[Federal Register Volume 77, Number 95 (Wednesday, May 16, 2012)]
[Proposed Rules]
[Pages 28819-28824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-11838]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter 1


Second Amendment to July 14, 2011 Order for Swap Regulation

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of Proposed Amendment.

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SUMMARY: On July 14, 2011, the Commodity Futures Trading Commission 
(``CFTC'' or the ``Commission'') issued a final order (``July 14 
Order'') that granted temporary exemptive relief from certain 
provisions of the Commodity Exchange Act (``CEA'') that otherwise would 
have taken effect on the general effective date of title VII of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-
Frank Act'')--July 16, 2011. On December 23, 2011, the Commission 
amended the July 14 Order to extend the potential latest expiration 
date of the July 14 Order from December 31, 2011 to July 16, 2012, and 
added provisions to account for the repeal and replacement (as of 
December 31, 2011) of part 35 of the Commission's regulations (the 
``First Amended July 14 Order''). In this Notice of Proposed Amendment 
(``Notice''), the Commission proposes to further modify the temporary 
exemptive relief provided in the First Amended July 14 Order by: (1) 
Removing references to the entities terms, including ``swap dealer,'' 
``major swap participant,'' and ``eligible contract participant'' in 
light of the final, joint CFTC-SEC rulemaking further defining them 
issued on April 18, 2012; (2) extending the potential latest expiration 
date of the July 14 Order to December 31, 2012, or, depending on the 
nature of the relief, such other compliance date as may be determined 
by the Commission; (3) allowing the clearing of agricultural swaps, as 
described herein; and (4) removing any reference to the exempt 
commercial market (``ECM'') and exempt board of trade (``EBOT'') 
grandfather relief previously issued by the Commission. Only comments 
pertaining to these proposed amendments to the First Amended July 14 
Order, as amended (the ``Second Amended July 14 Order''), will be 
considered.

DATES: Submit comments on or before May 30, 2012.

ADDRESSES: Comments may be submitted, referenced as ``Effective Date 
Amendments,'' 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 
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: Mark D. Higgins, Counsel, (202) 418-
5864, [email protected], Office of the General Counsel; David Van 
Wagner, Chief Counsel, (202) 418-5481, [email protected], Division of 
Market Oversight; Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW., Washington, DC 20581; or Anne Polaski, 
Special Counsel, (312) 596-0575, [email protected], Division of 
Clearing and Risk; Commodity Futures Trading Commission, 525 West 
Monroe, Chicago, Illinois 60661.

SUPPLEMENTARY INFORMATION: 
    On July 14, 2011, the Commission exercised its exemptive authority 
under CEA section 4(c) \1\ and its authority under section 712(f) of 
the Dodd-Frank Act by issuing a final order (the ``July 14 Order'') 
that addressed the potential that the final, joint CFTC-SEC rulemakings 
further defining the terms in sections 712(d) \2\ and 721(c) \3\ would 
not be in effect as of July 16, 2011 (i.e., the general effective date 
set forth in section 754 of the Dodd-Frank Act).\4\ In so doing, the 
Commission sought to address concerns that had been raised about the 
applicability of various regulatory requirements to certain agreements, 
contracts, and transactions after July 16, 2011, and thereby ensure 
that current practices would not be unduly disrupted during the 
transition to the new regulatory regime.\5\
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    \1\ 7 U.S.C. 6(c).
    \2\ Section 712(d)(1) provides: ``Notwithstanding any other 
provision of this title and subsections (b) and (c), the Commodity 
Futures Trading Commission and the Securities and Exchange 
Commission, in consultation with the Board of Governors [of the 
Federal Reserve System], shall further define the terms `swap', 
`security-based swap', `swap dealer', `security-based swap dealer', 
`major swap participant', `major security-based swap participant', 
and `security-based swap agreement' in section 1a(47)(A)(v) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)(A)(v)) and section 3(a)(78) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(78)).''
    \3\ Section 721(c) provides: ``To include transactions and 
entities that have been structured to evade this subtitle (or an 
amendment made by this subtitle), the Commodity Futures Trading 
Commission shall adopt a rule to further define the terms `swap', 
`swap dealer', `major swap participant', and `eligible contract 
participant'.''
    \4\ Effective Date for Swap Regulation, 76 FR 42508 (issued and 
made effective by the Commission on July 14, 2011; published in the 
Federal Register on July 19, 2011). Section 712(f) of the Dodd-Frank 
Act states that ``in order to prepare for the effective dates of the 
provisions of this Act,'' including the general effective date set 
forth in section 754, the Commission may ``exempt persons, 
agreements, contracts, or transactions from provisions of this Act, 
under the terms contained in this Act.'' Section 754 specifies that 
unless otherwise provided in Title VII, provisions requiring a 
rulemaking become effective ``not less than 60 days after 
publication of the final rule'' (but not before July 16, 2011).
    \5\ Concurrent with the July 14 Order, the Commission's Division 
of Clearing and Intermediary Oversight (which is now two divisions--
the Division of Clearing and Risk (``DCR'') and the Division of Swap 
Dealer and Intermediary Oversight (``DSIO'')) and the Division of 
Market Oversight (``DMO'') (together ``the Divisions'') identified 
certain provisions of the Dodd-Frank Act and CEA as amended that 
would take effect on July 16, 2011, but that may not be eligible for 
the exemptive relief provided by the Commission in its July 14 
Order--specifically, the amendments made to the CEA by Dodd-Frank 
Act sections 724(c), 725(a), and 731. On July 14, 2011, the 
Divisions issued Staff No-Action Relief addressing the application 
of these provisions after July 16, 2011. Available at: http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/11-04.pdf.

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[[Page 28820]]

    For those same reasons, on December 23, 2011, the Commission 
published in the Federal Register a final order, the First Amended July 
14 Order, amending the July 14 Order in two ways.\6\ First, the 
Commission extended the potential latest expiry date from December 31, 
2011 to July 16, 2012 or, depending on the nature of the relief, such 
other compliance date as may be determined by the Commission,\7\ to 
address the potential that, as of December 31, 2011, the aforementioned 
joint CFTC-Securities and Exchange Commission (``SEC'') joint 
rulemakings would not be effective. Second, the Commission included 
within the relief set forth in the First Amended July 14 Order any 
agreement, contract or transaction that fully meets the conditions in 
part 35 as in effect prior to December 31, 2011. This amendment 
addressed the fact that such transactions, which were not included 
within the scope of the original July 14 Order because the exemptive 
rules in part 35 covered them at that time, required temporary relief 
because part 35 would not be available as of December 31, 2011.\8\ In 
so doing, the Commission clarified that new part 35 and the exemptive 
relief issued in the First Amended July 14 Order, and any interaction 
of the two, do not operate to expand the pre-Dodd-Frank Act scope of 
transactions eligible to be transacted on either an ECM or EBOT to 
include transactions in agricultural commodities.
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    \6\ Amendment to July 14, 2011 Order for Swap Regulation, 76 FR 
80233 (Dec. 23, 2011).
    \7\ The Commission clarified that while the exemption set forth 
in the second part of the First Amended July 14 Order generally 
shall expire upon the earlier of July 16, 2012 or such other 
compliance date as may be determined by the Commission, it modified 
that alternative condition to provide that the exemption will not 
expire prior to July 16, 2012 in certain circumstances. 
Specifically, the Commission stated that no other compliance date 
will be determined (and thus, the exemption will remain in effect 
until July 16, 2012) for agreements, contracts, and transactions 
(and for persons offering, entering into, or rendering advice or 
rendering other services with respect to, such agreements, contracts 
or transactions) that: (1) Are executed on an ECM or EBOT that is 
operating under the terms of the Commission's Order Regarding the 
Treatment of Petitions Seeking Grandfather Relief for Exempt 
Commercial Markets and Exempt Boards of Trade, 75 FR 56513, Sept. 
16, 2010 (the ECM/EBOT Grandfather Order''), and that complies with 
all of the applicable conditions of the ECM/EBOT Grandfather Order; 
and (2) are cleared by a Commission-registered derivatives clearing 
organization (``DCO''). Concurrent with the First Amended July 14 
Order, the Divisions also issued a new staff no-action letter 
further addressing the applicability of the amendments made to the 
CEA by Dodd-Frank Act sections 724(c), 725(a), and 731. The 
Commission staff has informed the Commission that it is separately 
considering whether to issue a no-action letter in which the staff 
would state that it would not recommend that the Commission commence 
an enforcement action against markets or market participants for 
failure to comply with the above-referenced provisions over a period 
of time co-extensive with that set forth in the Second Amended July 
14 Order, as proposed herein.
    \8\ The Commission promulgated a rule pursuant to section 
723(c)(3) of the Dodd-Frank Act, and CEA sections 4(c) and 4c(b), 
that, effective December 31, 2011, repealed the existing part 35 
relief and replaced it with new Sec.  35.1 of the Commission's 
regulations. See Agricultural Swaps, 76 FR 49291 (Aug. 10, 2011). 
Rule 35.1 generally provides that ``agricultural swaps may be 
transacted subject to all provisions of the CEA, and any Commission 
rule, regulation or order thereunder, that is otherwise applicable 
to swaps. [It] also clarifies that by issuing a rule allowing 
agricultural swaps to transact subject to the laws and rules 
applicable to all other swaps, the Commission is allowing 
agricultural swaps to transact on [designated contract markets 
(``DCMs''), swap execution facilities (``SEFs'')], or otherwise to 
the same extent that all other swaps are allowed to trade on DCMs, 
SEFs, or otherwise.'' Id. at 49296.
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    In this Notice, the Commission is proposing to further amend the 
First Amended July 14 Order in the following four ways.\9\ First, in 
light of the final, joint CFTC-SEC rulemaking further defining the 
entities terms in sections 712(d), including ``swap dealer,'' ``major 
swap participant,'' and ``eligible contract participant,'' issued on 
April 18, 2012,\10\ the Commission is removing references to those 
terms in this proposed Second Amended July 14 Order. Second, the 
Commission is proposing to extend the latest potential expiry date from 
July 16, 2012 to December 31, 2012 or, depending on the nature of the 
relief, such other compliance date as may be determined by the 
Commission. The extension would ensure that market practices will not 
be unduly disrupted during the transition to the new regulatory regime.
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    \9\ As proposed, the Second Amended July 14 Order.
    \10\ CFTC-SEC, Further Definition of ``Swap Dealer'', 
``Security-Based Swap Dealer'', ``Major Swap Participant'', ``Major 
Security-Based Swap Participant'', and ``Eligible Contract 
Participant'' (issued Apr. 18, 2012) (to be codified at 17 CFR pt. 
1), available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister041812b.pdf.
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    Third, the Commission is proposing to further amend the First 
Amended July 14 Order to provide that agricultural swaps, whether 
entered into bilaterally, on a DCM, or a SEF, may be cleared in the 
same manner that any other swap may be cleared and without the need for 
the Commission to issue any further exemption under section 4(c) of the 
CEA.\11\ This amendment is intended to harmonize the First Amended July 
14 Order and the final rules amending part 35 of the Commission's 
regulations, to the extent that the July 14 Order, as amended, 
maintained the pre-Dodd-Frank part 35 prohibition against the clearing 
of agricultural swaps. While the proposed Second Amended July 14 Order 
would remove the clearing prohibition for agricultural swaps, this 
proposal would not permit agricultural swaps to be entered into or 
executed on an ECM or EBOT. The Commission notes that ECMs and EBOTs 
both operate some form of trading facility without any self-regulatory 
responsibilities. The Commission generally believes that any form of 
exchange trading in agricultural swaps should only be permitted in a 
self-regulated environment. In other words, unlike exempt and excluded 
commodities, which were allowed to be transacted on a trading facility 
(i.e., platform-traded) in an unregulated environment under the CEA 
prior to the Dodd-Frank Act and now during the transition to the Dodd-
Frank Act regulatory regime, agricultural swaps, which were not allowed 
to be platform-traded on an ECM or EBOT under the CEA prior to Dodd-
Frank Act, may not be platform-traded during the transition to the 
Dodd-Frank Act regulatory regime. Accordingly, under this proposed 
amendment and in conjunction with 17 CFR part 35, as effective on and 
after December 31, 2011, the Commission confirms that agricultural 
swaps may only be entered into or executed bilaterally, on a DCM,\12\ 
or on a SEF.\13\
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    \11\ 7 U.S.C. 6(c).
    \12\ See December 23 Order, 76 FR at 80236, note 11 (Dec. 23, 
2011).
    \13\ See 17 CFR 35.1(b).
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    In connection with swaps executed on a DCM (whether agricultural 
swaps or otherwise), the Commission clarifies that a DCM may list such 
swaps for trading under the DCM's rules related to futures contracts 
without exemptive relief.\14\ As required for futures, a DCM must 
submit such swaps to the Commission under either Sec.  40.2 (listing 
products for trading by certification) \15\ or Sec.  40.3 (voluntary 
submission of new products for Commission review and approval) \16\ of 
the Commission's regulations. Swaps that are traded on a DCM are 
required to be cleared by a DCO.\17\ In order for a DCO to be able to 
clear a swap listed for trading on a

[[Page 28821]]

DCM, the DCO must be eligible to clear such swap pursuant to Sec.  
39.5(a)(1) or (2),\18\ and must submit the swap to the Commission 
pursuant to Sec.  39.5(b).\19\
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    \14\ See 76 FR at 80236, note 22 (Dec. 23, 2011).
    \15\ 17 CFR 40.2.
    \16\ 17 CFR 40.3.
    \17\ See 7 U.S.C. 5(d)(11)(A).
    \18\ 17 CFR 39.5(a).
    \19\ 17 CFR 39.5(b).
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    Fourth, the Commission is proposing to further amend the First 
Amended July 14 Order to remove any reference to the ECM/EBOT 
Grandfather Order, which expires on July 16, 2012.\20\ After July 16, 
2012, ECMs and EBOTs, as well as markets that rely on pre-Dodd-Frank 
CEA section 2(d)(2) (``2(d)(2) Markets''), will only be able to rely on 
the Second Amended July 14 Order, as proposed herein. The relief for 
ECMs and EBOTs, as well as for 2(d)(2) Markets, granted under the 
proposed Second Amended July 14 Order shall expire upon the effective 
date of the DCM or SEF final rules, whichever is later, unless the ECM 
or EBOT, or 2(d)(2) Markets, files a DCM or SEF application on or 
before the effective date of the DCM or SEF final rules, in which case 
the relief shall remain in place during the pendency of the 
application.\21\ For these purposes, an application will be considered 
no longer pending upon the application being approved, provisionally 
approved,\22\ withdrawn, or denied.
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    \20\ The Commission issued the ECM/EBOT Grandfather Order 
pursuant to Sections 723(c) and 734(c) of the Dodd-Frank Act which 
authorized the Commission to permit ECMs and EBOTs respectively to 
continue to operate pursuant to CEA Sections 2(h)(3) and 5d for no 
more than one year after the general effective date of the Dodd-
Frank Act's amendments to the CEA.
    \21\ The Commission currently receives notice filings from ECMs 
and EBOTs, and thus has a general familiarity with the nature and 
number of markets operating pursuant to ECM and EBOT exemptive 
relief. See 17 CFR 36.2(b) and 17 CFR 36.3(a). In order for the 
Commission to gain a similar familiarity with 2(d)(2) Markets, and 
to facilitate their eventual transition to registered DCM or 
registered SEF status, the Commission strongly encourages 2(d)(2) 
Markets intending to operate pursuant to the exemptive relief 
proposed in this Second Amended Order to provide the Commission with 
notice of their operations (or intent to so operate) on or before 
July 16, 2012, or as reasonably soon thereafter as is practicable. 
Any such notice should be sent to the Commission's Division of 
Market Oversight, 1155 21st St. NW., Washington, DC 20581 (or 
electronically, to [email protected]), and should include the name 
and address of the 2(d)(2) Market, and the name and telephone number 
of a contact person. The Commission anticipates that such notice 
will assist the Commission in its preparation to review any 
subsequent application for registration, or provisional 
registration, as a SEF or DCM submitted by such 2(d)(2) Market. 
Notwithstanding the provision of such notice, the Commission notes 
that any subsequent SEF or DCM registration application by a 2(d)(2) 
Market will still undergo a separate, complete, and independent 
evaluation by the Commission, just as will every SEF and/or DCM 
application submitted by an ECM and/or EBOT.
    \22\ For these purposes, an application is ``provisionally 
approved'' on the date that such provisional approval becomes 
effective such that the ECM, EBOT, or 2(d)(2) Market may then rely 
on such provisional approval to operate as a DCM or SEF, as 
applicable.
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    The Commission seeks comment on all aspects of this proposal.

Related Matters

A. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \23\ imposes certain 
requirements on Federal agencies (including the Commission) in 
connection with conducting or sponsoring any collection of information 
as defined by the PRA. The proposed Second Amended July 14 Order will 
not require a new collection of information from any persons or 
entities that will be subject to the final order.
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    \23\ 44 U.S.C. 3507(d).
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B. Cost-Benefit Considerations

    Section 15(a) of the CEA \24\ requires the Commission to consider 
the costs and benefits of its action before issuing an order under the 
CEA. CEA section 15(a) further specifies that costs and benefits shall 
be evaluated in light of five broad areas of market and public concern: 
(1) Protection of market participants and the public; (2) efficiency, 
competitiveness, and financial integrity of futures markets; (3) price 
discovery; (4) sound risk management practices; and (5) other public 
interest considerations.
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    \24\ 7 U.S.C. 19(a).
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    The Commission proposes that there are no significant, if any, 
costs associated with this proposed amendment. This is so because the 
proposed order is permissive--that is, it provides additional time 
beyond that provided for in the First Amended July 14 Order for persons 
to comply with any substantive or administrative requirements being 
imposed elsewhere.
    The Commission further proposes that, as discussed above, the 
primary benefits of this proposal include that it ensures that market 
practices will not be unduly disrupted during the transition to the new 
regulatory regime, and removes any actual or perceived inconsistency 
between Commission orders and rules with regard to agricultural swaps.
    The Commission requests comments on the consideration of costs and 
benefits of the proposed amendments discussed in this Notice.

Proposed Second Amended July 14 Order

    The Commission proposes a Second Amended July 14 Order to read as 
follows:
    The Commission, to provide for the orderly implementation of the 
requirements of Title VII of the Dodd-Frank Act, pursuant to sections 
4(c) and 4c(b) of the CEA and section 712(f) of the Dodd-Frank Act, 
hereby issues this Order consistent with the determinations set forth 
above, which are incorporated in this final order, as amended, by 
reference, and:
    (1) Exempts, subject to the conditions set forth in paragraph (4), 
all agreements, contracts, and transactions, and any person or entity 
offering, entering into, or rendering advice or rendering other 
services with respect to, any such agreement, contract, or transaction, 
from the provisions of the CEA, as added or amended by the Dodd-Frank 
Act, that reference one or more of the terms regarding instruments 
subject to further definition under sections 712(d) and 721(c) of the 
Dodd-Frank Act, which provisions are listed in Category 2 of the 
Appendix to this Order; provided, however, that the foregoing 
exemption:
    a. Applies only with respect to those requirements or portions of 
such provisions that specifically relate to such referenced terms; and
    b. With respect to any such provision of the CEA, shall expire upon 
the earlier of: (i) The effective date of the applicable final rule 
further defining the relevant term referenced in the provision; or (ii) 
December 31, 2012.
    (2) Agricultural Commodity Swaps. Exempts, subject to the 
conditions set forth in paragraph (4), all agreements, contracts, and 
transactions in an agricultural commodity, and any person or entity 
offering, entering into, or rendering advice or rendering other 
services with respect to, any such agreement, contract, or transaction, 
from the provisions of the CEA, if the agreement, contract, or 
transaction complies with part 35 of the Commission's regulations as in 
effect prior to December 31, 2011, including any agreement, contract, 
or transaction that complies with such provisions then in effect 
notwithstanding that:
    a. The agreement, contract, or transaction may be part of a 
fungible class of agreements that are standardized as to their material 
economic terms; and/or
    b. The creditworthiness of any party having an actual or potential 
obligation under the agreement, contract, or transaction would not be a 
material consideration in entering into or determining the terms of the 
agreement, contract, or transaction i.e., the agreement, contract, or 
transaction may be cleared.

[[Page 28822]]

    This exemption shall expire upon the earlier of (i) December 31, 
2012; or (ii) such other compliance date as may be determined by the 
Commission.
    (3) Exempt and Excluded Commodity Swaps. Exempts, subject to the 
conditions set forth in paragraph (4), all agreements, contracts, and 
transactions, and any person or entity offering, entering into, or 
rendering advice or rendering other services with respect to, any such 
agreement, contract, or transaction, from the provisions of the CEA, if 
the agreement, contract, or transaction complies with part 35 of the 
Commission's regulations as in effect prior to December 31, 2011, 
including any agreement, contract, or transaction in an exempt or 
excluded (but not agricultural) commodity that complies with such 
provisions then in effect notwithstanding that:
    a. The agreement, contract, or transaction may be executed on a 
multilateral transaction execution facility;
    b. The agreement, contract, or transaction may be cleared;
    c. Persons offering or entering into the agreement, contract or 
transaction may not be eligible swap participants, provided that all 
parties are eligible contract participants as defined in the CEA prior 
to the date of enactment of the Dodd-Frank Act;
    d. The agreement, contract, or transaction may be part of a 
fungible class of agreements that are standardized as to their material 
economic terms; and/or
    e. No more than one of the parties to the agreement, contract, or 
transaction is entering into the agreement, contract, or transaction in 
conjunction with its line of business, but is neither an eligible 
contract participant nor an eligible swap participant, and the 
agreement, contract, or transaction was not and is not marketed to the 
public;
    Provided, however, that:
    a. Such agreements, contracts, and transactions in exempt or 
excluded commodities (and persons offering, entering into, or rendering 
advice or rendering other services with respect to, any such agreement, 
contract, or transaction) fall within the scope of any of the CEA 
sections 2(d), 2(e), 2(g), 2(h), and 5d provisions or the line of 
business provision as in effect prior to July 16, 2011; and
    b. This exemption shall expire upon the earlier of: (i) December 
31, 2012; or (ii) such other compliance date as may be determined by 
the Commission; except that, for agreements, contracts, and 
transactions executed on an exempt commercial market (``ECM''), exempt 
board of trade (``EBOT''), or pursuant to CEA section 2(d)(2) as in 
effect prior to July 16, 2011 (``2(d)(2) Market''), this exemption 
shall expire upon the earlier of (i) December 31, 2012; or (ii) the 
effective date of the designated contract market (``DCM'') or swap 
execution facility (``SEF'') final rules, whichever is later, unless 
the ECM, EBOT, or 2(d)(2) Market files a DCM or SEF registration 
application on or before the effective date of the DCM or SEF final 
rules, in which case the relief shall remain in place during the 
pendency of the application. For these purposes, an application will be 
considered no longer pending when the application has been approved, 
provisionally approved, withdrawn, or denied.
    (4) Provided that the foregoing exemptions in paragraphs (1), (2), 
and (3) above shall not:
    a. Limit in any way the Commission's authority with respect to any 
person, entity, or transaction pursuant to CEA sections 2(a)(1)(B), 4b, 
4o, 6(c), 6(d), 6c, 8(a), 9(a)(2), or 13, or the regulations of the 
Commission promulgated pursuant to such authorities, including 
regulations pursuant to CEA section 4c(b) proscribing fraud;
    b. Apply to any provision of the Dodd-Frank Act or the CEA that 
became effective prior to July 16, 2011;
    c. Affect any effective or compliance date set forth in any 
rulemaking issued by the Commission to implement provisions of the 
Dodd-Frank Act;
    d. Limit in any way the Commission's authority under section 712(f) 
of the Dodd-Frank Act to issue rules, orders, or exemptions prior to 
the effective date of any provision of the Dodd-Frank Act and the CEA, 
in order to prepare for the effective date of such provision, provided 
that such rule, order, or exemption shall not become effective prior to 
the effective date of the provision; and
    e. Affect the applicability of any provision of the CEA to futures 
contracts or options on futures contracts, or to cash markets.
    In its discretion, the Commission may condition, suspend, 
terminate, or otherwise modify this Order, as appropriate, on its own 
motion. This final order, as amended, shall be effective immediately.

    Issued in Washington, DC, on May 10, 2012 by the Commission.
David A. Stawick,
Secretary of the Commission.

Appendices to Proposed Order Amending the Second Amendment to July 14, 
2011 Order for Swap Regulation--Commission Voting Summary and 
Statements of Commissioners

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

    On this matter, Chairman Gensler and Commissioner Sommers, Chilton, 
O'Malia and Wetjen voted in the affirmative; no Commissioner voted in 
the negative.

Appendix 1--Chairman Gary Gensler

    I support the proposed exemptive order regarding the effective 
dates of certain Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Dodd-Frank Act) provisions. Today's proposed exemptive order makes 
four changes to the exemptive order issued on December 19, 2011.
    First, the proposed exemptive order extends the sunset date from 
July 16, 2012, to December 31, 2012.
    Second, the Commodity Futures Trading Commission (CFTC) and the 
Securities and Exchange Commission have now completed the rule further 
defining the term ``swap dealer'' and ``securities-based swap dealer.'' 
Thus, the proposed exemptive order no longer provides relief as it once 
did until those terms were further defined. The Commissions are also 
mandated by the Dodd-Frank Act to further define the term ``swap'' and 
``securities-based swap.'' The staffs are making great progress, and I 
anticipate the Commissions will take up this final definitions rule in 
the near term. Until that rule is finalized, the proposed exemptive 
order appropriately provides relief from the effective dates of certain 
Dodd-Frank provisions.
    Third, in advance of the completion of the definitions rule, market 
participants requested clarity regarding transacting in agricultural 
swaps. The proposed exemptive order allows agricultural swaps cleared 
through a derivatives clearing organization or traded on a designated 
contract market to be transacted and cleared as any other swap. This is 
consistent with the agricultural swaps rule the Commission already 
finalized, which allows farmers, ranchers, packers, processors and 
other end-users to manage their risk.
    Fourth, unregistered trading facilities that offer swaps for 
trading were required under Dodd-Frank to register

[[Page 28823]]

as swap execution facilities (SEFs) or designated contract markets by 
July of this year. These facilities include exempt boards of trade, 
exempt commercial markets and markets excluded from regulation under 
section 2(d)(2). Given the Commission has yet to finalize rules with 
regard to SEFs, this proposed order gives these platforms additional 
time for such a transition.

Appendix 2--Statement of Commissioner Scott D. O'Malia

    I concur in support of the Commission's proposal to further modify 
the temporary exemptive relief provided in the Commission's final order 
dated July 14, 2011 (the ``July 14 Order'').\25\ In the July 14 Order, 
the Commission addressed concerns raised by industry regarding the 
applicability of various regulatory requirements to agreements, 
contracts and transactions after the effective date of Title VII of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank 
Act''). Today's proposal would, among other things, extend the 
temporary exemptive relief from last extension date (i.e., July 16, 
2012) to December 31, 2012.\26\
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    \25\ See Effective Date for Swap Regulation, 76 FR 42508 (issued 
and made effective by the Commission on July 14, 2011; published in 
the Federal Register on July 19, 2011).
    \26\ The proposed amendment to the July 14 Order also seeks to: 
(1) Remove references to the entities terms in Sections 712(d) of 
the Dodd-Frank Act, including ``swap dealer,'' ``major swap 
participant,'' and ``eligible contract participant'' in light of the 
final, joint CFTC-Securities and Exchange Commission rulemaking 
further defining those terms on April 18, 2012; (2) allow the 
clearing of agricultural swaps; and (3) removing any reference to 
the exempt commercial market and exempt board of trade grandfather 
relief previously issued by the Commission.
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    Based on the Chairman's statements at a recent industry 
conference,\27\ I am supportive of the Commission's proposed amendment 
to the July 14 Order to the delay application until the end of the year 
or until the implementation. However, I understand that unless the 
Commission focuses on its priorities, it seems unlikely we can meet 
this schedule.
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    \27\ See Commodity Futures Trading Commission Chairman Gary 
Gensler, Remarks before International Swaps and Derivatives 
Association's 27 Annual General Meeting (May 2, 2012), available at 
http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-112.
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    Assuming that we complete all Dodd-Frank Act-related rules, orders 
and guidance by the end of 2012, I think this proposed amendment is 
appropriate and will provide the industry with needed comfort that the 
new swaps regulatory regime will not unduly disrupt current market 
practices.
    Notwithstanding today's proposed amendment, I believe that market 
participants continue to seek guidance regarding the timing of the 
Commission's remaining rules. I frequently hear that the Commission's 
rules are not sequenced in a manner that provides them with the 
certainty they need to make budgeting, investment and hiring decisions.
    For that reason, I have included along with my statement a list of 
the remaining Commission rules, orders and guidance, as well as a 
timetable of when I understand the Commission expects to vote on those 
rules, orders and guidance. I have developed this list and timetable 
based on my knowledge and through my conversations with Commission 
staff. I strongly urge the public to provide comments on this list and 
timetable. I also ask that the public answer whether: (1) The 
Commission's year-end deadline is achievable; and (2) the sequencing of 
these rules, orders and guidance is appropriate?
    While I support the proposed amendment to the July 14 Order, I 
believe that the Commission's accelerated rulemaking schedule will 
likely result in many unforeseen perils. For example, to address many 
of the problems arising out of the Commission's final rulemaking for 
large trader reporting for physical commodity swaps, the Commission 
issued temporary and conditional relief and a guidebook. These actions 
were intended to act as a Band-Aid fixing what the Commission could 
have addressed in the final rulemaking if it were not rushed.
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