[Federal Register Volume 80, Number 88 (Thursday, May 7, 2015)]
[Proposed Rules]
[Pages 26200-26210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11020]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 32

RIN 3038-AE26


Trade Options

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (the ``Commission'' 
or the ``CFTC'') is proposing to amend the trade option exemption in 
its regulations, as described herein, in the following subject areas: 
Reporting requirements for trade option counterparties that are not 
swap dealers or major swap participants; recordkeeping requirements for 
trade option counterparties that are not swap dealers or major swap 
participants; and certain non-substantive amendments.

DATES: Comments must be received on or before June 8, 2015.

ADDRESSES: You may submit comments, identified by RIN 3038-AE26, by any 
one of the following methods:
     CFTC Web site: http://comments.cftc.gov. Follow the 
instructions for submitting comments through the Comments Online 
process on the Web site.
     Mail: Send to Christopher Kirkpatrick, 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 of these methods.
    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 you believe is exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the procedures established in 
Sec.  145.9 of the CFTC'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 a 
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: David N. Pepper, Special Counsel, 
Division of Market Oversight, at (202) 418-5565 or [email protected]; or 
Elise Pallais, Counsel, Office of the General Counsel, at (202) 418-
5577 or [email protected]; Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Introduction

    In April 2012, pursuant to section 4c(b) of the Commodity Exchange 
Act

[[Page 26201]]

(the ``CEA'' or the ``Act''),\1\ the Commission issued a final rule to 
repeal and replace part 32 of its regulations concerning commodity 
options.\2\ The Commission undertook this effort to address section 721 
of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act 
(the ``Dodd-Frank Act'' or ``Dodd-Frank''),\3\ which, among other 
things, amended the CEA to define the term ``swap'' to include 
commodity options.\4\ Notably, Sec.  32.2(a) provides the general rule 
that commodity option transactions must be conducted in compliance with 
any Commission rule, regulation, or order otherwise applicable to any 
other swap.\5\
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    \1\ 7 U.S.C. 6c(b) (providing that ``[n]o person shall offer to 
enter into, enter into or confirm the execution of, any transaction 
involving any commodity regulated under this chapter which is of the 
character of, or is commonly known to the trade as an `option' . . . 
contrary to any rule, regulation, or order of the Commission 
prohibiting any such transaction or allowing any such transaction 
under such terms and conditions as the Commission shall 
prescribe'').
    \2\ See Commodity Options, 77 FR 25320 (Apr. 27, 2012) 
(``Commodity Options Release''). The Commission also issued certain 
conforming amendments to parts 3 and 33 of its regulations. See id. 
The Commission's regulations are set forth in Chapter I of Title 17 
of the Code of Federal Regulations.
    \3\ Public Law 111-203, 124 Stat. 1376 (2010).
    \4\ See 7 U.S.C. 1a(47)(A)(i) (defining ``swap'' to include 
``[an] option of any kind that is for the purchase or sale, or based 
on the value, of 1 or more . . . commodities . . .''); 7 U.S.C. 
1a(47)(B)(i) (excluding options on futures from the definition of 
``swap''); 7 U.S.C. 1a(36) (defining an ``option'' as ``an 
agreement, contract, or transaction that is of the character of, or 
is commonly known to the trade as, an `option' . . .''). The 
Commission defines ``commodity option'' or ``commodity option 
transaction'' as ``any transaction or agreement in interstate 
commerce which is or is held out to be of the character of, or is 
commonly known to the trade as, an `option,' `privilege,' 
`indemnity,' `bid,' `offer,' `call,' `put,' `advance guaranty' or 
`decline guaranty' and which is subject to regulation under the Act 
and these regulations.'' See 17 CFR 1.3(hh).
    \5\ See 17 CFR 32.2.
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    In response to requests from commenters, the Commission added a 
limited exception to this general rule for physically delivered 
commodity options purchased by commercial users of the commodities 
underlying the options (the ``trade option exemption'').\6\ Adopted as 
an interim final rule, Sec.  32.3 provides that qualifying commodity 
options are generally exempt from the swap requirements of the CEA and 
the Commission's regulations, subject to certain specified conditions. 
To qualify for the trade option exemption, a commodity option 
transaction must meet the following requirements: (1) The offeror is 
either an eligible contract participant (``ECP'') \7\ or a producer, 
processor, commercial user of, or merchant handling the commodity that 
is the subject of the commodity option transaction, or the products or 
byproducts thereof (a ``commercial party'') that offers or enters into 
the commodity option transaction solely for purposes related to its 
business as such; (2) the offeree is, and the offeror reasonably 
believes the offeree to be, a commercial party that is offered or 
enters into the transaction solely for purposes related to its business 
as such; and (3) the option is intended to be physically settled so 
that, if exercised, the option would result in the sale of an exempt or 
agricultural commodity \8\ for immediate or deferred shipment or 
delivery.\9\
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    \6\ See 77 FR at 25326-29. See also 17 CFR 32.2(b); 32.3. The 
interim final rule continued the Commission's long history of 
providing special treatment to ``trade options'' dating back to the 
Commission's original trade option exemption in 1976. See Regulation 
and Fraud in Connection with Commodity and Commodity Option 
Transactions, 41 FR 5108 (Nov. 18, 1976).
    \7\ See 7 U.S.C. 1a(18) (defining ``eligible contract 
participant''); 17 CFR 1.3(m) (further defining ``eligible contract 
participant'').
    \8\ See 7 U.S.C. 1a(20) (defining ``exempt commodity'' to mean a 
commodity that is not an agricultural commodity or an ``excluded 
commodity,'' as defined in 7 U.S.C. 1a(19)); 17 CFR 1.3(zz)(defining 
``agricultural commodity''). Examples of exempt commodities include 
energy commodities and metals.
    \9\ See 17 CFR 32.3(a).
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    Commodity option transactions that meet these requirements are 
generally exempt from the provisions of the Act and any Commission 
rule, regulation, or order promulgated or issued thereunder, otherwise 
applicable to any other swap, subject to the conditions enumerated in 
Sec.  32.3(b)-(d).\10\ These conditions include: Recordkeeping and 
reporting requirements; \11\ large trader reporting requirements in 
part 20; \12\ position limits under part 151; \13\ certain 
recordkeeping, reporting, and risk management duties applicable to swap 
dealers (``SDs'') and major swap participants (``MSPs'') in subparts F 
and J of part 23; \14\ capital and margin requirements for SDs and MSPs 
under CEA section 4s(e); \15\ and any applicable antifraud and anti-
manipulation provisions.\16\
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    \10\ See 17 CFR 32.3(a), (b)-(d).
    \11\ See 17 CFR 32.3(b).
    \12\ See 17 CFR 32.3(c)(1). Applying Sec.  32.3(c)(1), reporting 
entities as defined in part 20--swap dealers and clearing members--
must consider their counterparty's trade option positions just as 
they would consider any other swap position for the purpose of 
determining whether a particular counterparty has a consolidated 
account with a reportable position. See 17 CFR 20.1. A trade option 
counterparty would not be responsible for filing large trader 
reports unless it qualifies as a ``reporting entity,'' as that term 
is defined in Sec.  20.1.
    \13\ See 17 CFR 32.3(c)(2). See also Int'l Swaps & Derivatives 
Ass'n v. U.S. Commodity Futures Trading Comm'n, 887 F. Supp. 2d 259, 
270 (D.D.C. 2012), vacating the part 151 rulemaking, Position Limits 
for Futures and Swaps, 76 FR 71626 (Nov. 18, 2011).
    \14\ See 17 CFR 32.3(c)(3)-(4). Note that Sec.  32.3(c)(4) 
explicitly incorporates Sec. Sec.  23.201 and 23.204, which require 
counterparties that are SD/MSPs to comply with part 45 recordkeeping 
and reporting requirements, respectively, in connection with all 
their swaps activities (including all their trade option 
activities). See 17 CFR 23.201(c), 23.204(a).
    \15\ See 17 CFR 32.3(c)(5).
    \16\ See 17 CFR 32.3(d). Note that Sec.  32.2 also preserves the 
continued application of Sec.  32.4, which specifically prohibits 
fraud in connection with commodity option transactions, to commodity 
options subject to the trade option exemption. See 17 CFR 32.2, 
32.4.
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    In adopting Sec.  32.3, the Commission stated that the trade option 
exemption is generally intended to permit parties to hedge or otherwise 
enter into commodity option transactions for commercial purposes 
without being subject to the full Dodd-Frank swaps regime.\17\ This 
limited exemption continued the Commission's longstanding practice of 
providing commercial participants in trade options with relief from 
certain requirements that would otherwise apply to commodity 
options.\18\
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    \17\ See 77 FR at 25326, n.39. For example, trade options do not 
factor into the determination of whether a market participant is an 
SD or MSP; trade options are exempt from the rules on mandatory 
clearing; and trade options are exempt from the rules related to 
real-time reporting of swaps transactions. The provisions identified 
in this list are not intended to constitute an exclusive or 
exhaustive list of the swaps requirements from which trade options 
are exempt.
    \18\ See Regulation and Fraud in Connection with Commodity and 
Commodity Option Transactions, 41 FR 51808 (Nov. 24, 1976) (adopting 
an exemption from the general requirement that commodity options be 
traded on-exchange for commodity option transaction for certain 
transactions involving commercial parties); Suspension of the Offer 
and Sale of Commodity Options, 43 FR 16153, 16155 (Apr. 17, 1978) 
(adopting a rule suspending all trading in commodity options other 
than such exempt trade options); Trade Options on the Enumerated 
Agricultural Commodities, 63 FR 18821 (Apr. 16, 1998) (authorizing 
the off-exchange trading of trade options in agricultural 
commodities).
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    The Commission further explained that the applicable conditions in 
Sec.  32.3(b)-(d) were primarily intended to preserve a level of 
visibility into the market for trade options while still reducing the 
regulatory compliance burden for trade option participants.\19\ The 
Commission invited market participants to comment on the trade option 
exemption, and provided a list of specific questions for commenters' 
consideration.\20\
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    \19\ See 77 FR at 25326-27.
    \20\ See 77 FR 25329-30. Comments were due on or before June 26, 
2012. The comment file is available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1196.
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    In the year following the Commission's adoption of the trade option 
exemption, the Commission's Division of Market Oversight (``DMO'') 
issued a series of no-action letters granting relief from certain 
conditions

[[Page 26202]]

in the trade option exemption.\21\ CFTC No-Action Letter No. 13-08 
(``No-Action Letter 13-08''), which remains in effect, provides that 
DMO will not recommend that the Commission commence an enforcement 
action against a market participant that is not an SD or an MSP (a 
``Non-SD/MSP'') for failing to comply with the part 45 reporting 
requirements, as required by Sec.  32.3(b)(1), provided that such Non-
SD/MSP meets certain conditions, including reporting such exempt 
commodity option transactions via Form TO \22\ and notifying DMO no 
later than 30 days after entering into trade options having an 
aggregate notional value in excess of $1 billion during any calendar 
year (the ``$1 Billion Notice'').\23\
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    \21\ See CFTC No-Action Letter No. 12-06 (Aug. 14, 2012), 
available at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-06.pdf; CFTC No-Action Letter No. 12-41 (Dec. 5, 
2012), available at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-41.pdf; CFTC No-Action Letter 
No. 13-08 (Apr. 5, 2013), available at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/13-08.pdf.
    \22\ See notes 28-29 and accompanying text, infra.
    \23\ No-Action Letter 13-08, at 3-4. No-Action Letter 13-08 also 
grants relief from certain swap recordkeeping requirements in part 
45 for a Non-SD/MSP that complies with the recordkeeping 
requirements set forth in Sec.  45.2, provided that if the 
counterparty to the trade option at issue is an SD or an MSP, the 
Non-SD/MSP obtains a legal entity identifier (``LEI'') pursuant to 
Sec.  45.6. Id. at 4-5. Should the Commission adopt this proposal 
without significant revision, the relief provided in No-Action 
Letter 13-08 would be terminated.
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    Based on DMO's experience with the trade option exemption following 
the issuance of No-Action Letter 13-08, and after a review of comments 
from market participants,\24\ the Commission is proposing several 
amendments to the trade option exemption in Sec.  32.3. Generally, 
these proposed amendments are intended to facilitate use of trade 
options by commercial market participants to hedge against commercial 
and physical risks.
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    \24\ In addition to seeking comment following adoption of the 
trade option exemption itself, see supra note 21, the Commission has 
sought comment relating to the trade option exemption in connection 
with other related Commission actions. See e.g., Further Definition 
of ``Swap,'' Security-Based Swap,'' and ``Security-Based Swap 
Agreement''; Mixed Swaps; Security-Based Swap Agreement 
Recordkeeping, 77 FR 48207 (Aug. 13, 2012); Agency Information 
Collection Activities: Proposed Collection, Comment Request: Form 
TO, Annual Notice Filing for Counterparties to Unreported Trade 
Options, 77 FR 74647 (Dec. 17, 2012); Agency Information Collection 
Activities under OMB Review, 78 FR 11856 (Feb. 20, 2013); Forward 
Contracts With Embedded Volumetric Optionality, 79 FR 69073 (Nov. 
20, 2014). CFTC staff also invited comment in connection with an 
April 2014 public roundtable regarding issues concerning end users 
and the Dodd-Frank Act. The Commission has reviewed these comment 
letters and taken into account any significant issues raised therein 
in issuing this proposal. The related comment files are available at 
http://comments.cftc.gov/PublicComments/ReleasesWithComments.aspx.
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    The Commission is proposing modifications to the recordkeeping and 
reporting requirements in Sec.  32.3(b) that are applicable to trade 
option counterparties that are Non-SD/MSPs, as well as a non-
substantive amendment to Sec.  32.3(c) to eliminate the reference to 
the now-vacated part 151 position limits requirements. These proposed 
amendments are generally intended to relax reporting and recordkeeping 
requirements where two commercial parties enter into trade options with 
each other in connection with their respective businesses while 
maintaining regulatory insight into the market for unreported trade 
options. The Commission requests comment on all aspects of its 
proposal.

II. Explanation of the Proposed Rules

A. Reporting Requirements for Non-SD/MSPs

    Pursuant to Sec.  32.3(b)(1), the determination as to whether a 
trade option must be reported pursuant to part 45 is based on the 
status of the parties to the trade option and whether or not they have 
previously reported swaps to an appropriate swap data repository 
(``SDR'') pursuant to part 45.\25\ If a trade option involves at least 
one counterparty (whether as buyer or seller) that has (1) become 
obligated to comply with the reporting requirements of part 45, (2) as 
a reporting party, (3) during the twelve month period preceding the 
date on which the trade option is entered into, (4) in connection with 
any non-trade option swap trading activity, then such trade option must 
also be reported pursuant to the reporting requirements of part 45. If 
only one counterparty to a trade option has previously complied with 
the part 45 reporting provisions, as described above, then that 
counterparty shall be the part 45 reporting counterparty for the trade 
option. If both counterparties have previously complied with the part 
45 reporting provisions, as described above, then the part 45 rules for 
determining the reporting counterparty will apply.\26\
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    \25\ See 17 CFR 32.3(b)(1).
    \26\ See 17 CFR 45.8. As discussed above, No-Action Letter 13-08 
provides non-time-limited, conditional no-action relief for Non-SD/
MSP counterparties to trade options from part 45 reporting 
requirements. See supra note 22 and accompanying text.
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    To the extent that neither counterparty to a trade option has 
previously submitted reports to an SDR as a result of its swap trading 
activities as described above, then such trade option is not required 
to be reported pursuant to part 45. Instead, Sec.  32.3(b)(2) requires 
that each counterparty to an otherwise unreported trade option (i.e., a 
trade option that is not required to be reported to an SDR by either 
counterparty pursuant to Sec.  32.3(b)(1) and part 45) complete and 
submit to the Commission an annual Form TO filing providing notice that 
the counterparty has entered into one or more unreported trade options 
during the prior calendar year.\27\ Form TO requires an unreported 
trade option counterparty to: (1) Provide its name and contact 
information; (2) identify the categories of commodities (agricultural, 
metals, energy, or other) underlying one or more unreported trade 
options which it entered into during the prior calendar year; and (3) 
for each commodity category, identify the approximate aggregate value 
of the underlying physical commodities that it either delivered or 
received in connection with the exercise of unreported trade options 
during the prior calendar year. Counterparties to otherwise unreported 
trade options must submit a Form TO filing by March 1 following the end 
of any calendar year during which they entered into one or more 
unreported trade options.\28\ In adopting Sec.  32.3, the Commission 
stated that Form TO was intended to provide the Commission with a level 
of visibility into the market for unreported trade options that is 
``minimally intrusive,'' thereby allowing it to identify market 
participants from whom it should collect additional information, or 
whom it should subject to additional reporting obligations in the 
future.\29\
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    \27\ Form TO is set out in appendix A to part 32 of the 
Commission's regulations.
    \28\ In 2014, approximately 330 Non-SD/MSPs submitted Form TO 
filings to the Commission, approximately 200 of which indicated 
delivering or receiving less than $10 million worth of physical 
commodities in connection with exercising unreported trade options 
in 2013.
    \29\ See 77 FR at 25327-28.
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    Commenters have generally expressed the opinion that the reporting 
requirements in Sec.  32.3(b) are overly burdensome for Non-SD/MSPs. 
Commenters have argued that these costs have discouraged commercial end 
users from entering into trade options to meet their commercial and 
risk management needs, thereby reducing liquidity and raising 
prices.\30\
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    \30\ See American Gas Association (``AGA'') (Dec. 22, 2013) at 
3, 16-17 (observing that ``widespread concern'' regarding the 
regulatory risk posed by Form TO has led some counterparties to 
avoid entering into trade options, leading to a rise in the cost of 
contracting); American Public Power Association, National Rural 
Electric Cooperative Association, Edison Electric Institute, 
Electric Power Supply Association (``APPA/NRECA/EEI/EPSA'') (Feb. 
15, 2013) at 7-8 (stating that Sec.  32.3(b)'s application of the 
part 45 reporting requirement ``imposes a regulatory burden on the 
non-SD/MSP and may discourage parties from entering into any 
``swaps'' for which it is a reporting party, and from entering into 
nonfinancial commodity option hedging transactions with parties that 
are not SD/MSPs.'').

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[[Page 26203]]

    With respect to the part 45 reporting requirements, commenters have 
noted that Non-SD/MSPs may be required to comply with part 45 solely on 
the basis of the ``unusual circumstance'' of having had to report a 
single historical or inter-affiliate swap during the same twelve-month 
period.\31\ Commenters have further noted that Non-SD/MSPs may not have 
the infrastructure in place to support part 45 reporting to an SDR and 
that instituting such infrastructure would impose a costly burden, 
particularly for small end users.\32\
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    \31\ See International Energy Credit Association (``IECA'') 
(Feb. 15, 2013) at 3; AGA (June 26, 2012) at 8; APPA/NRECA/EEI/EPSA 
(June 26, 2012) at 7-8; Coalition of Physical Energy Companies 
(``COPE'') (June 25, 2012) at 9; Commercial Energy Working Group 
(``CEWG'') (Jun 26, 2012) at 4.
    \32\ See, e.g., APPA/NRECA/EEI/EPSA (Feb. 15, 2013) at 2 
(stating that only SDs and MSPs should be required to report trade 
options under part 45 out of concern that part 45 would impose an 
``increased regulatory burden, particularly for small entities''); 
IECA (Feb. 15, 2013) at 2-3 (stating that, for Non-SD/MSPs, the 
burden of reporting trade options under part 45 would be ``extremely 
onerous, if not a practical impossibility''); AGA (June 26, 2012) at 
9 (recommending that the part 45 reporting requirements not apply to 
Non-SD/MSPs with respect to their trade option transactions).
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    With respect to Form TO reporting, commenters have argued that it 
is costly and burdensome for Non-SD/MSPs, particularly for small end 
users, to track, calculate and assemble the requisite data. Commenters 
have explained that the systems and processes used by many Non-SD/MSPs 
to create, store, and track their trade options are separate and 
distinct from their financial systems and are typically not designed to 
track the kind of information required by Form TO.\33\ Recent comments 
offer specific monetary estimates that suggest the costs involved with 
preparing the Form TO filing may be significant.\34\
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    \33\ See, e.g., CEWG (Feb. 6, 2013) at 1 (``Unlike systems 
designed to capture and report data for financial transactions, 
physical systems are primarily designed to manage logistics related 
to deliveries and inventory quantities at trade locations. Some 
physical systems of record do not contain market price information, 
execution venues, or other option characteristics, such as premiums 
and strike prices, which make reporting under Part 45 additionally 
challenging.''). See also Coalition for Derivative End Users 
(``Coalition'') (Dec. 22, 2014) at 10; Commercial Energy Working 
Group and Commodity Markets Council (``CEWG/CMC'') (Dec. 22, 2014) 
at 5; ICEA (Dec. 22, 2012) at 9; American Public Power Association, 
National Rural Electric Cooperative Association, Large Public Power 
Council (``APPA/NRECA/LPPC'') (Apr. 17, 2014) at 4; AGA (June 26, 
2012) at 7.
    \34\ See American Public Power Association, National Rural 
Electric Cooperative Association, Edison Electric Institute, 
Electric Power Supply Association, Large Public Power Council 
(``APPA/NRECA/EEI/EPSA/LPPC'') (Dec. 22, 2014) at 9 (stating that 
one of its members spent more than $100,000 in information 
technology costs to implement a mechanism to track exercises of 
nonfinancial commodity options); IECA (Dec. 22, 2014) at 8 
(estimating, based on its survey of market participants, that 
completing Form TO and complying with No-Action Letter 13-08 
requires 80 minutes per contract); Southern Company Services, Inc., 
acting on behalf of and as agent for Alabama Power Company, Georgia 
Power Company, Gulf Power Company, Mississippi Power Company, and 
Southern Power Company (``Southern'') at 8-9 (estimating that, for 
Southern, two full-time employees require 30 minutes to two hours 
per contract to complete Form TO, at an average cost of $200 per 
contract and a total annual cost of about $12,000); Transcript of 
Staff End-User Roundtable (James Allison, ConocoPhillips) at 161 
(estimating the marginal cost of Form TO is ``on the order of'' one 
full-time employee and possibly higher for smaller entities with 
less in the way of compliance systems and procedures), transcript 
available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/transcript040314.pdf.
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1. Proposed Action: Eliminate Part 45 Reporting for Non-SD/MSPs
    As discussed above, Commission regulation Sec.  32.3(b)(1) requires 
that a Non-SD/MSP counterparty to a trade option that has become 
obligated to report a non-trade option swap within the past calendar 
year must comply with part 45 reporting requirements. The Commission 
proposes to amend Sec.  32.3(b) such that a Non-SD/MSP will under no 
circumstances be subject to part 45 reporting requirements with respect 
to its trade option activities.\35\ This amendment is intended to 
reduce burdens for Non-SD/MSP trade option counterparties, many of 
whom, as commenters explained, face technical and logistical 
impediments that prevent timely compliance with part 45 reporting 
requirements.
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    \35\ Note that trade option counterparties that are SD/MSPs 
would continue to comply with the swap data reporting requirements 
of part 45, including where the counterparty is a Non-SD/MSP, as 
they would in connection with any other swap. See 17 CFR 32.3(b)(4).
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2. Proposed Action: Eliminate the Form TO Notice Filing Requirement
    The Commission proposes to amend Commission regulation Sec.  
32.3(b) such that a Non-SD/MSP would not be required to report 
otherwise unreported trade options on Form TO. The Commission further 
proposes to delete Form TO from appendix A to part 32. These amendments 
are intended to reduce reporting burdens for Non-SD/MSP trade option 
counterparties, which, commenters have explained, may face significant 
costs in preparing Form TO.
    The Commission preliminarily believes that there are surveillance 
benefits from Form TO data but recognizes that completing Form TO 
imposes costs and burdens on Non-SD/MSPs, especially small end users. 
Moreover, Non-SD/MSPs would, under the proposal, remain subject, via 
Sec.  32.3(b), to the recordkeeping requirements in Sec.  45.2, which 
require market participants to maintain full and complete records and 
to open their records to inspection upon the Commission's request.\36\ 
Consequently, the Commission would remain able to collect additional 
information concerning unreported trade options as necessary to fulfill 
its regulatory mission.\37\
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    \36\ See 17 CFR 45.2(b), 45.2(h). As discussed infra at notes 
53-55 and accompanying text, the Commission proposes to maintain 
recordkeeping requirements in Sec.  32.3(b)-(c) for trade option 
participants, subject to certain clarifying amendments.
    \37\ See 17 CFR 1.31(a)(2), 45.2(h).
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3. Proposed Action: New $1 Billion Notice Provision for Non-SD/MSPs
    The Commission proposes to amend Sec.  32.3(b) by adding a 
requirement that Non-SD/MSP trade option counterparties must provide 
notice by email to DMO within 30 days after entering into trade 
options, whether reported or unreported, that have an aggregate 
notional value in excess of $1 billion in any calendar year (the ``1 
Billion Notice'').\38\ In the alternative, a Non-SD/MSP may provide 
notice by email to DMO that it reasonably expects to enter into trade 
options, whether reported or unreported, having an aggregate notional 
value in excess of $1 billion during any calendar year (the 
``Alternative Notice'').\39\
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    \38\ As discussed above, the no-action relief provided by No-
Action Letter 13-08 to Non-SD/MSP trade option counterparties from 
part 45 reporting requirements is also conditioned on the Non-SD/MSP 
providing DMO with a $1 Billion Notice. See supra note 24 and 
accompanying text. In 2013 and 2014, DMO received $1 Billion Notices 
from nine and sixteen Non-SD/MSPs, respectively. Most of these $1 
Billion Notices were filed on behalf of large energy companies.
    \39\ Non-SD/MSPs who provide the Alternative Notice would not be 
required to demonstrate that they actually entered into trade 
options with an aggregate notional value of $1 billion or more in 
the applicable calendar year. Collectively, the $1 Billion Notice 
and the Alternative Notice are referred to as the ``Notice 
Requirement.''
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    For purposes of the proposed Notice Requirement, the aggregate 
notional value of trade options entered into, or expected to be entered 
into, should be calculated by multiplying (1) the maximum volume of the 
commodities that could be bought or sold pursuant to the trade options 
entered into by (2) the strike or exercise price per unit of the 
commodity. If the strike or exercise price is not a fixed number in the 
trade option agreement and, instead, is to be determined pursuant to a 
reference price source that is not determinable at the time the trade 
option is entered into,

[[Page 26204]]

then the foregoing calculation should be based on a current market 
price of the reference commodity at the time the option is entered 
into. For example, if the trade option involves crude oil that is 
deliverable on, or similar to, crude oil that is deliverable on the New 
York Mercantile Exchange (``NYMEX''), then the price of the nearby 
NYMEX crude oil futures contract may be used as the market price of the 
commodity at the time the trade option is entered into.\40\
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    \40\ The forgoing guidance with regard to how to calculate the 
notional value of trade options is similar to that provided in No-
Action Letter 13-08 but has been revised to clarify that the focus 
of the $1 Billion Notice is the value of the trade option at time of 
contract initiation, not at exercise.
---------------------------------------------------------------------------

    In light of the other proposed amendments that would generally 
remove reporting requirements for Non-SD/MSP counterparties to trade 
options, the proposed Notice Requirement would provide the Commission 
insight into the size of the market for unreported trade options and 
the identities of the most significant market participants. 
Additionally, the proposed Notice Requirement would help guide the 
Commission's efforts to collect additional information through its 
authority to obtain copies of books or records required to be kept 
pursuant to the CEA and the Commission's regulations should market 
circumstances dictate.\41\
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    \41\ See supra note 38 and accompanying text.
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B. Recordkeeping requirements for Non-SD/MSPs

    Commission regulation Sec.  32.3(b) provides that in connection 
with any commodity option transaction that is eligible for the trade 
option exemption, every counterparty shall comply with the swap data 
recordkeeping requirements of part 45, as otherwise applicable to any 
swap transaction.\42\ In discussing the trade option exemption 
conditions, however, the Commission noted in the preamble to the 
Commodity Options Release that ``[t]hese conditions include a 
recordkeeping requirement for any trade option activity, i.e., the 
recordkeeping requirements of 17 CFR 45.2,'' and did not reference or 
discuss any other provision of part 45 that contains recordkeeping 
requirements.\43\
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    \42\ See 17 CFR 32.3(b).
    \43\ See 77 FR at 25327.
---------------------------------------------------------------------------

    Pursuant to Commission regulation Sec.  45.2, records must be 
maintained by all trade option participants and made available to the 
Commission as specified therein.\44\ However, Sec.  45.2 applies 
different recordkeeping requirements, depending on the nature of the 
counterparty. For example, if a trade option counterparty is an SD/MSP, 
it would be subject to the recordkeeping provisions of Sec.  45.2(a). 
If a counterparty is a Non-SD/MSP, it would be subject to the less 
stringent recordkeeping requirements of Sec.  45.2(b).\45\ In adopting 
Sec.  32.3(b), the Commission stated that the recordkeeping condition 
was intended to ensure that trade option participants are able to 
provide pertinent information regarding their trade options activity to 
the Commission, if requested.\46\
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    \44\ 17 CFR 32.3(b); 45.2(h).
    \45\ In the case of Non-SD/MSPs, the primary recordkeeping 
requirements are set out in Sec.  45.2(b), which essentially 
requires keeping basic business records--i.e., ``full, complete and 
systematic records, together with all pertinent data and memoranda, 
with respect to each swap in which they are a counterparty.'' Non-
SD/MSPs are also subject to the other general recordkeeping 
requirements of Sec.  45.2, such as the requirement that records 
must be maintained for 5 years and must be retrievable within 5 
days. See 17 CFR 45.2(b).
    \46\ See 77 FR at 25327.
---------------------------------------------------------------------------

    Additional recordkeeping requirements in part 45, separate and 
apart from those specified in Sec.  45.2 and which would apply to all 
trade option counterparties by operation of Sec.  32.3(b) include: \47\
---------------------------------------------------------------------------

    \47\ As discussed above, No-Action Letter 13-08 provides no-
action relief from certain swap recordkeeping requirements in part 
45 for a Non-SD/MSP that complies with the recordkeeping 
requirements set forth in Sec.  45.2, provided that if the 
counterparty to the trade option at issue is an SD or an MSP, the 
Non-SD/MSP obtains an LEI pursuant to Sec.  45.6 and also provides 
DMO with a $1 Billion Notice. See supra note 24 and accompanying 
text.
---------------------------------------------------------------------------

     each swap must be identified in all recordkeeping by the 
use of a unique swap identifier (``USI''); \48\
---------------------------------------------------------------------------

    \48\ 17 CFR 45.5.
---------------------------------------------------------------------------

     each counterparty to any swap must be identified in all 
recordkeeping by means of a single LEI; \49\ and
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    \49\ Each counterparty to any swap subject to the Commission's 
jurisdiction must be identified in all recordkeeping and all swap 
data reporting pursuant to part 45 by means of a single LEI as 
specified in Sec.  45.6. See 17 CFR 45.6.
---------------------------------------------------------------------------

     each swap must be identified in all recordkeeping by means 
of a unique product identifier (``UPI'') and product classification 
system.\50\
---------------------------------------------------------------------------

    \50\ 17 CFR 45.7.
---------------------------------------------------------------------------

1. Proposed Action: Modify the Recordkeeping Requirements for Non-SD/
MSPs
    The Commission proposes to amend Sec.  32.3(b) to clarify that 
trade option counterparties that are Non-SD/MSPs need not identify 
their trade options in all recordkeeping by means of either a USI or 
UPI, as required by Sec. Sec.  45.5 and 45.7.\51\ Rather, with respect 
to part 45 recordkeeping requirements, trade option counterparties that 
are Non-SD/MSPs must only comply with the applicable recordkeeping 
provisions in Sec.  45.2,\52\ with the following qualification: The 
Non-SD/MSP trade option counterparty must obtain an LEI pursuant to 
Sec.  45.6 and provide such LEI to its counterparty if that 
counterparty is an SD/MSP.\53\
---------------------------------------------------------------------------

    \51\ See supra notes 49 and 49 and accompanying text.
    \52\ Trade option counterparties that are SD/MSPs would continue 
to comply with the swap data recordkeeping requirements of part 45, 
as they would in connection with any other swap. See 17 CFR 
32.3(b)(4).
    \53\ For the avoidance of doubt, Non-SD/MSPs would not otherwise 
be required to comply with Sec.  45.6.
---------------------------------------------------------------------------

    These amendments are intended to reduce recordkeeping burdens for 
Non-SD/MSP trade option counterparties, while allowing a trade option 
counterparty that is an SD/MSP to comply with applicable part 45 
reporting obligations by properly identifying its Non-SD/MSP trade 
option counterparty by that counterparty's LEI in all recordkeeping as 
well as all swap data reporting, just as the SD/MSP would for any other 
swap.\54\
---------------------------------------------------------------------------

    \54\ An SD/MSP that otherwise would report the trade option at 
issue pursuant to Sec.  32.3(b)(1) is required to identify its 
counterparty to the trade option by that counterparty's LEI in all 
recordkeeping as well as all swap data reporting. See, e.g., 17 CFR 
23.201, 23.204, and 45.6. See supra note 36 and 17 CFR 45.6.
---------------------------------------------------------------------------

C. Non-substantive amendment to Commission regulation Sec.  32.3(c)

    Commission regulation Sec.  32.3(c)(2) subjects trade options to 
part 151 position limits, to the same extent that part 151 would apply 
in connection with any other swap.\55\ However, as stated above, part 
151 has been vacated.\56\ Furthermore, trade options are not subject to 
position limits under the Commission's current part 150 position limit 
regime.\57\
---------------------------------------------------------------------------

    \55\ See 17 CFR 32.3(c)(2).
    \56\ See supra note 13 and accompanying text.
    \57\ Under current Sec.  150.2, position limits apply to 
agricultural futures in nine listed commodities and options on those 
futures. Since trade options are not options on futures, Sec.  150.2 
position limits do not currently apply to such transactions. See 17 
CFR 150.2.
---------------------------------------------------------------------------

    Therefore, since position limits do not currently apply to trade 
options, the Commission proposes to amend Sec.  32.3(c) by deleting 
Sec.  32.3(c)(2), including the reference to vacated part 151. This 
would not be a substantive change. Although commenters have requested 
assurance that position limits will not apply to trade options in the 
future,\58\ the Commission preliminarily believes that any future 
application of

[[Page 26205]]

position limits would be best addressed in the context of the pending 
position limits rulemaking, which remains in the proposed rulemaking 
stage.\59\
---------------------------------------------------------------------------

    \58\ See, e.g., Coalition (Dec. 22, 2014) at 11; AGA (Apr. 17, 
2014) at 4; IECA (Apr. 17. 2014) at 28; Intercontinental Exchange, 
Inc. (April 17, 2014) at 5; CEWG (Feb. 6, 2013) at 3; COPE (June 26, 
2012) at 6.
    \59\ On December 12, 2013, the Commission published in the 
Federal Register a notice of proposed rulemaking to establish 
speculative position limits for 28 exempt and agricultural commodity 
futures and options contracts and the physical commodity swaps that 
are economically equivalent to such contracts, including trade 
options. See Position Limits for Derivatives, Proposed Rules, 78 FR 
75680 (Dec. 12, 2013) (``Position Limits Proposal''). Therein, the 
Commission proposed replacing the cross-reference to vacated part 
151 in Sec.  32.3(c)(2) with a cross-reference to amended part 150 
position limits. See 78 FR at 75711. As an alternative in the 
Position Limits Proposal, the Commission proposed to exclude trade 
options from speculative position limits and proposed an exemption 
for commodity derivative contracts that offset the risk of trade 
options. Also note that under the Position Limits Proposal, trade 
options based on commodities or delivery points other than those 
underlying the core referenced futures contracts specified in the 
Position Limits Proposal would not be subject to speculative 
position limits. The Commission recently extended the comment period 
for the Position Limits Proposal until March 28, 2015. See 80 FR 
10022 (Feb. 25, 2015).
---------------------------------------------------------------------------

III. Related Matters

A. Cost Benefit Analysis

1. Background
    As discussed above, the Commission is proposing amendments to the 
trade option exemption in Sec.  32.3 that would: (1) Eliminate the part 
45 reporting requirement for Non-SD/MSPs; (2) eliminate the Form TO 
filing requirement; (3) require those Non-SD/MSPs that have the most 
significant volume in trade options to provide DMO with either (i) the 
$1 Billion Notice or (ii) the Alternate Notice; and (4) clarify that 
Non-SD/MSPs are required to comply with the swap data recordkeeping 
requirements of Sec.  45.2 only, as opposed to all part 45 
recordkeeping requirements; (5) require Non-SD/MSPs that enter into 
exempt trade options with SD/MSPs to obtain an LEI pursuant to Sec.  
45.6 and provide it to their SD/MSP counterparties; (6) eliminate 
reference to the now-vacated part 151 position limits.\60\ In issuing 
this proposal, the Commission has reviewed all relevant comment letters 
and taken into account significant issues raised therein.\61\
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    \60\ As stated above, Non-SD/MSPs would not otherwise be 
required to comply with Sec.  45.6.
    \61\ See supra note 24. See also note 59 (stating that the 
Commission has determined to address the application of position 
limits to trade options in the pending position limits rulemaking).
---------------------------------------------------------------------------

    The Commission believes that the baseline for this cost and benefit 
consideration is existing Sec.  32.3. Although No-Action Letter 13-08, 
as discussed above, currently offers no-action relief that is 
substantially similar to the relief that the proposed amendments would 
grant certain market participants and end users, as a no-action letter, 
it only represents the position of the issuing Division or Office and 
cannot bind the Commission or other Commission staff.\62\ Consequently, 
the Commission believes that No-Action Letter 13-08 should not set or 
affect the baseline against which the Commission considers the costs 
and benefits of the proposal.
---------------------------------------------------------------------------

    \62\ See 17 CFR 140.99(a)(2). See also No-Action Letter 13-08 at 
5.
---------------------------------------------------------------------------

2. Costs
    The Commission believes that the proposal would, overall, reduce 
the regulatory burdens and associated costs imposed by the conditions 
for relief in Sec.  32.3(b). Although the Commission understands that 
some Non-SD/MSPs may experience costs associated with tracking the 
aggregate notional value of their trade option transactions for 
purposes of the $1 Billion Notice,\63\ Non-SD/MSPs that reasonably 
expect to enter into trade options in excess of $1 billion could opt to 
avoid those tracking costs by instead submitting the Alternative 
Notice. The Commission also believes that many Non-SD/MSPs may avoid 
any costs associated with the $1 Billion Notice because they would fall 
significantly below the $1 billion threshold and thus would not need to 
track and calculate their aggregate trade option activity.\64\ 
Furthermore, the Commission believes that the proposal would otherwise 
significantly reduce the regulatory burdens imposed by Sec.  32.3(b), 
particularly through the elimination of part 45 reporting requirements 
for trade option counterparties that are Non-SD/MSPs and the Form TO 
filing requirement, each of which commenters have described as 
burdensome.\65\ The Commission preliminarily believes that the proposal 
would not impose any additional costs on any other market participants, 
the markets themselves, or the general public. The Commission invites 
comment regarding the nature and extent of these and any other costs 
that could result from adoption of the proposal and, to the extent they 
can be quantified, monetary and other estimates thereof.
---------------------------------------------------------------------------

    \63\ See Coalition for Derivatives End-Users (Dec. 22, 2014) at 
10; American Public Power Association, Edison Electric Institute, 
Electric Power Supply Association, Large Public Power Council, 
National Rural Electric Cooperative Association (Dec. 22, 2014) at 
9.
    \64\ As stated in note 38, supra, of the 330 Non-SD/MSPs who 
submitted Form TO filings in 2014, only sixteen also submitted a $1 
Billion Notice to DMO.
    \65\ See supra note 34 (citing recent comment letters offering 
costs estimates for compliance with the Form TO reporting 
requirement).
---------------------------------------------------------------------------

3. Benefits
    The Commission believes that the proposal would provide relief for 
Non-SD/MSPs entering into trade options by eliminating the part 45 and 
Form TO reporting obligations. The Commission believes that the 
proposed Notice Requirement would also support the regulatory goals of 
ensuring market integrity and protecting the public by allowing the 
Commission insight into the size of the market for unreported trade 
options and the ability to identify significant market participants, 
who the Commission may wish to contact if concerns about the market for 
trade options arise. The Commission invites comment regarding the 
nature and extent of these and any other benefits that could result 
from adoption of the proposal--including benefits to other market 
participants, the market itself or the general public--and, to the 
extent they can be quantified, monetary and other estimates thereof.
4. Section 15(a) Factors
    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of its actions before promulgating a regulation 
under the CEA or issuing certain orders.\66\ Section 15(a) further 
specifies that the 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. The Commission considers the costs and benefits 
resulting from its discretionary determinations with respect to the 
section 15(a) factors.
---------------------------------------------------------------------------

    \66\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

a. Protection of Market Participants and the Public
    The Commission recognizes that there may be trade-offs between 
reducing regulatory burdens and ensuring that the Commission has 
sufficient information to fulfill its regulatory mission. The proposed 
amendments to Sec.  32.3 are intended to reduce some of the regulatory 
burdens on end users while still maintaining insight into the market 
for trade options to protect the public.

[[Page 26206]]

b. Efficiency, Competitiveness, and Financial Integrity of Markets
    The Commission believes that the proposed amendments to Sec.  32.3 
could increase efficiency for participants in the market for trade 
options by reducing the reporting burdens on Non-SD/MSPs, allowing them 
to reallocate those resources to other more efficient purposes. The 
Commission also believes that the proposed Notice Requirement would 
promote market integrity by providing the Commission with information 
to use in its market oversight role, thereby fulfilling the purposes of 
the CEA.\67\ The Commission preliminarily believes that the proposed 
amendments to Sec.  32.3 will not have any competitiveness impact.
---------------------------------------------------------------------------

    \67\ See, e.g., CEA section 3(b), 7 U.S.C. 5 (stating that it is 
a purpose of the CEA to deter disruptions to market integrity).
---------------------------------------------------------------------------

c. Price Discovery
    The Commission preliminarily believes that the proposed amendments 
to Sec.  32.3 would likely not have a significant impact on price 
discovery. Given that trade options are not subject to the real-time 
reporting requirements applicable to other swaps, meaning that current 
prices of consummated trade options are likely not available to many 
market participants, the Commission preliminarily believes any effect 
on price discovery would be negligible.
d. Sound Risk Management Practices
    The Commission preliminarily believes that the proposed amendments 
would not have a meaningful effect on the risk management practices of 
the affected market participants and end users. Although the proposal 
is intended, in part, to reduce some of the regulatory burdens on 
certain market participants and end users, affected Non-SD/MSPs would 
still be required to maintain complete and accurate records in a manner 
that is readily available for production to regulators.
e. Other Public Interest Considerations
    The Commission has not identified any other public interest 
considerations for this rulemaking.
5. Request for Comment
    The Commission invites comment on all aspects of its preliminary 
consideration of the costs and benefits associated with the proposal 
and the five factors the Commission is required to consider under CEA 
section 15(a). In addressing these areas and any other aspect of the 
Commissions preliminary cost-benefit considerations, the Commission 
encourages commenters to submit any data or other information they may 
have quantifying and/or qualifying the costs and benefits of the 
proposal.

B. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (the ``RFA'') \68\ requires that 
Federal agencies consider whether the rules they propose will have a 
significant economic impact on a substantial number of ``small 
entities'' \69\ and, if so, the agencies must provide a regulatory 
flexibility analysis reflecting the impact. Whenever an agency 
publishes a general notice of proposed rulemaking for any rule, 
pursuant to the notice-and-comment provisions of the Administrative 
Procedure Act,\70\ a regulatory flexibility analysis or certification 
typically is required.\71\
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    \68\ 5 U.S.C. 601 et seq.
    \69\ See 5 U.S.C. 601(6) (defining ``small entity'' to include a 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction,'' as those terms are defined in the RFA and by 
reference to the Small Business Act, 15 U.S.C. 632 et seq.).
    \70\ 5 U.S.C. 553. The Administrative Procedure Act is found at 
5 U.S.C. 551 et seq.
    \71\ See 5 U.S.C. 601(2), 603-605.
---------------------------------------------------------------------------

    As discussed above, the proposed amendments would affect the 
recordkeeping and reporting requirements for Non-SD/MSP counterparties 
relying on the trade option exemption in Sec.  32.3. Pursuant to the 
eligibility requirements in Sec.  32.3(a), such a Non-SD/MSP may be an 
ECP and/or a commercial party (i.e., a producer, processor, or 
commercial user of, or a merchant handling the exempt or agricultural 
commodity that is the subject of the commodity option transaction, or 
the products or by-products thereof) offering or entering into the 
trade option solely for purposes related to its business as such. 
Although the Commission has previously determined that ECPs are not 
small entities for RFA purposes,\72\ the Commission is not in a 
position to determine whether non-ECP commercial parties affected by 
the amendments would include a substantial number of small entities on 
which the rule would have a significant economic impact because Sec.  
32.3 does not subject such entities to a minimum net worth requirement, 
allowing commercial entities of any economic status to enter into 
exempt trade options. Therefore, pursuant to 5 U.S.C. 603, the 
Commission offers for public comment this initial regulatory 
flexibility analysis addressing the impact of the proposal on small 
entities:
---------------------------------------------------------------------------

    \72\ See Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 25, 
2001).
---------------------------------------------------------------------------

    1. A description of the reasons why action by the agency is being 
considered.
    The Commission is proposing to modify the trade option exemption in 
Sec.  32.3 in response to comments from Non-SD/MSPs that the regulatory 
burdens currently imposed by Sec.  32.3 are unnecessarily burdensome.
    2. A succinct statement of the objectives of, and legal basis for, 
the proposal.
    The objective of the proposal is to reduce the recordkeeping and 
reporting obligations for Non-SD/MSPs while still providing the 
Commission insight into the size of the market for unreported trade 
options and the identities of the most significant participants in the 
market. As stated above, the legal basis for the proposed rule is the 
Commission's plenary options authority in CEA section 4c(b).
    3. A description of and, where feasible, an estimate of the number 
of small entities to which the proposed rule will apply.
    The small entities to which the proposed amendments may apply are 
those commercial parties that would not qualify as ECPs and/or that 
fall within the definition of a ``small entity'' under the RFA, 
including size standards established by the Small Business 
Administration.\73\ Although more than 300 Non-SD/MSPs have reported 
their use of trade options to the Commission through Form TO, the 
limited information provided by Form TO is not sufficient for the 
Commission to determine whether and how many of those Non-SD/MSPs 
qualify as small entities under the RFA.
---------------------------------------------------------------------------

    \73\ See id. See also 5 U.S.C. 601(3) (defining ``small 
business'' to have the same meaning as the term ``small business 
concern'' in the Small Business Act); 15 U.S.C. 632(a)(1) (defining 
``small business concern'' to include an agricultural enterprise 
with annual receipts not in excess of $750,000); 13 CFR 121.201 
(establishing size standards for small business concerns).
---------------------------------------------------------------------------

    4. A description of the projected reporting, recordkeeping, and 
other compliance requirements of the rule, including an estimate of the 
classes of small entities which will be subject to the requirement and 
the type of professional skills necessary for preparation of the report 
or record.
    The proposed amendments would relieve Non-SD/MSPs, which may 
include small entities, from certain recordkeeping and reporting 
requirements that would otherwise apply to them. While the proposal 
would impose a new requirement on certain Non-SD/MSPs to provide DMO by 
email with either the $1 Billion Notice or the Alternative Notice

[[Page 26207]]

annually, the Commission does not believe that this requirement would 
impact many small entities, if any at all. Given the significant volume 
of trade options required to trigger the proposed Notice Requirement, 
the Commission expects that it would apply to only a small number of 
entities and that such entities would likely not be small entities.\74\ 
The Commission's view is supported by DMO's experience with the $1 
Billion Notice provision in No-Action Letter 13-08: As indicated above, 
DMO received a $1 Billion Notice from only sixteen of the more than 300 
Non-SD/MSPs that filed a Form TO in 2014, and all such entities are 
generally well-known in their respective industries.\75\
---------------------------------------------------------------------------

    \74\ See 15 U.S.C. 632(a) (defining a ``small business concern'' 
generally to include an enterprise that is ``not dominant in its 
field of operation'').
    \75\ See supra note 37 and accompanying text.
---------------------------------------------------------------------------

    Filing the $1 Billion Notice would require affected Non-SD/MSPs to 
track and aggregate the notional values of their trade options. The 
Commission expects that this general information should be readily 
compiled and aggregated using a spreadsheet or other existing software 
and would not require any professional skills beyond those typically 
held by any commercial party. Furthermore, Non-SD/MSPs that reasonably 
expect to enter into trade options with an aggregate notional value in 
excess of $1 billion during the calendar year may, in line with the 
Alternative Notice, simply send an email to DMO to that effect, thereby 
avoiding having to track the notional values of their trade options.
    5. An identification, to the extent practicable, of all relevant 
Federal rules which may duplicate, overlap or conflict with the rule.
    The Commission is unaware of any Federal rules that could 
duplicate, overlap, or conflict with the proposal.
    6. A description of any significant alternatives to the proposed 
rule which accomplish the stated objectives of applicable statutes and 
which minimize any significant economic impact of the proposed rule on 
small entities. These may include, for example, (1) the establishment 
of differing compliance or reporting requirements or timetables that 
take into account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rule for such small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for such small 
entities.
    A potential alternative to relieving Non-SD/MSPs, which may include 
small entities, from certain recordkeeping and reporting requirements 
would be to either (1) not amend the current rule, which would maintain 
recordkeeping and reporting requirements that Non-SD/MSPs have 
represented are onerous, or (2) create a rule with more specific 
reporting parameters for specific entities. While the proposal would 
impose the new annual Notice Requirement on certain Non-SD/MSPs, 
overall, the Commission believes that the proposed amendments would 
have a positive economic impact on Non-SD/MSPs that are small entities 
because they would generally relax reporting requirements across all 
trade option counterparties that are Non-SD/MSPs. Although the proposal 
could expressly limit application of the Notice Requirement to entities 
that do not meet the RFA definition of a small entity, the Commission 
does not believe that is necessary because, as stated above, the 
Commission does not expect many small entities to be affected by that 
requirement, if any at all. Furthermore, even if a small entity were to 
enter into trade options with an aggregate notional value in excess of 
$1 billion during a calendar year, the Commission believes that such 
information would nevertheless be important to the Commission's insight 
into the market for otherwise unreported trade options and may cause 
the Commission to adjust the threshold for notice reporting above $1 
billion.

C. Paperwork Reduction Act

    The purposes of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 
et seq. (``PRA'') are, among other things, to minimize the paperwork 
burden to the private sector, ensure that any collection of information 
by a government agency is put to the greatest possible uses, and 
minimize duplicative information collections across the government.\76\ 
The PRA applies to all information, ``regardless of form or format,'' 
whenever the government is ``obtaining, causing to be obtained [or] 
soliciting'' information, and includes required ``disclosure to third 
parties or the public, of facts or opinions,'' when the information 
collection calls for ``answers to identical questions posed to, or 
identical reporting or recordkeeping requirements imposed on, ten or 
more persons.'' \77\ The PRA requirements have been determined to 
include not only mandatory but also voluntary information collections, 
and include both written and oral communications.\78\ Under the PRA, an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid control number from the Office of Management and Budget 
(``OMB''). The Commission seeks to amend the OMB control number 3038-
0106--Form TO, Annual Notice Filing for Counterparties to Unreported 
Trade Option. Therefore the Commission is submitting this proposal to 
OMB for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    \76\ See 44 U.S.C. 3501.
    \77\ See 44 U.S.C. 3502.
    \78\ See 5 CFR 1320.3(c)(1).
---------------------------------------------------------------------------

    With the exception of the proposed Notice Requirement, the 
Commission believes that these proposed rules will not impose any new 
information collection requirements that require approval of OMB under 
the PRA. As a general matter, the proposed rules would relax reporting 
and recordkeeping requirements for Non-SD/MSPs entering into trade 
options with each other in connection with their respective businesses, 
including the withdrawal and removal of Form TO. As such, the proposed 
rules will not result in the creation of any new information collection 
subject to OMB review or approval under the PRA, except for the annual 
Notice Requirement. Therefore, these proposed rules do not, by 
themselves, impose any new information collection requirements other 
than those that already exist in connection with trade options pursuant 
to part 32 of the Commission's regulations, except for the proposed 
Notice Requirement.
    As noted above, the Commission proposes to add the Notice 
Requirement for trade option counterparties that are Non-SD/MSPs, which 
requirement is considered to be a collection of information within the 
meaning of the PRA. Accordingly, the Commission is amending OMB control 
number 3038-0106 and submitting to OMB an information collection 
request for review and approval. If approved, this new collection of 
information will be mandatory.
    The Commission anticipates that affected Non-SD/MSPs may incur 
certain costs in complying with the proposed $1 Billion Notice, 
including those related to calculating the aggregate notional value of 
trade options entered into, and to drafting the notice email and 
submitting it to DMO. There are no additional capital costs associated 
with this collection because all respondents are already required to 
create and store detailed records of their trade option transactions 
pursuant to Sec.  32.3(b). The

[[Page 26208]]

Commission estimates that twenty respondents will file a total of one 
response each annually, and the estimated average number of hours per 
response would be two. Therefore, the Commission estimates the total 
burden hours associated with OMB control number 3038-0106 to be 40 
hours.
    The Commission notes that the proposed amendments would relieve 
trade option counterparties that are Non-SD/MSPs from certain 
recordkeeping and reporting requirements under part 45. The Commission 
believes that these proposed amendments would not cause a material net 
reduction in the current part 45 PRA burden estimates (OMB control 
number 3038-0096) to the extent that such reduced recordkeeping and 
reporting burdens for trade option counterparties that are Non-SD/MSPs 
would be insubstantial when compared to the overall part 45 PRA burden 
estimate as it relates to Non-SD/MSPs.
    The Commission specifically invites public comment on the accuracy 
of its estimate that no additional information collection requirements 
or changes to existing collection requirements, other than the proposed 
Notice Requirement, would result from the proposal.

List of Subjects in 17 CFR Part 32

    Commodity futures, consumer protection, fraud, reporting and 
recordkeeping requirements.

    For the reasons stated in the preamble, the Commodity Futures 
Trading Commission proposes to amend 17 CFR part 32 as set forth below:

PART 32--REGULATION OF COMMODITY OPTION TRANSACTIONS

0
1. The authority citation for part 32 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6c, and 12a, unless otherwise noted.

0
2. Revise Sec.  32.3 to read as follows:


Sec.  32.3  Trade options.

    (a) Subject to paragraphs (b), (c), and (d) of this section, the 
provisions of the Act, including any Commission rule, regulation, or 
order thereunder, otherwise applicable to any other swap shall not 
apply to, and any person or group of persons may offer to enter into, 
enter into, confirm the execution of, maintain a position in, or 
otherwise conduct activity related to, any transaction in interstate 
commerce that is a commodity option transaction, provided that:
    (1) Such commodity option transaction must be offered by a person 
that has a reasonable basis to believe that the transaction is offered 
to an offeree as described in paragraph (a)(2) of this section. In 
addition, the offeror must be either:
    (i) An eligible contract participant, as defined in section 1a(18) 
of the Act, as further jointly defined or interpreted by the Commission 
and the Securities and Exchange Commission or expanded by the 
Commission pursuant to section 1a(18)(C) of the Act; or
    (ii) A producer, processor, or commercial user of, or a merchant 
handling the commodity that is the subject of the commodity option 
transaction, or the products or by-products thereof, and such offeror 
is offering or entering into the commodity option transaction solely 
for purposes related to its business as such;
    (2) The offeree must be a producer, processor, or commercial user 
of, or a merchant handling the commodity that is the subject of the 
commodity option transaction, or the products or by-products thereof, 
and such offeree is offered or entering into the commodity option 
transaction solely for purposes related to its business as such; and
    (3) The commodity option must be intended to be physically settled, 
so that, if exercised, the option would result in the sale of an exempt 
or agricultural commodity for immediate or deferred shipment or 
delivery.
    (b) In connection with any commodity option transaction entered 
into pursuant to paragraph (a) of this section, every counterparty that 
is not a swap dealer or major swap participant shall:
    (1) Comply with the swap data recordkeeping requirements of Sec.  
45.2 of this chapter, as otherwise applicable to any swap transaction;
    (2) Obtain a legal entity identifier pursuant to Sec.  45.6 of this 
chapter if the counterparty to the transaction involved is a swap 
dealer or major swap participant, and provide such legal entity 
identifier to the swap dealer or major swap participant counterparty; 
and
    (3) Notify the Division of Market Oversight through an email to 
[email protected]:
    (i) No later than 30 days after entering into trade options, 
whether reported or unreported, having an aggregate notional value in 
excess of $1 billion during any calendar year, or
    (ii) Provide notice that the Non-SD/MSP reasonably expects to enter 
into trade options, whether reported or unreported, having an aggregate 
notional value in excess of $1 billion during any calendar year.
    (c) In connection with any commodity option transaction entered 
into pursuant to paragraph (a) of this section, the following 
provisions shall apply to every trade option counterparty to the same 
extent that such provisions would apply to such person in connection 
with any other swap:
    (1) Part 20 of this chapter (Swaps Large Trader Reporting);
    (2) Subpart J of part 23 of this chapter (Duties of Swap Dealers 
and Major Swap Participants);
    (3) Sections 23.200, 23.201, 23.203, and 23.204 of this chapter 
(Reporting and Recordkeeping Requirements for Swap Dealers and Major 
Swap Participants); and
    (4) Section 4s(e) of the Act (Capital and Margin Requirements for 
Swap Dealers and Major Swap Participants).
    (d) In addition, any person or group of persons offering to enter 
into, entering into, confirming the execution of, maintaining a 
position in, or otherwise conducting activity related to a commodity 
option transaction in interstate commerce pursuant to paragraph (a) of 
this section shall remain subject to part 180 of this chapter 
(Prohibition Against Manipulation) and Sec.  23.410 of this chapter 
(Prohibition on Fraud, Manipulation, and other Abusive Practices) and 
the antifraud, anti-manipulation, and enforcement provisions of 
sections 2, 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 13 
of the Act.
    (e) The Commission may, by order, upon written request or upon its 
own motion, exempt any person, either unconditionally or on a temporary 
or other conditional basis, from any provisions of this part, and the 
provisions of the Act, including any Commission rule, regulation, or 
order thereunder, otherwise applicable to any other swap, other than 
Sec.  32.4 of this chapter, part 180 of this chapter (Prohibition 
Against Manipulation), and Sec.  23.410 of this chapter (Prohibition on 
Fraud, Manipulation, and other Abusive Practices), and the antifraud, 
anti-manipulation, and enforcement provisions of sections 2, 4b, 4c, 
4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 13 of the Act, if it 
finds, in its discretion, that it would not be contrary to the public 
interest to grant such exemption.

    Issued in Washington, DC, on May 4, 2015, by the Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.

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


[[Page 26209]]



Appendices to Trade Options--Commission Voting Summary, Chairman's 
Statement, and Commissioners' Statements

Appendix 1--Commission Voting Summary

    On this matter, Chairman Massad and Commissioners Wetjen, Bowen, 
and Giancarlo voted in the affirmative. No Commissioner voted in the 
negative.

Appendix 2--Statement of Chairman Timothy G. Massad

    I am pleased to support the staff's recommendation to issue a 
proposed rulemaking to revise the rules regarding trade options, 
which are a subset of commodity options. Specifically, the 
Commission is proposing to reduce reporting and recordkeeping 
requirements for end-users that transact in trade options in 
connection with their businesses, including by eliminating the 
requirement to file form TO. These products are commonly used by 
commercial participants, so this action should help those 
participants continue to do so cost-effectively.
    We will continue to look at ways that we can make sure 
commercial end-users can use these markets effectively and to make 
sure that the new regulatory framework for swaps does not impose 
unintended consequences or burdens for them. An important part of 
this effort has been, and shall continue to be, fine-tuning our 
rules so that commercial companies can continue to conduct their 
daily operations efficiently.
    This proposed rulemaking would relax reporting and recordkeeping 
requirements where two commercial parties enter into trade options 
with each other in connection with their respective businesses. 
These proposed amendments are generally intended to reduce burdens 
for end-users, many of whom, as commenters explained, face 
logistical impediments and significant costs in connection with 
reporting their trade options.
    This proposed rulemaking reduces and clarifies requirements for 
end-users that use trade options in connection with their 
businesses, and the proposed amendments would allow the Commission 
to maintain regulatory insight into the market for otherwise 
unreported trade options. End-users would remain subject to the 
recordkeeping requirements in Sec.  45.2, which require market 
participants to maintain full and complete records and to open their 
records to inspection upon the Commission's request. Additionally, 
the proposed $1 billion notice requirement would provide the 
Commission insight into the size of the market for unreported trade 
options and the identities of the most significant market 
participants.
    I look forward to receiving public comment on this proposed 
rulemaking.

Appendix 3--Concurring Statement of Commissioner Sharon Y. Bowen

    Today, we are approving a proposed rule that would implement 
changes to the Commission's Trade Option exemption to reduce the 
burden on commercial entities seeking to hedge risks associated with 
their physical businesses. I support these changes. However, based 
upon comments the Commission has received and meetings that I have 
had with members of the public, I believe the Commission should 
consider additional clarifications to better ensure legal certainty 
for the manufacturing, energy and agricultural industries' ability 
to address their commercial risks.
    In the manufacturing, agriculture and energy sectors, a wide 
variety of physically-delivered instruments are used to secure 
companies' commercial needs for a physical commodity. These 
instruments, although they call for physical delivery, often contain 
some element of optionality that can lead to questions about their 
appropriate regulatory treatment. These contracts, particularly in 
the energy sector, are all commonly referred to as physical 
contracts, and they, according to what I have been told, often 
receive similar treatment from both a business operations and an 
accounting standpoint within the entities that use them.
    Further, these physical contracts are often handled and 
accounted for separately from other derivatives, such as futures 
contracts or cash-settled swaps, according to market participants. 
Treating some portion of these physical contracts as swaps simply 
because they may contain some characteristics of commodity options 
can lead to significant costs and difficulties. For instance, 
companies may have to reconfigure their business systems to parse 
transactions where there was, before Dodd Frank, no need to 
undertake such a reconfiguration.
    Many commenters and people I have met have expressed particular 
concerns regarding how instruments having elements of both forward 
contracts and some volumetric optionality should be regulated. In a 
separate release, the Commission plans to finalize guidance on how 
forward contracts with embedded volumetric optionality relate to the 
forward contract exclusion from the swap definition. While that 
release will help address the circumstances under which volumetric 
optionality embedded in a forward contract do not cause the forward 
contract to be a ``swap'', my understanding is that additional 
relief may still be helpful to commercial market participants 
seeking to hedge their physical needs with instruments that contain 
a forward contract with volumetric optionality.
    Market participants have also expressed concerns about the 
appropriate treatment of ``peaking supply contracts'' which are 
often used by companies to manage the risks attendant to their need 
for physical commodities that may be used to generate electricity, 
run an operating plant, or manufacture or supply other goods and 
services.
    For both types of instruments, I think, the Commission could 
benefit from getting comments on potential avenues for addressing 
concerns that have been raised about their appropriate treatment.

Instruments Containing a Forward Contract With Volumetric 
Variability

    As noted in the proposal, the trade option exemption is intended 
to permit parties to hedge or otherwise enter into commodity option 
transactions for commercial purposes without being subject to the 
general Dodd-Frank swaps regime. The exemption continues the long 
Commission policy of exempting them from requirements of the 
Commodity Exchange Act that would otherwise apply to commodity 
options. It provides an exemption for contracts meeting the 
requirements of the trade option exemption from regulation as swaps 
to the extent they would otherwise be subject to regulation by 
virtue of being a ``commodity option''.
    Both forward contracts and trade options play an important role 
in managing the physical commodity risks attendant to commercial 
operations. According to industry participants, there can be 
difficulty in separating out, for regulatory purposes, the 
``option'' component of an instrument containing both a forward 
contract and an element that might be considered a commodity option. 
My understanding is that these overall instruments are typically 
used to address a commercial entity's physical requirements for a 
particular commodity as part of its ongoing commercial operation and 
that the commodity option component is often used to manage 
uncertainty in the commercial supply and demand factors that affect 
a commercial entities' need for a particular physical commodity. 
Additionally, these instruments are often highly customized and the 
various components not always easy to separate and classify, 
according to industry participants.
    Given these concerns, I think it would be helpful to get comment 
upon whether the Commission should consider a new Sec.  32.3(f) as 
part of the trade option exemption being proposed today. Such an 
exemption would exempt qualifying trade options from the swap 
reporting and recordkeeping requirements that would otherwise apply 
to them as trade options so long as they: (1) Are not severable nor 
separately marketable from the forward contract component of overall 
instrument, (2) are related to and entered into concurrently with 
the forward contract component of overall instrument, and (3) for 
which the physical commodity underlying the trade option component 
is the same as that underlying the forward contract component of the 
overall instrument.
    The text of such additional exemption would read as follows:
    ``Sec.  32.3(f) Instruments Containing a Forward Contract with 
Volumetric Variability. In the case of an instrument containing a 
forward contract with volumetric variability that meets the 
definition of a trade option (as defined by paragraph (a)), the 
component of such instrument that is a trade option shall be subject 
to only the requirements of paragraph (d) provided:
    (1) The volumetric variability is not severable nor separately 
marketable from the forward contract component,
    (2) the volumetric variability is related to and entered into 
concurrently with the forward contract component, and
    (3) the physical commodity underlying the volumetric variability 
is the same as that underlying the forward contract component.''

[[Page 26210]]

Supply Contracts for a Specified Portion of an Entity's Physical 
Need for a Commodity (e.g., peaking supply contracts)

    As noted above, concerns have also been raised about the 
appropriate treatment of peaking supply contracts which are often 
used by companies to manage the risks attendant to their need for 
physical commodities that may be used to generate electricity, run 
an operating plant, or manufacture or supply other goods and 
services.
    Market participants have raised concerns about whether or not 
these contracts could be considered commodity options. In instances 
where these contracts represent a reservation of a portion of 
supplier's capacity to provide a particular commodity and not a 
transaction for the commodity itself, it seems possible these 
contracts may not be commodity options. One test that has been 
proposed to determine whether or not such contracts are commodity 
options is whether:
    1. The subject of the agreement, contract or transaction is a 
binding, sole-source, obligation of a supplier of a physical 
commodity to stand ready to meet a specified portion of a commercial 
consumer's physical need for a commodity through providing for the 
physical delivery of that commodity to the specified commercial 
consumer or its designee in connection with the physical obligation,
    2. The payment provided by the commercial consumer to the 
commercial supplier for such agreement, contract or transaction is 
in the nature of a reservation charge to provide the service of 
standing ready to meet the physical needs of the commercial 
consumer,
    3. Payment for any commodity delivered under such agreement, 
contract or transaction is at the market price for that commodity at 
the time of delivery (i.e., the agreement, contract, or transaction 
is not used to hedge price risk), and
    4. The agreement, contract or transaction is necessary to meet 
the commercial consumer's projected physical needs or is required by 
regulation.
    I think the Commission would benefit from receiving comments on 
this proposed test and peaking supply contracts more generally as it 
appears to be one of the significant outstanding issues regarding 
instruments that may or may not be trade options.
    Together, these two additional items may help address 
outstanding concerns that have been expressed by commercial market 
participants, and I think the Commission would benefit by getting 
comment upon them.

Appendix 4--Statement of Commissioner J. Christopher Giancarlo

    I support the Commission's proposed amendments to the interim 
final trade options rule. These are common sense reforms that will 
alleviate certain recordkeeping and reporting burdens that Sec.  
32.3 currently imposes on end-users that use trade options to manage 
commercial risk. The deletion of the reference in Sec.  32.3(c)(2) 
to part 151 position limits is also appropriate in light of the fact 
that part 151 was vacated by the court in Int'l Swaps & Derivatives 
Ass'n v. U.S. Commodity Futures Trading Comm'n, 887 F. Supp. 2d 259 
(D.D.C. 2012).
    I strongly disagree, however, with the Commission's statement 
that it preliminarily believes that any future application of 
position limits would be best addressed in the context of the 
pending position limits rulemaking. Simply put, position limits for 
trade options are not ``necessary to diminish, eliminate, or 
prevent'' excessive speculation. Section 4a(a)(1) of the Commodity 
Exchange Act (CEA). The final trade options rule should make clear 
that trade options are exempt from position limits.
    As the Commission recognized in promulgating the interim final 
rule establishing the trade options exemption, ``position limits 
apply only to speculative positions. . . . Trade options, which are 
commonly used as hedging instruments or in connection with some 
commercial function, would normally qualify as hedges, exempt from 
the speculative position limit rules.'' Commodity Options, 77 FR 
25320, 25328 n.50 (Apr. 27, 2012).
    By definition, the offeree to a trade option ``must be a 
producer, commercial user of, or a merchant handling the commodity 
that is the subject of the commodity option transaction, or the 
products or by-products thereof,'' and must restrict the use of 
trade options ``solely for purposes related to its business as 
such.'' Sec.  32.3(a)(2). Moreover, the ``option must be intended to 
be physically settled, so that, if exercised, [it] would result in 
the sale of an exempt or agricultural commodity for immediate or 
deferred shipment or delivery.'' Sec.  32.3(a)(3). Given these 
parameters, the risk that trade options could be used to engage in 
speculation, much less excessive speculation, is so remote as to be 
virtually non-existent.
    Applying a position limits regime to trade options and requiring 
commercial end-users to seek bona fide hedge treatment for those 
transactions, which was floated as a possibility in the pending 
proposed position limits rule, would not be an acceptable outcome. 
See Position Limits for Derivatives, 78 FR 75680, 75711 (Dec. 12, 
2013). As commenters to the proposed position limits rule have 
pointed out, there is no regulatory benefit to imposing position 
limits on instruments that inherently are not speculative in nature, 
and doing so ``will distort commodity markets and impede 
economically efficient behavior'' by discouraging the use of trade 
options. Natural Gas Supply Association Comment Letter dated Aug. 4, 
2014 at 13. A comment letter filed by the Edison Electric Institute 
and the Electric Power Supply Association (Joint Associations) cites 
persuasive examples of how application of the proposed position 
limits rule would eliminate the ability of market participants to 
enter into multi-month and multi-year trade options. See Joint 
Associations Comment Letter dated Feb. 7, 2014 at 6-7; see also 
American Gas Association Comment Letter dated Feb. 10, 2014 at 5 
(the lack of a contractual upper limit in the way that natural gas 
options are structured make position limit reporting impossible).
    The Commission has the authority in section 4a(a)(7) of the CEA 
to exempt ``any person or class of persons, any swap or class of 
swaps, any contract of sale of a commodity for future delivery or 
class of such contracts, any option or class of options, or any 
transaction or class of transactions from any requirement it may 
establish . . . with respect to position limits.''
    As long as the specter of position limits hangs over trade 
options, market participants that have used these instruments for 
decades as a cost effective means of ensuring a reliable supply of a 
physical commodity and to hedge commercial risk will be reluctant to 
use them. As I have said before, commercial end-users, including 
commercial end-users of everyday trade options, were not the cause 
of the financial crisis and the federal government should stop 
treating them like they were.
    I urge my fellow Commissioners to eliminate this regulatory 
uncertainty sooner, rather than later, by exercising our section 
4a(a)(7) authority in connection with this trade options rulemaking. 
I encourage further public comment on the issue.

[FR Doc. 2015-11020 Filed 5-6-15; 8:45 am]
 BILLING CODE 6351-01-P