
clearing organization (``DCO'') would recognize the swaps as mutually 
off-settable without residual market risk.\50\ Another commenter 
suggested that only identical swaps should be made available to 
trade.\51\ Furthermore, one commenter cautioned that without a 
stringent fungibility test there may be unintended consequences, 
including unduly concentrating trading volume on a single SEF or 
preventing participants from entering into customized swaps in the same 
general swap category.\52\
---------------------------------------------------------------------------

    \48\ 76 FR 1241.
    \49\ Letter from Edward Rosen, Cleary Gottlieb Steen & Hamilton 
LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 19; Letter 
from Robert Pickel and Kenneth Bentsen, International Swaps and 
Derivatives Association and Securities Industry and Financial 
Markets Association, dated Mar. 8, 2011 at 9; Letter from Wholesale 
Market Brokers' Association, Americas, dated Mar. 8, 2011 at 18; 
Letter from Richard Whiting, Financial Services Roundtable, dated 
Mar. 8, 2011 at 7; Letter from Patrick Durkin, Barclays Capital, 
dated Mar. 8, 2011 at 11.
    \50\ Letter from Edward Rosen, Cleary Gottlieb Steen & Hamilton 
LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 19; Letter 
from Robert Pickel and Kenneth Bentsen, International Swaps and 
Derivatives Association and Securities Industry and Financial 
Markets Association, dated Mar. 8, 2011 at 9; Letter from Patrick 
Durkin, Barclays Capital, dated Mar. 8, 2011 at 11.
    \51\ Letter from Richard Whiting, Financial Services Roundtable, 
dated Mar. 8, 2011 at 7.
    \52\ Letter from Edward Rosen, Cleary Gottlieb Steen & Hamilton 
LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 19.
---------------------------------------------------------------------------

b. Economically Equivalent Swap--Proposed Sec. Sec.  37.10(c) and 
38.12(c)
    Under proposed Sec. Sec.  37.10(c)(1) and 38.12(c)(1), upon a 
determination that a swap is available to trade, all other SEFs and 
DCMs listing or offering for trading such swap and/or any economically 
equivalent swap, must make those swaps available to trade for purposes 
of the trade execution requirement set forth in Section 2(h)(8) of the 
CEA. The Commission notes that if a DCM or SEF makes a swap available 
to trade, these proposed provisions would not require other DCMs and 
SEFs to list or offer that swap, or an economically equivalent swap, 
for trading.
    In this Notice, the Commission is proposing a definition for the 
term ``economically equivalent swap.'' Proposed Sec. Sec.  37.10(c)(2) 
and 38.12(c)(2) define the term ``economically equivalent swap'' as a 
swap that the SEF or DCM determines to be economically equivalent with 
another swap after consideration of each swap's material pricing terms.
4. Annual Review of Available To Trade Determinations--Proposed 
Sec. Sec.  37.10(d) and 38.12(d)
a. Comments Regarding Annual Review
    Several commenters to the SEF NPRM supported a Commission review 
requirement for swaps that have been determined to be available to 
trade.\53\ One commenter asserted that SEF available to trade 
determinations should be revisited and reconsidered because the 
liquidity of swaps can experience significant changes over time and can 
dry up completely in some circumstances.\54\ Similarly, another 
commenter stated that SEFs should revisit available to trade 
determinations on a quarterly basis because the level of liquidity for 
a swap can vary significantly over time.\55\
---------------------------------------------------------------------------

    \53\ E.g., Letter from Kevin Gould, Markit, dated Mar. 8, 2011 
at 2; Letter from Dexter Senft, Morgan Stanley, dated Mar. 2, 2011 
at 4; Letter from Stuart Kaswell, Managed Funds Association, dated 
Mar. 8, 2011 at 4; Letter from Edward Rosen, Cleary Gottlieb Steen & 
Hamilton LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 
18-19.
    \54\ Letter from Kevin Gould, Markit, dated Mar. 8, 2011 at 2.
    \55\ Letter from Edward Rosen, Cleary Gottlieb Steen & Hamilton 
LLP, on behalf of certain dealers, dated Apr. 5, 2011 at 18-19.
---------------------------------------------------------------------------

b. Annual Review--Proposed Sec. Sec.  37.10(d) and 38.12(d)
    The Commission is proposing to retain the annual review and 
assessment requirement set forth in the SEF NPRM and also require that 
DCMs perform an annual review and assessment. Regular reviews help 
ensure that DCMs and SEFs routinely evaluate whether swaps previously 
determined to be available to trade should continue to be treated in 
that manner. Thus, in conducting this review and assessment, the 
proposal would require a SEF or DCM to consider the factors in 
Sec. Sec.  37.10(b) or 38.12(b), respectively. The Commission would 
also encourage DCMs and SEFs, in conducting this review and assessment, 
to evaluate their swaps that have not been determined to be available 
to trade and to submit them to the Commission as appropriate. Upon 
completion of the annual review, a DCM or SEF would be required to 
provide electronically to the Commission a report of such review and 
assessment, including any supporting information or data, no later than 
30 days after its fiscal year end.

[[Page 77733]]

5. Notice to the Public of Available To Trade Determinations
a. Comments Regarding Notice to the Public
    Some commenters to the SEF NPRM requested that the Commission 
provide notice to market participants that a swap is available to 
trade.\56\ One commenter, for example, suggested that the Commission 
provide public notice that a swap will be deemed available to trade and 
on which platform(s).\57\ Another commenter stated that ``[w]ithout a 
notification system, market participants may not know to cease over-
the-counter transactions in these swaps, stifling compliance with 
applicable rules.'' \58\
---------------------------------------------------------------------------

    \56\ E.g., Letter from Dexter Senft, Morgan Stanley, dated Mar. 
2, 2011 at 4; Letter from Timothy Cameron, Securities Industry and 
Financial Markets Association Asset Management Group, dated Mar. 8, 
2011 at 12; Letter from Wayne Pestone, FX Alliance Inc., dated Nov. 
4, 2011 at 9-10.
    \57\ Letter from Dexter Senft, Morgan Stanley, dated Mar. 2, 
2011 at 4.
    \58\ Letter from Timothy Cameron, Securities Industry and 
Financial Markets Association Asset Management Group, dated Mar. 8, 
2011 at 12.
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b. Public Notice
    In consideration of the comments received, the Commission notes 
that there is a process for notifying the public that a DCM or SEF has 
made a swap available to trade. Sections 40.5 and 40.6 of the 
Commission's regulations require DCMs and SEFs to post a notice and a 
copy of rule submissions on their Web site concurrent with the filing 
of the submissions with the Commission.\59\ The Commission, consistent 
with current practice, will also post DCM and SEF rule submission 
filings on its Web site. The Commission is currently assessing the 
feasibility of posting notices of all swaps that are determined to be 
available to trade on an easily accessible page on its Web site.
---------------------------------------------------------------------------

    \59\ See Sections 40.5(a)(6) and 40.6(a)(2).
---------------------------------------------------------------------------

6. Effective Date of Available To Trade Determinations
a. Comments Regarding Effective Date
    Commenters to the SEF NPRM requested a waiting period before the 
effective date of the available to trade determinations or before 
imposing the trade execution requirement under CEA Section 2(h)(8) so 
that other SEFs have adequate time to list or offer the swap or any 
economically equivalent swap for trading.\60\ These commenters stated 
that a reasonable waiting period will promote competition among SEFs by 
reducing a SEF's first-mover advantage.\61\ For example, the waiting 
period would allow other SEFs additional time to build the required 
connectivity.\62\ A waiting period would also allow market participants 
the opportunity to make any related technological and trading strategy 
amendments.\63\
---------------------------------------------------------------------------

    \60\ Letter from Kevin Budd and Todd Lurie, MetLife, dated Mar. 
8, 2011 at 4; Letter from Dexter Senft, Morgan Stanley, dated Mar. 
2, 2011 at 4; Letter from Stuart Kaswell, Managed Funds Association, 
dated Mar. 8, 2011 at 3. Some of these commenters requested that the 
Commission establish a waiting period after the available to trade 
determination and before the trade execution requirement becomes 
effective.
    \61\ Letter from Kevin Budd and Todd Lurie, MetLife, dated Mar. 
8, 2011 at 4; Letter from Dexter Senft, Morgan Stanley, dated Mar. 
2, 2011 at 4; Letter from Stuart Kaswell, Managed Funds Association, 
dated Mar. 8, 2011 at 3.
    \62\ Letter from Stuart Kaswell, Managed Funds Association, 
dated Mar. 8, 2011 at 3.
    \63\ Letter from Kevin Budd and Todd Lurie, MetLife, dated Mar. 
8, 2011 at 4.
---------------------------------------------------------------------------

b. Effective Date
    In response to commenters who requested a waiting period before the 
effective date of a determination that a swap is available to trade or 
before imposing the trade execution requirement under CEA Section 
2(h)(8), the Commission has issued a notice of proposed rulemaking that 
proposes a schedule to phase in compliance with the trade execution 
requirement under CEA Section 2(h)(8).\64\ Under that proposed 
rulemaking, a swap transaction shall be subject to the CEA Section 
2(h)(8) trade execution requirement upon the later of the following: 
(1) the applicable deadline established under the compliance schedule 
for the clearing requirement or (2) 30 days after the swap is first 
made available to trade on either a SEF or DCM.\65\
---------------------------------------------------------------------------

    \64\ See Swap Transaction Compliance and Implementation 
Schedule: Clearing and Trade Execution Requirements under Section 
2(h) of the CEA, 76 FR 58186 (Sep. 20, 2011). Comments to this 
notice of proposed rulemaking were due by November 4, 2011.
    \65\ Id.
---------------------------------------------------------------------------

C. Comment Requested

    The Commission requests and will consider comments only on proposed 
regulations Sec. Sec.  37.10 and 38.12. The Commission may consider 
alternatives to the proposed regulations and is requesting comment on 
the following questions:
     Should the Commission allow a SEF or DCM to submit its 
available to trade determination with respect to a group, category, 
type, or class of swaps based on the factors in Sec. Sec.  37.10(b) or 
38.12(b)? How should the Commission define group, category, type, or 
class of swaps?
     Is the Commission's proposed approach in Sec. Sec.  
37.10(b) and 38.12(b) regarding the determination that a swap is 
available to trade appropriate? If not, what approach is appropriate 
and why? Should a SEF or DCM consider total open interest and notional 
outstanding for similar tenors in Sec. Sec.  37.10(b) and 38.12(b)?
     In evaluating the factors under proposed Sec. Sec.  
37.10(b) and 38.12(b), should the Commission allow a SEF or DCM to 
consider the same swap or an economically equivalent swap on another 
SEF or DCM? What are the advantages and disadvantages of such an 
approach? Should a SEF or DCM consider the amount of activity in the 
same swap or an economically equivalent swap available primarily or 
solely in bilateral transactions?
     Should the Commission allow a SEF or DCM to submit an 
available to trade determination under Sec. Sec.  37.10(a) or 38.12(a), 
if such SEF or DCM does not itself list the subject swap for trading? 
If so, in evaluating the factors under Sec. Sec.  37.10(b) or 38.12(b), 
should the Commission allow the SEF or DCM to consider the same swap or 
an economically equivalent swap on another SEF or DCM? What are the 
advantages and disadvantages of such an approach? Should a SEF or DCM 
consider the amount of activity in the same swap or an economically 
equivalent swap available primarily or solely in bilateral 
transactions?
     When a DCM or SEF makes a swap available to trade, should 
all other DCMs and SEFs listing or offering for trading such swap and/
or any economically equivalent swap be required to make those swaps 
available to trade? What would be the economic impact on those DCMs and 
SEFs that would be required to make same swaps and/or economically 
equivalent swaps available to trade?
     If a SEF or DCM is required to make an economically 
equivalent swap available to trade, should that SEF or DCM be required 
to submit, under part 40 procedures, its reasoning for deciding that a 
certain swap is or is not economically equivalent to another swap? 
Should a SEF or DCM be required to consider the factors under 
Sec. Sec.  37.10(b) or 38.12(b)? Should a SEF or DCM be able to use the 
factors under Sec. Sec.  37.10(b) or 38.12(b) to submit to the 
Commission for consideration that an economically equivalent swap 
should not be subject to the requirement under Sec. Sec.  37.10(c)(1) 
or 38.12(c)(1)? Should a DCM or SEF provide the Commission notice that 
an economically equivalent swap has been made available to trade? If 
so, should the Commission provide notice to the

[[Page 77734]]

public? If so, how? How would market participants conducting bilateral 
transactions know that an economically equivalent swap has been made 
available to trade?
     Is the Commission's proposed definition of the term 
``economically equivalent swap'' appropriate? If not, how should the 
Commission revise the definition as applicable to proposed Sec. Sec.  
37.10 and 38.12 and why? Are there other factors that the Commission 
should consider when defining the term economically equivalent swap? 
Should the Commission require that DCMs and SEFs consider specific 
material pricing terms? If so, what terms and why? For instance, should 
DCMs and SEFs consider same tenor or same underlying instrument? Should 
the Commission or DCMs and SEFs make the determination of which swaps 
are economically equivalent?
     Is the Commission's proposal that DCMs and SEFs conduct 
reviews and assessments appropriate? If not, what is appropriate and 
why?
     Should the Commission specify a process whereby a swap 
that has been determined to be available to trade may be determined to 
no longer be available to trade? If so, should the Commission use the 
rule submission procedure under part 40 for this process and why? 
Please explain the details of this approach, including who would make 
the determination that a swap is no longer available to trade. Should 
such a determination apply to all DCMs and SEFs universally or should 
it only apply to the particular DCM or SEF that seeks to no longer make 
a swap available to trade? What are the advantages and disadvantages of 
such approach? If the Commission should not specify a process to no 
longer make a swap available to trade, please explain why.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') 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.\66\ 
The Commission previously determined that DCMs and SEFs are not ``small 
entities'' for purposes of the RFA.\67\ In determining that these 
registered entities are not ``small entities,'' the Commission reasoned 
that it designates a contract market or registers a SEF only if the 
entity meets a number of specific criteria, including the expenditure 
of sufficient resources to establish and maintain an adequate self-
regulatory program.\68\ Because DCMs and SEFs are required to 
demonstrate compliance with Core Principles, including principles 
concerning the maintenance or expenditure of financial resources, the 
Commission previously determined that SEFs, like DCMs, are not ``small 
entities'' for the purposes of the RFA.
---------------------------------------------------------------------------

    \66\ 5 U.S.C. 601 et seq.
    \67\ See 17 CFR part 40 Provisions Common to Registered 
Entities, 75 FR 67282 (Nov. 2, 2010); see also 47 FR 18618, 18619 
(Apr. 30, 1982) and 66 FR 45604, 45609 (Aug. 29, 2001).
    \68\ See, e.g., Core Principle 2 applicable to DCMs under 
Section 735 of the Dodd-Frank Act and Core Principle 2 applicable to 
SEFs under Section 733 of the Dodd-Frank Act.
---------------------------------------------------------------------------

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

B. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \69\ imposes certain 
requirements on federal agencies in connection with conducting or 
sponsoring any collection of information as defined by the PRA. 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. This proposed rulemaking will result in new collection of 
information requirements within the meaning of the PRA. The Commission 
therefore is submitting this proposal to OMB for review in accordance 
with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for the collection 
of information is ``Parts 37 and 38--Process for a Swap Execution 
Facility or Designated Contract Market to Make a Swap Available to 
Trade.'' The OMB has not yet assigned this collection a control number.
---------------------------------------------------------------------------

    \69\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    Many of the responses to this new collection of information are 
mandatory. The Commission protects 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 CEA 
strictly prohibits the Commission, unless specifically authorized by 
the CEA, 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.'' \70\ The 
Commission is also required to protect certain information contained in 
a government system of records according to the Privacy Act of 
1974.\71\
---------------------------------------------------------------------------

    \70\ 7 U.S.C. 12(a)(1).
    \71\ 5 U.S.C. 552a.
---------------------------------------------------------------------------

1. Information Provided by Reporting Entities/Persons
    The proposed regulations require SEFs and DCMs to collect and 
submit to the Commission information concerning available to trade 
determinations pursuant to Sec. Sec.  37.10 and 38.12. For instance, 
SEFs and DCMs must submit available to trade determinations to the 
Commission as rules under part 40 pursuant to proposed Sec. Sec.  
37.10(a) and 38.12(a). SEFs and DCMs must also submit annual reports to 
the Commission pursuant to proposed Sec. Sec.  37.10(d) and 38.12(d).
    The Commission has estimated the final information collection 
burdens on DCMs and SEFs below. These estimates account for the 
following: (1) The number of respondents; and (2) the average hours 
required to produce each response. The Commission estimates that 50 
registered entities will be required to file rule submissions and 
annual reports.
    SEFs and DCMs must submit available to trade determinations to the 
Commission as rules under part 40 pursuant to proposed Sec. Sec.  
37.10(a) and 38.12(a). The Commission previously estimated the hourly 
burdens for DCMs and SEFs to comply with part 40. While the Commission 
has no way of knowing the exact hourly burden upon a registered entity 
prior to implementation of the regulations governing that registered 
entity, the Commission estimates that the burden for a SEF or DCM under 
proposed Sec. Sec.  37.10(a) and 38.12(a) will be similar to the 
previously estimated hours of burden under part 40--2.00 hours. 
However, the Commission notes that DCMs and SEFs would have to review 
certain factors and data (if applicable) to make a swap available to 
trade so these submissions may take additional time. Therefore, the 
Commission estimates that the hourly burden for a SEF or DCM under 
proposed Sec. Sec.  37.10(a) and 38.12(a) will be as follows:
    Estimated number of respondents: 50.
    Estimated average hours per response: 8.00.
    The Commission recognizes that DCMs and SEFs may submit several 
rule submission filings per year. At this time, it is not feasible to 
estimate the number of rule submission filings per year, on average, 
per DCM or SEF as the number

[[Page 77735]]

of swap contracts that will be traded on a DCM or SEF and the number of 
those swaps that a DCM or SEF will determine to make available to trade 
is presently unknown.
    Proposed Sec. Sec.  37.10(d) and 38.12(d) require SEFs and DCMs to 
submit annual reports, including any supporting information and data, 
to the Commission of their review and assessment of the swaps they made 
available to trade. The Commission previously estimated the number of 
filings and the hourly burdens for submissions by each DCO regarding 
swaps that they plan to accept for clearing under Section 39.5.\72\ The 
Commission estimated that each DCO will submit to the Commission one 
filing annually for the swaps that they plan to accept for clearing. 
While the Commission has no way of knowing the exact hourly burden upon 
a registered entity prior to implementation of the regulations 
governing that registered entity, the Commission estimates that the 
burden for a SEF or DCM under proposed Sec. Sec.  37.10(d) and 38.12(d) 
will be similar to the previously estimated hours of burden under 
Section 39.5--40.00 hours. The Commission estimates the burden for SEFs 
and DCMs under proposed Sec. Sec.  37.10(d) and 38.12(d) as follows:
---------------------------------------------------------------------------

    \72\ See Process for Review of Swaps for Mandatory Clearing, 76 
FR 44464 (Jul. 26, 2011).
---------------------------------------------------------------------------

    Estimated number of respondents: 50.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 40.
    Aggregate annual reporting burden hours (for all respondents): 
2,000.
    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 information proposed to be 
collected; and (4) minimize the burden of the proposed collections of 
information on DCMs and SEFs, including through the use of appropriate 
automated, electronic, mechanical, or other technological information 
collection techniques, e.g., permitting electronic submission of 
responses.
    The public and other federal agencies may submit comments directly 
to the Office of Information and Regulatory Affairs, OMB, by fax at 
(202) 395-6566 or by email 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 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. 
Therefore, a comment to OMB is best assured of receiving full 
consideration if OMB (and the Commission) receives it within 30 days of 
publication of this Notice. Nothing in the foregoing affects the 
deadline enumerated above for public comment to the Commission on the 
proposed regulations.

C. Consideration of Costs and Benefits

    In this section, the Commission addresses the costs and benefits of 
its proposed regulations and also considers the five broad areas of 
market and public concern under Section 15(a) of the CEA\73\ within the 
context of the proposed regulations.
---------------------------------------------------------------------------

    \73\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    In this Notice, the Commission considers the costs and benefits 
that result from the regulations proposed herein; these costs and 
benefits are in addition to the costs and benefits associated with the 
SEF NPRM as previously proposed. In other words, the Commission is only 
considering the discrete costs and benefits of the regulations 
specifically proposed in this Notice. To this end, the Commission 
solicits comments only on the costs and benefits of the proposed 
requirements herein; only comments pertaining to these cost and benefit 
issues will be considered as part of this Notice.
1. Costs of Proposed Regulations
    The Commission anticipates that the proposed regulations will 
result in some additional operational and monitoring costs to DCMs and 
SEFs. The Commission requests commenters provide quantitative estimates 
of the additional costs and benefits to DCMs and SEFs from this Notice.
    Under these proposed regulations, DCMs and SEFs may incur 
additional costs in undertaking evaluations of whether a swap is 
available to trade and submitting to the Commission their 
determinations with respect to such swaps as rule submission filings 
pursuant to the procedures under part 40 of the Commission's 
regulations. Proposed Sec. Sec.  37.10(b) and 38.12(b) require SEFs and 
DCMs to consider certain factors to make a swap available to trade. 
Proposed Sec. Sec.  37.10(a) and 38.12(a) require SEFs and DCMs to 
submit to the Commission their determinations with respect to those 
swaps that they make available to trade as a rule pursuant to the 
procedures under part 40 of the Commission's regulations.
    The above-described assessment and submission may be performed 
internally by one compliance personnel of the DCM or SEF. The 
Commission estimates that it would take the compliance personnel 
approximately eight hours, on average, to assess and submit the 
available to trade determination per rule submission filing. The 
compliance personnel would have to, for example, consider factors to 
make a swap available to trade and write a cover submission to the 
Commission, including a description of the swap or swaps that are 
covered and an explanation and analysis of the available to trade 
determination. The Commission notes that this is a general estimate and 
that it is difficult to determine with reasonable precision the number 
of hours involved given the novelty of this available to trade process. 
The Commission estimates the cost per hour for one compliance personnel 
to be $43.25 per hour.\74\ Therefore, the Commission estimates that it 
would cost each DCM and SEF an additional $346.00 per rule submission 
filing to comply with the proposed requirements.
---------------------------------------------------------------------------

    \74\ See Report on Management & Professional Earnings in the 
Securities Industry 2010, Securities Industry and Financial Markets 
Association at 4 (Sep. 2010). The report lists the average total 
annual compensation for a compliance specialist (intermediate) as 
$59,878. The Commission estimated the personnel's hourly cost by 
assuming an 1,800 hour work year and by multiplying by 1.3 to 
account for overhead and other benefits.
---------------------------------------------------------------------------

    Certain additional factors may affect the cost estimates noted 
above. For example, swaps with complex terms and conditions or requests 
for

[[Page 77736]]

additional information or questions from Commission staff regarding the 
available to trade determination may result in higher costs.
    The Commission also recognizes that DCMs and SEFs may submit 
several rule submission filings per year. At this time, it is not 
feasible to estimate the number of rule submission filings per year per 
DCM or SEF as the number of swap contracts that will be traded on a DCM 
or SEF and the number of those swaps that a DCM or SEF will determine 
to make available to trade is presently unknown.
    Under proposed Sec. Sec.  37.10(c) or 38.12(c), if a SEF or DCM 
makes a swap available to trade, all SEFs and DCMs listing or offering 
such swap and/or any economically equivalent swap, shall make those 
swaps available to trade for purposes of Section 2(h)(8) of the CEA. 
Further, such contracts may not be traded on a bilateral basis. In 
order to comply with this requirement, DCMs, SEFs, and market 
participants would have to monitor and identify those contracts that 
are either the same or economically equivalent to that swap made 
available to trade. At this time, it is not feasible to estimate the 
number of hours involved given the novelty of the available to trade 
process.
    The Commission seeks comment on all aspects of the cost estimates 
provided above. Specifically, the Commission seeks comment on the 
period of time, the number and type of personnel, and the cost 
estimates for DCMs and SEFs to comply with the assessment process as 
described above. The Commission also seeks comment on the number of 
hours per year, on average, that a SEF or DCM will spend monitoring and 
evaluating swap contracts in order to comply with proposed Sec. Sec.  
37.10(c) and 38.12(c).
    Proposed Sec.  38.12(d) would require DCMs to incur additional 
costs to conduct an annual review and assessment of each swap it has 
made available to trade and submit its review and assessment to the 
Commission.\75\ This assessment may be performed internally by one 
compliance personnel of the DCM. The Commission estimates that it would 
take the compliance personnel approximately 40 hours, on average, to 
conduct this review and assessment. The Commission notes that this is a 
general estimate and that it is difficult to determine with reasonable 
precision the number of hours involved given the novelty of this 
process. As noted above, the Commission estimates the cost per hour for 
one compliance personnel to be $43.25 per hour. Therefore, the 
Commission estimates that it would cost each DCM an additional 
$1,730.00 per review to comply with the proposed requirements.
---------------------------------------------------------------------------

    \75\ The SEF NPRM imposed a review and assessment process for 
SEFs.
---------------------------------------------------------------------------

2. Benefits of Proposed Regulations
    The proposed regulations are expected to provide needed certainty 
for DCMs, SEFs, and market participants for the available to trade 
process. The proposed regulations, for example, set forth the procedure 
to make a swap available to trade, the factors to consider in making a 
swap available to trade, and visibility into which swaps are available 
to trade. Additionally, the proposed regulations are expected to 
promote the trading of swaps on DCMs and SEFs and promote competition 
among these entities. DCMs and SEFs, who may be most familiar with the 
trading of swaps, would make swaps available to trade based on factors 
specified by the Commission. DCMs and SEFs have discretion to consider 
any one factor or several factors to make a swap available to trade. 
These aspects of the proposed regulations are intended to facilitate 
DCMs and SEFs to make swaps available to trade, which is expected to 
promote the trading of swaps on DCMs and SEFs and competition among 
these entities. Finally, the proposed regulations are expected to 
promote price discovery because those swaps that DCMs and SEFs make 
available to trade would effectively be subject to the trade execution 
requirement, which would require them to trade solely on DCMs and SEFs.
    The Commission seeks comment on all aspects of the benefits of its 
proposed regulations in this Notice.
3. Section 15(a) Discussion
    Section 15(a) of the CEA \76\ requires the Commission to consider 
the costs and benefits of its action before promulgating a regulation 
under the CEA. Section 15(a) of the CEA specifies that the costs and 
benefits shall be evaluated in light of five broad areas of market and 
public concern: (a) Protection of market participants and the public; 
(b) efficiency, competitiveness and financial integrity of futures 
markets; (c) price discovery; (d) sound risk management practices; and 
(e) other public interest considerations. The Commission may in its 
discretion give greater weight to any one of the five enumerated areas 
and could in its discretion determine that, notwithstanding its costs, 
a particular regulation is necessary or appropriate to protect the 
public interest or to effectuate any of the provisions or accomplish 
any of the purposes of the CEA.\77\
---------------------------------------------------------------------------

    \76\ 7 U.S.C. 19(a).
    \77\ 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).
---------------------------------------------------------------------------

a. Protection of Market Participants and the Public
    The proposed regulations are intended to provide certainty for 
DCMs, SEFs, and market participants for the available to trade process. 
Under the proposed regulations, a SEF or DCM must consider certain 
factors specified by the Commission under Sections 37.10(b) or 
38.12(b), respectively, to make a swap available to trade. A DCM or SEF 
must also submit available to trade determinations to the Commission, 
either for approval or under certification procedures, pursuant to the 
rule filing procedures of part 40 of the Commission's regulations. Part 
40 also requires DCMs and SEFs to post a notice and a copy of rule 
submissions on their Web site concurrent with the filing of the 
submissions with the Commission. The Commission, consistent with 
current practice, will also post DCM and SEF rule submission filings on 
its Web site. Therefore, under the proposed regulations, DCMs, SEFs, 
and market participants would know the factors to consider in making a 
swap available to trade, the procedure to make a swap available to 
trade, and the swaps that are available to trade, which provides 
certainty to the available to trade process. This certainty also 
promotes the protection of market participants by ensuring that there 
is transparency in the available to trade process.
    The proposed regulations are also expected to promote the 
protection of market participants and the public by providing for 
Commission review and oversight and public participation. Under the 
proposed regulations, the Commission would either approve or review the 
DCM's or SEF's available to trade determination. To facilitate this 
approval or review, the proposed regulations require DCMs and SEFs to 
provide the Commission with a brief explanation of any substantive 
opposing views in rule filings and, if the Commission extends the rule 
review period under the self-certification procedure, then there will 
be a 30-day public comment period. These aspects of the proposed 
regulations are expected to provide appropriate oversight, and may 
increase the transparency, of DCM and SEF available to trade

[[Page 77737]]

determinations. This oversight and transparency is expected to increase 
the likelihood that all important issues will be identified and weighed 
by the Commission, which may protect market participants and the 
public.
b. Efficiency, Competitiveness, and Financial Integrity of the Markets
    The proposed regulations are expected to promote the trading of 
swaps on DCMs and SEFs and promote competition among these entities. 
DCMs and SEFs, who may be most familiar with the trading of swaps, 
would make swaps available to trade based on factors specified by the 
Commission. DCMs and SEFs would have discretion to consider any one 
factor or several factors to make a swap available to trade. These 
aspects of the proposed regulations are intended to facilitate DCMs and 
SEFs to make swaps available to trade, which is expected to promote the 
trading of swaps on DCMs and SEFs and competition among these entities. 
Additionally, the requirement that DCMs and SEFs must make the same 
swap and any economically equivalent swap available to trade may 
increase the number of swaps trading on DCMs and SEFs, which is 
expected to promote the trading of swaps on DCMs and SEFs.
c. Price Discovery
    As mentioned above, the proposed regulations are expected to 
promote the trading of swaps on DCMs and SEFs. Those swaps that DCMs 
and SEFs make available to trade could be subject to the trade 
execution requirement. These swaps would be required to trade solely on 
DCMs and SEFs, which would promote price discovery.
d. Sound Risk Management Practices
    The proposed regulations are not expected to affect sound risk 
management practices.
e. Other Public Interest Considerations
    The proposed regulations are not expected to affect public interest 
considerations other than those identified above.
    The Commission specifically invites public comment on its 
application of the criteria contained in Section 15(a) of the CEA and 
further invites interested parties to submit any data, quantitative or 
qualitative, that they may have concerning the costs and benefits of 
the proposed regulations.

List of Subjects

17 CFR Part 37

    Registered entities, Reporting and recordkeeping requirements, Swap 
execution facilities, Swaps.

17 CFR Part 38

    Designated contract markets, Registered entities, Reporting and 
recordkeeping requirements, Swaps.

    For the reasons stated in the preamble, the Commission proposes to 
amend 17 CFR parts 37 and 38 as follows:

PART 37--SWAP EXECUTION FACILITIES

    1. The authority citation for part 37 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3 and 12a, 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).

    2. The heading of part 37 is revised to read as set forth above.
    3. Add new Sec.  37.10 to read as follows:


Sec.  37.10  Process for a swap execution facility to make a swap 
available to trade.

    (a) Required submission. A swap execution facility that makes a 
swap available to trade in accordance with paragraph (b) of this 
section, shall submit to the Commission its determination with respect 
to such swap pursuant to the procedures under part 40 of this chapter.
    (b) Factors to consider. To make a swap available to trade, for 
purposes of Section 2(h)(8) of the Commodity Exchange Act, a swap 
execution facility shall consider, as appropriate, the following 
factors with respect to such swap:
    (1) Whether there are ready and willing buyers and sellers;
    (2) The frequency or size of transactions on swap execution 
facilities, designated contract markets, or of bilateral transactions;
    (3) The trading volume on swap execution facilities, designated 
contract markets, or of bilateral transactions;
    (4) The number and types of market participants;
    (5) The bid/ask spread;
    (6) The usual number of resting firm or indicative bids and offers;
    (7) Whether a swap execution facility's trading system or platform 
will support trading in the swap; or
    (8) Any other factor that the swap execution facility may consider 
relevant.
    (c) Economically equivalent swap. (1) Upon a determination that a 
swap is available to trade, all other swap execution facilities and 
designated contract markets listing or offering for trading such swap 
and/or any economically equivalent swap, shall make those swaps 
available to trade for purposes of Section 2(h)(8) of the Commodity 
Exchange Act.
    (2) For purposes of this section, the term ``economically 
equivalent swap'' means a swap that the swap execution facility or 
designated contract market determines to be economically equivalent 
with another swap after consideration of each swap's material pricing 
terms.
    (d) Annual review. (1) A swap execution facility shall conduct an 
annual review and assessment of each swap it has made available to 
trade to determine whether or not each swap should continue to be 
available to trade. The annual review shall be conducted at the swap 
execution facility's fiscal year end.
    (2) When conducting its review and assessment pursuant to paragraph 
(d)(1) of this section, a swap execution facility shall consider the 
factors specified in paragraph (b) of this section.
    (3) The swap execution facility shall provide electronically to the 
Commission a report of its review and assessment, including any 
supporting information or data, not more than 30 days after the swap 
execution facility's fiscal year end.

PART 38--DESIGNATED CONTRACT MARKETS

    4. The authority citation for part 38 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, 6f, 6g, 6i, 6j, 
6k, 6l, 6m, 6n, 7, 7a-2, 7b, 7b-1, 7b-3, 8, 9, 15, and 21, as 
amended by the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

    5. Add new Sec.  38.12 to read as follows:


Sec.  38.12  Process for a designated contract market to make a swap 
available to trade.

    (a) Required submission. A designated contract market that makes a 
swap available to trade in accordance with paragraph (b) of this 
section, shall submit to the Commission its determination with respect 
to such swap pursuant to the procedures under part 40 of this chapter.
    (b) Factors to consider. To make a swap available to trade, for 
purposes of Section 2(h)(8) of the Commodity Exchange Act, a designated 
contract market shall consider, as appropriate, the following factors 
with respect to such swap:
    (1) Whether there are ready and willing buyers and sellers;
    (2) The frequency or size of transactions on designated contract 
markets, swap execution facilities, or of bilateral transactions;
    (3) The trading volume on designated contract markets, swap 
execution facilities, or of bilateral transactions;

[[Page 77738]]

    (4) The number and types of market participants;
    (5) The bid/ask spread;
    (6) The usual number of resting firm or indicative bids and offers;
    (7) Whether a designated contract market's trading facility will 
support trading in the swap; or
    (8) Any other factor that the designated contract market may 
consider relevant.
    (c) Economically equivalent swap. (1) Upon a determination that a 
swap is available to trade, all other designated contract markets and 
swap execution facilities listing or offering for trading such swap 
and/or any economically equivalent swap, shall make those swaps 
available to trade for purposes of Section 2(h)(8) of the Commodity 
Exchange Act.
    (2) For purposes of this section, the term ``economically 
equivalent swap'' means a swap that the designated contract market or 
swap execution facility determines to be economically equivalent with 
another swap after consideration of each swap's material pricing terms.
    (d) Annual review. (1) A designated contract market shall conduct 
an annual review and assessment of each swap it has made available to 
trade to determine whether or not each swap should continue to be 
available to trade. The annual review shall be conducted at the 
designated contract market's fiscal year end.
    (2) When conducting its review and assessment pursuant to paragraph 
(d)(1) of this section, a designated contract market shall consider the 
factors specified in paragraph (b) of this section.
    (3) The designated contract market shall provide electronically to 
the Commission a report of its review and assessment, including any 
supporting information or data, not more than 30 days after the 
designated contract market's fiscal year end.

    Issued in Washington, DC, on December 5, 2011, by the 
Commission.
David A. Stawick,
Secretary of the Commission.

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

Appendices to Process for a Designated Contract Market or Swap 
Execution Facility To Make a Swap Available To Trade--Commissioners 
Voting Summary and Statements of Commissioners

Appendix 1--Commissioners Voting Summary

    On this matter, Chairman Gensler and Commissioners Chilton, 
O'Malia and Wetjen voted in the affirmative; Commissioner Sommers 
voted in the negative.

Appendix 2--Statement of Chairman Gary Gensler

    I support the proposed rule to implement a process for 
designated contract markets (DCMs) and swap execution facilities 
(SEFs) to make a swap ``available to trade.'' The Dodd-Frank Wall 
Street Reform and Consumer Protection Act requires that swaps 
subject to the clearing requirement be traded on a DCM or SEF, 
unless no DCM or SEF makes the swap available to trade or the swap 
transaction is subject to the end-user exception. This proposal will 
bring transparency to the process for making a swap available to 
trade on a DCM or SEF. It also will provide appropriate oversight of 
the process through Commodity Futures Trading Commission review.

[FR Doc. 2011-31646 Filed 12-13-11; 8:45 am]
BILLING CODE 6351-01-P