[Federal Register Volume 77, Number 213 (Friday, November 2, 2012)]
[Rules and Regulations]
[Pages 66287-66350]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25764]



[[Page 66287]]

Vol. 77

Friday,

No. 213

November 2, 2012

Part III





Commodity Futures Trading Commission





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17 CFR Parts 1, 4, 5, et al.





Adaptation of Regulations to Incorporate Swaps; Final Rule

Federal Register / Vol. 77 , No. 213 / Friday, November 2, 2012 / 
Rules and Regulations

[[Page 66288]]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 4, 5, 7, 8, 15, 16, 18, 21, 22, 36, 38, 41, 140, 
145, 155, and 166

RIN Number 3038-AD53


Adaptation of Regulations To Incorporate Swaps

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(``Dodd-Frank Act'' or ``DFA'') established a comprehensive new 
statutory framework for swaps and security-based swaps. The Dodd-Frank 
Act repeals some sections of the Commodity Exchange Act (``CEA'' or 
``Act''), amends others, and adds a number of new provisions. The DFA 
also requires the Commodity Futures Trading Commission (``CFTC'' or 
``Commission'') to promulgate a number of rules to implement the new 
framework. The Commission has proposed and finalized numerous rules to 
satisfy its obligations under the DFA. This rulemaking makes a number 
of conforming amendments to integrate the CFTC's regulations more fully 
with the new framework created by the Dodd-Frank Act.

DATES: Effective January 2, 2013.

FOR FURTHER INFORMATION CONTACT: Peter A. Kals, Special Counsel, 202-
418-5466, pkals@cftc.gov, Division of Clearing and Risk; Elizabeth 
Miller, Attorney-Advisor, 202-418-5450, emiller@cftc.gov, Division of 
Swap Dealer and Intermediary Oversight; David E. Aron, Counsel, 202-
418-6621, daron@cftc.gov, Office of General Counsel; Alexis Hall-Bugg, 
Attorney-Advisor, 202-418-6711, ahallbugg@cftc.gov, Division of Market 
Oversight; Katherine Driscoll, Senior Trial Attorney, 202-418-5544, 
kdriscoll@cftc.gov, Division of Enforcement, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1151 21st Street NW., Washington, 
DC 20581.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. Amended Regulations
    A. Part 1
    1. Regulation 1.3: Definitions
    a. General Changes
    b. Various Amended and New Definitions (Regulation 1.3)
    c. Regulation 1.3(t): Open Contract
    d. Regulation 1.3(ll): Physical
    e. Regulation 1.3(ss): Foreign Board of Trade
    f. Regulation 1.3(yy): Commodity Interest
    g. Regulation 1.3(z): Bona Fide Hedging Transactions and 
Positions
    h. Lack of a Definition of ``End-User'' in Regulation 1.3
    2. Regulation 1.4: Use of Electronic Signatures
    3. Regulation 1.31: Books and Records; Keeping and Inspection
    4. Regulations 1.33: Monthly and Confirmation Statements
    5. Regulation 1.35: Records of Cash Commodity, Futures and 
Option Transactions
    6. Regulation 1.37: Customer's or Option Customer's Name, 
Address, and Occupation Recorded; Record of Guarantor or Controller 
of Account
    7. Regulation 1.39: Simultaneous Buying and Selling Orders of 
Different Principals; Execution of, for and Between Principals
    8. Regulation 1.40: Crop, Market Information Letters, Reports; 
Copies Required
    9. Regulation 1.59: Activities of Self-Regulatory Employees, 
Governing Board Members, Committee Members and Consultants
    10. Regulation 1.63: Service on Self-Regulatory Organization 
Governing Boards or Committees by Persons With Disciplinary 
Histories
    11. Regulation 1.67: Notification of Final Disciplinary Action 
Involving Financial Harm to a Customer
    12. Regulation 1.68: Customer Election Not To Have Funds, 
Carried by a Futures Commission Merchant for Trading on a Registered 
Derivatives Trading Execution Facility, Separately Accounted for and 
Segregated
    13. Regulations 1.44, 1.53, and 1.62--Deletion of Regulations 
Inapplicable to Designated Contract Markets
    14. Technical Changes to Part 1 in Order to Accommodate Recently 
Finalized Part 22 and Corresponding Changes to Part 22
    B. Part 7
    C. Part 8
    D. Parts 15, 18, 21, and 36
    E. Parts 41, 140 and 145
    F. Parts 155 and 156
    G. Other General Changes to CFTC Regulations
    1. Removal of References to DTEFs
    2. Other Conforming Changes
III. Administrative Compliance
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. Consideration of Costs and Benefits

I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act into 
law.\1\ Title VII of the Dodd-Frank Act \2\ (``Title VII'') amended the 
CEA \3\ to establish a comprehensive new regulatory framework for swaps 
and security-based swaps. The legislation was enacted, among other 
reasons, to reduce risk, increase transparency, and promote market 
integrity within the financial system by, among other things: (1) 
Providing for the registration and comprehensive regulation of swap 
dealers (``SDs''), security-based swap dealers, major swap participants 
(``MSPs''), and major security-based swap participants; (2) imposing 
clearing and trade execution requirements on swaps and security-based 
swaps, subject to certain exceptions; (3) creating rigorous 
recordkeeping and real-time reporting regimes; and (4) enhancing the 
rulemaking and enforcement authorities of the Commissions with respect 
to, among others, all registered entities and intermediaries subject to 
the Commission's oversight.
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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act is available at http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.
    \2\ Pursuant to section 701 of the Dodd-Frank Act, Title VII may 
be cited as the ``Wall Street Transparency and Accountability Act of 
2010.''
    \3\ 7 U.S.C. 1 et seq. (2006).
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    To apply its regulatory regime to the swap activity of 
intermediaries, the Commission must make a number of changes to its 
regulations to conform them to the Dodd-Frank Act. On June 7, 2011, the 
Commission published in the Federal Register a proposal to make such 
changes (``the Proposal'').\4\ There was a 60-day period for the public 
to comment on the Proposal, which ended on August 8, 2011. The 
Commission received 39 comment letters from a variety of institutions, 
including designated contract markets (``DCMs''), agricultural trade 
associations, and agricultural cooperatives.\5\ The Commission has 
determined to adopt the proposed rules primarily in the form proposed 
with certain modifications, discussed below, to address the comments 
the Commission received. With respect to certain of the proposed 
changes to regulation 1.35 \6\ (regarding recording of oral 
communications and the scope of written communications) and related 
amendments to regulation 1.31, the Commission has determined to address 
those changes in a final rule in a separate release.
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    \4\ Adaptation of Regulations to Incorporate Swaps, 76 FR 33066 
(June 7, 2011) (``Proposing Release'').
    \5\ Comment letters are available in the comment file on 
www.cftc.gov.
    \6\ All Commission regulations are in Chapter I of Title 17 of 
the CFR.
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    The Commission is mindful of, and continues to consider, the 
comments received on the Proposal's amendments to regulation 1.35 
(records of commodity interest and cash commodity transactions). Those 
comments were submitted by various groups, including DCMs, 
representatives of the FCM and IB communities, energy

[[Page 66289]]

end-users, and agricultural trade associations and cooperatives.\7\ 
These commenters focused primarily on: the proposed oral communications 
recordkeeping requirement, in general; the proposed requirement that 
all members of a DCM or SEF, including unregistered commercial end-
users and non-intermediaries, keep records of the oral communications 
that lead to the execution of a cash commodity transaction; and the 
proposed requirement that each record be maintained in a separately 
identifiable electronic file identifiable by transaction and 
counterparty. Many of the comments were directed specifically toward 
narrowing the scope of the proposed changes to regulation 1.35 
regarding recording of oral communications and written communications 
(and related amendments to regulation 1.31).
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    \7\ Commenters on this issue include: American Cotton Shippers 
Association; Agribusiness Association of Iowa; Agribusiness 
Association of Ohio; Agribusiness Council of Indiana; Trade 
Association of American Cotton Cooperatives; Commodity Markets 
Council; Falmouth Farm Supply; American Feed Industry Association; 
Grain and Feed Association of Illinois; Minnesota Grain and Feed 
Association; National Grain and Feed Association; Oklahoma Grain and 
Feed Association; Rocky Mountain Agribusiness Association; South 
Dakota Grain and Feed Association; Land O'Lakes; National Council of 
Farmer Cooperatives; American Gas Association; National Gas Supply 
Association; Fertilizer Institute; American Petroleum Institute; 
Electric Power Supply Association; National Rural Electric 
Cooperative Association; American Public Power Association; Large 
Public Power Council; Edison Electric Institute; Working Group of 
Commercial Energy Firms; IntercontinentalExchange Inc.; Kansas City 
Board of Trade; Minneapolis Grain Exchange; CME Group; Futures 
Industry Association; Barclays Capital; Henderson & Lyman; National 
Introducing Brokers Association; and National Futures Association.
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    The amendments adopted by this rulemaking primarily affect part 1 
of the Commission's regulations, but also affect parts 4, 5, 7, 8, 15, 
16, 18, 21, 22, 36, 41, 140, 145, 155, and 166. This rulemaking 
contains amendments of three different types: ministerial, 
accommodating, and substantive. Many of the amendments are purely 
ministerial--for instance, several changes update definitions to 
conform them to the CEA as amended by the Dodd-Frank Act; add to the 
Commission's regulations new terms created by the Dodd-Frank Act; 
remove all regulations and references pertaining to derivatives 
transaction execution facilities (``DTEFs''), a category of trading 
facility added to the CEA by section 111 of the Commodity Futures 
Modernization Act of 2000 (``CFMA''),\8\ which the DFA eliminated; 
correct various statutory cross-references to the CEA in the 
regulations; and remove regulations in whole or in part that were 
rendered moot by the CFMA.
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    \8\ Public Law 106-554, 114 Stat. 2763 (2000).
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    The accommodating amendments are essential to the implementation of 
the DFA in that they propose to add swaps, swap markets, and swap 
entities to numerous definitions and regulations, but are more than 
ministerial because they require some judgment in drafting. 
Accommodating amendments include, among other things, amending numerous 
definitions in regulation 1.3 to reference or include swaps; creating 
new definitions as necessary in regulation 1.3; amending recordkeeping 
requirements to include information on swap transactions; adding 
references to swaps and swap execution facilities (``SEFs'') in various 
part 1 regulations; and amending parts 15, 18, 21, and 36 to implement 
the DFA's grandfathering and phase-out of exempt boards of trade and 
exempt commercial markets.
    The substantive amendments are changes that align requirements or 
procedures across futures and swap markets. They consist of amendments 
to regulation 1.31 that harmonize some of the current part 1 
recordkeeping requirements with some of those applicable to SDs and 
MSPs under part 23 regulations \9\ and amend procedures pertaining to 
the post-execution allocation of bunched orders (regulation 1.35(a)). 
Under the amendments to the bunched orders provisions, ``eligible 
account managers'' can allocate such orders post-execution similarly to 
how they currently do so with futures.
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    \9\ See Swap Dealer and Major Swap Participant Recordkeeping, 
Reporting, and Duties Rules; Futures Commission Merchant and 
Introducing Broker Conflicts of Interest Rules; and Chief Compliance 
Officer Rules for Swap Dealers, Major Swap Participants, and Futures 
Commission Merchants, 77 FR 20128 (Apr. 3, 2012) (adopting for SDs 
and MSPs reporting and recordkeeping standards now found in 17 CFR 
23.201-23.203).
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    To aid the public in understanding the numerous changes to 
different parts of the CFTC's regulations adopted by this release, the 
Commission will also publish on its Web site a ``redline'' of the 
affected regulations which will clearly reflect the additions and 
deletions.\10\
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    \10\ The redline does not, in and of itself, have any legal 
authority.
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II. Comments Received and Amended Regulations

A. General Comments

    Several commenters argued that the Proposal was premature because 
many other rules remained to be proposed and finalized,\11\ and 
subsequent final rulemakings may dictate which conforming amendments 
will be necessary. A joint letter by certain Electric Utility Trade 
Associations (``the ETA'') contended that the incomplete nature of the 
swap regulatory regime renders it unable to ``effectively comment,'' 
because it lacks a full understanding of the entire swap regulatory 
landscape. In the ETA's view, the ``premature'' nature of the Proposal 
rises to the level of a violation of the Administrative Procedures Act 
(``APA'').\12\ The ETA commented further that because the Proposal 
updated certain regulations by treating swaps equivalently to futures, 
the Proposal ``represents a fundamental misunderstanding'' of the 
executing electric industry swap market, and, consequently, should be 
withdrawn. The ETA also noted that, ``[f]rom time to time, the 
Commission's staff has declined to consider whether nonfinancial 
commodity and related swap markets are indeed different in any 
meaningful way from other markets,'' and that the ETA ``continues to 
urge the Commission to engage in a considered analysis of such 
differences and the implications of such differences for its rulemaking 
process.'' The CME Group (``CME'') argued that the Commission should 
have waited to propose the voice and electronic recordkeeping 
requirements in regulation 1.35(a) until SEFs register, the Dodd-Frank 
Act clearing and exchange trading requirements take effect, and Dodd-
Frank Act recordkeeping and reporting requirements take effect. The 
Electric Power Supply Association (``EPSA'') commented that final rules 
defining swap, SD, and MSP must be published prior to proposing a rule 
conforming the Commission's regulations to the Dodd-Frank Act and 
related regulations. Therefore, EPSA argued, the Proposal should be 
withdrawn. Mr. Chris Barnard generally supported the Proposal, 
commenting that the proposed changes were either common sense or 
required by the DFA.
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    \11\ A joint letter by the American Gas Association, Commodity 
Markets Council, National Gas Supply Association, and the Fertilizer 
Institute (``AGA et al.''); Commodity Markets Council (``CMC''); 
Electric Power Supply Association; certain Electric Utility Trade 
Associations; and the Working Group of Commercial Energy Firms 
(``Working Group'').
    \12\ See ETA Letter (claiming that ``[t]he [Proposal] cannot 
fairly apprise interested persons of the nature of the Commission's 
rulemaking, nor can it provide notice of `the terms of substance of 
the proposed rule or a description of the subjects and issues 
involved,' as required by the [APA], when the proposed rules purport 
to adapt to a moving target.'').
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    The Commission believes it was appropriate to have published the 
Proposal when it did. The purpose of this rulemaking is to conform the 
Commission's regulations to the CEA as

[[Page 66290]]

revised by the DFA where necessary (to avoid conflicting statutory and 
regulatory definitions of the same term, for example) or desirable 
(e.g., to make retention periods for records of all swap transactions 
consistent with those recently adopted for the records of swap 
transactions of SDs). The Commission viewed many of these changes to be 
non-controversial. For example, the DFA amended the definition of FCM 
in section 1a of the CEA to permit FCMs to execute and clear swaps for 
customers in addition to futures. Accordingly, the Proposal updated 
regulation 1.3's definition of FCM, as well as recordkeeping 
requirements in regulations 1.31, 1.33, and 1.35, so that an FCM's 
duties with respect to swaps would mirror its duties with respect to 
futures. Because IBs and FCMs can execute or clear cleared swaps 
analogously to futures, the Commission believes that certain of the 
requirements in regulations 1.31, 1.33, and 1.35, which describe 
recordkeeping requirements for FCMs and IBs, can and should apply 
equivalently to an FCM's futures and cleared swaps business. In 
response to the ETA's comment that the Proposal inappropriately equated 
swaps with futures, the Commission notes that part 23 of the 
Commission's regulations addresses issues unique to the swap market by 
describing recordkeeping and other ``business conduct'' requirements 
for SDs and MSPs.
    The Commission believes it is appropriate to make these conforming 
changes at this time. In adopting this final rule, the Commission is 
incorporating any changes necessitated by other final Dodd-Frank Act 
rulemakings.

B. Part 1

1. Regulation 1.3: Definitions
a. General Changes
    The Commission is revising regulation 1.3 so that its definitions, 
which are used throughout the Commission's regulations, incorporate 
relevant provisions of the DFA. For instance, amended regulation 1.3 
updates current definitions to conform them to the Dodd-Frank Act's 
amendments of the same terms in the CEA's definitions section,\13\ and 
also includes definitions specifically added by the Dodd-Frank Act to 
the CEA. This is the case for many of the definitions in proposed 
regulation 1.3, including ``commodity pool operator,'' ``commodity 
trading advisor,'' ``futures commission merchant,'' ``introducing 
broker,'' ``floor broker,'' ``floor trader,'' ``swap data repository,'' 
and ``swap execution facility.'' For example, section 721(a)(5) of the 
DFA amended the definition of ``commodity pool operator'' (``CPO'') in 
CEA section 1a to add swaps to those contracts for which soliciting 
funds for a collective investment renders a person a CPO. Consequently, 
today's final rulemaking updates the definition of CPO in regulation 
1.3 to match the DFA's new definition of that term. The Commission did 
not receive comments about the Proposal's revised definitions of 
``commodity pool operator,'' ``commodity trading advisor,'' ``futures 
commission merchant,'' ``floor broker,'' ``floor trader,'' ``swap data 
repository,'' and ``swap execution facility.'' The Commission is 
adopting these definitions as proposed.
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    \13\ CEA section 1a, 7 U.S.C. 1a.
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    In response to the proposed conforming amendments to the definition 
of ``introducing broker,'' Financial Services Roundtable (``FSR'') 
commented that a small commercial lender facilitating a swap 
transaction between a borrower and a third party, solely in connection 
with the lender's loan origination or syndication, should not have to 
register as an introducing broker (``IB''), but could possibly be 
required to do so under the amended definition. FSR commented further 
that such a result would be inconsistent with a 2004 staff no-action 
letter,\14\ in which the Commission's Division of Clearing and 
Intermediary Oversight explained that the purpose of registering and 
regulating IBs is to protect the public from sales abuses--according to 
FSR, such a concern does not exist in the situation FSR described. 
Specifically, FSR recommended that the Commission further define the 
term ``introducing broker'' to specifically exclude the lenders it 
described, or in the alternative, that the Commission issue 
interpretative guidance addressing this issue.
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    \14\ CFTC No-Action Letter No. 04-34 at 3 (Sept. 16, 2004).
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    The Commission declines to further define the term ``introducing 
broker'' as FSR requested, and is adopting the term as proposed. 
However, the Commission believes that in the situation described by 
FSR, the small commercial lender would not be required to register as 
an IB, as long as it did not receive compensation from the third party 
with whom the lender arranges the borrower's swap. This analysis is 
based solely on the facts as presented by FSR in its comment letter and 
is consistent with previously issued staff no-action or interpretative 
letters.\15\ Staff can issue further guidance, as appropriate, on a 
case-by-case basis under regulation 140.99.\16\
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    \15\ FSR stated that the lenders it described receive 
compensation ``in connection with lending and retaining risk and not 
in connection with introducing a [swap provider].'' A key element of 
both the previous and amended definitions of IB is that the person 
engages in the described conduct ``for compensation or profit, 
whether direct or indirect.'' 17 CFR 1.3(mm). This analysis is 
consistent with past Commission guidance requiring an individual to 
register as an IB based on referring customers to a commodity 
trading advisor and receiving compensation in return. CFTC Interp. 
Letter No. 86-27 (Introducing Broker Registration Requirements), 
Comm. Fut. L. Rep. (CCH) ] 23,364, CFTC (Nov. 24, 1986). This letter 
emphasized that ``the presence or absence or[sic] per-trade 
compensation is not determinative of whether one falls within the 
definition of an introducing broker. The Commission's final rule 
expressly eliminated the form and manner of compensation as the 
principal measure of whether registration as an introducing broker 
would be required * * * [P]ursuant to the express terms of the 
introducing broker definition in rule 1.3(mm), any compensation 
(without regard to whether such compensation is per-trade or 
otherwise) for the solicitation or acceptance of orders * * * brings 
one within the definition.'' Id. (footnotes omitted). Therefore, if 
the lenders FSR described receive compensation from the swap 
providers for their customer referrals, then the lenders would fall 
within the definition and be required to register as IBs.
    \16\ Separately, the Commission notes that the activity of an 
associated person ``AP'' of an SD may resemble the swap activity of 
an IB. The definition of IB in regulation 1.3(mm), as amended by 
today's final rule, excludes an AP, including an AP of an SD. 
Pursuant to paragraph (6) of the definition of AP in regulation 
1.3(aa), an AP of an SD could be an agent of the SD while not an 
employee of the SD. This may be the case, for example, where an 
employee of an affiliate of the SD is authorized to negotiate swap 
transactions on behalf of the SD. Where such an agency relationship 
is present, the Commission would not consider the employer of such 
an AP of an SD to be an IB due to the activities of that AP of the 
SD.
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    Additionally, the Proposal revised the definition of ``self-
regulatory organization'' (``SRO'') (regulation 1.3(ee)) to include 
SEFs, a new category of regulated markets under the DFA, and 
derivatives clearing organizations (``DCOs''). The Commission did not 
receive any comments concerning its proposal to amend this definition. 
Today's final rulemaking amends the definition of SRO by including 
SEFs. However, it does not amend the definition of SRO to include DCOs. 
Upon further reflection, the Commission has determined that the part 1 
regulations applicable to SROs need not apply to DCOs in light of 
recently finalized regulations in part 39 implementing the Act's Core 
Principles for DCOs.\17\ For example, paragraph (6) of regulation 
39.12(a) (``Participant and product eligibility'') requires a DCO to 
have the ability to enforce compliance

[[Page 66291]]

with its participation requirements and to establish procedures for the 
suspension and orderly removal of clearing members that no longer meet 
the requirements. Moreover, the Commission is in the midst of other 
rulemakings pertaining to the responsibilities of SROs and DCOs, e.g., 
proposed regulations regarding the governance of DCOs.\18\
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    \17\ DCO General Provisions and Core Principles, 76 FR 69334 
(Nov. 8, 2011).
    \18\ Requirements for DCOs, DCMs, and SEFs Regarding the 
Mitigation of Conflicts of Interest, 75 FR 63732 (Oct. 18, 2010); 
and Governance Requirements for DCOs, DCMs, and SEFs; Additional 
Requirements Regarding the Mitigation of Conflicts of Interest, 76 
FR 722 (Jan. 6, 2011).
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b. Various Amended and New Definitions (Regulation 1.3)
    The Commission is (1) simplifying or clarifying certain existing 
regulation 1.3 definitions, and (2) adding several new definitions to 
regulation 1.3, pursuant to amendments to the CEA by the Dodd-Frank 
Act, existing regulations, and other amendments in the Proposal.
    The term ``contract market,'' for instance, is not defined under 
the CEA, and is currently defined under regulation 1.3(h) as ``a board 
of trade designated by the Commission as a contract market under the 
Commodity Exchange Act or in accordance with the provisions of part 33 
of this chapter.'' In certain provisions throughout the Commission's 
regulations, contract markets are also referred to as ``designated 
contract markets.'' Because both terms are used interchangeably within 
the regulations, the Commission has decided to revise the definition to 
mean contract market and designated contract market (``DCM''). Proposed 
regulation 1.3(h) contained one definition identified by the title 
``Contract market; designated contract market.'' The proposed 
definition also corrected an erroneous cross-reference to part 33 as 
the regulations applicable to DCMs, which the Commission is correcting 
by changing it to a reference to part 38 of the Commission's 
regulations. No commenters addressed these changes. The Commission is 
adopting the definition in regulation 1.3(h) as proposed with one 
modification to reflect the fact that the Commission designates a board 
of trade as a contract market ``under the Act and in accordance with 
part 38'' as opposed to ``under the Act or in accordance with part 
38.''
    The Proposal contained a similar clarification regarding the 
definition of ``customer.'' It simplified the definition of 
``customer'' by combining two existing definitions, ``customer; 
commodity customer'' in regulation 1.3(k) and ``option customer'' in 
regulation 1.3(jj), and by adding swaps to the proposed definition. 
Therefore, the proposed definition included swap customers, commodity 
customers, and option customers, referring to them all with the single 
term, ``customer.'' Furthermore, the Commission proposed to revise all 
references to ``commodity customer'' and ``option customer'' throughout 
the Commission's regulations, but particularly in part 1, to simply 
refer to ``customer.'' \19\ The proposed revisions retained references 
to requirements specific to certain contracts.\20\ Today's final 
rulemaking revises the definition of ``customer'' (regulation 1.3(k)), 
as proposed, and deletes the definition of ``option customer'' 
(regulation 1.3(jj)), as proposed. The Commission did not receive 
comments about the proposed deletion of the term ``option customer.''
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    \19\ The Commission proposed to remove references to commodity 
customers and option customers, replacing them with references to 
simply ``customer,'' in the following regulations: 17 CFR 1.3, 1.20-
1.24, 1.26, 1.27, 1.30, 1.32-1.34, 1.35-1.37, 1.46, 1.57, 1.59, 
155.3, 155.4, and 166.5.
    \20\ For example, proposed regulation 1.33 (Monthly and 
confirmation statements) required an FCM to document a customer's 
positions in futures contracts differently from its option or swap 
positions. Proposed regulation 1.33 preserved these distinctions, 
even though it referred only to ``customers'' as opposed to 
``commodity customers,'' ``option customers,'' and ``swap 
customers.''
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    ETA commented that counterparties to electricity swap contracts are 
not customers analogous to futures customers, and, therefore, by 
expanding the ``customer'' concept to include entities that execute 
swaps, the Commission would impose ``significant and inappropriate 
obligations'' on swap counterparties. The Commission has decided to 
finalize the definition of customer, as proposed. ETA is correct that 
counterparties to bilaterally-executed swaps are principals, which is 
unlike trading futures, where FCMs are agents of their customers. 
However, FCMs will execute and clear swap transactions, as agents, 
equivalently to the manner in which they currently execute and clear 
futures transactions.
    The Commission proposed to define the term ``confirmation'' to 
reflect its differing use in various regulations depending on whether a 
transaction is executed by an FCM, IB or CTA on the one hand, or by an 
SD or MSP on the other hand. In the first case, the registrant is 
acting as an agent. In the second, it is acting as a principal.\21\ No 
commenters addressed the proposed definition of ``confirmation,'' and 
the Commission has decided to adopt it as proposed.
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    \21\ A single entity could be registered in more than one 
capacity, for example, as both an SD and a CTA. Which rules were 
applicable would depend on the capacity in which such an entity was 
performing a particular function.
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    The Commission proposed to add to regulation 1.3 a definition of 
the term ``registered entity,'' currently provided in CEA section 
1a(40), as revised by the Dodd-Frank Act. The proposed definition of 
``registered entity'' is identical to its CEA counterpart and would 
include DCOs, DCMs, SEFs, swap data repositories (``SDRs'') and certain 
electronic trading facilities. To correspond with this new definition, 
the Commission also proposed to replace the current ``Member of a 
contract market'' definition with a new definition of ``Member,'' in 
regulation 1.3(q), which would be nearly identical to the ``Member of a 
registered entity'' definition provided in CEA section 1a(34), also as 
revised by the Dodd-Frank Act.\22\ The proposed ``Member'' definition 
was broadened to accommodate newly established SEFs, and it includes 
those ``owning or holding membership in, or admitted to membership 
representation on, the registered entity; or having trading privileges 
on the registered entity.'' Additionally, for ease of reference, 
proposed regulation 1.3 added several terms defined under the CEA, 
using identical definitions, including ``electronic trading facility,'' 
``organized exchange,'' and ``trading facility.''
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    \22\ In accordance with the removal of DTEF references from many 
other Commission regulations, the proposed ``Member'' definition 
would not include DTEF references currently in the definition of 
``Member of a registered entity'' found in CEA section 1a(34). See 7 
U.S.C. 1a(34).
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    The ETA commented that the Commission should wait to define 
``registered entity,'' ``organized exchange,'' ``electronic trading 
facility,'' and ``trading facility'' until the Commission enters into 
an MOU with FERC and publishes rules defining the scope of its 
jurisdiction over nonfinancial energy commodity swaps. According to the 
ETA, a SEF should not be deemed a registered entity. In addition, the 
ETA does not believe SEF participants should fall within the 
Commission's proposed definition of ``member,'' suggesting that it is 
inappropriate or premature to require SEF participants to have the same 
recordkeeping requirements as DCM members under regulation 1.35.
    The Commission disagrees with the ETA's comment that it should wait 
to define the terms ``registered entity,'' ``organized exchange,'' 
``electronic trading facility'' and ``trading facility'' until the 
Commission enters into an MOU with FERC and publishes rules defining 
the scope of its jurisdiction

[[Page 66292]]

over nonfinancial energy commodity swaps. As explained in the Proposal, 
the definitions proposed for each of those terms are identical to their 
statutory definitions under the CEA. The Commission may further define 
these terms in the future if necessitated by an MOU with FERC or by 
Commission rules defining the scope of its jurisdiction over 
nonfinancial energy commodity swaps.
    With respect to the ETA's assertion that SEFs should not be deemed 
``registered entities,'' the Commission notes that SEFs are already 
deemed ``registered entities'' under section 1a(40) of the CEA. Lastly, 
the term ``member,'' as defined under the CEA, includes ``with respect 
to a registered entity * * * an individual, association, partnership, 
corporation or trust * * * having trading privileges on the registered 
entity.'' \23\ Accordingly, the CEA considers participants on a SEF 
``members'' by virtue of their having trading privileges on the SEF. 
For the foregoing reasons, the Commission is adopting the definitions 
of ``registered entity,'' ``organized exchange,'' ``electronic trading 
facility,'' ``trading facility,'' and ``member'' as proposed.
---------------------------------------------------------------------------

    \23\ CEA section 1a(34), 7 U.S.C. 1a(34).
---------------------------------------------------------------------------

    The Commission also proposed to add a definition of the term 
``order.'' This term had not previously been defined by Commission 
regulations, although it is used in several of them, e.g., 17 CFR 1.35, 
155.3, and 155.4. In light of this, and with the addition of new 
categories of registrants (SDs and MSPs) who act as principals rather 
than agents, clarification of this term is appropriate. No commenters 
addressed the proposed definition, and the Commission is adopting it as 
proposed.
    Because proposed amendments to regulation 1.31 incorporated the 
term ``prudential regulator,'' as added to the CEA by the Dodd-Frank 
Act, the Commission proposed to define the term in regulation 1.3.\24\ 
The proposed definition of ``prudential regulator'' in regulation 1.3 
is coextensive with the definition in section 1a(39) of the Act and 
lists the various prudential regulators. No commenters addressed this 
proposed definition, but the amendments to regulation 1.31 adopted 
today no longer reference the term ``prudential regulator.'' 
Nonetheless, the Commission has determined to adopt the definition as 
proposed, in anticipation of future rulemakings and regulations 
possibly using the term ``prudential regulator.''
---------------------------------------------------------------------------

    \24\ Proposing Release, 76 FR at 33068 and 33070. Pursuant to 
proposed regulation 1.31, records of swap transactions must be 
presented, upon request, to ``any applicable prudential regulator as 
that term is defined in section 1a(39) of the Act.'' Id. at 33088.
---------------------------------------------------------------------------

    The Commission also proposed to add the term ``registrant'' to 
regulation 1.3 so that certain regulations in part 1 could refer to 
various intermediaries (e.g., FCMs, IBs, CPOs), their employees 
(associated persons), and other registrants (MSPs). Because the DFA 
created a definition of and several Commission regulations refer to 
``associated persons of swap dealers or major swap participants,'' the 
Commission proposed to add that term to regulation 1.3 as well. No 
commenters addressed these changes, but the Commission will only be 
adopting the definition of ``registrant'' as proposed. Since the 
Proposal's publication, a separate final rulemaking establishing the 
registration process for SDs and MSPs amended the existing definition 
of ``associated person'' found in regulation 1.3(aa) to incorporate 
associated persons of SDs and MSPs in a manner consistent with CEA 
section 1a, as amended by the Dodd-Frank Act.\25\ In light of that 
rulemaking, the Commission is not adopting a separate definition of 
``associated person of swap dealers and major swap participants'' in 
regulation 1.3.
---------------------------------------------------------------------------

    \25\ Registration of Swap Dealers and Major Swap Participants, 
77 FR 2613, 2615 and 2625 (Jan. 19, 2012).
---------------------------------------------------------------------------

    The Commission also proposed, and is hereby adopting, a definition 
of the term ``retail forex customer'' in regulation 1.3 because it 
appears in several regulations in part 1 and currently is only defined 
in part 5. The definition is identical in all material respects to the 
definition of this term as it currently appears in regulation 
5.1(k).\26\ The Commission did not receive any comments to the 
Proposal's addition of a definition of ``retail forex customer'' to 
regulation 1.3.
---------------------------------------------------------------------------

    \26\ 17 CFR 5.1(k) currently defines ``retail forex customer'' 
as ``a person, other than an eligible contract participant as 
defined in section 1a(12) of the Act, acting on its own behalf and 
trading in any account, agreement, contract or transaction described 
in section 2(c)(2)(B) or 2(c)(2)(C) of the Act.'' This final 
rulemaking amends the definition in part 5 only to reflect the 
renumbering of section 1a of the CEA by the Dodd-Frank Act, and adds 
an identically amended definition to regulation 1.3. See infra Part 
II.G.2.
---------------------------------------------------------------------------

    The Commission is also finalizing the revised definition of 
``strike price'' (regulation 1.3(kk)) as proposed so that this 
definition encompasses swaps in addition to futures. The Commission 
received no comments about this proposal.
c. Regulation 1.3(t): Open Contract
    The Proposal changed the defined term from ``open contract'' to 
``open position'' and added provisions for commodity option 
transactions and swaps. CME commented that it is unclear whether the 
proposed definition is intended to cover options on swaps. If so, then 
the word ``commodity'' should be deleted from the phrase, ``commodity 
option transaction.'' According to CME's comment letter to the 
Proposal, the Commission should also clarify whether, or which, options 
are covered by proposed paragraph (t)(3) (swaps). CME also argues that 
proposed paragraph (t)(3) does not adequately characterize open 
positions in cleared swaps. Proposed paragraph (t)(1)'s terminology, 
CME believes, more appropriately characterizes cleared swaps because, 
like futures, cleared swaps may be fulfilled by delivery or they may be 
offset.
    The Commission has decided to finalize the definition with a few 
modifications. The final definition retains the original title of the 
term, ``open contract.'' It also narrows its applicability from all 
swaps to only Cleared Swaps, as regulation 22.1 defines that term.\27\
---------------------------------------------------------------------------

    \27\ Regulation 22.1 was promulgated as part of Protection of 
Cleared Swaps Customer Contracts and Collateral; Conforming 
Amendments to the Commodity Broker Bankruptcy Provisions, 77 FR 6336 
(Feb. 7, 2012).
---------------------------------------------------------------------------

    The Commission notes that the option component of the definition 
(paragraph (t)(2)) covers all options: i.e., options on futures; 
options on swaps (``swaptions''); and options on commodities.\28\ In 
response to CME's comment, the Commission notes that although, pursuant 
to the Dodd-Frank Act, swaptions and options on commodities (other than 
options on futures) are swaps, it is nevertheless appropriate for the 
definition of ``open contract'' to describe them with language suitable 
only to options and not to other swaps. In other words, the definition 
of ``open contract'' merely describes types of contracts; it is not 
intended to classify these contracts for regulatory purposes or to 
elaborate on the definition of ``swap,'' which the Commission recently 
published in final form.\29\
---------------------------------------------------------------------------

    \28\ Section 4c of the CEA grants the Commission authority over 
all three of these categories of options.
    \29\ See 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).
---------------------------------------------------------------------------

    Because the only references in the regulations to the term ``open 
contracts'' apply to cleared contracts, i.e. futures contracts and 
Cleared Swaps, the final definition only includes Cleared Swaps in 
paragraph (t)(3). The final rule also

[[Page 66293]]

modifies paragraph (t)(3) to reflect the fact that Cleared Swaps can be 
fulfilled by delivery or by offset against other Cleared Swaps, as is 
the case with futures. Thus, paragraph (t)(3) states in final form, 
``swaps that have not been fulfilled by delivery; not offset; not 
expired; and not been terminated.''
    In the Proposal, pursuant to the revision of the definition of 
``open contract'' in regulation 1.3(t), the Commission proposed to 
change ``open contract'' to ``open position'' in regulations 1.33 
(``Monthly and confirmation statements'') and 1.34 (``Monthly record, 
`point balance' ''). The Commission did not receive comments about 
these changes. In light of the fact that the Commission is retaining 
the title ``open contract,'' in the final revisions to regulation 
1.3(t), the Commission is preserving those references to ``open 
contract'' in regulations 1.33 and 1.34.\30\
---------------------------------------------------------------------------

    \30\ See infra section II.A.4. (discussing amendments to 
regulation 1.33).
---------------------------------------------------------------------------

d. Regulation 1.3(ll): Physical
i. Proposal
    As part of the Proposal, the Commission explained that current 
regulation 1.3(ll) defines ``physical'' as ``any good, article, 
service, right or interest upon which a commodity option may be traded 
in accordance with the Act and these regulations.'' \31\ The Commission 
noted that, other than the reference to options, the term ``physical'' 
was similar to the definition of ``commodity'' in regulation 1.3(e), 
which includes, in relevant part ``all * * * goods and articles * * * 
and all services, rights and interests in which contracts for future 
delivery are presently or in the future dealt in.'' The quoted portions 
of the ``physical'' and ``commodity'' definitions are effectively the 
same, differing only in the potential overlying instrument with respect 
to which the respective terms are defined. In addition, the Commission 
noted that the introductory language in regulation 1.3 provides that 
``[t]he following terms, as used in the rules and regulations of this 
chapter, shall have the meaning hereby assigned to them, unless the 
context otherwise requires.'' \32\
---------------------------------------------------------------------------

    \31\ Proposing Release, 76 FR at 33068-69.
    \32\ Id. at 33069.
---------------------------------------------------------------------------

    In the Proposal, the Commission also traced the history of the term 
``physical'' in its regulations, noting that the definition of 
``physical'' was first added to its regulations ``to enable trading, on 
DCMs, in options to buy or sell an underlying commodity'' and that the 
definition had not been substantively amended.\33\ The Commission added 
that, in 1982, when the Commission proposed to add the definition of 
``physical'' to its regulations, ``cash-settled futures on non-physical 
commodities had just been introduced in the form of the Chicago 
Mercantile Exchange's Eurodollar futures'' and that, ``[i]n that 
context * * * it made sense to name such options based on physical 
commodities, which constituted the vast majority of commodities covered 
by then-existing futures contracts.'' \34\ While options may have 
primarily been written on physical commodities in 1982, the Commission 
noted in the Proposal that ``[a]t present * * * options may be traded 
on both physically deliverable and non-physically deliverable 
commodities, such as interest rates and temperatures'' and that, given 
that change, using the term ``physical'' to refer to an option on both 
physically deliverable and non-physically deliverable commodities may 
be confusing.\35\ The Commission added that the intended-to-be-
physically-settled element of the forward exclusion from the swap 
definition ``would be meaningless if `physical' included non-
physical.'' \36\
---------------------------------------------------------------------------

    \33\ Id. at 33069.
    \34\ Id.
    \35\ Id.
    \36\ Id.
---------------------------------------------------------------------------

    In light of (1) The overlapping definitions of ``commodity'' and 
``physical'' in Commission regulation 1.3, (2) the fact that options 
now are written on a wide range of non-physical commodities, and (3) 
the Commission's desire that the term ``physical'' not be interpreted 
to permit cash settled transactions to rely on the forward exclusion 
from the swap definition (unless otherwise permitted by Commission 
interpretations with respect to such exclusion, such as those discussed 
in the Commission's rulemaking jointly (with the Securities and 
Exchange Commission) further defining ``swap''), the Commission, in the 
Proposal, requested comment on various possible approaches to the 
definition of ``physical'' in regulation 1.3(ll). One possible approach 
on which the Commission requested comment was whether it should 
eliminate the definition, on the theory that its meaning is self-
evident, and rely on the ability of interested parties to interpret the 
term ``physical.'' The Commission also requested comment on not 
amending the definition in reliance upon the introductory language in 
regulation 1.3, which applies the regulation 1.3(ll) definition of 
``physical'' unless the context otherwise requires.
ii. Comments
    Three commenters addressed the definition of physical in regulation 
1.3(ll). The ETA commented that the proposed definition of ``physical'' 
should be withdrawn because addressing it in terms of swaps is 
premature prior to the Commission publishing the further definition of 
``swap,'' including, in particular, defining the term ``nonfinancial 
commodity,'' which the ETA characterized as a key component of the 
forward exclusion from the swap definition. The ETA stated that, in 
proposing such a substantive rule, the Commission must explain how 
defining ``physical'' would affect all of its regulations and requested 
that the Commission re-propose any revised definition of ``physical'' 
with a ``comprehensive analysis of the way such word, whether used as 
an adjective or an adverb, interrelates with the Dodd-Frank statutory 
term `nonfinancial commodity,' as well as the concepts of `cash 
market,' `physical market channels' and the `bona fide hedging 
exemption'.''
    The Environmental Markets Association (``EMA'') believes that the 
``very broad'' definition of the word ``physical'' in current 
Commission regulations ``certainly'' encompasses environmental 
commodities, which the EMA states are subject to the forward exclusion 
from the definition of swap. The EMA requested that the CFTC issue a 
final rule clarifying that environmental commodities are not swaps even 
though intangible, that they are nonfinancial commodities that can rely 
on the forward exclusion, and that intangibility of a commodity does 
not prevent it from being ``physically settled.'' The Coalition for 
Emission Reduction Policy (``CERP'') similarly argued that 
environmental and other intangible commodity transactions that result 
in actual delivery of a commodity, intangible or not, as opposed to 
transactions that settle in cash, can be subject to the forward 
exclusion because such transactions can be physically settled. CERP 
also claimed that the Commission's proposed interpretation of forward 
contracts in nonfinancial commodities in the definition of ``swap'' 
supports its interpretation of ``physically settled'' in that forward 
sales of environmental commodities are commercial merchandising 
transactions because both buyer and seller ultimately need and intend 
the transfer of ownership of the emission allowances or offset credits.

[[Page 66294]]

    EMA also expressed that the Commission's request for comment with 
regard to whether the definition of ``physical'' should rely on the 
``common sense meaning'' of the word was unclear. In particular, EMA 
argued that environmental commodities traded in the spot or forward 
markets are physically delivered via a registry or an exchange of 
paperwork and eventually consumed through retirement. Further, 
according to EMA, environmental commodities are goods because Uniform 
Commercial Code (``UCC'') section 2105(1) defines ``good'' as 
``anything that can be moved other than money.''
iii. Final Rules
    The Commission is removing from regulation 1.3(ll) the definition 
of ``physical,'' which term will therefore have the meaning dictated by 
the context of the individual Commission regulations in which it 
appears. In addition, the Commission is adopting conforming changes to 
other regulations to address the deletion of the definition. The 
Commission is adopting these changes for ease of reference for market 
participants and to reduce confusion in interpreting the Commission's 
regulations, consistent with the spirit of Executive Order 13563, which 
seeks, among other goals, to eliminate agency regulations that have 
outlived their usefulness.\37\ As explained further below, these 
modifications are not intended to alter the substantive provisions of 
the Commission's regulations.
---------------------------------------------------------------------------

    \37\ See Executive Order 13563 of January 18, 2011, Improving 
Regulation and Regulatory Review, at section 6(a), 76 FR 3821, 3822 
(Jan. 21, 2011) (stating ``To facilitate the periodic review of 
existing significant regulations, agencies shall consider how best 
to promote retrospective analysis of rules that may be outmoded, 
ineffective, insufficient, or excessively burdensome, and to modify, 
streamline, expand, or repeal them in accordance with what has been 
learned.'').
---------------------------------------------------------------------------

    When the Commission added the definition of ``physical'' to 
regulation 1.3 in 1982, the intent was to distinguish between options 
on futures contracts and other options subject to the Commission's 
jurisdiction; the Commission termed such other options ``options on 
physicals.'' The Commission added the ``physical'' definition because, 
while the 1982 rulemaking including provisions applicable both to DCM-
listed options on futures and DCM-listed options on commodities, it 
also contained regulations applicable solely to options on futures. 
Thus, the purpose of the definition was ``principally to enable the 
Commission to differentiate, where necessary, between references to 
options on physicals and options on futures contracts.'' \38\ Although 
the intent of Commission regulation 1.3(ll) was only to address the 
distinction between options on futures and other options, the 
Commission believes that the use of such a broad term to apply to a 
narrow circumstance can create confusion because the definition is not 
expressly so limited. While the introduction to regulation 1.3 says 
that the definitions therein have the meanings set forth therein unless 
the context otherwise requires, determining when regulation 1.3(ll) 
applies as drafted and when the context dictates a different meaning 
can be subjective and result in confusion.
---------------------------------------------------------------------------

    \38\ Domestic Exchange-Traded Commodity Options; Expansion of 
Pilot Program To Include Options on Physicals, 47 FR 56996, 56998 
(Dec. 22, 1982).
---------------------------------------------------------------------------

    The Commission did not intend, when it promulgated the definition 
in regulation 1.3(ll), to apply it to circumstances such as the 
definition of ``physically'' settled. Given the intent of the 
definition of the term ``physical'' (to distinguish options on futures 
from other options) and the introductory language in regulation 1.3 
regarding contextual interpretations of the defined terms therein, in 
regulations where it is not necessary to distinguish between different 
types of options, the definition of ``physical'' in Commission 
regulation 1.3(ll) is not useful and can be overbroad. For example, the 
definition of ``physical'' is not useful with respect to the term 
``physical safeguards'' in regulation 160.30, which pertains to 
procedures to safeguard customer records and information. Because the 
scope of the definition of ``physical'' essentially includes options on 
any commodity, which would include non-physical commodities such as 
temperatures and interest rates, effectively, the restriction that 
``physical'' in regulation 1.3(ll) is limited to any goods, article, 
service, right or interest upon which a commodity may be traded in 
accordance with the CEA and the Commission's regulations is not much of 
a restriction at all.
    The Commission also notes that it recently promulgated final and 
interim final rules amending parts 32 and 33 of the Commission's 
regulations.\39\ While part 33 continues to address options on futures 
contracts, the other options subject to the Commission's jurisdiction 
that also were previously addressed in part 33 now are addressed in 
part 32 rather than in part 33. Further, the Commission no longer 
refers to such other options as ``options on physicals.'' Instead, the 
Commission generally uses the term ``commodity option'' as a reference 
to both options on futures and other CFTC-jurisdictional options. Where 
the Commission distinguishes the regulatory treatment for options on 
futures from the regulatory treatment of other options, it specifically 
identifies options on futures as ``commodity option transactions on a 
contract of sale of a commodity for future delivery.'' With these 
recent amendments, the definition of ``physical'' in regulation 1.3(ll) 
will not help to distinguish between options on futures and other 
commodity options because the rules generally addressing the regulatory 
treatment of other commodity options no longer use the term 
``physical'' to refer to such transactions.
---------------------------------------------------------------------------

    \39\ Commodity Options, 77 FR 25320 (Apr. 27, 2012).
---------------------------------------------------------------------------

    In light of these considerations, the Commission believes that 
deleting the definition of physical will reduce the potential for 
confusion on the part of market participants, as the appropriate 
definition of that term will be based on the context of the individual 
rules in which the term is utilized. These amendments will also serve 
the goals of Executive Order 13563 by amending the Commission's 
regulations because they no longer are ``effective[] in achieving the 
objectives for which they were adopted.'' \40\
---------------------------------------------------------------------------

    \40\ Reducing Regulatory Burden; Retrospective Review Under E.O. 
13563, 76 FR 38328 (June 30, 2011).
---------------------------------------------------------------------------

    Further, various Commission regulations relating to options also 
refer to a ``physical'' when discussing an option on a commodity. In 
order to conform those regulations with the adapting changes discussed 
above, the Commission is adopting a number of non-substantive changes 
including, but not limited to, replacing certain references to 
``physical'' with references to ``commodity.'' Where appropriate, the 
Commission is also replacing references to ``underlying physical'' with 
references to ``underlying commodity.''
    For the reasons discussed above, these conforming amendments will 
not result in substantive changes. Therefore, the Commission is 
amending the following regulations as described above: Regulations 
1.3(kk); 1.3(ll); 1.17(c)(1)(iii), (c)(5)(ii)(A), and (c)(5)(xiii)(C); 
1.33; 1.34(b); 1.35(b)(2)(iii), (b)(3), (d) and (e); 1.39(a) and 
(a)(3); 1.46(a)(1)(iii) and (iv); 4.23(a) and (b); 4.33(b)(1); 
15.00(p)(1)(ii); 16.00(a); and 16.01(a)(1)(ii) and (iv), and (b)(1)(ii) 
and (iv). The Commission is leaving unchanged other references to 
``physical'' in its existing definitions because, given the context in 
which the term is used in those rules, such

[[Page 66295]]

references are limited to physical commodities.
    The Commission is replacing the word ``physical'' in regulations 
1.17(c)(1)(iii) and 1.17(c)(5)(xi) with the word ``commodity,'' and is 
replacing the word ``physical'' in regulation 1.17(c)(5)(ii)(A) with 
the term ``physical commodity.'' In so doing, the Commission does not 
intend to change the meaning of any of these paragraphs. Thus, final 
regulations 1.17(c)(1)(iii) and 1.17(c)(5)(xi) will continue to apply 
to options that overly any commodity, not just a tangible commodity. By 
contrast, final regulation 1.17(c)(5)(ii)(A) will continue to apply to 
the options described therein, which cover tangible commodities only.
    While some commenters requested that the Commission interpret 
``physical'' for purposes of the term ``physically settled'' within the 
forward exclusion for swaps, or generally address the definition of 
``physical'' as it relates to other terms, the Commission declines to 
do so for purposes of this release. The conforming amendments to the 
definition of physical are non-substantive changes that are designed to 
increase clarity for market participants. As noted above, rather than 
have a definition of physical that applies unless the context 
``otherwise requires,'' the Commission will apply the definition based 
on the particular context of the applicable regulation. Because the 
current definition already applies in this manner, the modifications 
addressed herein do not amount to a substantive change in the 
regulations.
e. Regulation 1.3(ss): Foreign Board of Trade
    The Commission proposed to amend the definition of foreign board of 
trade to mean ``any board of trade, exchange or market located outside 
the United States, its territories or possessions, whether incorporated 
or unincorporated where foreign futures, foreign options, or foreign 
swap transactions are entered into.'' The Commission received no 
comments regarding the proposed definition of ``foreign board of 
trade'' and is modifying the proposed definition to make it consistent 
with the definition provided in the final rulemaking for Registration 
of Foreign Boards of Trade.\41\ Accordingly, new regulation 1.3(ss) 
defines the term ``foreign board of trade'' as ``any board of trade, 
exchange or market located outside the United States, its territories 
or possessions, whether incorporated or unincorporated.''
---------------------------------------------------------------------------

    \41\ Registration of Foreign Boards of Trade, 76 FR 80674 (Dec. 
23, 2011).
---------------------------------------------------------------------------

f. Regulation 1.3(yy): Commodity Interest
    The Commission proposed adding ``swap'' to the definition of 
``commodity interest'' in regulation 1.3(yy).\42\ Currently, commodity 
interest is defined as: ``(1) Any contract for the purchase or sale of 
a commodity for future delivery; (2) Any contract, agreement or 
transaction subject to Commission regulation under section 4c or 19 of 
the Act; and (3) Any contract, agreement or transaction subject to 
Commission jurisdiction under section 2(c)(2) of the Act.'' At the time 
of the proposal, the term was cross-referenced by 33 other Commission 
regulations and appendices to parts of Commission regulations.\43\ 
Generally, the term ``commodity interest'' is meant to encompass all 
agreements, contracts and transactions within the Commission's 
jurisdiction, though not all such agreements, contracts and 
transactions are expressly set forth therein.\44\
---------------------------------------------------------------------------

    \42\ Proposing Release, 76 FR at 33069.
    \43\ See 17 CFR 1.12, 1.56, 1.59, 3.10, 3.12, 3.21, 4.6, 4.7, 
4.10, 4.12-4.14, 4.22-4.25, 4.30-4.34, 4.36, 4.41, 30.3, 160.3-
160.5, and 166.1-166.3; 17 CFR pt. 3 app. B, 17 CFR pt. 4 app. A, 
and 17 CFR pt. 190 app. B.
    \44\ For example, the term ``contract for the purchase or sale 
of a commodity for future delivery'' in current regulation 
1.3(yy)(1) encompasses security futures products. Similarly, the 
term ``swap'' would include mixed swaps (though mixed swaps are 
swaps, they also are security-based swaps, so the Commission shares 
authority over mixed swaps with the SEC). Of course, the impact of 
the scope of proposed regulation 1.3(yy) is only as extensive as the 
other regulations referencing it.
---------------------------------------------------------------------------

    The Dodd-Frank Act added a definition of the term ``swap'' to the 
CEA.\45\ DFA section 712(d)(1) requires the Commission to further 
define the term ``swap'' jointly with the Securities and Exchange 
Commission (``SEC''), and the Commission has recently adopted 
regulations further defining the term ``swap,'' among other terms, 
jointly with the SEC.\46\
---------------------------------------------------------------------------

    \45\ DFA section 721(a)(21); codified at 7 U.S.C. 1a(47).
    \46\ Further Definition of ``Swap,'' ``Security-Based Swap,'' 
and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based 
Swap Agreement Recordkeeping, 77 FR 48207 (August 13, 2012) 
(adopting 17 CFR 1.3(xxx), which defines the term ``Swap'').
---------------------------------------------------------------------------

    In their comment letter, the ETA objected to the Proposal's 
addition of the term ``swap'' to the definition of commodity interest 
because, as discussed on page 6, above, the ETA objected to the manner 
in which the Proposal analogized swaps to futures. The Commission 
believes it is appropriate to add ``swap'' to the definition of 
commodity interest because the Dodd-Frank Act amended various 
intermediary definitions in section 1a of the Act (the Dodd-Frank Act 
updated the definitions of CPO, CTA, FCM, IB, Floor Trader and Floor 
Broker) to include their use of swaps. For example, the Act's present 
definition of FCM, as amended by the Dodd-Frank Act, authorizes this 
intermediary to accept customer orders for ``swaps'' in addition to 
accepting customer orders for ``the purchase or sale of any commodity 
for future delivery.'' If the Commission did not update the definition 
of ``commodity interest'' to include swaps, then various regulations 
applicable to intermediaries using the term ``commodity interest'' 
would not apply to intermediaries' swap activities. The Commission has 
reviewed all uses of the term ``commodity interest'' throughout the 
regulations and believes they appropriately refer to both futures and 
swaps.
    Thus, the Commission has decided to finalize a revised definition 
of ``commodity interest'' by adding paragraph (yy)(4) to include swaps. 
The final version adopted today makes only minor changes to the 
proposed paragraph. Whereas the proposed paragraph referenced ``any 
swap as defined in the Act, the Commission's regulations, a Commission 
order or interpretation, or a joint interpretation or order issued by 
the Commission and the [SEC],'' amended regulation 1.3(yy)(4) now 
states ``any swap as defined in the Act, by the Commission, or jointly 
by the Commission and the Securities and Exchange Commission.'' The 
Commission is making this change because, for the purposes of the 
definition of ``commodity interest,'' it does not matter whether the 
Commission defines a swap pursuant to an order, interpretation, or 
joint interpretation.
g. Regulation 1.3(z): Bona Fide Hedging Transactions and Positions
    The Proposal made technical amendments to this definition by 
omitting references to regulations 1.47 and 1.48 because the proposed 
rule on Position Limits deleted those regulations \47\ and omitting 
references to ``option customers'' on account of this rulemaking's 
deletion of that term. The Commission is not promulgating these 
amendments in this rulemaking because the final rule on Position Limits 
has already extensively revised regulation

[[Page 66296]]

1.3(z).\48\ Mr. Chris Barnard commented that the definition of ``bona 
fide hedging transactions and positions'' should be amended to state 
that such transactions ``are not held for a purpose that is in the 
nature of speculation or trading'' and ``not held to hedge or mitigate 
the risk of another position, unless that other position itself is held 
for the purpose of reducing risk.'' Mr. Barnard commented further that 
the determination of whether a transaction meets the definition should 
be made at the time the transaction is entered into, considering the 
circumstances existing at that time. The Commission has decided not to 
amend regulation 1.3(z) pursuant to these comments, which address 
substantive issues that are beyond the scope of this rulemaking.
---------------------------------------------------------------------------

    \47\ Position Limits for Derivatives, 76 FR 4752 (Jan. 26, 
2011).
    \48\ Position Limits for Futures and Swaps, 76 FR 71626 (Nov. 
18, 2011).
---------------------------------------------------------------------------

h. Lack of a Definition of ``End-User'' in Regulation 1.3
    The ETA requested that the Commission, the SEC, and prudential 
regulators agree on a definition of ``end-user'' because the DFA does 
not define this term and regulators have used the term inconsistently. 
The Proposal did not add a definition of ``end-user'' to regulation 1.3 
because the DFA did not add a definition of that term to CEA section 
1a. The Proposal's intention was to conform the Commission's 
regulations to the DFA's revisions to the CEA.
    The Commission has decided not to add a definition of ``end-user.'' 
The Commission has no reason to define ``end-user'' because the 
Commission's regulations do not use this term, and even the recently 
adopted Commission regulations implementing the CEA's end-user 
exception to clearing do not define it.\49\ The issue of whether the 
Commission's regulations should use the term ``end-user'' is beyond the 
scope of this final rulemaking.
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    \49\ Recently adopted regulation 39.6 establishes the end-user 
exception to clearing by defining which parties are eligible to opt 
out of the clearing requirement pursuant to section 2(h)(7) of the 
CEA, as amended by the DFA. See End-User Exception to the Clearing 
Requirement for Swaps, 77 FR 42560 (July 19, 2012).
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2. Regulation 1.4: Use of Electronic Signatures
    The Commission proposed to revise regulation 1.4 to extend the 
benefit of electronic signatures and other electronic actions to SDs 
and MSPs. Section 731 of the Dodd-Frank Act amended the CEA by adding 
new section 4s(i)(1), requiring SDs and MSPs to ``conform with such 
standards as may be prescribed by the Commission by rule or regulation 
that relate to timely and accurate confirmation, processing, netting, 
documentation, and valuation of all swaps,'' \50\ and adding new 
section 4s(i)(2), requiring the Commission to adopt rules ``governing 
documentation standards for swap dealers and major swap participants.'' 
\51\
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    \50\ 7 U.S.C. 6s(i)(1).
    \51\ 7 U.S.C. 6s(i)(2).
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    Pursuant to the foregoing authority, the Commission has adopted new 
regulation 23.501(a)(1), which requires ``[e]ach swap dealer and major 
swap participant entering into a swap transaction with a counterparty 
that is a swap dealer or major swap participant [to] execute a 
confirmation for the swap transaction,'' according to a specified 
schedule.\52\ Also pursuant to the foregoing authority, the Commission 
has adopted a new regulation 23.501(a)(2), which requires ``[e]ach swap 
dealer and major swap participant entering into a swap transaction with 
a counterparty that is not a swap dealer or a major swap participant 
[to] send an acknowledgment of such swap transaction'' according to a 
specified schedule.\53\ Regulation 23.500(a) defines such an 
``acknowledgment'' as ``a written or electronic record of all of the 
terms of a swap signed and sent by one counterparty to the other.'' 
\54\ In proposing the confirmation and acknowledgment rules, the 
Commission explained that ``[w]hen one party acknowledges the terms of 
a swap and its counterparty verifies it, the result is the issuance of 
a confirmation.'' \55\
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    \52\ Confirmation, Portfolio Reconciliation, Portfolio 
Compression, and Swap Trading Relationship Documentation 
Requirements for Swap Dealers and Major Swap Participants, 77 FR 
55904, 55961 (September 11, 2012).
    \53\ Id.
    \54\ Id.
    \55\ Confirmation, Portfolio Reconciliation, and Portfolio 
Compression Requirements for Swap Dealers and Major Swap 
Participants, 75 FR 81519, 81522 (Dec. 28, 2010).
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    Regulation 1.4 currently provides that an FCM, IB, CPO and CTA 
receiving an electronically signed document is in compliance with 
Commission regulations requiring signed documents, provided that such 
entity generally accepts electronic signatures.\56\ The rationale for 
allowing the existing entities listed in regulation 1.4 to use 
electronic signatures (i.e., ``[a]s part of [the Commission's] ongoing 
efforts to facilitate the use of electronic technology and media'') 
\57\ applies equally to SDs and MSPs. No commenters addressed the 
amendments to regulation 1.4, and the Commission is adopting them as 
proposed. Therefore, the Commission is hereby adding SDs and MSPs to 
the list of entities covered by regulation 1.4 and amending its 
structure to account for the provisions of the Commission's 
confirmation and acknowledgement obligations discussed above.\58\
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    \56\ 17 CFR 1.4. The regulation also requires that the 
signatures in question comply with applicable Federal laws and 
Commission regulations, and requires the relevant entity to employ 
reasonable safeguards regarding the use of electronic signatures, 
including safeguards against alteration of the record of the 
electronic signature. Id.
    \57\ Use of Electronic Signatures by Customers, Participants and 
Clients of Registrants, 64 FR 47151 (Aug. 30, 1999).
    \58\ This includes revision to the title of regulation 1.4 to 
reflect these changes. Regulation 1.4, as amended by this release, 
is entitled ``Use of electronic signatures, acknowledgments and 
verifications.''
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3. Regulation 1.31: Books and Records; Keeping and Inspection
    a. Record Retention Period and Inspection
    To conform the existing recordkeeping requirements under regulation 
1.31 to the recordkeeping requirements under proposed regulation 
23.203(b) for SDs and MSPs relating to their swap transactions, the 
Commission proposed to amend regulation 1.31 to require that records of 
a swap transaction or related cash or forward transaction, including 
records of oral communications, be kept until the termination, 
maturity, expiration, transfer, assignment, or novation date of the 
transaction and for five years after such date.\59\
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    \59\ Certain proposed amendments to Sec.  1.35 (regarding 
recording of communications), and related amendments to Sec.  1.31, 
are not addressed in this final rule. The Commission intends to 
address these amendments in a final rule in a separate Federal 
Register release.
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    CME suggested that conversations should only have to be retained 
for six months after the execution of a transaction. FIA commented that 
the Commission failed to provide a justification for requiring that a 
swap record be maintained for the life of the swap plus five years. 
Encana requested clarification that regulation 1.31 does not apply to a 
non-financial end-user who enters into swaps, but is not an FCM, IB, or 
member of a DCM or SEF. Encana also made a general request that the 
Commission specify in its final rules which recordkeeping and reporting 
rules apply to non-financial end-users.
    In contrast to other commenters, Mr. Chris Barnard asserted that 
all records should be kept indefinitely and scanned after two years, 
arguing that there is no technological or practical reason to limit the 
record retention period. Mr. Barnard specifically commented that 
records of voice communications also should be

[[Page 66297]]

kept indefinitely. To support the asserted usefulness of such records, 
Mr. Barnard cited a 2009 IOSCO report stating that telephone records 
could benefit enforcement investigations.\60\
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    \60\ http://www.iosco.org/news/pdf/IOSCONEWS137.pdf.
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    The Commission also proposed to amend regulation 1.31 to conform to 
the proposed regulation 23.203(b)(2) requirement for SDs and MSPs and 
their swap transactions by proposing to require that all records kept 
pursuant to the Act or the Commission's regulations be made available 
for inspection to any applicable prudential regulator, as that term is 
defined in section 1a(39) of the Act, or, in connection with security-
based swap agreements described in section 1a(47)(A)(v) of the Act, the 
SEC. By contrast, existing regulation 1.31, which pertains to ``all 
books and records required to be kept by the Act or by these 
regulations,'' requires that records be kept for five years and be made 
available only to the Commission and the Department of Justice.\61\ The 
Commission did not receive comment on this proposed revision.
---------------------------------------------------------------------------

    \61\ 17 CFR 1.31(a) (emphasis added).
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b. Final Rule
    The Commission has determined to adopt the proposed revision to 
regulation 1.31 regarding record retention periods with two 
modifications. First, in final regulation 1.31, the retention period 
for records of oral communications leading to the execution of a swap 
or related cash or forward transaction, as required of SDs and MSPs 
under regulation 23.202(a)(1) and (b)1), respectively, will be one year 
(rather than five years after the termination, maturity, expiration, 
transfer, assignment, or novation date of the transaction, as 
proposed). This modification is consistent with the final provision for 
an SD's or MSP's oral communications under new regulation 23.203(b)(2) 
in the Reporting, Recordkeeping, and Daily Trading Record Requirements 
final rulemaking.\62\ The Commission believes that this retention 
period for SDs and MSPs with respect to records of oral communications 
leading to the execution of a swap or related cash or forward 
transaction will enable it to adequately execute its enforcement 
responsibilities under the Act and these regulations while minimizing 
the storage costs imposed on these affected entities.\63\
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    \62\ See Swap Dealer and Major Swap Participant Recordkeeping, 
Reporting, and Duties Rules; Futures Commission Merchant and 
Introducing Broker Conflicts of Interest Rules; and Chief Compliance 
Officer Rules for Swap Dealers, Major Swap Participants, and Futures 
Commission Merchants, 77 FR 20128, 20204 (Apr. 3, 2012) (``Provided, 
however, that records of oral communications communicated by 
telephone, voicemail, mobile device, or other digital or electronic 
media pursuant to Sec.  23.202(a)(1) and (b)(1) shall be kept for a 
period of one year.'').
    \63\ As noted above, the proposed amendments to regulation 1.35 
that would require the recording of certain oral communications by 
certain entities in addition to SDs and MSPs will be the subject of 
a separate final release. The Commission will consider any related 
amendments to regulation 1.31 at that same time.
---------------------------------------------------------------------------

    With respect to Encana's request for clarification concerning the 
applicability of regulation 1.31 to commercial end-users, regulation 
1.31 applies to all records required to be kept by the Act or the 
Commission's regulations, for example, records required to be kept 
under regulations 1.35, 18.05 and 23.202. If these rules require end-
users to keep records (e.g., regulation 18.05, Maintenance of Books and 
Records), then those records must be kept in accordance with regulation 
1.31.
    In response to CME's comment that although the Commission suggests 
that the retention period for swaps applies only to SDs and MSPs, as 
addressed in proposed regulation 23.203(b), the proposed amendment to 
regulation 1.31 is ambiguous in that it could be read to apply to all 
entities, the Commission clarifies that the final provision in 
regulation 1.31 regarding the retention period for records of swap 
transactions is triggered by the type of record and not the entity that 
is required to keep the record. Therefore, although regulation 
23.203(b) only applies to SDs and MSPs with regard to their swap 
transactions, the final corresponding provision in regulation 1.31 
applies to anyone who is required by the Act or by these regulations to 
keep records of, among other things, swap transactions.\64\
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    \64\ Until such time as the Commission adopts amendments to 
regulation 1.35 regarding the recording of oral communications, only 
SDs and MSPs are required, pursuant to regulation 23.202, to record 
certain oral communications relating to swap transactions and 
related cash and forward transactions. However, regulation 1.35, as 
amended herein, requires certain other entities, in addition to SDs 
and MSPs, to keep certain records of all transactions relating to 
their business of dealing in, among other things, swap transactions. 
As noted in text, regulation 1.31 as amended herein, applies to 
these records.
---------------------------------------------------------------------------

    Second, the Commission also has determined not to adopt the 
proposed revisions to regulation 1.31(a)(1), (b)(2)(ii), (b)(2)(v)(B), 
(b)(3)(i), (b)(3)(ii)(C), (b)(3)(iii)(A), and (b)(4)(i) regarding the 
parties to whom documents must be made available for inspection. The 
proposed revisions were intended to require only SDs and MSPs to make 
the records that the CEA or the Commission's regulations require them 
to maintain available for inspection to, in addition to the Commission 
and DOJ, any applicable prudential regulator (and, in the case of 
security-based swap agreement records, to the SEC). However, as 
drafted, the proposed regulation text would have applied to all persons 
covered by regulation 1.31, not just to SDs and MSPs. The Commission's 
final swap recordkeeping rules require SDs and MSPs to make the records 
that the CEA or the Commission's regulations require them to maintain 
available for inspection to, in addition to the Commission and DOJ, any 
applicable prudential regulator or, in the case of security-based swap 
agreements, to the SEC, capturing the intent of the proposed revisions 
to regulation 1.31(a)(1), (b)(2)(ii), (b)(2)(v)(B), (b)(3)(i), 
(b)(3)(ii)(C), (b)(3)(iii)(A), and (b)(4)(i).\65\ Therefore, those 
proposed revisions have become superfluous. Consequently, the final 
rule provides that, instead of having to make records available for 
inspection to the Commission, the Department of Justice, any applicable 
prudential regulator or, in the case of security-based swap agreements, 
to the Securities and Exchange Commission, persons covered by 
regulation 1.31 will continue to be required to make records available 
for inspection only to the Commission and the Department of Justice.
---------------------------------------------------------------------------

    \65\ 17 CFR 23.203(b).
---------------------------------------------------------------------------

c. Format of Retained Records
    The Commission also proposed revising regulation 1.31(a)(1), 
(a)(2), and (b) to require that: all books and records required to be 
kept by the Act or by the Commission's regulations be kept in their 
original form (for paper records) or native file format (for electronic 
records); and production of such records be made in a form specified by 
the Commission.
    CME believes that the native file format requirement should not 
require the retention of raw, unprocessed data generated or transmitted 
by an electronic trading or clearing system. Otherwise, CME argued, 
DCOs and DCMs would have to change the way they retain records. CME 
stated that its recommendation is not intended to alter the type or 
format of data that DCOs and DCMs currently capture and store for both 
business and regulatory purposes. Rather, it asked the Commission to 
clarify that the ``native file format'' provision does not impose a new 
or additional recordkeeping requirement on DCOs and DCMs as it relates 
to their electronic trading or clearing systems.

[[Page 66298]]

CME also asked for clarification as to which proposed revisions to 
regulation 1.31 apply only to swaps. MGEX sought clarification that 
proposed regulation 1.31 does not require a firm to keep both paper and 
electronic records concerning the same communications.
    CME commented that the original form requirement is confusing and 
superfluous in light of current regulation 1.31(b), which permits the 
storage of paper records on microfilm, microfiche, or a similar medium, 
and that it is not clear what the Commission means by ``native file 
format.'' Similarly, NFA requested clarification that regulation 
1.31(b) would continue to permit firms to retain paper records on 
micrographic or electronic storage media in lieu of maintaining paper 
records in their original format. NFA commented that the proposed 
revisions fail to provide a reason for requiring that electronic 
records be kept in their native file format.
    FIA and NFA believe that existing regulation 1.31 complies with 
Federal Rule of Civil Procedure 34. Therefore, they asserted, there is 
no reason for the Commission to require that records be kept in their 
original form for paper records and native file format for electronic 
records. FIA and NFA further asserted that there is no reason for the 
Commission to depart from a rule that was designed, in 1999, to 
harmonize with the SEC's recordkeeping rules. Similarly, ACSA commented 
that requiring paper records to be maintained in their original form 
for five years and be readily accessible for the first two would 
conflict with SEC rules. FIA commented that firms currently rely on 
regulation 1.31(b) to transfer electronic records from their original 
format to new forms of electronic media. CME similarly commented that 
electronic files often must be migrated, upgraded or converted in order 
to meet ever-evolving technology standards. Therefore, CME argued that, 
because some swaps could exist for 30 to 50 years, the technology used 
to generate or store electronic records related to such swap 
transactions may become outdated or obsolete in a much shorter period 
of time. Therefore, CME recommended that the Commission eliminate the 
requirement to retain swap records in their native file format for the 
life of the swap.
    CME argued that the Commission should re-propose other rules 
referencing regulation 1.31 (e.g., DCO Core Principles, DCM Core 
Principles, SEF Core Principles, and SD and MSP Recordkeeping) because 
the proposed revisions to the form a record must take under regulation 
1.31 substantially change the requirements proposed by those 
rulemakings. In contrast to other comments, the Working Group, in 
response to the proposed regulation 23.203(b) requiring SDs and MSPs to 
maintain records in accordance with existing regulation 1.31, asserted 
that, to be made workable for purposes of complying with the 
Commission's proposed requirements under regulation 23.203(b), 
regulation 1.31 should be revised to reflect current technologies and 
industry practices relating to digitized data storage.\66\
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    \66\ See Letter of Working Group of Commercial Energy Firms, 
dated February 7, 2011, in response to Notice of Proposed Rulemaking 
for Reporting, Recordkeeping, and Daily Trading Requirements for 
Swap Dealers and Major Swap Participants (75 FR 76666, Dec. 9, 
2010). The Commission addressed the Working Group's comment in the 
final rule for SD and MSP recordkeeping requirements stating, 
``[t]he Commission believes that The Working Group's concerns about 
Sec.  1.31 have been addressed by a subsequent rule proposal to 
amend Sec.  1.31 to reflect current technologies and industry 
practices related to digitized data storage. If these amendments are 
finalized, the Commission believes that Sec.  1.31 will be 
compatible with electronic records in a trading system and other 
records that do not originate from a written document.'' See Swap 
Dealer and Major Swap Participant Recordkeeping, Reporting, and 
Duties Rules; Futures Commission Merchant and Introducing Broker 
Conflicts of Interest Rules; and Chief Compliance Officer Rules for 
Swap Dealers, Major Swap Participants, and Futures Commission 
Merchants, 77 FR 20128, 20134 (Apr. 3, 2012).
---------------------------------------------------------------------------

    Having considered these comments, the Commission is adopting the 
revisions to regulation 1.31 regarding the form in which records must 
be kept as proposed. In 1999, as commenters highlighted, the Commission 
adopted amendments to the recordkeeping obligations established in 
regulation 1.31 by, among other things, allowing most categories of 
records to be stored on either micrographic or electronic storage media 
for the full five-year maintenance period.\67\ The Commission reasserts 
one of its intentions in undertaking the 1999 update, which was to 
``provide recordkeepers with opportunities to reduce costs and improve 
both the efficiency and security of their recordkeeping systems.'' 
Thus, the Commission clarifies that recordkeepers will be in compliance 
with the new requirement to keep paper records in their original form 
if they continue to store paper records ``on either `micrographic 
media' * * * or `electronic storage media' for the required time 
period,'' as provided under regulation 1.31(b). However, one of the 
Commission's other stated goals in amending regulation 1.31 in 1999 was 
to further the Commission's need for access to complete and accurate 
records when necessary in a format that the Commission can process, 
i.e., a usable format.\68\ Thus, the Commission is now making clear 
that paper records are not usable by the Commission as a substitute for 
the underlying financial data used to create that paper. Therefore, it 
is necessary that electronic records be maintained in their native file 
format and not reduced to paper.
---------------------------------------------------------------------------

    \67\ See 64 FR 28735 (May 27, 1999).
    \68\ In 1999, the Commission stated that, ``[t]he requirement 
that recordkeepers provide documents to the Commission in one of the 
many identified formats arises out of practical limitations on the 
Commission's ability to process data stored in the full range of 
available formats and coding structures on the full range of storage 
media available to recordkeepers.'' 64 FR 28735, 28740 (May 27, 
1999).
---------------------------------------------------------------------------

    Accordingly, for records that include data stored in a database, 
the ``native file format'' is the format in which the data is 
maintained in that database, not a format reduced to paper or imaged 
format, which is essentially the equivalent of paper. This is true 
regardless of the imaged format, such as portable document format 
(``PDF''), whether machine-readable through optical character 
recognition (``OCR'') or any other process. Thus, the underlying 
financial data from which an FCM creates PDF versions of customer 
account statements must be kept in its ``native file format'' because, 
if and when the Commission requests those financial records, it will 
not be sufficient for the recordkeeper to produce the paper and/or PDF 
statements. Where the data is used to generate a paper document 
(including, but not limited to a PDF), such as a customer account 
statement, the paper document must be maintained in its original form, 
while the data must be maintained in its native file format.
    Specifically regarding records of swap transactions, the Commission 
has decided to keep the requirement that these records be maintained in 
their native file format for the life of the swap plus five years. In 
response to CME's specific concerns about the need to migrate, update 
or convert electronic files over the potentially long life of a swap to 
meet evolving technology standards, the Commission confirms that 
maintaining data in native file format (i.e., the format in which it 
was originally created or maintained) does not prohibit a recordkeeper 
from migrating that data from an obsolete or legacy system or database 
to a new system or database, where it will then be maintained in the 
native file format of the new system or database. If due to the 
proprietary nature of the system, it is impossible or impracticable to 
provide the Commission with the data in its native file format because, 
for

[[Page 66299]]

example, the native file format would not be accessible by the 
Commission, as it may not otherwise have that proprietary system, or 
the system does not readily export the requested data in native file 
format, then a recordkeeper may provide the data in a commonly 
accessible, non-proprietary format.
    In the proposed changes to regulation 1.31, the Commission proposed 
to amend regulation 1.31(b)(3)(i) by replacing ``approved machine-
readable media as defined in regulation 15.00(l)'' with ``compatible 
data processing media as defined in regulation 15.00(d).'' The proposed 
change was intended to update this paragraph of regulation 1.31 to 
reflect that regulation 15.00(l) no longer exists and, when it existed, 
was a definition of ``compatible data processing media'' and not 
``machine-readable media.'' \69\ Having received no comments on this 
proposed ministerial change, the Commission has determined to adopt the 
changes to regulation 1.31(b)(3)(i) as proposed.
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    \69\ Under current Sec.  15.00(d), ``Compatible data processing 
media'' means ``data processing media approved by the Commission or 
its designee.'' This term has existed under Sec.  15.00 since as 
early as 1986. See 17 CFR 15.01 (1986). At that time, the definition 
included a list of what the Commission considered to be compatible 
data processing media, but deleted those references to specific 
media in 1997 in response to comments suggesting that a regulatory 
definition was impractical given the fast pace of evolving 
technology. See 64 FR 28735, 28739 (May 27, 1999) (citing 62 FR 
24026, 24028 (May 2, 1997)).
---------------------------------------------------------------------------

    In response to CME's request for clarification of the scope of 
``native file format,'' the Commission confirms that the definition of 
``native file format'' excludes raw, unprocessed data generated or 
transmitted by an electronic trading or clearing system.
4. Regulation 1.33: Monthly and Confirmation Statements
    Regulation 1.33 requires FCMs to maintain certain records and to 
regularly furnish monthly and confirmation statements to customers 
regarding commodity futures and option transactions they have entered 
into on behalf of customers. The DFA amended the definition of FCM in 
section 1a of the CEA to authorize an FCM to solicit or accept orders 
for swaps in addition to commodity futures and option transactions.\70\ 
Therefore, the Commission proposed adding requirements for monthly and 
confirmation statements applicable to swaps. The Commission did not 
receive comments concerning these amendments and is adopting these 
provisions mostly as proposed.
---------------------------------------------------------------------------

    \70\ DFA section 721(a)(13). Today's rulemaking similarly 
incorporates those changes into the corresponding definition of 
``futures commission merchant'' in regulation 1.3.
---------------------------------------------------------------------------

    The Commission has decided to replace a reference to ``open 
positions'' in the existing paragraph (a) introductory text with ``open 
contracts.'' This amendment makes the regulation 1.33(a) introductory 
text consistent with the Commission's revised definition of ``open 
contracts'' in regulation 1.3(t).
    In finalizing paragraphs (a)(3) and (b)(2), the Commission is 
replacing proposed references to ``swaps'' with ``Cleared Swaps,'' as 
regulation 22.1 defines that term. Since the publication of the 
Proposal, the Commission has finalized part 22 concerning the 
segregation of ``Cleared Swaps Customer Collateral.'' \71\ Because an 
FCM will only clear those swaps that are ``Cleared Swaps,'' regulation 
1.33 should only refer to ``Cleared Swaps.'' For the same reason, the 
Commission is using the terms ``Cleared Swaps Customer'' and ``Cleared 
Swaps Customer Collateral,'' as now defined in regulation 1.3. These 
corrections are being made in conjunction with technical corrections 
described below, in section II.A.14 (Technical corrections to parts 1 
and 22).
---------------------------------------------------------------------------

    \71\ Protection of Cleared Swaps Customer Contracts and 
Collateral; Conforming Amendments to the Commodity Broker Bankruptcy 
Provisions, 77 FR 6336 (Feb. 7, 2012). See infra pt. II.A.14 
(discussing technical changes to parts 1 and 22).
---------------------------------------------------------------------------

    Finally, in paragraph (a)(3) of regulation 1.33, the Commission is 
replacing the phrase ``caused to be executed by'' with ``carried by.'' 
The reason is that an FCM might not provide a trade execution function 
for every swap that it clears.
5. Regulation 1.35: Records of Cash Commodity, Futures and Option 
Transactions \72\
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    \72\ The Commission proposed to amend regulation 1.35(a) so that 
FCMs, RFEDs, IBs, and members of a DCM or SEF would be required to 
record all oral and written communications provided or received 
concerning quotes, solicitations, bids, offers, instructions, 
trading, and prices, that lead to the execution of transactions in a 
commodity interest or cash commodity, however communicated. The 
proposed amendments to regulation 1.35(a) also included a 
requirement that each transaction record be maintained in a separate 
electronic file identifiably by transaction and counterparty. As 
noted above, the Commission will consider these proposed amendments 
to regulation 1.35(a) in a separate release.
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    As part of the ministerial amendments contained in this release, 
the Commission is renumbering portions of regulation 1.35 so that 
paragraphs currently numbered 1.35(a-1) and 1.35(a-2) will be 
renumbered 1.35(b) and 1.35(c), respectively. As a result, paragraphs 
currently numbered 1.35(b), (c), (d) and (e) have been renumbered as 
1.35(d), (e), (f) and (g), respectively.
    Because amended regulation 1.35 extends recordkeeping obligations 
to swaps, the Commission has created special language for swaps, where 
appropriate. In regulation 1.35(d)(2) (formerly (b)(2)) (records of 
futures, commodity options, and retail forex exchange transactions for 
each account), the Commission has added paragraph (iv), as proposed. 
The Commission did not receive comments about this amendment and is 
adopting it as proposed. Amended regulation 1.35(d)(2)(iv) requires 
FCMs, IBs, and any clearing members clearing swaps executed on a DCM or 
SEF to maintain records describing the date, price, quantity, market, 
commodity, and, if cleared, DCO of each swap.
a. Bunched Orders
    The Commission recognizes that investment managers currently 
execute bunched swap orders on behalf of clients and allocate the 
trades to individual clients post-execution. The Commission believes 
that the bunched order procedures currently applicable to futures can 
be adapted for use in swap trading. Therefore, the Commission proposed 
amending regulation 1.35(a-1)(5) (redesignated as (b)(5) pursuant to 
this rulemaking), addressing post-execution allocation of bunched 
orders.\73\ The Commission received one comment letter concerning this 
topic. The Swaps and Derivatives Market Association (``SDMA'') strongly 
supported the proposed amendment on the grounds that it would promote 
operational and execution efficiency in both the cleared and uncleared 
swaps markets. Specifically, SDMA noted that industry precedent 
supports the proposed post-execution time limits (for cleared swaps, no 
later than a time sufficiently before the end of the calendar day the 
order is executed to ensure that clearing records identify the ultimate 
customer for each trade; for uncleared swaps, no later than the end of 
the day the swap was executed). SDMA also noted that regulation 1.35(a-
1)(5)'s bunched order provisions for futures provide an appropriate 
model for swaps and that FCMs generally have sufficient risk control 
capability (technologically speaking) to allocate swap orders post-
execution.
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    \73\ In the Proposal, the Commission requested comment as to 
whether it would be appropriate to add FCMs and IBs to the list of 
eligible account managers. Proposing Release, 76 FR at 33073.
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    In its final rulemaking concerning Customer Clearing Documentation, 
Time of Acceptance for Clearing, and Clearing Member Risk Management, 
the Commission adopted the Proposal's

[[Page 66300]]

amendments to regulation 1.35(a-1)(5) concerning the post-execution 
time limits referred to above.\74\
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    \74\ Customer Clearing Documentation, Time of Acceptance for 
Clearing, and Clearing Member Risk Management, 77 FR 21278, 21306 
(Apr. 9, 2012).
---------------------------------------------------------------------------

    In this rulemaking, the Commission is adding FCMs and IBs to the 
list of eligible account managers in regulation 1.35(a-1)(5) 
(redesignated as (b)(5)), as proposed, in order to have a single 
standard for all intermediaries that might have discretion over 
customer accounts. Unlike other account managers, however, under 
regulations 155.3 and 155.4, FCMs and IBs are prohibited from including 
proprietary trades in a bunched order with customer trades. 
Accordingly, as proposed, the Commission has added a cross-reference in 
regulation 1.35(a-1)(5) (re-designated herein as (b)(5)) to those 
regulations. The Commission did not receive comments to this segment of 
the Proposal.
    The Commission is further amending regulation 1.35(a-1) 
(redesignated herein as (b)) in order to provide that specific customer 
account identifiers need not be included in confirmations or 
acknowledgments provided pursuant to regulation 23.501(a), if the 
requirements of regulation 1.35(a-1)(5) (redesignated herein as (b)(5)) 
are met. This will enable account managers to bunch orders for trades 
executed bilaterally with SDs or MSPs. This will require that, similar 
to the current procedure for futures, the allocation be completed by 
the end of the day of execution and provided to the counterparty. The 
Commission is making this revision as proposed; it did not receive 
comments to this revision.
    Also as proposed, the Commission is deleting appendix C to part 1, 
which predated regulation 1.35(a-1)(5) (re-designated herein as (b)(5)) 
and also addresses bunched orders. Appendix C consists of a Commission 
Interpretation regarding certain account identification requirements 
pertaining to the practice of combining orders for different accounts 
into a single order book, referred to as bunched orders. The procedures 
for bunched orders are set forth in regulation 1.35(a-1)(5) (re-
designated herein as (b)(5)). Accordingly, the procedures under 
appendix C to part 1 are duplicative and no longer necessary. The 
Commission received no comments concerning its proposal to delete 
appendix C to part 1 and is hereby deleting that appendix.
b. Other Changes to Regulation 1.35
    The Commission has deleted paragraphs (f)-(l) of regulation 1.35, 
as proposed. To implement the CFMA, regulation 38.2 required DCMs to 
comply with an enumerated list of Commission regulations, and exempted 
them from all remaining Commission regulations that were no longer 
applicable post-CFMA.\75\ The DCM Core Principles final rulemaking 
substantially revised part 38, but did not revoke regulation 38.2.\76\ 
Instead, it updated the list of Commission regulations that are 
applicable to DCMs. Unlike its predecessor, regulation 38.2, as revised 
by the DCM Core Principles final rulemaking, only enumerates the 
Commission regulations from which DCMs are exempt.
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    \75\ See 71 FR 1964 (Jan. 12, 2006).
    \76\ Core Principles and Other Requirements for Designated 
Contract Markets, 77 FR 36612 (June 19, 2012).
---------------------------------------------------------------------------

    As part of the ministerial amendments contained in this rulemaking, 
the Commission has eliminated from the Commission's regulations any 
provisions that have been inapplicable to DCMs since the passage of the 
CFMA, and that remain inapplicable after the passage of the DFA. 
Paragraphs (f)-(l) of regulation 1.35 are among those provisions. 
Pursuant to the deletion paragraph (j) of regulation 1.35, the 
Commission has copied most of that provision into new subsection 
(d)(7)(i) (formerly (b)(7)(i)). The Commission made these changes as 
proposed; it did not receive any comments on these provisions.
    Also as part of the ministerial amendments contained in this 
rulemaking, the Commission proposed to eliminate regulations 1.35(a-
1)(3)(ii) and 1.35(a-2)(3). However, regulation 38.2, as revised by the 
DCM Core Principles final rule, no longer exempts DCMs from these 
provisions. Accordingly, these provisions will not be eliminated in 
this rulemaking, and they are redesignated as regulations 
1.35(b)(3)(ii) and 1.35(c)(3), respectively.
    Regulation 1.35, as revised by this rulemaking, no longer agrees 
with regulation 38.2. As this rulemaking eliminates the provisions of 
regulation 1.35 that remain inapplicable to DCMs, the Commission is 
revising regulation 38.2 to remove references to those provisions of 
regulation 1.35 with which DCMs are not required to comply. The 
Commission considers this revision to regulation 38.2 technical in 
nature as it merely cleans up the discrepancy created by the revisions 
to regulation 1.35.
    Finally, the Commission has made a technical correction to 
regulation 1.35(b)(3)(v) (redesignated herein as (d)(3)(v)) so that the 
final sentence references ``commodity futures, retail forex, commodity 
option, or swap books and records'' instead of ``commodity retail forex 
or commodity option books and records.'' The Commission has made this 
change as proposed; it did not receive any comments on this provision.
6. Regulation 1.37: Customer's or Option Customer's Name, Address, and 
Occupation Recorded; Record of Guarantor or Controller of Account
    Dodd-Frank Act section 723(a)(3) added a new section 2(h)(8) to the 
CEA to require, among other things, that swaps subject to the clearing 
requirement of CEA section 2(h)(1) be executed either on a DCM or on a 
SEF. The DFA established SEFs as a new category of regulated markets 
for the purpose of trading and executing swaps. Because SEFs are now 
regulated markets under the CEA, many of the Commission's existing 
regulatory provisions that currently are applicable to DCMs also will 
become applicable to SEFs.
    Accordingly, the Commission, as proposed, has amended paragraphs 
(c) and (d) of regulation 1.37, pertaining to recording foreign 
traders' and guarantors' names, addresses, and business information. 
Currently, these provisions apply to DCMs and futures and options 
contracts executed on those facilities. This revision amends the 
provisions to also include SEFs and swap transactions. Additionally, 
the Commission is amending the title and remaining text of regulation 
1.37 to reflect the removal of the term ``option customer.'' \77\ The 
Commission received no comments on these provisions.
---------------------------------------------------------------------------

    \77\ See supra, section II.A.b. for a discussion of the deletion 
of the defined term ``option customer'' (1.3(jj)).
---------------------------------------------------------------------------

7. Regulation 1.39: Simultaneous Buying and Selling Orders of Different 
Principals; Execution of, for and Between Principals
    Like regulation 1.37, the Commission is amending regulation 1.39 to 
apply it to SEFs and swaps. Regulation 1.39, which has applied to 
members of contract markets, governs the simultaneous execution of buy 
and sell orders of different principals for the same commodity for 
future delivery by a member and permits the execution of such orders 
between such principals on a contract market. The Commission is 
amending this provision to include members of SEFs, and to include swap 
transactions. The Commission is also amending paragraph (c) to 
eliminate the reference to ``cross trades,'' as they are

[[Page 66301]]

no longer defined under section 4c(a) of the Act, as amended by the 
DFA. The Commission received no comments and is making these revisions 
as proposed, with a slight modification to further clarify that the 
rule applies to SEFs in the same manner that it applies to DCMs.
8. Regulation 1.40: Crop, Market Information Letters, Reports; Copies 
Required
    Regulation 1.40 requires FCMs, RFEDs, IBs and members of contract 
markets to furnish to the Commission certain information they publish 
or circulate concerning crop or market information affecting prices of 
commodities. The Commission is amending regulation 1.40 to apply it to 
trading on a SEF, to the extent that persons have trading privileges on 
the SEF. Persons without trading privileges on a SEF will not be 
subject to regulation 1.40. The amendments also update the forms of 
communication covered by the regulation by replacing the word 
``telegram'' with ``telecommunication.'' The Commission is making these 
revisions as proposed; the Commission received no comments on these 
provisions.
9. Regulation 1.59: Activities of Self-Regulatory Employees, Governing 
Board Members, Committee Members and Consultants
    The Commission proposed to amend regulation 1.59 to include SEFs 
and swaps. The Commission also proposed to amend regulation 1.59(b) to 
correct certain cross-references to the Act and Commission regulations. 
Regulation 1.59(c) has been revised to apply only to registered futures 
associations, as the prohibitions contained therein applicable to the 
other SROs already are addressed in proposed regulation 40.9.\78\ The 
Commission is making these revisions as proposed; the Commission 
received no comments.
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    \78\ Requirements for Derivatives Clearing Organizations, 
Designated Contract Markets, and Swap Execution Facilities Regarding 
the Mitigation of Conflicts of Interest, 75 FR 63732 (Oct. 18, 
2010).
---------------------------------------------------------------------------

10. Regulation 1.63: Service on Self-Regulatory Organization Governing 
Boards or Committees by Persons With Disciplinary Histories
    The Commission proposed to amend regulation 1.63 to correct certain 
cross-references to the Act and its regulations. The Commission also 
proposed to amend paragraph (d) to incorporate the posting of notices 
required under that paragraph on each SRO's Web site. The Commission 
received no comments regarding the proposed amendments to regulation 
1.63 and is adopting the amendments without modification.
11. Regulation 1.67: Notification of Final Disciplinary Action 
Involving Financial Harm to a Customer
    Regulation 1.67 requires contract markets, upon taking any final 
disciplinary action involving a member causing financial harm to a non-
member, to provide notice to the FCM that cleared the transaction. FCMs 
and other registrants on SEFs should also be notified of any 
disciplinary action involving transactions on a SEF they executed for 
ECPs. Accordingly, the Commission proposed to amend regulation 1.67 to 
include SEFs, registrants and ECPs on such facilities. The Commission 
received no comments regarding proposed regulation 1.67 and is adopting 
the rule without modification.
12. Regulation 1.68: Customer Election Not To Have Funds, Carried by a 
Futures Commission Merchant for Trading on a Registered Derivatives 
Transaction Execution Facility, Separately Accounted for and Segregated
    The Commission is hereby removing and reserving regulation 1.68. 
Regulation 1.68 had permitted a customer of an FCM to allow the FCM to 
not separately account for and segregate such customer's funds if, 
among other things, such funds are being carried by the FCM to trade on 
or through the facilities of a DTEF. No DTEF has ever registered with 
the Commission. Furthermore, section 734 of the Dodd-Frank Act repealed 
the DTEF provisions in the CEA, effective July 15, 2011. Therefore, 
because the statutory provisions underpinning regulation 1.68 have been 
repealed, the Commission is removing it from the Commission's 
regulations.\79\
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    \79\ The Commission is also hereby deleting all other references 
to DTEFs, except those already removed by other Commission 
rulemakings, throughout its regulations. See infra Part II.G.
---------------------------------------------------------------------------

13. Regulations 1.44, 1.53, and 1.62--Deletion of Regulations 
Inapplicable to Designated Contract Markets
    The CFMA adopted core principles for DCMs.\80\ On August 10, 2001, 
the Commission published final rules implementing provisions of the 
CFMA, in which it concluded that the CFMA's framework effectively 
constituted a broad exemption from many of the existing regulations 
applicable to DCMs.\81\ Accordingly, the final rules included 
regulation 38.2, which required DCMs to comply with an enumerated list 
of Commission regulations, and exempted them from all remaining 
Commission regulations no longer applicable post-CFMA. As part of the 
ministerial amendments contained in the Proposal, the Commission 
proposed to eliminate from the Commission's regulations any provisions 
that have been inapplicable to DCMs since the CFMA was enacted and that 
remain inapplicable after enactment of the DFA. Accordingly, the 
Commission proposed to eliminate the following regulations: regulation 
1.44 (Records and reports of warehouses, depositories, and other 
similar entities; visitation of premises), regulation 1.53 (Enforcement 
of contract market bylaws, rules, regulations, and resolutions), and 
regulation 1.62 (Contract market requirement for floor broker and floor 
trader registration). The Commission received no comments regarding the 
proposed deletion of these provisions and is hereby deleting such 
provisions as proposed.
---------------------------------------------------------------------------

    \80\ Public Law 106-554, 114 Stat. 2763 (2000).
    \81\ A New Regulatory Framework for Trading Facilities, 
Intermediaries and Clearing Organizations, 66 FR 42256 (Aug. 10, 
2001).
---------------------------------------------------------------------------

14. Technical Changes to Part 1 and Part 22 in Order To Accommodate 
Recently Finalized Part 22
    On February 7, 2012, the Commission finalized regulations in part 
22 regarding the Protection of Cleared Swaps Customer Contracts and 
Collateral (``Cleared Swaps Customer Final Rule'').\82\ The Cleared 
Swaps Customer Final Rule took effect on April 9, 2012, although the 
compliance date for the rule is November 8, 2012. The Cleared Swaps 
Customer Final Rule established a segregation regime applicable to FCMs 
and DCOs for ``Cleared Swaps Customer Collateral,'' as regulation 22.1 
defines that term.\83\ The rulemaking process involved extensive public 
comment, including through both an advanced notice of proposed 
rulemaking and a notice of proposed rulemaking.
---------------------------------------------------------------------------

    \82\ Protection of Cleared Swaps Customer Contracts and 
Collateral; Conforming Amendments to the Commodity Broker Bankruptcy 
Provisions, 77 FR 6336 (Feb. 7, 2012) (``Cleared Swaps Customer 
Final Rule'').
    \83\ Part 22 capitalizes definitions, but part 1 does not. 
Hence, in this rulemaking, terms defined in regulation 22.1 are 
capitalized, and terms defined in regulation 1.3 are not.
---------------------------------------------------------------------------

    The Cleared Swaps Customer Final Rule carefully established the 
basic architecture for protecting Cleared Swaps Customer Collateral. 
Both the Cleared Swaps Customer Final Rule and

[[Page 66302]]

the related proposed rule \84\ described how and to what extent the 
part 22 regulations for cleared swaps parallel and deviate from the 
part 1 regulations applicable to FCMs and DCOs relating to Customers' 
Money, Securities, and Property for exchange-traded contracts (referred 
to herein as the ``Part 1 Segregation Regulations''). In today's final 
rulemaking, the Commission is making technical corrections to certain 
of the Part 1 Segregation Regulations to make unambiguous that certain 
parallel Part 1 Segregation Regulations do not apply to Cleared Swaps 
Customer Collateral. These Part 1 Segregation Regulations only apply to 
the segregation of customer funds used to margin, guarantee, or secure 
contracts for future delivery on or subject to the rules of a contract 
market, and all money accruing to such customers as a result of such 
contracts (referred to herein as ``futures contracts''), as well as to 
customer funds used to margin commodity option transactions on or 
subject to the rules of a contract market or DCO (referred to herein as 
``options on futures contracts'').\85\
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    \84\ Protection of Cleared Swaps Customer Contracts and 
Collateral; Conforming Amendments to the Commodity Broker Bankruptcy 
Provisions, 76 FR 33818 (June 9, 2011).
    \85\ See generally Cleared Swaps Customer Final Rule, 77 FR at 
6363 (``Sections 22.2 through 22.10 implement the basic architecture 
of a system of segregation for swaps customer funds roughly 
comparable to the system used for customer funds for futures 
contracts under CEA sections 4d(a)(2) and 4d(b) and Commission 
regulations 1.20 through 1.30 and 1.49.'').
---------------------------------------------------------------------------

    For the reasons stated above, the Commission is hereby making the 
following technical corrections:
    In regulation 1.3, the Commission has added a definition of 
``futures customer funds'' to reference only those funds used to margin 
futures contracts or commodity option transactions on or subject to the 
rules of a contract market, or DCO, as the case may be. This definition 
matches the existing definition of customer funds (regulation 1.3(gg)). 
The Commission is also adding a definition of ``Cleared Swaps Customer 
Collateral,'' which cross-references regulation 22.1's definition of 
this term. Regulation 1.3(gg)(``customer funds'') applies to both 
``futures customer funds'' and ``Cleared Swaps Customer Collateral.'' 
The Proposal's definition in regulation 1.3(gg) had already applied to 
customer funds used to margin both futures and swaps.
    Relatedly, the Commission is adding a definition of ``futures 
customer'' to regulation 1.3 and a definition of ``Cleared Swaps 
Customer,'' which cross-references regulation 22.1's definition of that 
term. As discussed above in section II.A.1.b. of this preamble, the 
definition of ``customer'' in regulation 1.3(k) will be finalized as 
proposed, to reference ``any person who uses a futures commission 
merchant, introducing broker, commodity trading advisor, or commodity 
pool operator as an agent in connection with trading in any commodity 
interest.'' \86\ The definition of ``customer'' refers to both a 
``futures customer'' and a ``Cleared Swaps Customer'' because, as 
described in section II.A.1.f. of this preamble, this rulemaking is 
adopting a revised definition of ``commodity interest'' (regulation 
1.3(yy)), largely as proposed, to reference futures, swaps, and 
contracts subject to Commission sections 2(c)(2), 4c or 19 of the Act.
---------------------------------------------------------------------------

    \86\ As finalized, the definition of customer in regulation 
1.3(k) preserves existing treatment of proprietary accounts.
---------------------------------------------------------------------------

    The Proposal included an amendment to the definition of ``futures 
account'' in regulation 1.3(vv) to reference a related futures 
segregation provision of section 4 of the Act, as amended by the Dodd-
Frank Act, i.e., section 4d(a). The Proposal neglected to reference 
subsection (b) of section 4d, so today's final definition of ``futures 
account'' references sections 4d(a) and 4d(b) of the Act. The 
Commission did not receive comments about its proposed revisions to 
this definition. As a technical correction, the Commission is adding a 
definition of ``Cleared Swaps Customer Account,'' which references 
regulation 22.1's definition of that term. Relatedly, the Commission is 
adding a definition of ``customer account'' in regulation 1.3 to 
connote both a ``futures account'' and a ``Cleared Swaps Customer 
Account,'' as regulation 1.3 defines each of those terms.
    The Commission is making a technical correction to paragraph 
(c)(5)(xiii)(C) of regulation 1.17 (``Minimum financial requirements 
for futures commission merchants and introducing brokers'') to restrict 
a provision pertaining to a foreign broker granted relief pursuant to 
regulation 30.10 to ``the foreign futures or foreign options secured 
amount, as Sec.  1.3(rr) of this part defines such term.'' This 
provision has always referenced the foreign futures or foreign options 
secured amount. Thus, because ``customer funds'' includes both 
``futures customer funds'' and ``Cleared Swaps Customer Collateral,'' 
the Commission is making a technical correction to replace the term 
``customer funds'' in paragraph (c)(5)(xiii)(C) of regulation 1.17 with 
the term ``foreign futures or foreign options secured amount.''
    The Commission is making technical corrections to regulation 1.20 
(``Customer funds to be segregated and separately accounted for'') by: 
changing the title to ``Futures customer funds to be segregated and 
separately account for''; replacing references to ``customer funds'' 
and ``customers'' to ``futures customer funds'' and ``futures 
customers''; and linking the regulation to those provisions of section 
4d of the Act, as amended by the Dodd-Frank Act, pertaining to the 
segregation of futures customer funds (i.e., sections 4d(a) and (b)).
    The Commission is making technical corrections to regulation 1.21 
(``Care of money and equities accruing to customers'') by changing the 
title to ``Care of money and equities accruing to futures customer'' 
and replacing references to ``customer'' with references to ``futures 
customer.'' The Cleared Swaps Customer Final Rule did not create a 
parallel regulation in part 22 on the grounds that such parallels were 
not necessary because: (1) Regulation 22.1 broadly includes 
``accruals'' in the definition of Cleared Swaps Customer Collateral, 
and (2) regulation 22.2(e) permits an FCM to commingle the Cleared 
Swaps Customer Collateral of multiple Cleared Swaps Customers. Thus, 
although revised regulation 1.21 is limited to futures customers and 
there is no parallel regulation in part 22, part 22 captures the 
substance of regulation 1.21 with respect to Cleared Swaps Customers 
and Cleared Swaps Customer Collateral.
    The Commission is making technical corrections to regulation 1.22 
(``Use of customer funds restricted'') by changing the title to ``Use 
of futures customer funds restricted'' and replacing references to 
``customer funds'' and ``customer'' with references to ``futures 
customer funds'' and ``futures customer.'' The Cleared Swaps Customer 
Final Rule incorporated these requirements into part 22 with respect to 
Cleared Swaps Customer Collateral and Cleared Swaps Customers.
    The Commission is making technical corrections to regulation 1.23 
(``Interest of futures commission merchant in funds; additions and 
withdrawals'') by changing the title to ``Interest of futures 
commission merchant in segregated futures customer funds; additions and 
withdrawals;'' replacing references to ``customer funds'' and 
``customer'' with references to ``futures customer funds'' and 
``futures customer;'' and linking the regulation to sections 4d(a) and 
(b) of the Act.\87\
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    \87\ The Cleared Swaps Customer Final Rule created analogous 
requirements in part 22 with respect to Cleared Swaps Customer 
Collateral and Cleared Swaps Customers. See 17 CFR 22.2(e)(3).

---------------------------------------------------------------------------

[[Page 66303]]

    The Commission is making technical corrections to regulation 1.24 
(``Segregated funds; exclusions therefrom'') by replacing a reference 
to ``customers'' with ``futures customers.'' \88\
---------------------------------------------------------------------------

    \88\ The Cleared Swaps Customer Final Rule created analogous 
provisions in part 22 with respect to Cleared Swaps Customers. See 
17 CFR 22.2(d)(3).
---------------------------------------------------------------------------

    The Commission is making technical corrections to regulation 1.26 
(``Deposit of instruments purchased with customer funds'') by: changing 
the title to ``Deposit of instruments purchased with futures customer 
funds''; replacing references to ``customer funds'' and ``customer'' 
with references to ``futures customer funds'' and ``futures customer;'' 
and linking the regulation to sections 4d(a) and (b) of the Act.\89\
---------------------------------------------------------------------------

    \89\ The Cleared Swaps Customer Final Rule created analogous 
requirements in regulation 22.5 17 CFR 22.5.
---------------------------------------------------------------------------

    The Commission is making technical corrections to regulation 1.32 
(``Segregated account; daily computation and record'') by replacing 
references to ``customer funds,'' ``customer,'' and ``customer 
account'' with references to ``futures customer funds,'' ``futures 
customer,'' and ``futures customer account.'' \90\
---------------------------------------------------------------------------

    \90\ The Cleared Swaps Customer Final Rule mirrored some of 
regulation 1.32's requirements in part 22 with respect to Cleared 
Swaps Customer Collateral and Cleared Swaps Customers. See 17 CFR 
22.2(g).
---------------------------------------------------------------------------

    The Commission is making a technical correction to regulations 
1.21, 1.23, 1.24, 1.26, 1.29, 140.735-2a, and 140.735-3 by replacing 
the term ``clearing organization'' or ``clearinghouse'' with 
``derivatives clearing organization.'' Since Congress' enactment of the 
CFMA in 2000,\91\ which added ``derivatives clearing organization'' as 
a new defined term to section 1a of the Act, the intent of these 
regulations has been to refer to ``derivatives clearing 
organizations.''
---------------------------------------------------------------------------

    \91\ Public Law 106-55, 114 Stat. 2763 (Effective December 21, 
2000).
---------------------------------------------------------------------------

    The Commission is making technical changes to subsection (1)(iii) 
of regulation 1.33 (``Monthly and Confirmation statements'') to 
specifically reference ``futures customer funds'' and the ``foreign 
futures and foreign options secured amount.'' This subsection presently 
refers to these classes of customer funds; the intention of this 
technical amendment is to clarify that meaning.
    Proposed amended regulation 1.33(a)(3) described what ``swap 
positions'' information an FCM must provide in monthly statements to 
its customers. The Commission did not receive comments on this proposal 
and is publishing it as proposed, except for the following. In line 
with the aforementioned technical corrections, today's final version of 
regulation 1.33 replaces ``swap position'' with ``Cleared Swaps 
Customer.'' Today's final rulemaking also makes a technical correction 
to regulation 1.33 by combining subsections (a)(1)(iv), (a)(2)(v), and 
proposed (a)(3)(iv) into a new paragraph (a)(4).
    Unlike the aforementioned Part 1 Segregation Regulations, 
Regulation 1.25 (``Investment of customer funds''), on the other hand, 
now properly applies to both futures customer funds and Cleared Swaps 
Customer Collateral. Thus, its title will continue to refer to 
``customer funds,'' which, as defined by revised regulation 1.3(gg), 
includes both futures customer funds and Cleared Swaps Customer 
Collateral. However, the Commission is making technical corrections to 
regulation 1.25 as part of today's final rulemaking by adding 
references to regulation 22.5 (``Futures commission merchants and 
derivatives clearing organizations: Written acknowledgment'') alongside 
current references to regulation 1.26 (``Deposit of instruments 
purchased with customer funds'') (to be amended herein as ``Deposit of 
instruments purchased with futures customer funds''). The Commission 
explains this reference to regulation 22.5 in a new provision at the 
end of paragraph (d)(13) of regulation 1.25.
    The foregoing technical corrections to the Part 1 Segregation 
Regulations are designed to ensure that, when taken together with the 
Cleared Swaps Customer Final Rule, they do not create redundant, and 
potentially conflicting, duties for FCMs and DCOs. For similar reasons, 
the Commission is making certain equivalent technical corrections to 
part 22. As mentioned above, none of these technical changes alter the 
meaning of any regulation of part 22. First, the Commission is deleting 
the definition of ``Customer'' from regulation 22.1 (``Definitions''). 
Because of the aforementioned addition of the definition of ``futures 
customer'' in regulation 1.3, regulation 22.1's definition of 
``Customer'' is no longer needed or correct. Consequently, in 
regulation 22.2 (``Futures Commission Merchants: Treatment of Cleared 
Swaps and Associated Cleared Swaps Customer Collateral''), the 
Commission is replacing references to ``Customers'' with references to 
``futures customers'' or ``foreign futures or foreign options 
customers,'' as regulation 30.1(c) defines that term. For the same 
reason, in regulation 22.3(b)(2)(iii) (``Derivatives clearing 
organizations: Treatment of Cleared Swaps Customer Collateral''); 
paragraphs (a) and (b) of regulation 22.5 (``Futures commission 
merchants and derivatives clearing organizations: Written 
acknowledgement''); and paragraph (a) of regulation 22.9 
(``Denomination of Cleared Swaps Customer Collateral and location of 
depositories''), the Commission is replacing references to funds 
belonging to ``Customers'' with references to ``futures customer 
funds.''
    In addition, since, as described above, regulation 1.25 
(``Investment of customer funds'') applies to both futures customer 
funds and Cleared Swaps Customer Collateral, the Commission is making a 
technical correction to paragraph (e)(1) of regulation 22.2 and 
paragraph (d) of regulation 22.3 by omitting, ``which section shall 
apply to such money, securities, or other property as if they comprised 
customer funds or customer money subject to segregation pursuant to 
section 4d(a) of the Act and the regulations thereunder.''
    Similarly, the Commission is making a technical correction to 
regulation 22.9 (``Denomination of Cleared Swaps Customer Collateral 
and location of depositories'') by omitting a reference to Cleared 
Swaps Customer Collateral. Regulation 22.9 cross-references regulation 
1.49 (``Denomination of customer funds and location of depositories''). 
Because the new revised definition of ``customer funds'' in regulation 
1.3 references both futures customer funds and Cleared Swaps Customer 
Collateral, regulation 1.49 references to both classes of funds. 
Therefore, regulation 22.9 can reference regulation 1.49 without making 
a specific reference to Cleared Swaps Customer Collateral, which the 
Commission has always intended.
    Moreover, as a result of the corrections to the definition 
described above, the Commission is making (1) a technical correction to 
regulation 22.10 (``Application of other regulatory provisions'') to 
avoid confusion as to the applicability of regulations 1.27, 1.28, 
1.29, and 1.30 to Cleared Swaps, Cleared Swaps Customers, and Cleared 
Swaps Customer Collateral, and (2) technical corrections to regulations 
22.13(a)(2) and 22.15 to incorporate the new ``Futures Customer'' and 
``Foreign Futures or Foreign Options Customer'' terms.
    The Commission is also making technical corrections to regulation 
22.11, regulation 22.13(a)(1), the title of regulation 22.14, 
regulation 22.14(a)(2), regulation 22.14(c)(2), regulation 22.15, and 
the title of regulation of 22.16 by replacing references to 
``Customer'' with

[[Page 66304]]

the correct term ``Cleared Swaps Customer.'' Since its publication, 
regulation 22.11 has always intended to reference only Cleared Swaps 
Customers.
    In addition, the Commission is making technical corrections to 
regulation 22.12 (``Information to be maintained regarding Cleared 
Swaps Customer Collateral'') by replacing the term ``Cleared Swaps 
Customer Funds,'' with the correct term, ``Cleared Swaps Customer 
Collateral.''
    The Commission notes that its regulations refer to ``customer 
funds'' in the following regulations: 3.10, 3.21, 5.5, 39.15, 39.16, 
and 170.5, as well as in Appendices to part 190. ``Customer funds'' 
also appears in the following regulations recently amended by the 
Commission's final rulemaking concerning Core Principles and Other 
Requirements for Designated Contract Markets: \92\ 1.52, 38.603, 
38.604, and Appendix B to part 38. The Commission believes that these 
provisions properly refer to ``customer funds'' as revised regulation 
1.3(gg) now defines that term, i.e., to connote both ``futures customer 
funds'' and ``Cleared Swaps Customer Collateral.''
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    \92\ 77 FR 3661 (June 19, 2012) (Effective date: August 20, 
2012).
---------------------------------------------------------------------------

B. Part 7

    The Commission proposed to rename part 7 of the Commission's 
regulations ``Registered Entity Rules Altered or Supplemented by the 
Commission,'' thus reflecting the language in section 8a(7) of the Act, 
as amended by the Dodd-Frank Act, which provides the basis for part 7. 
The Commission also proposed to make a similar change in regulation 
7.1, replacing contract market rules with registered entity rules. 
Finally, the Commission proposed to remove and reserve subparts B 
(Chicago Mercantile Exchange Rules) and C (Board of Trade of the City 
of Chicago Rules) and their associated sections. The Commission 
received no comments regarding the proposed amendments to part 7 and is 
adopting these amendments as proposed.

C. Part 8

    The Commission proposed to remove part 8 of its regulations. 
Regulation 38.2 enumerates the provisions with which DCMs are not 
required to comply. The part 8 regulations are among those 
provisions.\93\ In the DCM Core Principles final rules, the Commission 
adopted regulations in ``Subpart N--Disciplinary Procedures'' of part 
38 to amend the disciplinary procedure requirements applicable to 
DCMs.\94\ Several of the regulations adopted in subpart N of part 38 
are similar to the text of the disciplinary procedures found in part 8 
of the Commission's regulations.\95\ The Commission proposed to remove 
part 8 from its regulations to avoid any confusion that could result 
from those regulations containing two sets of exchange disciplinary 
procedures. The Commission received no comments regarding the proposed 
deletion of part 8 and is therefore deleting those regulations as 
proposed.
---------------------------------------------------------------------------

    \93\ 17 CFR 38.2.
    \94\ 77 FR at 36649. The DCM Core Principles final rules take 
effect on August 20, 2012. Section 735 of the Dodd-Frank Act 
eliminates all DCM designation criteria, including Designation 
Criterion 6 (Disciplinary Procedures). Section 735 of the Dodd-Frank 
Act creates a new Core Principle 13 (Disciplinary Procedures) that 
is devoted exclusively to exchange disciplinary proceedings, and 
captures disciplinary concepts inherent in both Designation 
Criterion 6 and in current DCM Core Principle 2.
    \95\ Paragraph (b)(4) of the acceptable practices for former 
Core Principle 2 referenced part 8 of the Commission's regulations 
as an example that DCMs could follow to comply with Core Principle 
2. 17 CFR pt. 38, app. B, Acceptable Practices for Core Principle 2 
at (b)(4). In its experience, the Commission has found that many 
DCMs' disciplinary programs do in fact model their disciplinary 
structures and processes on part 8.
---------------------------------------------------------------------------

D. Parts 15, 18, 21, and 36

    The Commission also proposed to incorporate changes into parts 15, 
18, 21, and 36 of its regulations to account for (1) the DFA's 
elimination of two categories of exempt markets, exempt commercial 
markets (``ECMs'') and electronic boards of trade (``EBOTs''); and (2) 
the DFA's grandfather relief provisions for such entities.
    Section 723 of the DFA repealed CEA section 2(h), thus eliminating 
the ECM category. Section 734 of the DFA repealed CEA section 5d, thus 
eliminating the EBOT category. Section 734 also repealed CEA section 
5a, thus eliminating the DTEF category of regulated markets effective 
July 15, 2011, as discussed above.
    Both sections 723 and 734 of the Dodd-Frank Act contain grandfather 
provisions allowing ECMs and EBOTs to petition the Commission to 
continue to operate as ECMs and EBOTs. Pursuant to the grandfather 
provisions, in September 2010, the Commission issued orders regarding 
the treatment of such grandfather petitions (the ``Grandfather Relief 
Orders'').\96\ Under the Grandfather Relief Orders, the Commission may, 
subject to certain conditions, provide relief to ECMs and EBOTs for up 
to one year from the general effective date of the DFA's amendments to 
the CEA. On July 13, 2012, the Commission amended for the second time a 
Commission order dated July 14, 2011, by, among other things, allowing 
ECMs and EBOTs, as well as markets that rely on pre-DFA CEA section 
2(d)(2), to rely only on the amended order (``Second Amended July 14 
Order'') after July 16, 2012.\97\
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    \96\ 75 FR 56513 (Sept. 16, 2010).
    \97\ 77 FR 41260 (July 13, 2012).
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    Pursuant to the DFA and the Grandfather Relief Orders, the 
Commission proposed to remove from parts 15, 18, 21 and 36 \98\ 
references to CEA sections 2(h) and 5d and to replace those references, 
where appropriate, with references to the Grandfather Relief Orders as 
the authority under which ECMs and EBOTs can continue to operate. The 
Commission also proposed to remove from parts 15, 18, 21, and 36 of its 
regulations references to CEA sections 2(d), 2(g), and 5a, as well as 
references to DTEFs. The Commission received no comments regarding the 
amendments to parts 15, 18, 21, and 36. The Commission is revising 
regulation 36.1 in order to account for the expiration of the 
Grandfather Relief Orders on July 16, 2012, as well as reliance by ECMs 
and EBOTs on the Second Amended July 14 Order. Otherwise, the 
Commission is adopting the amendments to parts 15, 18, 21, and 36 as 
proposed.
---------------------------------------------------------------------------

    \98\ Part 36 provisions apply to ECMs and EBOTs. The Commission 
is not deleting part 36 in its entirety because part 36 provisions 
will continue to apply to ECMs and EBOTs that continue to operate 
under the Grandfather Relief Orders.
---------------------------------------------------------------------------

E. Parts 41, 140, and 145

    The Commission also proposed to incorporate changes into its 
regulations to account for other new categories of registered entities 
and to include new products now subject to Commission jurisdiction. 
Section 733 of the Dodd-Frank Act added new section 5h to the CEA and 
created SEFs. Section 728 of the Dodd-Frank Act added new section 21 to 
the CEA and created SDRs. SEFs will allow for the trading of swap 
transactions between ECPs, as that term is defined in CEA section 
1a(18).\99\ In addition to the amendments contained in proposed part 
37, the Commission proposed additional amendments throughout the 
regulations to include SEFs and SDRs where necessary. The Commission 
also proposed to delete from part 41 references to DTEFs as that term 
was deleted from CEA section 5b by the Dodd-Frank Act, effective July 
15, 2011.\100\ The Commission received

[[Page 66305]]

no comments to its deletion of the term DTEF from part 41 and is 
adopting this change as proposed. In addition, as part of today's final 
rulemaking, the Commission is making a technical change to part 41 so 
that references to the definition of ``narrow-based security index'' is 
cited as section 1a(35) of the Act instead of section 1a(25) of the 
Act.
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    \99\ For a detailed discussion of the proposed rules as they 
directly relate to SEFs, see 76 FR 1214 (Jan. 7, 2011).
    \100\ Section 5b of the CEA provided for the registration of 
DTEFs. Although secondary references to DTEFs remain in the CEA, 
none of the those would enable an entity to commence operations as a 
DTEF. The proposed deletions are in regulations 41.2, 41.12, 41.13, 
41.21-41.25, 41.27, 41.43 and 41.49.
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    The proposed changes throughout parts 140 (Organization, Functions 
and Procedures of the Commission) and 145 (Commission Records and 
Information) reflect the need to incorporate SEFs and SDRs into the 
Commission's regulations dealing with the rights and obligations of 
other registered entities. The Commission proposed amending regulation 
140.72 to provide the Commission with the authority to disclose 
confidential information to SEFs and SDRs. This provision allows the 
Commission, or specifically identified Commission personnel, to 
disclose information necessary to effectuate the purposes of the CEA, 
including such matters as transactions or market operations. The 
Commission proposed amending regulation 140.96 to authorize the 
Commission to publish in the Federal Register information pertaining to 
the applications for registration of DCMs, SEFs and SDRs, as well as 
new rules and rule amendments which present novel or complex issues 
that require additional time to analyze, an inadequate explanation by 
the submitting registered entity, or a potential inconsistency with the 
Act, or regulations under the Act. The Proposal included an amendment 
to regulation 140.99 to include SEFs and SDRs to the categories of 
registered entities that may petition the Commission for exemptive 
relief and no-action and interpretative letters.
    The Commission proposed amending regulation 140.735-2 by adding 
swap and retail forex transactions, as regulation 5.1(m) defines the 
latter term, to those agreements, contracts or transactions Commission 
staff may not trade. The Commission proposed amending regulation 
140.735-3 to add SEFs and SDRs to the list of entities from which 
Commission members and employees may not accept employment or 
compensation.
    The Commission received no comments about these proposed amendments 
to part 140 and is adopting them as proposed, except for two technical 
corrections to regulation 140.735-2. The Proposal added ``swap 
transaction'' to the text of paragraph (c) but inadvertently omitted 
updating a cross-reference to paragraph (b) that references ``swaps.'' 
Today's final rulemaking updates that cross-reference accordingly. 
Similarly, the Proposal added ``swap transaction'' to one sentence of 
paragraph (c)'s footnote three but, inadvertently, did not add ``swap 
transaction'' to another sentence of that paragraph. Thus, today's 
rulemaking makes a technical correction by adding ``swap transaction'' 
to that other sentence.
    The Commission proposed amending regulation 145.9 to expand the 
definition of ``submitter'' by adding SEFs and SDRs to the list of 
registered entities to which a person's confidential information has 
been submitted, and which, in turn, submit that information to the 
Commission. This amendment allows individuals who have submitted 
information to a SEF or SDR to request confidential treatment under 
regulation 145.9. The Commission received no comments about this 
proposed amendment and is adopting it as proposed.
    Appendix A to Part 145 discusses those portions of Commission 
records made available to the public. Section (b) discusses information 
made available in the public reading area of the Commission's Office of 
the Secretariat. The Proposal amended subsection (b)(13) by adding 
``application form'' to the list of publicly available portions of 
applications for becoming a registered entity. One month following the 
publication of the Proposal, i.e. in July 2011, the Commission 
published final amendments to Regulation 40.8(a) (``Availability of 
public information'').\101\ Regulation 40.8(a) is consistent with 
proposed (b)(13) of Appendix A except for the fact that Regulation 
40.8(a) references a ``first page of the application cover sheet'' 
instead of an ``application form.'' Thus, as part of today's final 
rulemaking, the Commission is making a technical correction by deleting 
the proposed language, ``application form,'' and replacing it with 
``first page of the application cover sheet'' so that it is consistent 
with regulation 40.8(a.) \102\
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    \101\ Provisions Common to Registered Entities, 76 FR 44776, 
44797 (July 27, 2011).
    \102\ In November 2011, the Commission published a final version 
of Regulation 39.3 (``Procedures for [DCO] registration''). To be 
consistent with Regulation 40.8(a), subsection (a)(5) of Regulation 
39.3 (``Public information'') references the ``first page of the 
Form DCO cover sheet.'' See Derivatives Clearing Organization 
General Provisions and Core Principles Regarding Rulemaking, 76 FR 
69334, 69431(Nov. 8, 2011). Form DCO is the application for 
registration to become a DCO. Thus, today's technical correction to 
subsection (b)(13) of Appendix A is consistent with both Regulation 
40.8(a) and Regulation 39.3(a)(5).
---------------------------------------------------------------------------

F. Parts 155 and 166

1. Regulation 155.2: Trading Standards for Floor Brokers
    The Commission is removing the references to regulation 1.41 within 
regulation 155.2 because the Commission removed and reserved regulation 
1.41 in 2001 \103\ pursuant to the CFMA. The Commission is also 
removing the related reference to former section 5a(a)(12)(A) of the 
Act. The Commission did not receive any comments on these changes in 
the Proposal and is finalizing them as proposed.
---------------------------------------------------------------------------

    \103\ 66 FR 42256.
---------------------------------------------------------------------------

2. Regulation 155.3: Trading Standards for Futures Commission Merchants 
and Regulation 155.4: Trading Standards for Introducing Brokers
    The Commission is removing references to ``option customer'' in 
these two regulations pursuant to this final rulemaking's deletion of 
that term from regulation 1.3, described above. The Commission did not 
receive comments about this change following publication of the 
Proposal and is amending regulations 155.3 and 155.4 as proposed.
3. Regulation 166.2: Authorization To Trade
    The Commission is revising this regulation by incorporating the 
revised definition of ``commodity interest'' (regulation 1.3(yy)), 
discussed above. The Commission believes that paragraph (a) of 
regulation 166.2 should refer to futures, options, or swaps and that 
paragraph (b) should refer only to futures or options. The Commission 
did not receive comments about these changes and is adopting them as 
proposed.
4. Regulation 166.5: Dispute Settlement Procedures
    The Commission is revising this regulation by deleting a reference 
to ``option customer'' because, as described above, today's rulemaking 
deletes that term from regulation 1.3. The Commission is also making a 
conforming, technical change to regulation 166.5, described in section 
G.2., below.

G. Other General Changes to CFTC Regulations

1. Removal of References to DTEFs
    The Commission is removing references to DTEFs and regulations 
pertaining to DTEFs in parts 1, 5, 15, 36,

[[Page 66306]]

41, 140, and 155 because section 734 of the DFA abolished DTEFs, 
effective July 15, 2011.\104\
---------------------------------------------------------------------------

    \104\ This rulemaking is not deleting those DTEF references that 
other rulemakings have deleted or will delete from the Commission's 
regulations (e.g., some references in part 3 and all references in 
part 40).
---------------------------------------------------------------------------

2. Other Conforming Changes
    The Commission is also making changes to various parts of its 
regulations to update cross-references to CEA provisions, now 
renumbered after the passage of the DFA. An example of one such change 
is amended regulation 166.5, in which the Commission has updated the 
reference to the statutory definition of the term ``eligible contract 
participant,'' to reflect the Dodd-Frank Act's renumbering of CEA 
section 1a. Additionally, where typographical errors or other minor 
inconsistencies were discovered while reviewing CFTC regulations, this 
rulemaking includes instructions and amended regulations to correct 
them.

III. Administrative Compliance

A. Paperwork Reduction Act

    Sections 1.31, 1.33, 1.35, 1.37, and 1.39 of the Commission's 
regulations are being amended to provide that records of swap 
transactions be kept in a similar manner to records of futures 
transactions. These amended provisions impose new information 
recordkeeping requirements that constitute the collection of 
information within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\105\ 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 has been approved by the Office of Management and Budget 
(``OMB'') and displays a currently valid control number.\106\ This 
rulemaking contains new collections of information for which the 
Commission must seek a valid control number. The Commission therefore 
has requested that OMB assign a control number for this collection of 
information. The Commission has also submitted the proposed rulemaking, 
this final rule release, and supporting documentation to OMB for review 
in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for 
these new collections of information is ``Adaptation of Regulations to 
Incorporate Swaps,'' OMB Control Number 3038-0090. Responses to these 
information collections will be mandatory.
---------------------------------------------------------------------------

    \105\ 44 U.S.C. 3501 et seq.
    \106\ Id.
---------------------------------------------------------------------------

    With respect to all of the Commission's collections, the Commission 
will protect proprietary information according to the Freedom of 
Information Act and 17 CFR part 145, ``Commission Records and 
Information.'' In addition, section 8(a)(1) of the Act strictly 
prohibits the Commission, unless specifically authorized by the Act, 
from making public ``data and information that would separately 
disclose the business transactions or market positions of any person 
and trade secrets or names of customers.'' The Commission also is 
required to protect certain information contained in a government 
system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.
1. Information To Be Provided by Reporting Entities/Persons
a. Amendments to Regulation 1.31 (Books and Records; Keeping and 
Inspection)
    Regulation 1.31 describes the manner in which ``all books and 
records required to be kept by the Act'' must be maintained. Most of 
the requirements of regulation 1.31 are applicable to FCMs, IBs, RFEDs, 
CTAs, CPOs, and members of DCMs and SEFs in conjunction with other part 
1 regulations, and the PRA burdens either have been or will be covered 
by the OMB control numbers associated with the other part 1 
regulations. Examples of these other part 1 regulations are regulation 
1.33, which requires certain registrants to produce monthly 
confirmation statements, and regulation 1.35, which requires the 
maintenance of records of cash commodity, futures, and option 
transactions (as finalized, Records of commodity interest and cash 
commodity transactions). Regulation 1.31 is applicable to SDs and MSPs 
by way of the part 23 regulations.\107\
---------------------------------------------------------------------------

    \107\ Swap Dealer and Major Swap Participant Recordkeeping, 
Reporting, and Duties Rules, 77 FR 20128 (Apr. 3, 2012).
---------------------------------------------------------------------------

i. Obligation To Develop and Maintain Recordkeeping Policies and 
Controls
    Regulation 1.31 additionally contains discrete stand-alone 
collections for which a control number must be sought. Subsection 
(b)(3)(ii) requires persons keeping records using electronic storage 
media to ``develop and maintain written operational procedures and 
controls (an `audit system') designed to provide accountability over 
[the entry of records into the electronic storage media].'' This 
provision is already applicable to FCMs, RFEDs, IBs, CTAs, CPOs, and 
members of DCMs, and would be applicable to SDs and MSPs pursuant to 
the part 23 regulations. As members of SEFs will be newly subject to 
the part 1 regulations, the Commission must estimate the burden of 
subsection (b)(3)(ii) on these entities and seek OMB approval for this 
new application of the subsection.
    The Commission anticipates that members of SEFs may incur certain 
one-time start-up costs in connection with establishing the audit 
system. This will include drafting and adopting procedures and controls 
and may include updates to existing recordkeeping systems. The 
Commission estimates the burden hours associated with these one-time 
start-up costs to be 100 hours per SEF member.
    As there are not any SEFs operating at the present, in light of the 
fact that the Commission has not yet finalized regulations concerning 
SEF Core Principles, it is not possible for the Commission to estimate 
with precision how many SEF members there will be or how many of those 
SEF members will be FCMs, SDs, or MSPs that are being covered by 
already pending existing information collections. Nonetheless, the 
Commission has estimated that 35 SEFs will register with it after the 
Dodd-Frank Act becomes effective, and now is estimating that there may 
be on average 100 members of a SEF that will not fall under one of the 
other collections. Accordingly, the aggregate new burden of subsection 
(b)(3)(ii) is estimated to be 100 one-time burden hours to 
approximately 3,500 SEF members.
    The Commission expects that compliance and operations managers will 
be employed in the establishment of the written procedures and controls 
under subsection (b)(3)(ii). According to recent Bureau of Labor 
Statistics, the mean hourly wage of an employee under occupation code 
11-3031, ``Financial Managers,'' that is employed by the ``Securities 
and Commodity Contracts Intermediation and Brokerage'' industry is 
$80.90.\108\ Because members of SEFs may be large entities that may 
engage employees with wages above the mean, the Commission has 
conservatively chosen to use a mean hourly wage of $100 per hour. 
Accordingly, the burden associated with developing written procedures 
and controls will total approximately $10,000 for each applicable 
member of a SEF on a one-time basis.
---------------------------------------------------------------------------

    \108\ Occupational Employment Statistics, Occupation Employment 
and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2011).
---------------------------------------------------------------------------

ii. Representation to the Commission Prior to Initial Use of System
    Members of SEFs will also have to comply with regulation 1.31(c), 
which requires persons employing an

[[Page 66307]]

electronic storage system to provide a representation to the Commission 
prior to the initial use of the system.\109\ The Commission estimates 
the burden of drafting this representation in accordance with 
regulation 1.31(c) and submitting it to the Commission to be one hour.
---------------------------------------------------------------------------

    \109\ As with subsection (b)(3)(ii), regulation 1.31(c) is 
already applicable or will be made applicable by other actions to 
FCMs, IBs, DCM members, as well as SDs or MSPs pursuant to the part 
23 regulations.
---------------------------------------------------------------------------

    According to recent Bureau of Labor Statistics, the mean hourly 
wage of an employee under occupation code 11-3031, ``Financial 
Managers,'' (which includes operations managers) that is employed by 
the ``Securities and Commodity Contracts Intermediation and Brokerage'' 
industry is $80.90.\110\ Because members of SEFs may be large entities 
that may engage employees with wages above the mean, the Commission has 
conservatively chosen to use a mean hourly wage of $100 per hour. 
Accordingly, the burden associated with drafting and submitting the 
representation prior to using an electronic storage system will be $100 
($100 x 1 hour) per affected member of a SEF.
---------------------------------------------------------------------------

    \110\ Occupational Employment Statistics, Occupation Employment 
and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2011).
---------------------------------------------------------------------------

iii. Comments Received
    The Commission did not receive any comments concerning the cost for 
SEF members to comply with the recordkeeping requirements contained in 
regulation 1.31.
b. Amendments to Regulation 1.33 (Monthly and Confirmation Statements)
    The Commission is amending regulation 1.33 by requiring FCMs to 
include in their monthly and confirmation statements sent to customers 
certain specified information related to a customer's Cleared Swap 
positions. The information required to be summarized in respect of swap 
transactions will be analogous to information currently required to be 
kept in respect of futures and commodity option transactions. The 
Commission estimates the burden of complying with regulation 1.33 in 
respect of swap transactions to be 1 hour for each Cleared Swap 
confirmation and 1 hour for each monthly statement.
    According to recent Bureau of Labor Statistics, the mean hourly 
wage of an employee under occupation code 11-3031, ``Financial 
Managers,'' (which includes operations managers) that is employed by 
the ``Securities and Commodity Contracts Intermediation and Brokerage'' 
industry is $80.90.\111\ Accordingly the burden associated with 
complying with regulation 1.33 in respect of each Cleared Swap 
confirmation will be $80.90 ($80.90 x 1 hour), and the burden will be 
$80.90 ($80.90 x 1 hour) for each monthly statement regarding Cleared 
Swaps.
---------------------------------------------------------------------------

    \111\ Occupational Employment Statistics, Occupation Employment 
and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2011).
---------------------------------------------------------------------------

i. Comments Received
    The Commission did not receive any comments concerning the cost for 
FCMs to comply with the recordkeeping requirements contained in 
regulation 1.33 with respect to their swap transactions.
c. Amendments to Regulation 1.35 (Records of Commodity Interest and 
Cash Commodity Transactions)
i. Obligation To Develop and Maintain Recordkeeping Policies and 
Controls
    The amendments will require members of SEFs to comply with the 
regulation 1.35 recordkeeping requirements that are currently followed 
by FCMs, IBs, RFEDs, and members of DCMs. The Commission anticipates 
that members of SEFs will spend approximately eight hours per trading 
day (or 2,016 hours per year based on 252 trading days) compiling and 
maintaining transaction records.
    According to recent Bureau of Labor Statistics, the mean hourly 
wage of an employee under occupation code 11-3031, ``Financial 
Managers,'' (which includes operations managers) that is employed by 
the ``Securities and Commodity Contracts Intermediation and Brokerage'' 
industry is $80.90.\112\ Because members of SEFs may be large entities 
that may engage employees with wages above the mean, the Commission has 
conservatively chosen to use a mean hourly wage of $100 per hour. Thus, 
each SEF member will have a burden of $201,600 per year (2,016 hours x 
$100/hour).
---------------------------------------------------------------------------

    \112\ Occupational Employment Statistics, Occupation Employment 
and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2011).
---------------------------------------------------------------------------

    The amendments to regulation 1.35 will also require FCMs, RFEDs, 
IBs, and members of DCMs to comply with the regulation 1.35 
recordkeeping requirements for any swap transactions into which they 
enter. Because the proposed recordkeeping requirements for swaps would 
be equivalent to the recordkeeping requirements they must currently 
follow in respect of futures and commodity option transactions, the 
additional burden for any swap transaction would be the same for any 
additional futures and commodity option transaction for which they keep 
records pursuant to regulation 1.35 in its current form. The Commission 
estimates that the recordkeeping burden associated with each swap 
transaction would be 0.5 hours, for a total burden of $50 per 
transaction.
ii. Comments Received
    The Commission did not receive any comments concerning the excepted 
cost of complying with the aforementioned revisions to regulation 1.35.
d. Amendments to Regulation 1.37 (Customer's Name, Address, and 
Occupation Recorded; Record of Guarantor or Controller of Account)
i. Obligation To Develop and Maintain Recordkeeping Policies and 
Controls
    The Commission is amending regulation 1.37(a) by requiring each 
FCM, IB, and member of a DCM to keep the same kind of record (showing 
the customer's name, address, occupation or business, and name of any 
other person guaranteeing the account or exercising any trading control 
over it) for any swap transactions it ``carries or introduces'' for 
another person. The Commission estimates that it will take each of 
these entities an average of 0.4 hours to gather the information and 
file it or key it into the entity's customer recordkeeping programs.
    The Commission also is amending regulation 1.37(b) by requiring 
each FCM carrying an omnibus account for another FCM, a foreign broker, 
a member of a DCM or any other person to maintain a daily record for 
such account of the total open long contracts and the total open short 
contracts in each swap. FCMs presently have an equivalent obligation 
with respect to futures and commodity option transactions. These daily 
records typically are maintained in electronic form. Therefore, once a 
position is entered into the entity's systems, the daily record will be 
automatically available. The Commission estimates that entering the 
position into the system, commencing with the placement of an order and 
ending with execution will take each of these entities an average of 
0.4 hours.
    The Commission additionally is amending regulation 1.37(c) by 
requiring SEFs to comply with a provision that DCMs must currently 
follow: Keep a record showing the true name, address, and principal 
occupation or business of any foreign trader executing transactions on 
the

[[Page 66308]]

facility or exchange. According to regulation 1.37(d), this provision 
does not apply in respect of futures/options/swaps that foreign traders 
execute through FCMs or IBs.
    The Commission estimates that it would take a SEF a total of 0.4 
hours to prepare each record in accordance with regulation 1.37(c). 
According to the Bureau of Labor Statistics, the mean hourly wage of an 
employee under occupation code 43-9021, ``Data Entry Keyer,'' is 
$13.95.\113\ Because SEFs may be large entities employing persons at 
wages higher than the average, the Commission conservatively estimates 
the mean hourly wage to be $19.03 per hour. Thus, the burden associated 
with preparing a record with regulation 1.37(c) would be $7.61 ($19.03/
hour x 0.4 hours).
---------------------------------------------------------------------------

    \113\ Occupational Employment Statistics, National Industry-
Specific Occupational Employment and Wage Estimates, NAICS 523100--
Securities and Commodity Contracts Intermediation and Brokerage, 
http://www.bls.gov/oes/current/oes439021.htm (May 2011).
---------------------------------------------------------------------------

ii. Comments Received
    The Commission did not receive any comments concerning the 
extension of regulation 1.37 to swap transactions executed by FCMs, 
IBs, and other DCM members.
e. Amendments to Regulation 1.39 (Simultaneous Buying and Selling 
Orders of Different Principals; Execution of, for and Between 
Principals)
i. Obligation To Develop and Maintain Recordkeeping Policies and 
Controls
    The Commission is amending regulation 1.39, which currently applies 
to DCMs, by enabling members of SEFs to execute simultaneous buying and 
selling orders of different principals pursuant to rules of the SEF if 
certain conditions are met. Among those conditions, a SEF would have to 
record these transactions in a manner that ``shows all transaction 
details required to be captured by the Act, Commission rule, or 
regulation.'' The Commission anticipates that the data to be captured 
would already exist in the SEF's trading system. The Commission 
estimates that it will take the SEF an average of 0.1 hours to capture 
this data, and storage costs of less than $1 per record.
    According to the recent Bureau of Labor Statistics, the mean hourly 
wage of computer programmers under occupation code 15-1131 and computer 
software developers under program codes 15-1132 are between $36.54 and 
$44.27.\114\ Because SEFs may be large entities that may engage 
employees with wages above the mean, the Commission has conservatively 
chosen to use a mean hourly programming wage of $50 per hour for each 
of the categories of persons who will have to establish the system for 
maintaining oral records. Accordingly, the start-up burden associated 
with the data capture requirements would be an average of $5.
---------------------------------------------------------------------------

    \114\ Occupational Employment Statistics, Occupational 
Employment and Wages: 15-1131, Computer Programmers, http://www.bls.gov/oes/current/oes151131.htm (May 2011); Occupational 
Employment Statistics, Occupational Employment and Wages: 15-1132, 
Computer Software Developers, http://www.bls.gov/oes/current/oes151132.htm (May 2011).
---------------------------------------------------------------------------

ii. Comments Received
    The Commission did not receive any comments concerning the 
extension of regulation 1.39 to transactions executed on a SEF.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires that agencies 
consider whether the rules they propose will have a significant 
economic impact on a substantial number of small entities and, if so, 
provide a regulatory flexibility analysis respecting the impact.\115\ 
The rules adopted by the Commission are for the most part technical 
amendments to conform the affected parts to provisions of the Dodd-
Frank Act and, as such, are non-substantive and will not have a 
significant economic impact on a substantial number of any types of 
entities, whether or not they are small entities. In order to conform 
the Commission's existing records regulations to its new recordkeeping 
requirements for SDs and MSPs (Regulation 23.202 (``Daily Trading 
Records'')),\116\ the Commission also is amending its regulation 1.35 
records requirements (as finalized, Records of commodity interest and 
cash commodity transactions) to require FCMs, IBs, RFEDs, and members 
of DCMs to observe recordkeeping requirements for swaps that they 
currently observe with respect to their futures and commodity option 
transactions.
---------------------------------------------------------------------------

    \115\ 5 U.S.C. 601 et seq.
    \116\ See Swap Dealer and Major Swap Participant Recordkeeping, 
Reporting, and Duties Rules; Futures Commission Merchant and 
Introducing Broker Conflicts of Interest Rules; and Chief Compliance 
Officer Rules for Swap Dealers, Major Swap Participants, and Futures 
Commission Merchants, 77 FR 20128 (Apr. 3, 2012) (adopting for SDs 
and MSPs reporting and recordkeeping standards now found in 17 CFR 
23.201-23.203).
---------------------------------------------------------------------------

    Additionally, the Commission is applying certain of those books and 
records regulations to members of SEFs, mirroring obligations that 
apply to members of DCMs.
    Accordingly, the Commission is hereby determining that most of the 
entities affected by this rulemaking will not be significantly 
economically impacted by the conforming and technical rules being 
adopted. As discussed below, the Commission is also determining that 
most of the entities that will be subject to compliance with this 
rulemaking are not small entities for the purposes of the RFA. 
Therefore, pursuant to 5 U.S.C. 605(b), the Chairman, on behalf of the 
Commission, certifies by category of market participant below that the 
final rules will not have a significant economic effect on a 
substantial number of small entities.
1. FCMs, RFEDs, DCMs, ECPs, SEFs and Large Traders
    The Commission has previously determined that registered FCMs, 
RFEDs, DCMs, ECPs, SEFs and large traders are not small entities for 
purposes of the RFA.\117\ The Commission has been informed, in the 
context of other rulemakings, that there are some entities that are 
both ECPs as defined in the CEA and also are small entities as defined 
by the Small Business Administration (``SBA''). In particular, the SBA 
has defined as small entities those entities that are engaged in the 
generation, transmission, and/or distribution of electric energy for 
sale and whose total electric output for the preceding year did not 
exceed four million megawatt hours. As noted previously, however, this 
rulemaking involves primarily technical conforming amendments that 
alone do not impose significant economic impacts on any group of 
entities, and that overlap with substantive rulemakings in which the 
Commission has assessed or will assess the economic impact on small 
entities to the extent required under the RFA. Accordingly, the 
Chairman, on behalf of the Commission, hereby certifies pursuant to 5 
U.S.C. 605(b) that the final rules will not have a significant economic 
impact on a substantial number of small entities with respect to these 
entities.
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    \117\ See Policy Statement and Establishment of Definitions of 
``Small Entities'' for Purposes of the Regulatory Flexibility Act, 
47 FR 18618, 18619, Apr. 30, 1982 (DCMs, FCMs, and large traders) 
(``RFA Small Entities Definitions''); Opting Out of Segregation, 66 
FR 20740, 20743, Apr. 25, 2001 (ECPs); Regulation of Off-Exchange 
Retail Foreign Exchange Transactions and Intermediaries, 75 FR 
55410, 55416, Sept. 19, 2010 (RFEDs) (``Retail Forex Final Rules''); 
and Position Limits for Futures and Swaps; Final Rule and Interim 
Final Rule, 76 FR 71626, 71680, Nov. 18, 2011 (SEFs).

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[[Page 66309]]

2. IBs
    As discussed above, most of the provisions of this rulemaking are 
technical and conforming in nature, and overlap with substantive 
rulemakings in which the Commission has conducted RFA analyses to the 
extent such are required.
    The Commission provided an initial regulatory flexibility analysis 
for IBs in the its proposing release, as required by 5 U.S.C. 603, 
because the oral recordkeeping requirement under regulation 1.35(a), as 
proposed, may have had a significant economic impact on a significant 
number of small IBs.\118\ As discussed above, the Commission has 
decided not to adopt the proposed oral communications recordkeeping 
requirement under regulation 1.35(a) as part of today's final rule. 
Instead, the Commission intends to adopt that requirement in a future 
final rulemaking.
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    \118\ See 76 FR 33066, 33079-80, June 7, 2011.
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C. Consideration of Costs and Benefits

    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. Section 15(a) further 
specifies that the costs and benefits shall be evaluated in light of 
the following 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.
    In July 2010, Congress passed the Dodd-Frank Act which, among other 
things, establishes a comprehensive regime for the regulation of swaps. 
The Dodd-Frank Act brings swaps under the Commission's jurisdiction and 
obligates the Commission to adopt new regulations related to 
registration and regulation of SDs and MSPs, trade execution and 
clearing requirements, and swap data recordkeeping and real time 
reporting. In section 721 of the Dodd-Frank Act, Congress added CEA 
section 1a(47) to add a definition of the term ``swap.''
    In response to Congress's act of placing swaps under the 
Commission's authority, the Commission is exercising its discretion to 
amend its regulations to ensure that SDs, MSPs, SEFs, and swaps are 
subject to the Commission's comprehensive regulatory regime, and in 
June 2011, proposed to amend parts 1, 5, 7, 8, 15, 18, 21, 36, 41, 140, 
145, 155, and 166 to update its regulations accordingly.\119\
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    \119\ 76 FR 33066.
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    As described in the Background, above (section I. of this 
preamble), some of the amendments contained in this release are 
technical in nature; for example, they amend various definitions in 
regulation 1.3 to track the DFA's amendments to the CEA's definitions 
of the same term, such as futures commission merchants. Another example 
of a technical change is the deletion of references to derivatives 
transaction execution facilities, a category of exchange that the DFA 
eliminated. Other revisions contained in this rulemaking amend 
recordkeeping and reporting requirements, which presently apply to 
futures, so that they cover swap transactions as well. An example of 
this type of change is the revision to parts 15, 18, 21, and 36 to 
implement DFA's grandfathering and phase-out of exempt boards of trade 
and exempt commercial markets. Certain amendments in this release are 
designed to harmonize recordkeeping requirements for various registered 
entities transacting in swaps. For example, the amendments to 
Sec. Sec.  1.31 harmonize part 1 recordkeeping requirements with those 
applicable to SDs and MSPs under part 23 regulations. Lastly, this 
rulemaking amends procedures pertaining to the post-execution 
allocation of bunched orders so that they can be used in respect of 
swap transactions similarly to how they are currently used for futures 
transactions.
    The benefits and costs that the Commission considers below are 
those attributable to its amendments of the rules discussed compared to 
a scenario in which these rules were not amended.
Section 1.31 Books and Records; Keeping and Information
Summary Description
    Prior to the amendments made in this final rule, Sec.  1.31 
specified the conditions under which records required by the Act of any 
applicable entity shall be maintained. The section stated that these 
records shall be kept for a period of five years from the transaction 
date, must be ``readily accessible'' for the first two years, and 
stipulated a number of further conditions pertaining to the auditing of 
record storage systems, storing duplicate copies of records, and other 
items. As described above in II.A.3, the amendments in this final rule 
specify that: (1) Required books and records must be kept in their 
original form (for paper records) or in their native file formats (for 
electronic records); (2) when books and records are requested by the 
Commission, they must be produced in a form and on any media specified 
by the Commission; (3) required records of any swap or related cash or 
forward transaction must be kept until the ``termination, maturity, 
expiration, transfer, assignment, or novation date of the transaction'' 
and then for an additional five-year period; and (4) records of oral 
communications required to be maintained pursuant to regulation 
23.202(a)(1) and (b)(1) must be kept until the ``termination, maturity, 
expiration, transfer, assignment, or novation date of the transaction'' 
and then for an additional one-year period.
Benefits
    The public and the financial integrity of the markets benefit from 
this amendment because it promotes retention of metadata (i.e., data 
about data). This amendment enhances the Commission's forensic 
capabilities, including the ability to trace communications and 
transactions. Moreover, requiring entities to retain data in its native 
file format reduces the likelihood that data could be manipulated or 
corrupted, either intentionally or unintentionally, which makes it more 
reliable.
    In addition, if entities are not required to store data in its 
native file format, some entities may choose to store some of their 
data on paper records or in electronic image formats (such as PDF) 
which cannot be easily converted into a form that allows it to be read 
by programs that the Commission sometimes uses for purposes of 
investigation and analysis. For example, market participants have 
sometimes submitted large amounts of financial data to the Commission 
on printed pages arguing that OCR technology makes such pages ``machine 
readable'' and therefore is compliant with the existing requirements 
under Sec.  1.31(b)(3)(i). While OCR technology is useful in converting 
printed text into an electronic form, it has not been similarly helpful 
in converting financial data provided to the Commission. When market 
participants have submitted large data sets to the Commission on 
printed pages, it has been problematic, forcing the Commission to 
either enter extraordinary amounts of data into its systems manually, 
an expensive process that introduces the possibility of data entry 
errors, or to abandon the use of programs that are often helpful in the

[[Page 66310]]

course of investigation, which severely limits the usefulness of that 
data for investigation purposes.
    Requiring all entities subject to regulation 1.31 to retain data in 
its native file format mitigates the potential that market participants 
could discard records in an effort to thwart Commission investigations, 
or that they could do so unintentionally but with similar effect and 
increases the likelihood that the data will exist in a form that can be 
converted to meet the Commission's needs. The requirement that entities 
present that data to the Commission in a format and on a medium 
requested by the Commission will help to ensure that the Commission is 
able to obtain data from market participants in a form that it can use 
effectively for detecting and prosecuting prohibited market activities. 
And by improving the efficiency and effectiveness of the Commission's 
enforcement efforts, these requirements help deter fraud and 
manipulation, and promote the integrity of the markets subject to the 
jurisdiction of the Commission.
    By providing that required written records pertaining to swaps and 
related cash or forward transactions must be retained for the life of 
the swap plus five years, the Commission will have the ability to 
create a sufficient audit trail from which to ascertain and, if 
necessary recreate, the facts and circumstances giving rise to the 
transaction, even if the need to do so arises several months or even a 
few years after the relevant transactions occurred.
Costs
    The amended requirement to store electronic records in their native 
format will likely create additional data storage costs for market 
participants. The incremental cost of storage depends on whether or not 
the entity in question was previously storing data in its native format 
and the number and size of records that must be stored in their native 
format. The Commission requested but received no data from commenters 
quantifying such costs. In order to quantify these costs the Commission 
would need data sufficient to estimate the number of entities that do 
not store data in its native file format, and the amount of additional 
data that they would, on average, have to retain in order to store it 
in its native file format. The Commission does not have that 
information.
    In addition, market participants will have additional storage costs 
because the rule provides that required swap and related cash and 
forward transaction data must be retained for the life of the swap plus 
five years. These costs will depend on the number and tenor of swaps 
and related cash and forward transactions that an entity enters into. 
These factors are likely to vary widely among market participants. The 
Commission does not have adequate information to estimate how many 
firms are currently storing data in its native format, the number of 
swap transactions that will be affected by the timelines implemented 
here, or to estimate their tenor and the storage space required to 
store related data. Therefore it is not possible to estimate the 
additional storage space or cost of additional storage.
    The requirement that entities submit information to the Commission 
in a format and on a medium determined by the Commission will create 
some costs for market participants. Entities that keep data in 
proprietary systems or in formats that are not read by programs that 
the Commission uses to aid in its investigations would need to adapt 
their systems in order to develop this capability. And when requested 
to do so by the Commission, such entities would have to convert their 
data into the format requested by the Commission, which creates some 
incremental costs as well. The Commission cannot estimate these 
additional costs because it does not have adequate information to 
estimate the number of entities that would need to adapt their systems 
in order to allow for data conversion that meets the Commission's 
needs. Moreover, it does not have information regarding the number of 
inquiries that will require data conversion, or the amount of time that 
entities would need to spend converting data when necessary. The latter 
is likely to vary widely, depending on the data formats currently used 
by market participants and the presence or absence of standard data 
conversion software that might assist with such needs.
    The rules provides that required swap and related cash and forward 
transaction data must be retained for the life of the swap plus five 
years also creates some data migration costs. Entities engaging in 
long-dated swaps will likely upgrade their recordkeeping systems during 
the period of time that they are required to keep data related to those 
swaps and related cash or forward transactions. Such entities will have 
to implement backward-compatible systems, or will have to reformat 
older data so that it can be retained and retrieved using newer 
systems. Either of these approaches will create some cost, however, it 
is not possible to determine which approach entities are likely to take 
or the cost that would likely result in either case. Therefore, the 
Commission is not able to estimate the cost at this time.
    Some commenters noted costs that would result from not being 
allowed to convert paper records to electronic media for storage.\120\ 
In response, the Commission notes that regulation 1.31(b) still 
provides that paper records stored on micrographic media or electronic 
storage media (e.g. scanned copies) is sufficient to fulfill the 
requirements of regulation 1.31(a)(1), and therefore the cost that 
these commenters noted will not occur. Similarly, the Minneapolis Grain 
Exchange expressed a concern that amendments to regulations 1.31 and 
1.35, taken together, could ``require an electronic and paper copy of 
the same information,'' leading to unnecessary costs on the part of 
firms. As stated above, the Commission is not requiring that entities 
retain both paper and electronic copies of the same information.
---------------------------------------------------------------------------

    \120\ See e.g., FIA and NFA.
---------------------------------------------------------------------------

    The amendments to the requirements for keeping and inspection of 
records, mandated in this section, create certain costs. It is likely 
that some SEF members will not have not been subject to regulation 1.31 
previously and therefore will need to design written procedures and 
controls for maintaining their recordkeeping system.\121\ For entities 
that need to develop such procedures and controls for the first time, 
the Commission estimates a one-time cost of approximately $13,000 to 
$28,000.\122\
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    \121\ Sec.  1.31(b)(3)(ii).
    \122\ Calculations in the PRA section rely calculations rely on 
wage estimates from the Bureau of Labor Statistics. However, for the 
purposes of the Cost Benefit Considerations section, we have used 
wage estimates that are taken from the SIFMA ``Report on Management 
and Professional Earnings in the Securities Industry 2011'' because 
industry participants are likely to be more familiar with them. 
Hourly costs are calculated assuming 2,000 hours per year and a 
multiplier of 5.35 to account for overhead and bonuses. All totals 
calculated on the basis of cost estimates are rounded to two 
significant digits.
    This estimate assumes 20-40 hours of a compliance attorney's 
time, 20-40 hours of an intermediate compliance specialist's time, 
5-15 hours of a senior database administrator's time, and 5-15 hours 
of an office manager's time in order to design and implement the 
written procedures and controls. The average cost for a compliance 
attorney is $351.24/hour [($131,303 per year)/(2000 hours per year) 
* 5.35 = $351.24 per hour]. The average cost for an intermediate 
compliance specialist is $351.24/hour [($58,303 per year)/(2000 
hours per year) * 5.35 = $351.24 per hour]. The average cost for a 
senior database administrator's time is $280.22/hour [($104,755 per 
year)/(2000 hours per year) * 5.35 = $280.22 per hour]. The average 
cost for an office manager's time is $229.72/hour [($85,875 per 
year)/(2000 hours per year) * 5.35 = $229.72 per hour].

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[[Page 66311]]

    In addition, the members of SEFs that have not previously been 
subject to regulation 1.31 will have to provide a representation to the 
Commission prior to their initial use of the system.\123\ The 
Commission estimates that such entities will spend approximately 0.5 
hours providing the submission, and therefore the estimated cost for 
the submission is $78.\124\
Consideration of Alternatives
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    \123\ See Sec.  1.31(c).
    \124\ The average wage for an intermediate compliance specialist 
is $155.96 [($58,303 per year)/(2,000 hours per year) * 5.35 = 
$155.96]
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    One commenter suggested that the Commission require records to be 
kept indefinitely.\125\ In the Proposal, the Commission did not propose 
to alter the requirements regarding the length of time during which 
written records must be retained by relevant entities for any of the 
transactions that were previously covered by the requirement, and 
continues to believe that the existing requirements ensure access to 
relevant records for a reasonable period of time while also limiting 
costs to market participants. However, the amendments to regulation 
1.31 added swaps and related cash and forward transactions to the types 
of transactions that are covered, and as described above, established a 
longer recordkeeping requirement for required books and records 
regarding those transactions. The Commission believes that the long 
product life of some swaps necessitates longer recordkeeping 
requirements for related documents and data. However, the Commission 
anticipates that data related to such transactions will not be needed 
for enforcement purposes more than five years beyond the time when the 
swap has been terminated, novated, etc. Therefore, providing that 
market participants must retain required data more than five years 
beyond that date would, in the Commission's view, impose unnecessary 
cost upon market participants without significant added benefit.
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    \125\ Mr. Chris Barnard.
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    The Proposal would have required oral records to be retained by SDs 
and MSPs until the swap has been terminated, novated, etc., and for 
five years thereafter, whereas the final rule requires these entities 
to retain such records until the swap has been terminated, novated, 
etc., and for a period of one year thereafter. This may create some 
cost by limiting the Commission's ability to obtain from SDs and MSPs 
recordings related to events that occurred more than one year ago, 
which could reduce the Commission's effectiveness in identifying and 
prosecuting certain violations. However, the Commission anticipates 
that in most cases, the one year requirementafter the life of the swap, 
will be sufficient, and notes that the reduced retention requirement 
reduces storage costs to market participants.
Section 1.35 Records of Commodity Interest and Cash Commodity 
Transactions Introduction
    Prior to this amendment, Sec.  1.35 specified which parties are 
required to keep records related to commodity futures, commodity 
options, and cash commodities. The requirements of Sec.  1.35 applied 
to FCMs, RFEDs, IBs, and members of contract markets. The amendments to 
regulation 1.35 extend these recordkeeping requirements to swap 
transactions and to members of SEFs.
    As described above in II.A.5, the amended rule also applies the 
bunched order procedures for futures transactions to swaps, and adds 
FCMs and IBs to the list of eligible account managers for orders 
executed on a DCM or SEF, and also adds CTAs, FCMs, and IBs as eligible 
account managers for orders executed bilaterally.
Benefits
    As it explained when adopting similar transactional level 
recordkeeping requirements for SDs and MSPs, the Commission believes 
these recordkeeping requirements for swap transactions will contribute 
to important, though unquantifiable, benefits.\126\ More specifically, 
complete, rigorous transactional recordkeeping is a necessary element 
to promote market integrity, as well as customer protection, by 
providing an audit trail of past swap transactions. For, a strong audit 
trail, among other things:
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    \126\ See Swap Dealer and Major Swap Participant Recordkeeping, 
Reporting, and Duties Rules; Futures Commission Merchant and 
Introducing Broker Conflicts of Interest Rules; and Chief Compliance 
Officer Rules for Swap Dealers, Major Swap Participants, and Futures 
Commission Merchants, 77 FR 20128, 20172 (Apr. 3, 2012).
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     Provides a basis for efficiently resolving transactional 
disputes.
     Facilitates a firm's ability to recognize and manage its 
risk, thereby enhancing the risk management of the market as a whole.
     Acts as a disincentive to engage in unduly risky, 
injurious, or illegal conduct in that the conduct will be traceable.
     And, in the event such conduct does occur, provides a 
mechanism for policing such conduct, both internally as part of a 
firm's compliance efforts and externally by regulators enforcing 
applicable laws and regulations.
    The rule also applies the procedures for handling bunched orders of 
futures, to swaps, which enables account managers to reduce transaction 
costs to customers by executing a single, large transaction on behalf 
of multiple customers at the same time, and then allocating the 
positions that were component parts of that transaction to specific 
customers after the transaction has been executed. In addition, bunched 
orders provide additional protection to customers against favoritism. 
In the absence of bunched orders, when an account manager has several 
customers that each need to take out positions in the same swap, the 
manager would place several sequential orders for that swap. The series 
of orders may move the price for that swap, in which case the last 
customer order would receive a less favorable price than the first 
customer order. By combining the orders, the manager is more likely to 
find a single counterparty and a single price for the orders, in which 
case the account manager can distribute the appropriate number of 
shares to each account at a constant price per share. No customer is 
favored over another in such a distribution. This promotes customer 
protection and the integrity of the financial markets.
    In addition, by adding FCMs and IBs to the list of eligible account 
managers for orders executed on a DCM or SEF, and also adding CTAs, 
FCMs, and IBs as eligible account managers for orders executed 
bilaterally, the rule promotes competition among entities that are 
permitted to execute bunched orders, which in turn, promotes 
competitive pricing for account managers who want to execute bunched 
orders. And by promoting competitive pricing, the amendment promotes 
market efficiency. In addition, by permitting FCMs, IBs, and CTAs to 
engage in bunched order transactions, the amendment creates benefits 
for those entities because it allows them to provide an additional 
service to clients, giving them an additional source of revenue.
Costs
    Amendments in this final rule will require SEF members to comply 
with regulation 1.35, and it is likely that some of those members will 
not have been subject to Sec.  1.35 previously. The Commission 
estimates that SEF members that are newly subject to Sec.  1.35 will 
spend additional time each day compiling and maintaining transaction 
records. The Commission estimates that the cost of that additional time 
is

[[Page 66312]]

$236,000 to $393,000 per entity per year.\127\
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    \127\ This is estimated to take 6-10 hours per day (assuming 252 
days per year) of the time of an office services supervisor. The 
average wage for an office services supervisor is $155.96 [($58,303 
per year)/(2,000 hours per year) * 5.35 = $155.96]. $155.95 * 6 * 
252 = 235,812.31. $155.95 * 10 * 252 = 393,020.52.
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    Also, the amendments in this final rule will require FCMs, RFEDs, 
IBs, and members of DCMs to comply with the regulation Sec.  1.35 
recordkeeping requirements for any swap transactions into which they 
enter. The Commission estimates that such entities will spend an 
additional 0.5 hours per swap capturing and maintaining the records 
required under Sec.  1.35, and therefore estimates that the per-swap 
cost will be $83.00.\128\
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    \128\ This estimates 0.5 hours of time from an office services 
supervisor. The average salary for an office services supervisor is 
$165.25/hour [($61,776 per year)/(2,000 hours per year) * 5.35 = 
$165.25 per hour]. $165.25 * 0.5 = $82.63
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Section 1.3 Definitions
Introduction
    As discussed in II.A.1, the Commission is amending and adding 
several definitions in order to incorporate swaps within the 
Commission's regulatory framework. Included among them are definitions 
for ``customer,'' ``futures commission merchant,'' ``member,'' ``net 
deficit,'' ``proprietary account,'' ``commodity trading advisor,'' 
``commodity pool operator,'' ``designated self-regulatory 
organization,'' ``customer funds,'' ``strike price,'' ``introducing 
broker,'' ``registered entity,'' ``registrant,'' ``open contract,'' 
``physical,'' and ``commodity interest.''
    As discussed throughout this release, Congress amended the CEA to 
address swaps. The amendments to regulation 1.3 (``Definitions'') help 
effectuate that mandate and do not, in and of themselves, implicate any 
costs or benefits. Any costs and benefits are associated with 
substantive regulations that rely upon the revised definitions 
contained in regulation 1.3.
Section 1.4 Electronic Signatures
Introduction
    In its original form, Sec.  1.4 allowed a customer of an FCM or IB, 
a retail forex customer of an RFED or FCM, and a pool participant or a 
client of a CTA to use an electronic signature to provide any required 
signatures under the CEA, as long as the FCM, RFED, IB, CPO, or CTA 
elects generally to accept electronic signatures for such purposes and 
``reasonable safeguards'' are in place. The amended rule published as 
part of today's final rulemaking extends the benefit of electronic 
signatures by including SDs, MSPs, and counterparties of SDs and MSPs 
in the list of entities that may use electronic signatures for 
acknowledgement of swap transactions.
Benefits
    With respect to the protection of market participants and the 
public, permitting FCMs, IBs, CPOs, CTAs, SDs, and MSPs to utilize 
electronic signatures when executing swap transactions enables more 
rapid processing of steps in the transaction process that requires 
signatures than would be possible if using faxed copies or hard copies 
for such purposes. This, in turn, reduces costs to market participants 
by reducing the amount of time they spend handling paperwork and 
enhances market efficiency by allowing transactions to be confirmed 
more rapidly. In addition, this facilitates straight through processing 
of swaps, which provides numerous efficiency and risk reduction 
benefits.
Costs
    The amendment to Sec.  1.4 is permissive, allowing SDs, MSPs, and 
their counterparties to use electronic signatures if they choose, and 
also allowing FCM's, IBs, CPOs, and CTAs to use electronic signatures 
when engaging in swap transactions. The rule does not create any 
affirmative obligations for market participants, and therefore does not 
create direct costs to entities subject to Sec.  1.4. Costs to other 
market participants and the public would only occur if electronic 
signatures were somehow more susceptible to be falsified or corrupted 
than non-electronic signatures. The Commission is not aware of any such 
risk, and believes that it is unlikely, given that electronic 
signatures are already widely used among market participants, including 
other registered entities.
Sections 1.33 and 1.37
Introduction
    These amended regulations require FCMs, IBs, RFEDs, SEFs, DCMs and 
members of DCMs to comply with the same recordkeeping functions for 
swaps that they currently adhere to with respect to futures and 
commodity option transactions. Regulation 1.33 deals with monthly 
confirmation statements, and regulation 1.37 deals with customers' 
names and addresses as well as daily records showing total open long 
and short contracts.
Benefits
    By incorporating swaps into FCM, IB, RFED, DCM, and DCM members' 
reporting requirements, the rule extends the benefits of such reporting 
requirements to a new range of transactions, and to additional 
customers of such entities. The benefits are likely to be increased 
awareness among market participants of any losses or gains due to their 
swap transactions, which may contribute to sound risk management. 
Moreover, the monthly statements and the confirmation statements 
required by Sec.  1.33 provide customers with additional opportunities 
to identify potential mistakes made over the course of their 
transaction that could result in an undesirable outcome, providing 
further protection to customers of such entities that are clearing 
swaps. Participants would also be able to view a list of fees charged 
to their accounts and verify that all are valid charges and would thus 
be better protected against accidental or fraudulent fees and charges.
    The requirements of Sec.  1.37 will ensure that proper records are 
maintained to identify the rightful owners of customer funds, and that 
are kept on an omnibus basis, as well as to identify parties who own, 
guarantee, or exercise control over any customer cleared swap accounts. 
Proper records regarding the name of individuals or entities that own 
customer funds, and daily reconciliation of balances in the omnibus 
account, promote protection of customer funds held by entities that 
place customer funds in such accounts. Furthermore, by requiring each 
FCM carrying an omnibus account for any other person to maintain a 
daily record of the total open long contracts and total open short 
contracts in each swap, the final rule provides protection for the 
customers that hold funds in such accounts. The daily records may be 
used by the FCM to reconcile the omnibus accounts to their individual 
customer obligations, thus helping to ensure that the omnibus accounts 
have sufficient funds to meet their customer obligations.
Costs
    Costs of this proposal include the cost of compliance on the part 
of FCMs to compile and deliver monthly statements and confirmations 
after every transaction. FCMs will bear a one-time cost to design the 
confirmation statements, swap section of the monthly reports, and to 
set up automated systems to produce them. The amendment is not likely 
to necessitate new technology since FCMs can use the systems that 
produce existing monthly

[[Page 66313]]

statements and confirmations to produce statements pertaining to swaps. 
FCMs, however, will bear some costs designing and setting up their 
systems to produce swap transaction confirmations and the swap section 
of monthly statements. The Commission estimates that the per-entity 
set-up cost will be between $4,900 and $17,000.\129\ The reports are 
likely to be highly automated, which mitigates ongoing costs. Such 
costs are also likely to be similar in magnitude to those incurred 
through compliance with Sec.  1.33 as it pertains to futures positions. 
The Commission estimates that it will cost FCMs approximately $1.40 per 
swap transaction for the FCM to input the data that is required.\130\ 
The Commission estimates that entities are likely to spend $3,700 to 
$7,300 monthly in order to maintain the systems and to produce the 
relevant statements.\131\
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    \129\ Estimate assumes 10-30 hours of IT professional time and 
2-10 hours of a regulatory attorney's time in order to create and 
automate the report. The average salary for a senior programmer is 
$306.86/hour [($114,714 per year)/(2000 hours per year) * 5.35 = 
$306.86 per hour]. The average salary for a compliance attorney is 
$351.24/hour [($131,303 per year)/(2000 hours per year) * 5.35 = 
$351.24 per hour].
    \130\ The estimates assume an office services supervisor spends 
5 minutes per transaction. The average salary for an office services 
supervisor is $165.25/hour [($61,776 per year)/(2,000 hours per 
year) * 5.35 = $165.25 per hour]. 5/60 * $165.25 = $1.38.
    \131\ Estimate assumes 2-10 hours monthly of IT personnel time 
and 2-16 hours of middle office personnel time. The average salary 
for a programmer is $220.74/hour [($82,518 per year)/(2,000 hours 
per year) * 5.35 = $220.74 per hour], and the average salary for an 
office services supervisor is $165.25/hour [($61,776 per year)/
(2,000 hours per year) * 5.35 = $165.25 per hour]. The Commission 
anticipates that most monthly reports will be sent to clients 
electronically, but includes an additional $1,000 monthly for paper, 
postage, and printing costs.
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    Adding the requirement that certain entities maintain records of 
the name, address, and occupation of customers that have deposited 
funds with them will not create any set-up costs. The Commission 
assumes that entities subject to Sec.  1.37 already have systems that 
incorporate such information.\132\ The Commission estimates that the 
ongoing cost to capture such information is $1,650 to $3,300 per 
year.\133\ The Commission expects that creating the daily report that 
provides the daily total of open long and short positions in each 
omnibus account will require some modifications to existing systems. 
The Commission estimates that this cost will be approximately $2,600 to 
$9,900.\134\ Producing the daily report is likely to be a process that 
is automated and therefore the Commission does not believe that there 
will be incremental daily costs to produce the report. In addition, the 
Commission recognizes that the requirements will obligate FCMs to enter 
position data into their systems and estimates that this will require 
approximately 0.2 hours of personnel time per swap transaction, which 
results in a cost of approximately $33.00 per transaction.\135\ In 
addition, the Commission estimates that for a SEF that will have to 
keep records of foreign traders' names, addresses, and occupations 
executing transactions on an exchange, the SEF will spend between 
$17.00 and $83.00.\136\
---------------------------------------------------------------------------

    \132\ This is estimated to take 1-10 hours of time from IT 
personnel. The average salary for a programmer is $220.74/hour 
[($82,518 per year)/(2,000 hours per year) * 5.35 = $220.74 per 
hour].
    \133\ The Commission assumes 10-20 hours per year will be 
required. The average salary for an office services supervisor is 
$165.25/hour [($61,776 per year)/(2,000 hours per year) * 5.35 = 
$165.25 per hour]. 10 hours * $165.25/hour = $1,652.50; and 20 hours 
* $165.25/hour = $ 3,305.00.
    \134\ This estimates 1-3 hours of time from a compliance 
attorney and 10-40 hours of time from IT personnel. The average 
compensation for a compliance attorney is $351.24/hour [$131,303 per 
year/(2,000 hours per year) * 5.35 is $351.24 per hour]. The average 
compensation for a programmer is $220.74/hour [($82,518 per year)/
(2,000 hours per year) * 5.35 = $220.74 per hour]. 1 * $351.24 = 
$351.24. 3 * $351.24 = $1,053.71. $351.24 * 10 = $2,207.36. $351.24 
* 40 = $8,829.43.
    \135\ The estimate assumes 0.2 hours of labor per transaction 
from an office services supervisor. The average salary for an office 
services supervisor is $165.25/hour [($61,776 per year)/(2,000 hours 
per year) * 5.35 = $165.25 per hour]. 0.2 * $165.25 = $33.05.
    \136\ The estimates assume an office services supervisor spends 
between 0.1 and 0.5 hours per transaction. The average salary for an 
office services supervisor is $165.25/hour [($61,776 per year)/
(2,000 hours per year) * 5.35 = $165.25 per hour]. 0.1 * $165.25 = 
$16.52; 0.5 * $165.25 = 82.63.
---------------------------------------------------------------------------

Section 1.39 Simultaneous Buying and Selling Orders of Different 
Principals; Execution of, for and Between Principals
Introduction
    As described above in II.A.7, regulation 1.39 permits the member of 
a contract market to execute simultaneous buy and sell orders for the 
same contract on behalf of different principals if the orders are 
executed on the exchange and subject to certain procedures. The 
amendments to this rule incorporate SEFs and swaps.
    The amendments also delete language barring cross trades; such 
trades are no longer defined under 4c(a) as amended by DFA. This latter 
amendment is made pursuant to the DFA without the exercise of 
Commission discretion and therefore is beyond the scope of 
consideration in this section.
Benefits
    Under CEA Section 5(d)(9), DCMs have an obligation to provide a 
competitive, open, and efficient market. If a member were to match two 
orders of its own customers without first making it available to the 
broader market through the steps required in regulation 1.39, the trade 
would be neither open nor competitive. The trade would, thus, be open 
to the risk of non-competitive pricing, which could harm one of the two 
customers involved in the trade and would, at least minimally, detract 
from price discovery. By requiring that bids or offers related to the 
member's customer positions are made available to other parties, the 
rule ensures that they are open and that a member only matches one 
customer against another in a trade if the terms of that trade are 
competitive. This protects each customer and also promotes effective 
price discovery. Incorporating SEFs into regulation Sec.  1.39 extends 
the same benefits to SEF members, providing improved price discovery, 
protection for SEF members' customers, and promoting integrity of the 
financial markets.
Costs
    In order to comply with the rules, a SEF member will be required to 
take certain steps before executing one customer's order against 
another customer's order. Those additional steps include first offering 
its customers' bid and offer to the other members of the SEF through 
open outcry or submission to an electronic platform. Whether its 
customers' orders are filled against others in the market or against 
one another, by offering the trade through the exchange the member will 
be subject to some fees imposed by the exchange that they would not 
have otherwise experienced. The fees vary significantly based on the 
market and product. In addition, the requirement that a SEF record 
these transactions in a manner that ``shows all transaction details 
required to be captured by the Act, Commission rule, or regulation'' 
will create additional data capture costs for the SEF. The Commission 
estimates that the cost will be approximately $17.00 per transaction 
and storage costs of less than $1 per record.\137\
---------------------------------------------------------------------------

    \137\ The estimates assume an office services supervisor spends 
between 0.1 per transaction. The average salary for an office 
services supervisor is $165.25/hour [($61,776 per year)/(2,000 hours 
per year) * 5.35 = $165.25 per hour]. 0.1 * $165.25 = $16.52.

---------------------------------------------------------------------------

[[Page 66314]]

Section 1.40 Crop, Market Information Letters, Reports
Introduction
    As described above in II.A.8, the changes to Sec.  1.40 incorporate 
members of a SEF into the requirement that such entities provide to the 
Commission copies of any circular, telecommunication, or report that 
they publish or circulate through other entities concerning crop 
conditions, or market conditions that would tend to affect the price of 
any commodity.
Benefits
    Regulation 1.40 addresses the need for the Commission to have 
access to any published or circulated information about market-
affecting commodity prices for the prevention and/or identification of 
manipulative behavior such as false reporting. The benefit of extending 
regulation 1.40 to members of a SEF is that it will give the Commission 
the same ability to prevent and/or identify similar manipulative 
activities in connection with any commodity prices underlying the swap 
transactions that will be executed on a SEF.
Costs
    The requirement will create de minimis costs for members of a SEF 
related to printing and postage costs for one copy of such 
communications when the Commission requests a copy. Such requests are 
infrequent on a per entity basis and therefore the Commission does not 
expect most entities to bear such costs frequently.
Section 1.59 Activities of Self-Regulatory Organizations Employees, 
etc.
Introduction
    Regulation 1.59 imposes restrictions on employees and governing 
board members of SROs that prevent them from disclosing or trading in 
any contracts traded or cleared by the employing contract market, or in 
any related commodity interest. Moreover, it prevents such persons from 
trading on the basis of material non-public information. As discussed 
above in II.A.9, the Commission is amending regulation 1.59 to include 
SEFs and swaps.
Benefits
    By preventing employees and governing board members from trading in 
contracts traded or cleared by their employing exchange or other 
related commodity interests, the rule helps to prevent conflicts of 
interest that might otherwise incent employees of an exchange to 
perform their duties in a way that benefits their own investments 
rather than benefiting the members of the exchange and the public more 
generally. In doing so, the rule promotes the integrity of financial 
markets. Moreover, the rule prevents employees and governing board 
members from trading to their own advantage, using material non-public 
information. In doing so, the rule protects other market participants 
that would be on the opposite side of such trades, and would be 
disadvantaged by not having access to the same material non-public 
information.
Costs
    The amendments adding SEFs and swaps to the entities and 
instruments referenced in this rule will, as stated above, prevent 
employees and governing board members of SROs from investing in certain 
instruments. There will, therefore, be opportunity costs to those 
employees. The Commission cannot quantify those opportunity costs 
because it does not have data adequate to determine what investments 
employees might have made without such restrictions, what return they 
would expect on those investments compared to their existing 
investments, or the amount of money such employees have invested. 
However, the Commission believes that guarding against conflicts of 
interest at the SROs is an important step to maintaining integrity in 
the financial markets.
Section 1.63 Service on Self-Regulatory Organization Governing Boards 
or Committees by Persons With Disciplinary Histories
Introduction
    Prior to the amendments adopted in this rule, regulation 1.63 
required SROs to maintain a schedule listing all rule violations which 
constitute disciplinary offences, to submit that schedule to the 
Commission and to post it in a public place. This final rule amends the 
rule to specify that the public place in which the SROs must post the 
schedule is the SRO's Web site.\138\
---------------------------------------------------------------------------

    \138\ Sec.  1.63(d).
---------------------------------------------------------------------------

Benefits
    The amendments to regulation 1.63 promote integrity in the 
financial markets by ensuring that the information contained in the 
schedule is posted in a public place that fulfills the intent of the 
obligation, namely, that the SRO can provide notice to members and the 
general public.
Costs
    Many SROs likely already post the schedules on their Web sites. To 
the extent that SROs were not previously posting the schedule to their 
Web sites, they will bear the costs associated with posting schedules 
on their Web sites. However, this cost will be offset by eliminating 
the need to post the schedule in whatever alternative public place the 
SRO was previously using. The Commission estimates that the incremental 
cost is between $18.00 and $220.00.\139\
---------------------------------------------------------------------------

    \139\ Calculations assume that posting the notice will require 5 
to 60 minutes of work by non-senior IT personnel. The average salary 
for a programmer is $220.74/hour [($82,518 per year)/(2,000 hours 
per year) * 5.35 = $220.74 per hour]. 5/60 * $220.74 = $18.40; 60/60 
* $220.74 = $220.74.
---------------------------------------------------------------------------

Section 1.67 Notification of Final Disciplinary Action Involving 
Financial Harm to a Customer
Introduction
    This rule adds that upon any final disciplinary action in which a 
SEF finds that a member has committed a rule violation, which involved 
a transaction for a customer that resulted in financial harm to the 
customer, a SEF, like a DCM, must provide written notice to such member 
of the disciplinary action taken against that member. This rule 
additionally requires members of SEFs, like members of DCMs, to provide 
written notice of the disciplinary action to the customer upon receipt 
of such notice from the SEF.
Benefits
    By requiring members of a SEF to communicate disciplinary actions 
taken against them to the customers that were impacted by the 
activities leading to such disciplinary action, the rule promotes 
integrity in the financial markets. Customers harmed by a member's 
actions will, if they choose, have an opportunity to bring legal action 
against the member that has caused financial harm to them and may also 
choose to take their business to another member. Both consequences are 
enabled by the rule, and both serve as an incentive to SEF members to 
avoid any activity that would harm their customers.
Costs
    This amendment is an extension of previously existing regulations 
that now apply to SEFs as well as DCMs. The costs to SEFs will likely 
be on par with those to DCMs and will be minimal, covering only the 
cost of communicating disciplinary actions to members. The Commission 
estimates

[[Page 66315]]

that such notification will cost the SEF approximately $350.00 per 
notification because appropriate personnel will have to draft and send 
the required communication.
Sections 15.05, 18.05, 21.03, 36.1, 36.2, 36.3, Appendix A to Part 36, 
and Appendix B to Part 36
Introduction
    As described in II.A.15.D, DFA eliminated ECMs and EBOTs and 
provided a grandfather relief provision for such entities. The 
amendments here remove references to the sections of the CEA that were 
deleted by DFA and insert reference to the Grandfather Relief Orders 
issued by the Commission.
    ECMs and EBOTs are allowed to continue operating as such during the 
period provided by the Grandfather Relief Orders, creating benefits for 
those entities that intend to register with the Commission as SEFs, and 
that wish to continue operating as ECMs or EBOTs until they are able to 
make such registration. However, those benefits are conferred by the 
Act and the Grandfather Relief Order. The changes here are merely 
technical edits to ensure that the regulations reflect the changes to 
the CEA that were made by DFA. Therefore, there are no costs or 
benefits associated with these changes.
Parts 140 and 145
Introduction
    As discussed above in II.A.15.E, the changes to parts 140 and 145 
incorporate SEFs and SDRs into existing Commission regulations. The 
proposed changes would: (1) Facilitate the disclosure of confidential 
information to SEFs and SDRs in order to effectuate the purposes of the 
CEA; (2) facilitate publication of information in the Federal Register 
related to the applications for registration of SEFs and SDRs as well 
as new rules and rule amendments that require additional time to 
analyze; (3) include SEFs and SDRs in the category of registered 
entities that may petition the Commission for exemptive relief and no-
action interpretive letters; (4) add SEFs and SDRs to the list of 
entities from which Commission members and employees may not accept 
employment or compensation; and (5) expand the definition of 
``submitter'' by adding SEFs and SDRs to the list of registered 
entities to which a person's confidential information has been 
submitted and which, in turn, submit that information to the 
Commission, and also allows such individuals to request confidential 
treatment under Sec.  145.9.
Benefits
    The amendments described above create the following benefits: (1) 
By facilitating disclosure of confidential information to SEFs and 
SDRs, they assist the Commission in performing its regulatory role with 
respect to swaps, thus providing additional protection to swap market 
participants, promoting the integrity of financial markets, and 
promoting protection for the public. (2) Facilitating publication of 
information in the Federal Register related to registration 
applications for prospective SEFs and SDRs as well as new rule 
amendments, will assist the Commission when obtaining additional 
information from the public in order to ensure that its determinations 
regarding such applications and rules are well-informed. (3) Including 
SEFs and SDRs in the category of entities that may petition for 
exemptive relief and no-action interpretive letters gives these 
entities the opportunity to pursue individualized treatment with 
respect to Commission regulations in circumstances where they believe 
such treatment is appropriate, which in turn, gives the Commission the 
opportunity to grant such relief or to issue a no-action interpretive 
letter if it believes doing so is not contrary to the public interest 
or the intent of the regulations for which such relief is sought.
    (4) Adding SEFs and SDRs to the list of registered entities from 
which Commission members and employees may not accept employment or 
compensation prevents conflicts of interest and in so doing promotes 
the Commission's ability to protect market participants and the public 
as well as to promote the integrity of the financial markets. (5) The 
changes ensure that personal information submitted to SEFs and SDRs is 
subject to the same protections under the Commission's regulations as 
personal information submitted to other registered entities.
Costs
    SEFs and SDRs may bear some cost due to their obligation to submit 
personal information that they receive to the Commission. Such 
submissions will likely be automated and therefore the SEFs and SDRs 
will bear an initial cost that is necessary to modify their systems to 
submit the required information, and an ongoing cost to submit it when 
required. The Commission estimates that the initial cost is between 
$2,100 and $10,000,\140\ and the ongoing cost is between $230 and $460 
per month.\141\
---------------------------------------------------------------------------

    \140\ This estimates 2-4 hours from a compliance attorney and 
10-40 hours from IT personnel. The average salary for a compliance 
attorney is $351.24/hour [($131,303 per year)/(2000 hours per year) 
* 5.35 = $351.24 per hour]. The average salary for a programmer is 
$220.74/hour [($82,518 per year)/(2,000 hours per year) * 5.35 = 
$220.74 per hour].
    \141\ This estimates 2-4 hours from a compliance attorney and 
10-40 hours from IT personnel. The average salary for a compliance 
attorney is $351.24/hour [($131,303 per year)/(2000 hours per year) 
* 5.35 = $351.24 per hour]. The average salary for a programmer is 
$220.74/hour [($82,518 per year)/(2,000 hours per year) * 5.35 = 
$220.74 per hour].
---------------------------------------------------------------------------

    The other amendments do not impose affirmative obligations on 
market participants and therefore do not create costs for them or the 
public.

List of Subjects

17 CFR Part 1

    Agricultural commodity, Agriculture, Brokers, Committees, Commodity 
futures, Conflicts of interest, Consumer protection, Definitions, 
Designated contract markets, Directors, Major swap participants, 
Minimum financial requirements for intermediaries, Reporting and 
recordkeeping requirements, Swap dealers, Swaps.

17 CFR Part 4

    Advertising, Brokers, Commodity futures, Commodity pool operators, 
Commodity trading advisors, Consumer protection, Reporting and 
recordkeeping requirements, Swaps.

17 CFR Part 5

    Bulk transfers, Commodity pool operators, Commodity trading 
advisors, Consumer protection, Customer's money, Securities and 
property, Definitions, Foreign exchange, Minimum financial and 
reporting requirements, Prohibited transactions in retail foreign 
exchange, Recordkeeping requirements, Retail foreign exchange dealers, 
Risk assessment, Special calls, Trading practices.

17 CFR Part 7

    Commodity futures, Consumer protection, Registered entity.

17 CFR Part 8

    Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 15

    Brokers, Commodity futures, Reporting and recordkeeping 
requirements, Electronic trading facility.

17 CFR Part 16

    Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 18

    Commodity futures, Reporting and recordkeeping requirements, 
Grandfather relief order.

[[Page 66316]]

17 CFR Part 21

    Brokers, Commodity futures, Reporting and recordkeeping 
requirements, Grandfather relief order.

17 CFR Part 22

    Brokers, Clearing, Consumer protection, Reporting and recordkeeping 
requirements, Swaps.

17 CFR Part 36

    Commodity futures, Electronic trading facility, Eligible commercial 
entities, Eligible contract participants, Federal financial regulatory 
authority, Principal-to-principal, Special calls, Systemic market 
event.

17 CFR Part 38

    Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 41

    Brokers, Reporting and recordkeeping requirements, Security futures 
products.

17 CFR Part 140

    Authority delegations (Government agencies), Conflict of interests, 
Organizations and functions (Government agencies).

17 CFR Part 145

    Confidential business information, Freedom of information.

17 CFR Part 155

    Brokers, Commodity futures, Consumer protection, Reporting and 
recordkeeping requirements, Swaps.

17 CFR Part 166

    Brokers, Commodity futures, Consumer protection, Reporting and 
recordkeeping requirements, Swaps.

    For the reasons stated in the preamble, under the authority of 7 
U.S.C. 1 et seq., the Commodity Futures Trading Commission hereby 
amends Chapter I of Title 17 of the Code of Federal Regulations as set 
forth below:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

0
1. The authority citation for part 1 is revised to read as follows:

    Authority:  7 U.S.C. 1a, 2, 2a, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 
6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 
8, 9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24, as 
amended by Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

0
2. Amend Sec.  1.3 by:
0
a. Revising paragraphs (a), (b), (e), (g), (h), (k), (n), (p), (q), 
(r), (s), (t), (x), (y) introductory text, (y)(1), (y)(2) introductory 
text, (y)(2)(iii)(B), (y)(2)(iii)(C), (y)(2)(v)(B), (y)(2)(v)(C), 
(y)(2)(vii), (y)(2)(viii), (aa)(1)(i), (aa)(2)(i), (aa)(5), (bb), (cc), 
(ee), (ff), (gg), (ii), (kk), (mm)(1), (mm)(2) introductory text, 
(mm)(2)(i), (nn), (oo), (pp), (rr)(2), (ss), (tt), (vv), (xx), and 
(yy);
0
b. Removing and reserving paragraphs (jj), (ll) and (uu); and
0
c. Adding paragraphs (k), (cccc), (dddd), (eeee), (ffff), (gggg), 
(hhhh), (iiii), (jjjj), (kkkk), (llll), (mmmm), (nnnn), (oooo), (pppp), 
(qqqq), (rrrr), and (ssss) to read as follows:


Sec.  1.3  Definitions.

* * * * *
    (a) Board of Trade. This term means an organized exchange or other 
trading facility.
    (b) Business day. This term means any day other than a Sunday or 
holiday. In all notices required by the Act or by the rules and 
regulations in this chapter to be given in terms of business days the 
rule for computing time shall be to exclude the day on which notice is 
given and include the day on which shall take place the act of which 
notice is given.
* * * * *
    (e) Commodity. This term means and includes wheat, cotton, rice, 
corn, oats, barley, rye, flaxseed, grain sorghums, millfeeds, butter, 
eggs, Irish potatoes, wool, wool tops, fats and oils (including lard, 
tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and 
oils), cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, 
livestock, livestock products, and frozen concentrated orange juice, 
and all other goods and articles, except onions (as provided by the 
first section of Pub. L. 85-839) and motion picture box office receipts 
(or any index, measure, value or data related to such receipts), and 
all services, rights and interests (except motion picture box office 
receipts, or any index, measure, value or data related to such 
receipts) in which contracts for future delivery are presently or in 
the future dealt in.
* * * * *
    (g) Institutional customer. This term has the same meaning as 
``eligible contract participant'' as defined in section 1a(18) of the 
Act.
    (h) Contract market; designated contract market. These terms mean a 
board of trade designated by the Commission as a contract market under 
the Act and in accordance with the provisions of part 38 of this 
chapter.
* * * * *
    (k) Customer. This term means any person who uses a futures 
commission merchant, introducing broker, commodity trading advisor, or 
commodity pool operator as an agent in connection with trading in any 
commodity interest; Provided, however, an owner or holder of a 
proprietary account as defined in paragraph (y) of this section shall 
not be deemed to be a customer within the meaning of section 4d of the 
Act, the regulations that implement sections 4d and 4f of the Act and 
Sec.  1.35, and such an owner or holder of such a proprietary account 
shall otherwise be deemed to be a customer within the meaning of the 
Act and Sec. Sec.  1.37 and 1.46 and all other sections of these rules, 
regulations, and orders which do not implement sections 4d and 4f of 
the Act.
* * * * *
    (n) Floor broker. This term means any person:
    (1) Who, in or surrounding any pit, ring, post or other place 
provided by a contract market for the meeting of persons similarly 
engaged, shall purchase or sell for any other person--
    (i) Any commodity for future delivery, security futures product, or 
swap; or
    (ii) Any commodity option authorized under section 4c of the Act; 
or
    (2) Who is registered with the Commission as a floor broker.
* * * * *
    (p) Futures commission merchant. This term means:
    (1) Any individual, association, partnership, corporation, or 
trust--
    (i) Who is engaged in soliciting or in accepting orders for the 
purchase or sale of any commodity for future delivery; a security 
futures product; a swap; any agreement, contract, or transaction 
described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; 
a commodity option authorized under section 4c of the Act; a leverage 
transaction authorized under section 19 of the Act; or acting as a 
counterparty in any agreement, contract or transaction described in 
section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; and
    (ii) Who, in connection with any of these activities accepts any 
money, securities, or property (or extends credit in lieu thereof) to 
margin, guarantee, or secure any trades or contracts that result or may 
result therefrom; and
    (2) Any person that is registered as a futures commission merchant.
    (q) Member. This term means:
    (1) An individual, association, partnership, corporation, or 
trust--
    (i) Owning or holding membership in, or admitted to membership 
representation on, a registered entity; or
    (ii) Having trading privileges on a registered entity.

[[Page 66317]]

    (2) A participant in an alternative trading system that is 
designated as a contract market pursuant to section 5f of the Act is 
deemed a member of the contract market for purposes of transactions in 
security futures products through the contract market.
    (r) Net equity. (1) For futures and commodity option positions, 
this term means the credit balance which would be obtained by combining 
the margin balance of any person with the net profit or loss, if any, 
accruing on the open futures or commodity option positions of such 
person.
    (2) For swap positions other than commodity option positions, this 
term means the credit balance which would be obtained by combining the 
margin balance of any person with the net profit or loss, if any, 
accruing on the open swap positions of such person.
    (s) Net deficit. (1) For futures and commodity option positions, 
this term means the debit balance which would be obtained by combining 
the margin balance of any person with the net profit or loss, if any, 
accruing on the open futures or commodity option positions of such 
person.
    (2) For swap positions other than commodity option positions, this 
term means the debit balance which would be obtained by combining the 
margin balance of any person with the net profit or loss, if any, 
accruing on the open swap positions of such person.
    (t) Open contracts. This term means:
    (1) Positions in contracts of purchase or sale of any commodity 
made by or for any person on or subject to the rules of a board of 
trade for future delivery during a specified month or delivery period 
that have neither been fulfilled by delivery nor been offset by other 
contracts of purchase or sale in the same commodity and delivery month;
    (2) Positions in commodity option transactions that have not 
expired, been exercised, or offset; and
    (3) Positions in Cleared Swaps, as Sec.  22.1 of this chapter 
defines that term, that have not been fulfilled by delivery; not been 
offset; not expired; and not been terminated.
* * * * *
    (x) Floor trader. This term means any person:
    (1) Who, in or surrounding any pit, ring, post or other place 
provided by a contract market for the meeting of persons similarly 
engaged, purchases, or sells solely for such person's own account--
    (i) Any commodity for future delivery, security futures product, or 
swap; or
    (ii) Any commodity option authorized under section 4c of the Act; 
or
    (2) Who is registered with the Commission as a floor trader.
    (y) Proprietary account. This term means a commodity futures, 
commodity option, or swap trading account carried on the books and 
records of an individual, a partnership, corporation or other type of 
association:
    (1) For one of the following persons, or
    (2) Of which ten percent or more is owned by one of the following 
persons, or an aggregate of ten percent or more of which is owned by 
more than one of the following persons:
* * * * *
    (iii) * * *
    (B) The handling of the trades of customers or customer funds of 
such partnership,
    (C) The keeping of records pertaining to the trades of customers or 
customer funds of such partnership, or
* * * * *
    (v) * * *
    (B) The handling of the trades of customers or customer funds of 
such individual, partnership, corporation or association,
    (C) The keeping of records pertaining to the trades of customers or 
customer funds of such individual, partnership, corporation or 
association, or
* * * * *
    (vii) A business affiliate that directly or indirectly controls 
such individual, partnership, corporation or association; or
    (viii) A business affiliate that, directly or indirectly is 
controlled by or is under common control with, such individual, 
partnership, corporation or association. Provided, however, That an 
account owned by any shareholder or member of a cooperative association 
of producers, within the meaning of section 6a of the Act, which 
association is registered as a futures commission merchant and carries 
such account on its records, shall be deemed to be an account of a 
customer and not a proprietary account of such association, unless the 
shareholder or member is an officer, director or manager of the 
association.
* * * * *
    (aa) * * *
    (1) * * *
    (i) The solicitation or acceptance of customers' orders (other than 
in a clerical capacity) or
* * * * *
    (2) * * *
    (i) The solicitation or acceptance of customers' orders (other than 
in a clerical capacity) or
* * * * *
    (5) A leverage transaction merchant as a partner, officer, 
employee, consultant, or agent (or any natural person occupying a 
similar status or performing similar functions), in any capacity which 
involves:
    (i) The solicitation or acceptance of leverage customers' orders 
(other than in a clerical capacity) for leverage transactions as 
defined in Sec.  31.4(x) of this chapter, or
    (ii) The supervision of any person or persons so engaged.
* * * * *
    (bb)(1) Commodity trading advisor. This term means any person who, 
for compensation or profit, engages in the business of advising others, 
either directly or through publications, writings or electronic media, 
as to the value of or the advisability of trading in any contract of 
sale of a commodity for future delivery, security futures product, or 
swap; any agreement, contract or transaction described in section 
2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option 
authorized under section 4c of the Act; any leverage transaction 
authorized under section 19 of the Act; any person registered with the 
Commission as a commodity trading advisor; or any person, who, for 
compensation or profit, and as part of a regular business, issues or 
promulgates analyses or reports concerning any of the foregoing. The 
term does not include:
    (i) Any bank or trust company or any person acting as an employee 
thereof;
    (ii) Any news reporter, news columnist, or news editor of the print 
or electronic media or any lawyer, accountant, or teacher;
    (iii) Any floor broker or futures commission merchant;
    (iv) The publisher or producer of any print or electronic data of 
general and regular dissemination, including its employees;
    (v) The named fiduciary, or trustee, of any defined benefit plan 
which is subject to the provisions of the Employee Retirement Income 
Security Act of 1974, or any fiduciary whose sole business is to advise 
that plan;
    (vi) Any contract market; and
    (vii) Such other persons not within the intent of this definition 
as the Commission may specify by rule, regulation or order: Provided, 
That the furnishing of such services by the foregoing persons is solely 
incidental to the conduct of their business or profession:
    Provided further, That the Commission, by rule or regulation, may 
include within this definition, any person advising as to the value of 
commodities or issuing reports or

[[Page 66318]]

analyses concerning commodities, if the Commission determines that such 
rule or regulation will effectuate the purposes of this provision.
    (2) Client. This term, as it relates to a commodity trading 
advisor, means any person:
    (i) To whom a commodity trading advisor provides advice, for 
compensation or profit, either directly or through publications, 
writings, or electronic media, as to the value of, or the advisability 
of trading in, any contract of sale of a commodity for future delivery, 
security futures product or swap; any agreement, contract or 
transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) 
of the Act; any commodity option authorized under section 4c of the 
Act; any leverage transaction authorized under section 19 of the Act; 
or
    (ii) To whom, for compensation or profit, and as part of a regular 
business, the commodity trading advisor issues or promulgates analyses 
or reports concerning any of the activities referred to in paragraph 
(bb)(2)(i) of this section. The term ``client'' includes, without 
limitation, any subscriber of a commodity trading advisor.
    (cc) Commodity pool operator. This term means any person engaged in 
a business which is of the nature of a commodity pool, investment 
trust, syndicate, or similar form of enterprise, and who, in connection 
therewith, solicits, accepts, or receives from others, funds, 
securities, or property, either directly or through capital 
contributions, the sale of stock or other forms of securities, or 
otherwise, for the purpose of trading in commodity interests, including 
any commodity for future delivery, security futures product, or swap; 
any agreement, contract or transaction described in section 
2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option 
authorized under section 4c of the Act; any leverage transaction 
authorized under section 19 of the Act; or any person who is registered 
with the Commission as a commodity pool operator, but does not include 
such persons not within the intent of this definition as the Commission 
may specify by rule or regulation or by order.
* * * * *
    (ee) Self-regulatory organization. This term means a contract 
market (as defined in Sec.  1.3(h)), a swap execution facility (as 
defined in Sec.  1.3(rrrr)), or a registered futures association under 
section 17 of the Act.
    (ff) Designated self-regulatory organization. This term means:
    (1) Self-regulatory organization of which a futures commission 
merchant, an introducing broker, a leverage transaction merchant, a 
retail foreign exchange dealer, a swap dealer, or a major swap 
participant is a member; or
    (2) If a Commission registrant other than a leverage transaction 
merchant is a member of more than one self-regulatory organization and 
such registrant is the subject of an approved plan under Sec.  1.52, 
then a self-regulatory organization delegated the responsibility by 
such a plan for monitoring and auditing such registrant for compliance 
with the minimum financial and related reporting requirements of the 
self-regulatory organizations of which the registrant is a member, and 
for receiving the financial reports necessitated by such minimum 
financial and related reporting requirements from such registrant; or
    (3) If a leverage transaction merchant is a member of more than one 
self-regulatory organization and such leverage transaction merchant is 
the subject of an approved plan under Sec.  31.28 of this chapter, then 
a self-regulatory organization delegated the responsibility by such a 
plan for monitoring and auditing such leverage transaction merchant for 
compliance with the minimum financial, cover, segregation and sales 
practice, and related reporting requirements of the self-regulatory 
organizations of which the leverage transaction merchant is a member, 
and for receiving the reports necessitated by such minimum financial, 
cover, segregation and sales practice, and related reporting 
requirements from such leverage transaction merchant.
    (gg) Customer funds. This term means, collectively, Cleared Swaps 
Customer Collateral and futures customer funds.
* * * * *
    (ii) Premium. This term means the amount agreed upon between the 
purchaser and seller, or their agents, for the purchase or sale of a 
commodity option.
    (jj) [Reserved]
    (kk) Strike price. This term means the price, per unit, at which a 
person may purchase or sell the commodity, swap, or contract of sale of 
a commodity for future delivery that is the subject of a commodity 
option: Provided, That for purposes of Sec.  1.17, the term strike 
price means the total price at which a person may purchase or sell the 
commodity, swap, or contract of sale of a commodity for future delivery 
that is the subject of a commodity option (i.e., price per unit times 
the number of units).
    (ll) [Reserved]
    (mm) * * *
    (1) Any person who, for compensation or profit, whether direct or 
indirect:
    (i) Is engaged in soliciting or in accepting orders (other than in 
a clerical capacity) for the purchase or sale of any commodity for 
future delivery, security futures product, or swap; any agreement, 
contract or transaction described in section 2(c)(2)(C)(i) or section 
2(c)(2)(D)(i) of the Act; any commodity option transaction authorized 
under section 4c; or any leverage transaction authorized under section 
19; or who is registered with the Commission as an introducing broker; 
and
    (ii) Does not accept any money, securities, or property (or extend 
credit in lieu thereof) to margin, guarantee, or secure any trades or 
contracts that result or may result therefrom.
    (2) The term introducing broker shall not include:
    (i) Any futures commission merchant, floor broker, associated 
person, or associated person of a swap dealer or major swap participant 
acting in its capacity as such, regardless of whether that futures 
commission merchant, floor broker, or associated person is registered 
or exempt from registration in such capacity;
* * * * *
    (nn) Guarantee agreement. This term means an agreement of guarantee 
in the form set forth in part B or C of Form 1-FR, executed by a 
registered futures commission merchant or retail foreign exchange 
dealer, as appropriate, and by an introducing broker or applicant for 
registration as an introducing broker on behalf of an introducing 
broker or applicant for registration as an introducing broker in 
satisfaction of the alternative adjusted net capital requirement set 
forth in Sec.  1.17(a)(1)(iii).
    (oo) Leverage transaction merchant. This term means and includes 
any individual, association, partnership, corporation, trust or other 
person that is engaged in the business of offering to enter into, 
entering into or confirming the execution of leverage contracts, or 
soliciting or accepting orders for leverage contracts, and who accepts 
leverage customer funds (or extends credit in lieu thereof) in 
connection therewith.
    (pp) Leverage customer funds. This term means all money, securities 
and property received, directly or indirectly by a leverage transaction 
merchant from, for, or on behalf of leverage customers to margin, 
guarantee or secure leverage contracts and all money, securities and 
property accruing to such customers as the result of such contracts, or 
the

[[Page 66319]]

customers' leverage equity. In the case of a long leverage transaction, 
profit or loss accruing to a leverage customer is the difference 
between the leverage transaction merchant's current bid price for the 
leverage contract and the ask price of the leverage contract when 
entered into. In the case of a short leverage transaction, profit or 
loss accruing to a leverage customer is the difference between the bid 
price of the leverage contract when entered into and the leverage 
transaction merchant's current ask price for the leverage contract.
* * * * *
    (rr) * * *
    (2) In the case of foreign options customers in connection with 
open foreign options transactions, money, securities and property 
representing premiums paid or received, plus any other funds required 
to guarantee or secure open transactions plus or minus any unrealized 
gain or loss on such transactions.
    (ss) Foreign board of trade. This term means any board of trade, 
exchange or market located outside the United States, its territories 
or possessions, whether incorporated or unincorporated.
    (tt) Electronic signature. This term means an electronic sounds, 
symbol, or process attached to or logically associated with a record 
and executed or adopted by a person with the intent to sign the record.
    (uu) [Reserved]
    (vv) Futures account. This term means an account that is maintained 
in accordance with the segregation requirements of sections 4d(a) and 
4d(b) of the Act and the rules thereunder.
* * * * *
    (xx) Foreign broker. This term means any person located outside the 
United States, its territories or possessions who is engaged in 
soliciting or in accepting orders only from persons located outside the 
United States, its territories or possessions for the purchase or sale 
of any commodity interest transaction on or subject to the rules of any 
designated contract market or swap execution facility and that, in or 
in connection with such solicitation or acceptance of orders, accepts 
any money, securities or property (or extends credit in lieu thereof) 
to margin, guarantee, or secure any trades or contracts that result or 
may result therefrom.
    (yy) Commodity interest. This term means:
    (1) Any contract for the purchase or sale of a commodity for future 
delivery;
    (2) Any contract, agreement or transaction subject to a Commission 
regulation under section 4c or 19 of the Act;
    (3) Any contract, agreement or transaction subject to Commission 
jurisdiction under section 2(c)(2) of the Act; and
    (4) Any swap as defined in the Act, by the Commission, or jointly 
by the Commission and the Securities and Exchange Commission.
* * * * *
    (cccc) Cleared Swaps Customer. This term has the meaning provided 
in Sec.  22.1 of this chapter.
    (dddd) Cleared Swaps Customer Account. This term has the meaning 
provided in Sec.  22.1 of this chapter.
    (eeee) Cleared Swaps Customer Collateral. This term has the meaning 
provided in Sec.  22.1 of this chapter.
    (ffff) Confirmation. When used in reference to a futures commission 
merchant, introducing broker, or commodity trading advisor, this term 
means documentation (electronic or otherwise) that memorializes 
specified terms of a transaction executed on behalf of a customer. When 
used in reference to a swap dealer or major swap participant, this term 
has the meaning set forth in Sec.  23.500 of this chapter.
    (gggg) Customer Account. This term references both a Cleared Swaps 
Customer Account and a Futures Account, as defined by paragraphs (dddd) 
and (vv) of this section.
    (hhhh) Electronic trading facility. This term means a trading 
facility that--
    (1) Operates by means of an electronic or telecommunications 
network; and
    (2) Maintains an automated audit trail of bids, offers, and the 
matching of orders or the execution of transactions on the facility.
    (iiii) Futures customer. This term means any person who uses a 
futures commission merchant, introducing broker, commodity trading 
advisor, or commodity pool operator as an agent in connection with 
trading in any contract for the purchase of sale of a commodity for 
future delivery or any option on such contract; Provided, however, an 
owner or holder of a proprietary account as defined in paragraph (y) of 
this section shall not be deemed to be a futures customer within the 
meaning of sections 4d(a) and 4d(b) of the Act, the regulations that 
implement sections 4d and 4f of the Act and Sec.  1.35, and such an 
owner or holder of such a proprietary account shall otherwise be deemed 
to be a futures customer within the meaning of the Act and Sec. Sec.  
1.37 and 1.46 and all other sections of these rules, regulations, and 
orders which do not implement sections 4d and 4f of the Act.
    (jjjj) Futures customer funds. This term means all money, 
securities, and property received by a futures commission merchant or 
by a derivatives clearing organization from, for, or on behalf of, 
futures customers:
    (1) To margin, guarantee, or secure contracts for future delivery 
on or subject to the rules of a contract market or derivatives clearing 
organization, as the case may be, and all money accruing to such 
futures customers as the result of such contracts; and
    (2) In connection with a commodity option transaction on or subject 
to the rules of a contract market, or derivatives clearing 
organization, as the case may be:
    (i) To be used as a premium for the purchase of a commodity option 
transaction for a futures customer;
    (ii) As a premium payable to a futures customer;
    (iii) To guarantee or secure performance of a commodity option by a 
futures customer; or
    (iv) Representing accruals (including, for purchasers of a 
commodity option for which the full premium has been paid, the market 
value of such commodity option) to a futures customer.
    (3) Notwithstanding paragraphs (1) and (2) of this definition, the 
term ``futures customer funds'' shall exclude money, securities or 
property held to margin, guarantee or secure security futures products 
held in a securities account, and all money accruing as the result of 
such security futures products.
    (kkkk) Order. This term means an instruction or authorization 
provided by a customer to a futures commission merchant, introducing 
broker or commodity trading advisor regarding trading in a commodity 
interest on behalf of the customer.
    (llll) Organized exchange. This term means a trading facility 
that--
    (1) Permits trading--
    (i) By or on behalf of a person that is not an eligible contract 
participant; or
    (ii) By persons other than on a principal-to-principal basis; or
    (2) Has adopted (directly or through another nongovernmental 
entity) rules that--
    (i) Govern the conduct of participants, other than rules that 
govern the submission of orders or execution of transactions on the 
trading facility; and
    (ii) Include disciplinary sanctions other than the exclusion of 
participants from trading.
    (mmmm) Prudential regulator. This term has the meaning given to the 
term in section 1a(39) of the Commodity Exchange Act and includes the 
Board of Governors of the Federal Reserve

[[Page 66320]]

System, the Office of the Comptroller of the Currency, the Federal 
Deposit Insurance Corporation, the Farm Credit Administration, and the 
Federal Housing Finance Agency, as applicable to the swap dealer or 
major swap participant. The term also includes the Federal Deposit 
Insurance Corporation, with respect to any financial company as defined 
in section 201 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act or any insured depository institution under the Federal 
Deposit Insurance Act, and with respect to each affiliate of any such 
company or institution.
    (nnnn) Registered entity. This term means:
    (1) A board of trade designated as a contract market under section 
5 of the Act;
    (2) A derivatives clearing organization registered under section 5b 
of the Act;
    (3) A board of trade designated as a contract market under section 
5f of the Act;
    (4) A swap execution facility registered under section 5h of the 
Act;
    (5) A swap data repository registered under section 21 of the Act; 
and
    (6) With respect to a contract that the Commission determines is a 
significant price discovery contract, any electronic trading facility 
on which the contract is executed or traded.
    (oooo) Registrant. This term means: a commodity pool operator; 
commodity trading advisor; futures commission merchant; introducing 
broker; leverage transaction merchant; floor broker; floor trader; 
major swap participant; retail foreign exchange dealer; or swap dealer 
that is subject to these regulations; or an associated person of any of 
the foregoing other than an associated person of a swap dealer or major 
swap participant.
    (pppp) Retail forex customer. This term means a person, other than 
an eligible contract participant as defined in section 1a(18) of the 
Act, acting on its own behalf and trading in any account, agreement, 
contract or transaction described in section 2(c)(2)(B) or 2(c)(2)(C) 
of the Act.
    (qqqq) Swap data repository. This term means any person that 
collects and maintains information or records with respect to 
transactions or positions in, or the terms and conditions of, swaps 
entered into by third parties for the purpose of providing a 
centralized recordkeeping facility for swaps.
    (rrrr) Swap execution facility. This term means a trading system or 
platform in which multiple participants have the ability to execute or 
trade swaps by accepting bids and offers made by multiple participants 
in the facility or system, through any means of interstate commerce, 
including any trading facility, that--
    (1) Facilitates the execution of swaps between persons; and
    (2) Is not a designated contract market.
    (ssss) Trading facility. This term has the meaning set forth in 
section 1a(51) of the Act.

0
3. Revise Sec.  1.4 to read as follows:


Sec.  1.4  Electronic signatures, acknowledgments and verifications.

    For purposes of complying with any provision in the Commodity 
Exchange Act or the rules or regulations in this Chapter I that 
requires a swap transaction to be acknowledged by a swap dealer or 
major swap participant or a document to be signed or verified by a 
customer of a futures commission merchant or introducing broker, a 
retail forex customer of a retail foreign exchange dealer or futures 
commission merchant, a pool participant or a client of a commodity 
trading advisor, or a counterparty of a swap dealer or major swap 
participant, an electronic signature executed by the customer, retail 
forex customer, participant, client, counterparty, swap dealer, or 
major swap participant will be sufficient, if the futures commission 
merchant, retail foreign exchange dealer, introducing broker, commodity 
pool operator, commodity trading advisor, swap dealer, or major swap 
participant elects generally to accept electronic signatures, 
acknowledgments or verifications or another Commission rule permits the 
use of electronic signatures for the purposes listed above; Provided, 
however, That the electronic signature must comply with applicable 
Federal laws and other Commission rules; And, Provided further, That 
the futures commission merchant, retail foreign exchange dealer, 
introducing broker, commodity pool operator, commodity trading advisor, 
swap dealer, or major swap participant must adopt and use reasonable 
safeguards regarding the use of electronic signatures, including at a 
minimum safeguards employed to prevent alteration of the electronic 
record with which the electronic signature is associated, after such 
record has been electronically signed.

0
4. Revise paragraph (a)(4) of Sec.  1.16 to read as follows:


Sec.  1.16  Qualifications and reports of accountants.

    (a) * * *
    (4) Customer. The term ``customer'' means customer (as defined in 
Sec.  1.3(k)) and includes a foreign futures or foreign options 
customer (as defined in Sec.  30.1(c) of this chapter).
* * * * *

0
5. Amend Sec.  1.17 by:
0
a. Removing and reserving paragraph (a)(1)(ii);
0
b. Removing from paragraph (c)(1)(iii) the term ``physical'' in all 
places it appears and adding in its place the term ``commodity'';
0
c. Revising paragraph (c)(5)(ii)(A);
0
d. Removing from paragraph (c)(5)(xi) the term ``physical'' and adding 
in its place the term ``commodity''; and
0
e. Revising paragraph (c)(5)(xiii)(C).
    The revisions read as follows:


Sec.  1.17  Minimum financial requirements for futures commission 
merchants and introducing brokers.

    (a)(1)(i) * * *
    (ii) [Reserved]
* * * * *
    (c) * * *
    (5) * * *
    (ii) * * *
    (A) Inventory which is currently registered as deliverable on a 
contract market and covered by an open futures contract or by a 
commodity option on a physical commodity--No charge.
* * * * *
    (xiii) * * *
    (C) A foreign broker that has been granted comparability relief 
pursuant to Sec.  30.10 of this chapter, Provided, however, that the 
amount of the unsecured receivable not subject to the five percent 
capital charge is no greater than 150 percent of the current amount 
required to maintain futures and options positions in accounts with the 
foreign broker, or 100 percent of such greater amount required to 
maintain futures and option positions in the accounts at any time 
during the previous six-month period, and Provided, that, in the case 
of the foreign futures or foreign options secured amount, as Sec.  
1.3(rr) defines such term, such account is treated in accordance with 
the special requirements of the applicable Commission order issued 
under Sec.  30.10 of this chapter.
* * * * *

0
6. Revise Sec.  1.20 to read as follows:


Sec.  1.20  Futures customer funds to be segregated and separately 
accounted for.

    (a) All futures customer funds shall be separately accounted for 
and segregated as belonging to futures customers. Such futures customer 
funds when deposited with any bank, trust company, derivatives clearing 
organization or another futures commission merchant shall be deposited 
under an account name which clearly identifies them as

[[Page 66321]]

such and shows that they are segregated as required by sections 4d(a) 
and 4d(b) of the Act and this part. Each registrant shall obtain and 
retain in its files for the period provided in Sec.  1.31 a written 
acknowledgment from such bank, trust company, derivatives clearing 
organization, or futures commission merchant, that it was informed that 
the futures customer funds deposited therein are those of futures 
customers and are being held in accordance with the provisions of the 
Act and this part: Provided, however, that an acknowledgment need not 
be obtained from a derivatives clearing organization that has adopted 
and submitted to the Commission rules that provide for the segregation 
as futures customer funds, in accordance with all relevant provisions 
of the Act and the rules and orders promulgated thereunder, of all 
funds held on behalf of futures customers. Under no circumstances shall 
any portion of futures customer funds be obligated to a derivatives 
clearing organization, any member of a contract market, a futures 
commission merchant, or any depository except to purchase, margin, 
guarantee, secure, transfer, adjust or settle trades, contracts or 
commodity option transactions of futures customers. No person, 
including any derivatives clearing organization or any depository, that 
has received futures customer funds for deposit in a segregated 
account, as provided in this section, may hold, dispose of, or use any 
such funds as belonging to any person other than the futures customers 
of the futures commission merchant which deposited such funds.
    (b) All futures customer funds received by a derivatives clearing 
organization from a member of the derivatives clearing organization to 
purchase, margin, guarantee, secure or settle the trades, contracts or 
commodity options of the clearing member's futures customers and all 
money accruing to such futures customers as the result of trades, 
contracts or commodity options so carried shall be separately accounted 
for and segregated as belonging to such futures customers, and a 
derivatives clearing organization shall not hold, use or dispose of 
such futures customer funds except as belonging to such futures 
customers. Such futures customer funds when deposited in a bank or 
trust company shall be deposited under an account name which clearly 
shows that they are the futures customer funds of the futures customers 
of clearing members, segregated as required by sections 4d(a) and 4d(b) 
of the Act and these regulations. The derivatives clearing organization 
shall obtain and retain in its files for the period provided by Sec.  
1.31 an acknowledgment from such bank or trust company that it was 
informed that the futures customer funds deposited therein are those of 
futures customers of its clearing members and are being held in 
accordance with the provisions of the Act and these regulations.
    (c) Each futures commission merchant shall treat and deal with the 
futures customer funds of a futures customer as belonging to such 
futures customer. All futures customer funds shall be separately 
accounted for, and shall not be commingled with the money, securities 
or property of a futures commission merchant or of any other person, or 
be used to secure or guarantee the trades, contracts or commodity 
options, or to secure or extend the credit, of any person other than 
the one for whom the same are held: Provided, however, That futures 
customer funds treated as belonging to the futures customers of a 
futures commission merchant may for convenience be commingled and 
deposited in the same account or accounts with any bank or trust 
company, with another person registered as a futures commission 
merchant, or with a derivatives clearing organization, and that such 
share thereof as in the normal course of business is necessary to 
purchase, margin, guarantee, secure, transfer, adjust, or settle the 
trades, contracts or commodity options of such futures customers or 
resulting market positions, with the derivatives clearing organization 
or with any other person registered as a futures commission merchant, 
may be withdrawn and applied to such purposes, including the payment of 
premiums to option grantors, commissions, brokerage, interest, taxes, 
storage and other fees and charges, lawfully accruing in connection 
with such trades, contracts or commodity options: Provided further, 
That futures customer funds may be invested in instruments described in 
Sec.  1.25.

0
7. Revise Sec.  1.21 to read as follows:


Sec.  1.21  Care of money and equities accruing to futures customers.

    All money received directly or indirectly by, and all money and 
equities accruing to, a futures commission merchant from any 
derivatives clearing organization or from any clearing member or from 
any member of a contract market incident to or resulting from any 
trade, contract or commodity option made by or through such futures 
commission merchant on behalf of any futures customer shall be 
considered as accruing to such futures customer within the meaning of 
the Act and these regulations. Such money and equities shall be treated 
and dealt with as belonging to such futures customer in accordance with 
the provisions of the Act and these regulations. Money and equities 
accruing in connection with futures customers' open trades, contracts, 
or commodity options need not be separately credited to individual 
accounts but may be treated and dealt with as belonging undivided to 
all futures customers having open trades, contracts, or commodity 
option positions which if closed would result in a credit to such 
futures customers.

0
8. Revise Sec.  1.22 to read as follows:


Sec.  1.22  Use of futures customer funds restricted.

    No futures commission merchant shall use, or permit the use of, the 
futures customer funds of one futures customer to purchase, margin, or 
settle the trades, contracts, or commodity options of, or to secure or 
extend the credit of, any person other than such futures customer. 
Futures customer funds shall not be used to carry trades or positions 
of the same futures customer other than in commodities or commodity 
options traded through the facilities of a contract market.

0
9. Revise Sec.  1.23 to read as follows:


Sec.  1.23  Interest of futures commission merchant in segregated 
futures customer funds; additions and withdrawals.

    The provisions in section 4d(a) and 4d(b) of the Act and the 
provision in Sec.  1.20(c), which prohibit the commingling of futures 
customer funds with the funds of a futures commission merchant, shall 
not be construed to prevent a futures commission merchant from having a 
residual financial interest in the futures customer funds, segregated 
as required by the Act and the rules in this part and set apart for the 
benefit of futures customers; nor shall such provisions be construed to 
prevent a futures commission merchant from adding to such segregated 
futures customer funds such amount or amounts of money, from its own 
funds or unencumbered securities from its own inventory, of the type 
set forth in Sec.  1.25, as it may deem necessary to ensure any and all 
futures customers' accounts from becoming undersegregated at any time. 
The books and records of a futures commission merchant shall at all 
times accurately reflect its interest in the segregated funds. A 
futures commission merchant may draw upon such segregated funds to its 
own order, to the extent of its actual interest therein, including the

[[Page 66322]]

withdrawal of securities held in segregated safekeeping accounts held 
by a bank, trust company, contract market, derivatives clearing 
organization or other futures commission merchant. Such withdrawal 
shall not result in the funds of one futures customer being used to 
purchase, margin or carry the trades, contracts or commodity options, 
or extend the credit of any other futures customer or other person.

0
10. Revise Sec.  1.24 to read as follows:


Sec.  1.24  Segregated funds; exclusions therefrom.

    Money held in a segregated account by a futures commission merchant 
shall not include: (a) Money invested in obligations or stocks of any 
derivatives clearing organization or in memberships in or obligations 
of any contract market; or
    (b) Money held by any derivatives clearing organization which it 
may use for any purpose other than to purchase, margin, guarantee, 
secure, transfer, adjust, or settle the contracts, trades, or commodity 
options of the futures customers of such futures commission merchant.

0
11. Revise paragraphs (c)(3) and (e) of Sec.  1.25 to read as follows:


Sec.  1.25  Investment of customer funds.

* * * * *
    (c) * * *
    (3) A futures commission merchant or derivatives clearing 
organization shall maintain the confirmation relating to the purchase 
in its records in accordance with Sec.  1.31 and note the ownership of 
fund shares (by book-entry or otherwise) in a custody account of the 
futures commission merchant or derivatives clearing organization in 
accordance with Sec. Sec.  1.26 and 22.5 of this chapter. The futures 
commission merchant or the derivatives clearing organization shall 
obtain the acknowledgment letter required by Sec. Sec.  1.26 and 22.5 
of this chapter from an entity that has substantial control over the 
fund shares purchased with customer funds and has the knowledge and 
authority to facilitate redemption and payment or transfer of the 
customer funds. Such entity may include the fund sponsor or depository 
acting as custodian for fund shares.
* * * * *
    (e) Deposit of firm-owned securities into segregation. A futures 
commission merchant shall not be prohibited from directly depositing 
unencumbered securities of the type specified in this section, which it 
owns for its own account, into a segregated safekeeping account or from 
transferring any such securities from a segregated account to its own 
account, up to the extent of its residual financial interest in 
customers' segregated funds; provided, however, that such investments, 
transfers of securities, and disposition of proceeds from the sale or 
maturity of such securities are recorded in the record of investments 
required to be maintained by Sec.  1.27. All such securities may be 
segregated in safekeeping only with a bank, trust company, derivatives 
clearing organization, or other registered futures commission merchant. 
Furthermore, for purposes of Sec. Sec.  1.25, 1.27, 1.28, and 1.29, 
investments permitted by Sec.  1.25 that are owned by the futures 
commission merchant and deposited into such segregated account shall be 
considered customer funds until such investments are withdrawn from 
segregation. Investments permitted by Sec.  1.25 that are owned by the 
futures commission merchant and deposited into a segregated account 
pursuant to Sec.  1.26 shall be considered futures customer funds until 
such investments are withdrawn from segregation. Investments permitted 
by Sec.  1.25 that are owned by the futures commission merchant and 
deposited into a segregated account pursuant to Sec.  22.5 of this 
chapter shall be considered Cleared Swaps Customer Collateral until 
such investments are withdrawn from segregation.
* * * * *

0
12. Revise Sec.  1.26 to read as follows:


Sec.  1.26  Deposit of instruments purchased with futures customer 
funds.

    (a) Each futures commission merchant who invests futures customer 
funds in instruments described in Sec.  1.25 shall separately account 
for such instruments and segregate such instruments as belonging to 
such futures customers. Such instruments, when deposited with a bank, 
trust company, derivatives clearing organization or another futures 
commission merchant, shall be deposited under an account name which 
clearly shows that they belong to futures customers and are segregated 
as required by the Act and this part. Each futures commission merchant 
upon opening such an account shall obtain and retain in its files an 
acknowledgment from such bank, trust company, derivatives clearing 
organization or other futures commission merchant that it was informed 
that the instruments belong to futures customers and are being held in 
accordance with the provisions of the Act and this part. Provided, 
however, that an acknowledgment need not be obtained from a derivatives 
clearing organization that has adopted and submitted to the Commission 
rules that provide for the segregation as futures customer funds, in 
accordance with all relevant provisions of the Act and the rules and 
orders promulgated thereunder, of all funds held on behalf of futures 
customers and all instruments purchased with futures customer funds. 
Such acknowledgment shall be retained in accordance with Sec.  1.31. 
Such bank, trust company, derivatives clearing organization or other 
futures commission merchant shall allow inspection of such obligations 
at any reasonable time by representatives of the Commission.
    (b) Each derivatives clearing organization which invests money 
belonging or accruing to futures customers of its clearing members in 
instruments described in Sec.  1.25 shall separately account for such 
instruments and segregate such instruments as belonging to such futures 
customers. Such instruments, when deposited with a bank or trust 
company, shall be deposited under an account name which will clearly 
show that they belong to futures customers and are segregated as 
required by the Act and this part. Each derivatives clearing 
organization upon opening such an account shall obtain and retain in 
its files a written acknowledgment from such bank or trust company that 
it was informed that the instruments belong to futures customers of 
clearing members and are being held in accordance with the provisions 
of the Act and this part. Such acknowledgment shall be retained in 
accordance with Sec.  1.31. Such bank or trust company shall allow 
inspection of such instruments at any reasonable time by 
representatives of the Commission.

0
13. Revise paragraph (a) introductory text and paragraph (a)(6) of 
Sec.  1.27 to read as follows:


Sec.  1.27  Record of investments.

    (a) Each futures commission merchant which invests customer funds, 
and each derivatives clearing organization which invests customer funds 
of its clearing members' customers, shall keep a record showing the 
following:
* * * * *
    (6) The date on which such investments were liquidated or otherwise 
disposed of and the amount of money or current market value of 
securities received on such disposition, if any; and
* * * * *

0
14. Revise Sec.  1.29 to read as follows:


Sec.  1.29  Increment or interest resulting from investment of customer 
funds.

    The investment of customer funds in instruments described in Sec.  
1.25 shall not

[[Page 66323]]

prevent the futures commission merchant or derivatives clearing 
organization so investing such funds from receiving and retaining as 
its own any increment or interest resulting therefrom.

0
15. Revise Sec.  1.30 to read as follows:


Sec.  1.30  Loans by futures commission merchants; treatment of 
proceeds.

    Nothing in the regulations in this chapter shall prevent a futures 
commission merchant from lending its own funds to customers on 
securities and property pledged by such customers, or from repledging 
or selling such securities and property pursuant to specific written 
agreement with such customers. The proceeds of such loans used to 
purchase, margin, guarantee, or secure the trades, contracts, or 
commodity options of customers shall be treated and dealt with by a 
futures commission merchant as belonging to such customers, in 
accordance with and subject to the provisions of the Act and these 
regulations.

0
16. Amend Sec.  1.31 by revising paragraphs (a), (b) introductory text, 
(b)(2)(iii), and (b)(3)(i), to read as follows:


Sec.  1.31  Books and records; keeping and inspection.

    (a)(1) All books and records required to be kept by the Act or by 
these regulations shall be kept in their original form (for paper 
records) or native file format (for electronic records) for a period of 
five years from the date thereof and shall be readily accessible during 
the first 2 years of the 5-year period; Provided, however, That records 
of any swap or related cash or forward transaction shall be kept until 
the termination, maturity, expiration, transfer, assignment, or 
novation date of the transaction and for a period of five years after 
such date. Records of oral communications kept pursuant to Sec.  
23.202(a)(1) and (b)(1) of this chapter shall be kept for a period of 
one year. All such books and records shall be open to inspection by any 
representative of the Commission or the United States Department of 
Justice. For purposes of this section, native file format means an 
electronic file that exists in the format in which it was originally 
created.
    (2) Persons required to keep books and records by the Act or by 
these regulations shall produce such records in a form specified by any 
representative of the Commission. Such production shall be made, at the 
expense of the person required to keep the book or record, to a 
Commission representative upon the representative's request. Instead of 
furnishing a copy, such person may provide the original book or record 
for reproduction, which the representative may temporarily remove from 
such person's premises for this purpose. All copies or originals shall 
be provided promptly. Upon request, the Commission representative shall 
issue a receipt provided by such person for any copy or original book 
or record received. At the request of the Commission representative, 
such person shall, upon the return thereof, issue a receipt for any 
copy or original book or record returned by the representative.
    (b) Except as provided in paragraph (d) of this section, books and 
records required to be kept by the Act or by these regulations may be 
stored on either ``micrographic media'' (as defined in paragraph 
(b)(1)(i) of this section) or ``electronic storage media'' (as defined 
in paragraph (b)(1)(ii) of this section) for the required time period 
under the conditions set forth in this paragraph (b); Provided, 
however, For electronic records, such storage media must preserve the 
native file format of the electronic records as required by paragraph 
(a)(1) of this section.
* * * * *
    (2) * * *
    (iii) Keep only Commission-required records on the individual 
medium employed (e.g., a disk or sheets of microfiche);
* * * * *
    (3) * * *
    (i) Be ready at all times to provide, and immediately provide at 
the expense of the person required to keep such records, copies of such 
records on such compatible data processing media as defined in Sec.  
15.00(d) of this chapter which any representative of the Commission or 
the Department of Justice may request. Records must use a format and 
coding structure specified in the request.
* * * * *

0
17. Revise paragraphs (a)(1), (a)(2), (a)(3), and (b) of Sec.  1.32 to 
read as follows:


Sec.  1.32  Segregated account; daily computation and record.

    (a) * * *
    (1) The total amount of futures customer funds on deposit in 
segregated accounts on behalf of futures customers;
    (2) The amount of such futures customer funds required by the Act 
and these regulations to be on deposit in segregated accounts on behalf 
of such futures customers; and
    (3) The amount of the futures commission merchant's residual 
interest in such futures customer funds.
    (b) In computing the amount of futures customer funds required to 
be in segregated accounts, a futures commission merchant may offset any 
net deficit in a particular futures customer's account against the 
current market value of readily marketable securities, less applicable 
percentage deductions (i.e., ``securities haircuts'') as set forth in 
Rule 15c3-1(c)(2)(vi) of the Securities and Exchange Commission (17 CFR 
240.15c3-1(c)(2)(vi)), held for the same futures customer's account. 
The futures commission merchant must maintain a security interest in 
the securities, including a written authorization to liquidate the 
securities at the futures commission merchant's discretion, and must 
segregate the securities in a safekeeping account with a bank, trust 
company, derivatives clearing organization, or another futures 
commission merchant. For purposes of this section, a security will be 
considered readily marketable if it is traded on a ``ready market'' as 
defined in Rule 15c3-1(c)(11)(i) of the Securities and Exchange 
Commission (17 CFR 240.15c3-1(c)(11)(i)).
* * * * *

0
18. Amend Sec.  1.33 by:
0
a. Revising paragraphs (a) introductory text, (a)(1) introductory text, 
and (a)(1)(iii);
0
b. Removing paragraph (a)(1)(iv);
0
c. Revising paragraphs (a)(2) introductory text, (a)(2)(i), (a)(2)(ii), 
and (a)(2)(iv);
0
d. Adding paragraphs (a)(3) and (a)(4);
0
e. Revising paragraph (b) introductory text, and (b)(1);
0
f. Redesignating paragraphs (b)(2) through (b)(4) as paragraphs (b)(3) 
through (b)(5);
0
g. Adding a new paragraph (b)(2);
0
h. Revising newly designated paragraphs (b)(3)(i), (b)(3)(iv), (b)(4), 
and (b)(5); and
0
i. Revising paragraph (d) introductory text.
    The revisions and additions read as follows:


Sec.  1.33  Monthly and confirmation statements.

    (a) Monthly statements. Each futures commission merchant must 
promptly furnish in writing to each customer, and to each foreign 
futures or foreign options customer, as defined by Sec.  30.1 of this 
chapter, as of the close of the last business day of each month or as 
of any regular monthly date selected, except for accounts in which 
there are neither open contracts at the end of the statement period nor 
any changes to the account balance since the prior statement period, 
but in any event not less frequently than once every three

[[Page 66324]]

months, a statement which clearly shows:
    (1) For each commodity futures customer and foreign futures or 
foreign options customer position--
* * * * *
    (iii) Any futures customer funds or foreign futures or foreign 
options secured amount, as defined by Sec.  1.3(rr), carried with the 
futures commission merchant.
    (2) For each commodity option position and foreign option 
position--
    (i) All commodity options and foreign options purchased, sold, 
exercised, or expired during the monthly reporting period, identified 
by underlying futures contract or underlying commodity, strike price, 
transaction date, and expiration date;
    (ii) The open commodity option and foreign option positions carried 
for such customer or foreign futures or foreign options customer as of 
the end of the monthly reporting period, identified by underlying 
futures contract or underlying commodity, strike price, transaction 
date, and expiration date;
* * * * *
    (iv) Any related customer funds carried in such customer's 
account(s) or any related foreign futures or foreign options secured 
amount carried in the account(s) of a foreign futures or foreign 
options customer.
    (3) For each Cleared Swaps Customer position--
    (i) The Cleared Swaps, as Sec.  22.1 of this chapter defines that 
term, carried by the futures commission merchant for the Cleared Swaps 
Customer;
    (ii) The net unrealized profits or losses in all Cleared Swaps 
marked to the market;
    (iii) Any Cleared Swaps Customer Collateral carried with the 
futures commission merchant; and
    (4) A detailed accounting of all financial charges and credits to 
customers and foreign futures or foreign options customers, during the 
monthly reporting period, including all customer funds and any foreign 
futures or foreign options secured amount, received from or disbursed 
to customers or foreign futures or foreign options customers, as well 
as realized profits and losses.
    (b) Confirmation statement. Each futures commission merchant must, 
not later than the next business day after any commodity interest or 
commodity option transaction, including any foreign futures or foreign 
options transactions, furnish to each customer or foreign futures or 
foreign options customer:
    (1) A written confirmation of each commodity futures transaction 
caused to be executed by it for the customer.
    (2) A written confirmation of each Cleared Swap carried by the 
futures commission merchant, containing at least the following 
information:
    (i) The unique swap identifier, as required by Sec.  45.4(a) of 
this chapter, for each Cleared Swap and the date each Cleared Swap was 
executed;
    (ii) The product name of each Cleared Swap;
    (iii) The price at which the Cleared Swap was executed;
    (iv) The date of maturity for each Cleared Swap; and
    (v) The derivatives clearing organization through which it is 
cleared.
    (3) A written confirmation of each commodity option transaction, 
containing at least the following information:
    (i) The customer's account identification number;
* * * * *
    (iv) The underlying futures contract or underlying commodity;
* * * * *
    (4) Upon the expiration or exercise of any commodity option, a 
written confirmation statement thereof, which statement shall include 
the date of such occurrence, a description of the option involved, and, 
in the case of exercise, the details of the futures or physical 
position which resulted therefrom including, if applicable, the final 
trading date of the contract for future delivery underlying the option.
    (5) Notwithstanding the provisions of paragraphs (b)(1) through 
(b)(4) of this section, a commodity interest transaction that is caused 
to be executed for a commodity pool need be confirmed only to the 
operator of the commodity pool.
* * * * *
    (d) Controlled accounts. With respect to any account controlled by 
any person other than the customer for whom such account is carried, 
each futures commission merchant shall:
* * * * *

0
19. Revise Sec.  1.34 to read as follows:


Sec.  1.34  Monthly record, ``point balance''.

    (a) With respect to commodity futures transactions, each futures 
commission merchant shall prepare, and retain in accordance with the 
requirements of Sec.  1.31, a statement commonly known as a ``point 
balance,'' which accrues or brings to the official closing price, or 
settlement price fixed by the clearing organization, all open contracts 
of customers as of the last business day of each month or of any 
regular monthly date selected: Provided, however, That a futures 
commission merchant who carries part or all of customers' open 
contracts with other futures commission merchants on an ``instruct 
basis'' will be deemed to have met the requirements of this section as 
to open contracts so carried if a monthly statement is prepared which 
shows that the prices and amounts of such contracts long and short in 
the customers' accounts are in balance with those in the carrying 
futures commission merchants' accounts, and such statements are 
retained in accordance with the requirements of Sec.  1.31.
    (b) With respect to commodity option transactions, each futures 
commission merchant shall prepare, and retain in accordance with the 
requirements of Sec.  1.31, a listing in which all open commodity 
option positions carried for customers are marked to the market. Such 
listing shall be prepared as of the last business day of each month, or 
as of any regular monthly date selected, and shall be by put or by 
call, by underlying contract for future delivery (by delivery month) or 
underlying commodity (by option expiration date), and by strike price.

0
20. Section 1.35 is revised to read as follows:


Sec.  1.35  Records of commodity interest and cash commodity 
transactions.

    (a) Futures commission merchants, retail foreign exchange dealers, 
introducing brokers, and members of designated contract markets or swap 
execution facilities. Each futures commission merchant, retail foreign 
exchange dealer, introducing broker, and member of a designated 
contract market or swap execution facility shall keep full, complete, 
and systematic records, which include all pertinent data and memoranda, 
of all transactions relating to its business of dealing in commodity 
interests and cash commodities. Each futures commission merchant, 
retail foreign exchange dealer, introducing broker, and member of a 
designated contract market or swap execution facility shall retain the 
required records, in accordance with the requirements of Sec.  1.31, 
and produce them for inspection and furnish true and correct 
information and reports as to the contents or the meaning thereof, when 
and as requested by an authorized representative of the Commission or 
the United States Department of Justice. Included among such records 
shall be all orders (filled, unfilled, or canceled), trading cards, 
signature cards, street books, journals, ledgers, canceled checks, 
copies of confirmations, copies of statements of purchase and sale, and 
all other records, which have been prepared in the course of its 
business of dealing in commodity interests and cash

[[Page 66325]]

commodities. Among such records each member of a designated contract 
market or swap execution facility must retain and produce for 
inspection are all documents on which trade information is originally 
recorded, whether or not such documents must be prepared pursuant to 
the rules or regulations of either the Commission, the designated 
contract market or the swap execution facility. For purposes of this 
section, such documents are referred to as ``original source 
documents.''
    (b) Futures commission merchants, retail foreign exchange dealers, 
introducing brokers, and members of designated contract markets and 
swap execution facilities: Recording of customers' orders. (1) Each 
futures commission merchant, each retail foreign exchange dealer, each 
introducing broker, and each member of a designated contract market or 
swap execution facility receiving a customer's order that cannot 
immediately be entered into a trade matching engine shall immediately 
upon receipt thereof prepare a written record of the order including 
the account identification, except as provided in paragraph (b)(5) of 
this section, and order number, and shall record thereon, by timestamp 
or other timing device, the date and time, to the nearest minute, the 
order is received, and in addition, for commodity option orders, the 
time, to the nearest minute, the order is transmitted for execution.
    (2)(i) Each member of a designated contract market who on the floor 
of such designated contract market receives a customer's order which is 
not in the form of a written record including the account 
identification, order number, and the date and time, to the nearest 
minute, the order was transmitted or received on the floor of such 
designated contract market, shall immediately upon receipt thereof 
prepare a written record of the order in non-erasable ink, including 
the account identification, except as provided in paragraph (b)(5) of 
this section, and order number and shall record thereon, by timestamp 
or other timing device, the date and time, to the nearest minute, the 
order is received.
    (ii) Except as provided in paragraph (b)(3) of this section:
    (A) Each member of a designated contract market who on the floor of 
such designated contract market receives an order from another member 
present on the floor which is not in the form of a written record 
shall, immediately upon receipt of such order, prepare a written record 
of the order or obtain from the member who placed the order a written 
record of the order, in non-erasable ink including the account 
identification and order number and shall record thereon, by time-stamp 
or other timing device, the date and time, to the nearest minute, the 
order is received; or
    (B) When a member of a designated contract market present on the 
floor places an order, which is not in the form of a written record, 
for his own account or an account over which he has control, with 
another member of such designated contract market for execution:
    (1) The member placing such order immediately upon placement of the 
order shall record the order and time of placement to the nearest 
minute on a sequentially-numbered trading card maintained in accordance 
with the requirements of paragraph (f) of this section;
    (2) The member receiving and executing such order immediately upon 
execution of the order shall record the time of execution to the 
nearest minute on a trading card or other record maintained pursuant to 
the requirements of paragraph (f) of this section; and
    (3) The member receiving and executing the order shall return such 
trading card or other record to the member placing the order. The 
member placing the order then must submit together both of the trading 
cards or other records documenting such trade to designated contract 
market personnel or the clearing member.
    (3)(i) The requirements of paragraph (b)(2)(ii) of this section 
will not apply if a designated contract market maintains in effect 
rules which provide for an exemption where:
    (A) A member of a designated contract market places with another 
member of such designated contract market an order that is part of a 
spread transaction;
    (B) The member placing the order personally executes one or more 
legs of the spread; and
    (C) The member receiving and executing such order immediately upon 
execution of the order records the time of execution to the nearest 
minute on his trading card or other record maintained in accordance 
with the requirements of paragraph (f) of this section.
    (ii) Each contract market shall, as part of its trade practice 
surveillance program, conduct surveillance for compliance with the 
recordkeeping and other requirements under paragraphs (b)(2) and (3) of 
this section, and for trading abuses related to the execution of orders 
for members present on the floor of the contract market.
    (4) Each member of a designated contract market reporting the 
execution from the floor of the designated contract market of a 
customer's order or the order of another member of the designated 
contract market received in accordance with paragraphs (b)(2)(i) or 
(b)(2)(ii)(A) of this section, shall record on a written record of the 
order, including the account identification, except as provided in 
paragraph (b)(5) of this section, and order number, by time-stamp or 
other timing device, the date and time to the nearest minute such 
report of execution is made. Each member of a designated contract 
market shall submit the written records of customer orders or orders 
from other designated contract market members to designated contract 
market personnel or to the clearing member responsible for the 
collection of orders prepared pursuant to this paragraph. The execution 
price and other information reported on the order tickets must be 
written in non-erasable ink.
    (5) Post-execution allocation of bunched orders. Specific customer 
account identifiers for accounts included in bunched orders executed on 
designated contract markets or swap execution facilities need not be 
recorded at time of order placement or upon report of execution if the 
requirements of paragraphs (b)(5)(i) through (v) of this section are 
met. Specific customer account identifiers for accounts included in 
bunched orders involving swaps need not be included in confirmations or 
acknowledgments provided by swap dealers or major swap participants 
pursuant to Sec.  23.501(a) of this chapter if the requirements of 
paragraphs (b)(5)(i) through (v) of this section are met.
    (i) Eligible account managers for orders executed on designated 
contract markets or swap execution facilities. The person placing and 
directing the allocation of an order eligible for post-execution 
allocation must have been granted written investment discretion with 
regard to participating customer accounts. The following persons shall 
qualify as eligible account managers for trades executed on designated 
contract markets or swap execution facilities:
    (A) A commodity trading advisor registered with the Commission 
pursuant to the Act or excluded or exempt from registration under the 
Act or the Commission's rules, except for entities exempt under Sec.  
4.14(a)(3) of this chapter;
    (B) An investment adviser registered with the Securities and 
Exchange Commission pursuant to the Investment Advisers Act of 1940 or 
with a state pursuant to applicable state law or excluded or exempt 
from registration under such Act or applicable state law or rule;

[[Page 66326]]

    (C) A bank, insurance company, trust company, or savings and loan 
association subject to federal or state regulation;
    (D) A foreign adviser that exercises discretionary trading 
authority solely over the accounts of non-U.S. persons, as defined in 
Sec.  4.7(a)(1)(iv) of this chapter;
    (E) A futures commission merchant registered with the Commission 
pursuant to the Act; or
    (F) An introducing broker registered with the Commission pursuant 
to the Act.
    (ii) Eligible account managers for orders executed bilaterally. The 
person placing and directing the allocation of an order eligible for 
post-execution allocation must have been granted written investment 
discretion with regard to participating customer accounts. The 
following persons shall qualify as eligible account managers for trades 
executed bilaterally:
    (A) A commodity trading advisor registered with the Commission 
pursuant to the Act or excluded or exempt from registration under the 
Act or the Commission's rules, except for entities exempt under Sec.  
4.14(a)(3) of this chapter;
    (B) A futures commission merchant registered with the Commission 
pursuant to the Act; or
    (C) An introducing broker registered with the Commission pursuant 
to the Act.
    (iii) Information. Eligible account managers shall make the 
following information available to customers upon request:
    (A) The general nature of the allocation methodology the account 
manager will use;
    (B) Whether accounts in which the account manager may have any 
interest may be included with customer accounts in bunched orders 
eligible for post-execution allocation; and
    (C) Summary or composite data sufficient for that customer to 
compare its results with those of other comparable customers and, if 
applicable and consistent with Sec.  155.3(a)(1) and Sec.  155.4(a)(1) 
of this chapter, any account in which the account manager has an 
interest.
    (iv) Allocation. Orders eligible for post-execution allocation must 
be allocated by an eligible account manager in accordance with the 
following:
    (A) Allocations must be made as soon as practicable after the 
entire transaction is executed, but in any event no later than the 
following times: For cleared trades, account managers must provide 
allocation information to futures commission merchants no later than a 
time sufficiently before the end of the day the order is executed to 
ensure that clearing records identify the ultimate customer for each 
trade. For uncleared trades, account managers must provide allocation 
information to the counterparty no later than the end of the calendar 
day that the swap was executed.
    (B) Allocations must be fair and equitable. No account or group of 
accounts may receive consistently favorable or unfavorable treatment.
    (C) The allocation methodology must be sufficiently objective and 
specific to permit independent verification of the fairness of the 
allocations using that methodology by appropriate regulatory and self-
regulatory authorities and by outside auditors.
    (v) Records. (A) Eligible account managers shall keep and must make 
available upon request of any representative of the Commission, the 
United States Department of Justice, or other appropriate regulatory 
agency, the information specified in paragraph (b)(5)(iii) of this 
section.
    (B) Eligible account managers shall keep and must make available 
upon request of any representative of the Commission, the United States 
Department of Justice, or other appropriate regulatory agency, records 
sufficient to demonstrate that all allocations meet the standards of 
paragraph (b)(5)(iv) of this section and to permit the reconstruction 
of the handling of the order from the time of placement by the account 
manager to the allocation to individual accounts.
    (C) Futures commission merchants, introducing brokers, or commodity 
trading advisors that execute orders or that carry accounts eligible 
for post-execution allocation, and members of designated contract 
markets or swap execution facilities that execute such orders, must 
maintain records that, as applicable, identify each order subject to 
post-execution allocation and the accounts to which contracts executed 
for such order are allocated.
    (D) In addition to any other remedies that may be available under 
the Act or otherwise, if the Commission has reason to believe that an 
account manager has failed to provide information requested pursuant to 
paragraph (b)(5)(v)(A) or (b)(5)(v)(B) of this section, the Commission 
may inform in writing any designated contract market, swap execution 
facility, swap dealer, or major swap participant, and that designated 
contract market, swap execution facility, swap dealer, or major swap 
participant shall prohibit the account manager from submitting orders 
for execution except for liquidation of open positions and no futures 
commission merchant shall accept orders for execution on any designated 
contract market, swap execution facility, or bilaterally from the 
account manager except for liquidation of open positions.
    (E) Any account manager that believes he or she is or may be 
adversely affected or aggrieved by action taken by the Commission under 
paragraph (b)(5)(v)(D) of this section shall have the opportunity for a 
prompt hearing in accordance with the provisions of Sec.  21.03(g) of 
this chapter.
    (c)(1) Futures commission merchants, introducing brokers, and 
members of designated contract markets and swap execution facilities. 
Upon request of the designated contract market or swap execution 
facility, the Commission, or the United States Department of Justice, 
each futures commission merchant, introducing broker, and member of a 
designated contract market or swap execution facility shall request 
from its customers and, upon receipt thereof, provide to the requesting 
body documentation of cash transactions underlying exchanges of futures 
or swaps for cash commodities or exchanges of futures or swaps in 
connection with cash commodity transactions.
    (2) Customers. Each customer of a futures commission merchant, 
introducing broker, or member of a designated contract market or swap 
execution facility shall create, retain, and produce upon request of 
the designated contract market or swap execution facility, the 
Commission, or the United States Department of Justice documentation of 
cash transactions underlying exchanges of futures or swaps for cash 
commodities or exchanges of futures or swaps in connection with cash 
commodity transactions.
    (3) Contract markets. Every contract market shall adopt rules which 
require its members to provide documentation of cash transactions 
underlying exchanges of futures for cash commodities or exchanges of 
futures in connection with cash commodity transactions upon request of 
the contract market.
    (4) Documentation. For the purposes of this paragraph (c), 
documentation means those documents customarily generated in accordance 
with cash market practices which demonstrate the existence and nature 
of the underlying cash transactions, including, but not limited to, 
contracts, confirmation statements, telex printouts, invoices, and 
warehouse receipts or other documents of title.

[[Page 66327]]

    (d) Futures commission merchants, retail foreign exchange dealers, 
introducing brokers, and members of derivatives clearing organizations 
clearing trades executed on designated contract markets and swap 
execution facilities. Each futures commission merchant, each retail 
foreign exchange dealer, and each member of a derivatives clearing 
organization clearing trades executed on a designated contract market 
or swap execution facility and, for purposes of paragraph (d)(3) of 
this section, each introducing broker, shall, as a minimum requirement, 
prepare regularly and promptly, and keep systematically and in 
permanent form, the following:
    (1) A financial ledger record which will show separately for each 
customer all charges against and credits to such customer's account, 
including but not limited to customer funds deposited, withdrawn, or 
transferred, and charges or credits resulting from losses or gains on 
closed transactions;
    (2) A record of transactions which will show separately for each 
account (including proprietary accounts):
    (i) All commodity futures transactions executed for such account, 
including the date, price, quantity, market, commodity and future;
    (ii) All retail forex transactions executed for such account, 
including the date, price, quantity, and currency;
    (iii) All commodity option transactions executed for such account, 
including the date, whether the transaction involved a put or call, 
expiration date, quantity, underlying contract for future delivery or 
underlying commodity, strike price, and details of the purchase price 
of the option, including premium, mark-up, commission and fees; and
    (iv) All swap transactions executed for such account, including the 
date, price, quantity, market, commodity, swap, and, if cleared, the 
derivatives clearing organization; and
    (3) A record or journal which will separately show for each 
business day complete details of:
    (i) All commodity futures transactions executed on that day, 
including the date, price, quantity, market, commodity, future and the 
person for whom such transaction was made;
    (ii) All retail forex transactions executed on that day for such 
account, including the date, price, quantity, currency and the person 
who whom such transaction was made;
    (iii) All commodity option transactions executed on that day, 
including the date, whether the transaction involved a put or call, the 
expiration date, quantity, underlying contract for future delivery or 
underlying commodity, strike price, details of the purchase price of 
the option, including premium, mark-up, commission and fees, and the 
person for whom the transaction was made;
    (iv) All swap transactions executed on that day, including the 
date, price, quantity, market, commodity, swap, the person for whom 
such transaction was made, and, if cleared, the derivatives clearing 
organization; and
    (v) In the case of an introducing broker, the record or journal 
required by this paragraph (d)(3) shall also include the futures 
commission merchant or retail foreign exchange dealer carrying the 
account for which each commodity futures, retail forex, commodity 
option, and swap transaction was executed on that day. Provided, 
however, that where reproductions on microfilm, microfiche or optical 
disk are substituted for hard copy in accordance with the provisions of 
Sec.  1.31(b), the requirements of paragraphs (d)(1) and (d)(2) of this 
section will be considered met if the person required to keep such 
records is ready at all times to provide, and immediately provides in 
the same city as that in which such person's commodity futures, retail 
forex, commodity option, or swap books and records are maintained, at 
the expense of such person, reproduced copies which show the records as 
specified in paragraphs (d)(1) and (d)(2) of this section, on request 
of any representatives of the Commission or the U.S. Department of 
Justice.
    (e) Members of derivatives clearing organizations clearing trades 
executed on designated contract markets and swap execution facilities. 
In the daily record or journal required to be kept under paragraph 
(d)(3) of this section, each member of a derivatives clearing 
organization clearing trades executed on a designated contract market 
or swap execution facility shall also show the floor broker or floor 
trader executing each transaction, the opposite floor broker or floor 
trader, and the opposite clearing member with whom it was made.
    (f) Members of designated contract markets. (1) Each member of a 
designated contract market who, in the place provided by the designated 
contract market for the meeting of persons similarly engaged, executes 
purchases or sales of any commodity for future delivery, commodity 
option, or swap on or subject to the rules of such designated contract 
market, shall prepare regularly and promptly a trading card or other 
record showing such purchases and sales. Such trading card or record 
shall show the member's name, the name of the clearing member, 
transaction date, time, quantity, and, as applicable, underlying 
commodity, contract for future delivery, or swap, price or premium, 
delivery month or expiration date, whether the transaction involved a 
put or a call, and strike price. Such trading card or other record 
shall also clearly identify the opposite floor broker or floor trader 
with whom the transaction was executed, and the opposite clearing 
member (if such opposite clearing member is made known to the member).
    (2) Each member of a designated contract market recording purchases 
and sales on trading cards must record such purchases and sales in 
exact chronological order of execution on sequential lines of the 
trading card without skipping lines between trades; Provided, however, 
That if lines remain after the last execution recorded on a trading 
card, the remaining lines must be marked through.
    (3) Each member of a designated contract market must identify on 
his or her trading cards the purchases and sales executed during the 
opening and closing periods designated by the designated contract 
market.
    (4) Trading cards prepared by a member of a designated contract 
market must contain:
    (i) Pre-printed member identification or other unique identifying 
information which would permit the trading cards of one member to be 
distinguished from those of all other members;
    (ii) Pre-printed sequence numbers to permit the intra-day 
sequencing of the cards; and
    (iii) Unique and pre-printed identifying information which would 
distinguish each of the trading cards prepared by the member from other 
such trading cards for no less than a one-week period.
    (5) Trading cards prepared by a member of a designated contract 
market and submitted pursuant to paragraph (f)(7)(i) of this section 
must be time-stamped promptly to the nearest minute upon collection by 
either the designated contract market or the relevant clearing member.
    (6) Each member of a designated contract market shall be 
accountable for all trading cards prepared in exact numerical sequence, 
whether or not such trading cards are relied on as original source 
documents.
    (7) Trading records prepared by a member of a designated contract 
market must:
    (i) Be submitted to designated contract market personnel or the 
clearing member within 15 minutes of designated intervals not to exceed 
30

[[Page 66328]]

minutes, commencing with the beginning of each trading session. The 
time period for submission of trading records after the close of 
trading in each market shall not exceed 15 minutes from the close. Such 
documents should nevertheless be submitted as often as is practicable 
to the designated contract market or relevant clearing member; and
    (ii) Be completed in non-erasable ink. A member may correct any 
errors by crossing out erroneous information without obliterating or 
otherwise making illegible any of the originally recorded information. 
With regard to trading cards only, a member may correct erroneous 
information by rewriting the trading card; Provided, however, that the 
member must submit a ply of the trading card, or in the absence of 
plies the original trading card, that is subsequently rewritten in 
accordance with the collection schedule for trading cards and provided 
further, that the member is accountable for any trading card that 
subsequently is rewritten pursuant to paragraph (f)(6) of this section.
    (8) Each member of a designated contract market must use a new 
trading card at the beginning of each designated 30-minute interval (or 
such lesser interval as may be determined appropriate) or as may be 
required pursuant hereto.
    (g) Members of derivatives clearing organizations clearing trades 
executed on designated contract markets and swap execution facilities. 
(1) Each member of a derivatives clearing organization clearing trades 
executed on a designated contract market or swap execution facility 
shall maintain a single record which shall show for each futures, 
option, or swap trade: the transaction date, time, quantity, and, as 
applicable, underlying commodity, contract for future delivery, or 
swap, price or premium, delivery month or expiration date, whether the 
transaction involved a put or a call, strike price, floor broker or 
floor trader buying, clearing member buying, floor broker or floor 
trader selling, clearing member selling, and symbols indicating the 
buying and selling customer types. The customer type indicator shall 
show, with respect to each person executing the trade, whether such 
person:
    (i) Was trading for his or her own account, or an account for which 
he or she has discretion;
    (ii) Was trading for his or her clearing member's house account;
    (iii) Was trading for another member present on the exchange floor, 
or an account controlled by such other member; or
    (iv) Was trading for any other type of customer.
    (2) The record required by this paragraph (g) shall also show, by 
appropriate and uniform symbols, any transaction which is made non-
competitively in accordance with the provisions of subpart J of part 38 
of this chapter, and trades cleared on dates other than the date of 
execution. Except as otherwise approved by the Commission for good 
cause shown, the record required by this paragraph (g) shall be 
maintained in a format and coding structure approved by the 
Commission--
    (i) In hard copy or on microfilm as specified in Sec.  1.31, and
    (ii) For 60 days in computer-readable form on compatible magnetic 
tapes or discs.

0
21. Revise Sec.  1.36 to read as follows:


Sec.  1.36  Record of securities and property received from customers.

    (a) Each futures commission merchant and each retail foreign 
exchange dealer shall maintain, as provided in Sec.  1.31, a record of 
all securities and property received from customers or retail forex 
customers in lieu of money to margin, purchase, guarantee, or secure 
the commodity interests of such customers or retail forex customers. 
Such record shall show separately for each customer or retail forex 
customer: A description of the securities or property received; the 
name and address of such customer or retail forex customer; the dates 
when the securities or property were received; the identity of the 
depositories or other places where such securities or property are 
segregated or held; the dates of deposits and withdrawals from such 
depositories; and the dates of return of such securities or property to 
such customer or retail forex customer, or other disposition thereof, 
together with the facts and circumstances of such other disposition. In 
the event any futures commission merchant deposits with a derivatives 
clearing organization, directly or with a bank or trust company acting 
as custodian for such derivatives clearing organization, securities 
and/or property which belong to a particular customer, such futures 
commission merchant shall obtain written acknowledgment from such 
derivatives clearing organization that it was informed that such 
securities or property belong to customers of the futures commission 
merchant making the deposit. Such acknowledgment shall be retained as 
provided in Sec.  1.31.
    (b) Each derivatives clearing organization which receives from 
members securities or property belonging to particular customers of 
such members in lieu of money to margin, purchase, guarantee, or secure 
the commodity interests of such customers, or receives notice that any 
such securities or property have been received by a bank or trust 
company acting as custodian for such derivatives clearing organization, 
shall maintain, as provided in Sec.  1.31, a record which will show 
separately for each member, the dates when such securities or property 
were received, the identity of the depositories or other places where 
such securities or property are segregated, the dates such securities 
or property were returned to the member, or otherwise disposed of, 
together with the facts and circumstances of such other disposition 
including the authorization therefor.

0
22. Revise Sec.  1.37 to read as follows:


Sec.  1.37  Customer's name, address, and occupation recorded; record 
of guarantor or controller of account.

    (a) Each futures commission merchant, retail foreign exchange 
dealer, introducing broker, and member of a contract market shall keep 
a record in permanent form which shall show for each commodity interest 
account carried or introduced by it the true name and address of the 
person for whom such account is carried or introduced and the principal 
occupation or business of such person as well as the name of any other 
person guaranteeing such account or exercising any trading control with 
respect to such account. For each such commodity option account, the 
records kept by such futures commission merchant, introducing broker, 
and member of a contract market must also show the name of the person 
who has solicited and is responsible for each customer's account or 
assign account numbers in such a manner to identify that person.
    (b) As of the close of the market each day, each futures commission 
merchant which carries an account for another futures commission 
merchant, foreign broker (as defined in Sec.  15.00 of this chapter), 
member of a contract market, or other person, on an omnibus basis shall 
maintain a daily record for each such omnibus account of the total open 
long contracts and the total open short contracts in each future and in 
each swap and, for commodity option transactions, the total open put 
options purchased, the total open put options granted, the total open 
call options purchased, and the total open call options granted for 
each commodity option expiration date.
    (c) Each designated contract market and swap execution facility 
shall keep a record in permanent form, which shall show the true name, 
address, and

[[Page 66329]]

principal occupation or business of any foreign trader executing 
transactions on the facility or exchange. In addition, upon request, a 
designated contract market or swap execution facility shall provide to 
the Commission information regarding the name of any person 
guaranteeing such transactions or exercising any control over the 
trading of such foreign trader.
    (d) Paragraph (c) of this section shall not apply to a designated 
contract market or swap execution facility on which transactions in 
futures, swaps or options (other than swaps) contracts of foreign 
traders are executed through, or the resulting transactions are 
maintained in, accounts carried by a registered futures commission 
merchant or introduced by a registered introducing broker subject to 
the provisions of paragraph (a) of this section.

0
23. Amend Sec.  1.39 by revising paragraph (a) introductory text and 
paragraphs (a)(1)(ii), (a)(2), (a)(3), (a)(4), (b), and (c), to read as 
follows:


Sec.  1.39  Simultaneous buying and selling orders of different 
principals; execution of, for and between principals.

    (a) Conditions and requirements. A member of a contract market or a 
swap execution facility who shall have at the same time both buying and 
selling orders of different principals for the same swap, commodity for 
future delivery in the same delivery month or the same option (both 
puts or both calls, with the same underlying contract for future 
delivery or the same underlying commodity, expiration date and strike 
price) may execute such orders for and directly between such principals 
at the market price, if in conformity with written rules of such 
contract market or swap execution facility which have been approved by 
or self-certified to the Commission, and:
    (1) * * *
    (ii) When in non-pit trading in swaps or contracts of sale for 
future delivery, bids and offers are posted on a board, such member:
    (A) Pursuant to such buying order posts a bid on the board and, 
incident to the execution of such selling order, accepts such bid and 
all other bids posted at equal to or higher than the bid posted by him; 
or
    (B) Pursuant to such selling order posts an offer on the board and, 
incident to the execution of such buying order, accepts such offer and 
all other offers posted at prices equal to or lower than the offer 
posted by him;
    (2) Such member executes such orders in the presence of an official 
representative of such contract market or swap execution facility 
designated to observe such transactions and, by appropriate descriptive 
words or symbol, clearly identifies all such transactions on his 
trading card or other record, made at the time of execution, and notes 
thereon the exact time of execution and promptly presents or makes 
available said record to such official representative for verification 
and initialing, as appropriate;
    (3) Such swap execution facility or contract market keeps a record 
in permanent form of each such transaction showing all transaction 
details required to be captured by the Act, Commission rule or 
regulation; and
    (4) Neither the futures commission merchant, other registrant 
receiving nor the member executing such orders has any interest 
therein, directly or indirectly, except as a fiduciary.
    (b) Large order execution procedures. (1) A member of a contract 
market or a swap execution facility may execute simultaneous buying and 
selling orders of different principals directly between the principals 
in compliance with Commission regulations and large order execution 
procedures established by written rules of the contract market or swap 
execution facility that have been approved by or self-certified to the 
Commission: Provided, That, to the extent such large order execution 
procedures do not meet the conditions and requirements of paragraph (a) 
of this section, the contract market or swap execution facility has 
petitioned the Commission for, and the Commission has granted, an 
exemption from the conditions and requirements of paragraph (a) of this 
section. Any such petition must be accompanied by proposed contract 
market or swap execution facility rules to implement the large order 
execution procedures. The petition shall include:
    (i) An explanation of why the proposed large order execution rules 
do not comply with paragraph (a) of this section; and
    (ii) A description of a special surveillance program that would be 
followed by the contract market or swap execution facility in 
monitoring the large order execution procedures.
    (2) The Commission may, in its discretion and upon such terms and 
conditions as it deems appropriate, grant such petition for exemption 
if it finds that the exemption is not contrary to the public interest 
and the purpose of the provision from which explanation is sought. The 
petition shall be considered concurrently with the proposed large order 
execution rules.
    (c) Not deemed filling orders by offset. The execution of orders in 
compliance with the conditions herein set forth will not be deemed to 
constitute the filling of orders by offset within the meaning of 
section 4b(a) of the Act.

0
24. Revise Sec.  1.40 to read as follows:


Sec.  1.40  Crop, market information letters, reports; copies required.

    Each futures commission merchant, each retail foreign exchange 
dealer, each introducing broker, and each member of a contract market 
or a swap execution facility shall, upon request, furnish or cause to 
be furnished to the Commission a true copy of any letter, circular, 
telecommunication, or report published or given general circulation by 
such futures commission merchant, retail foreign exchange dealer, 
introducing broker, member or eligible contract participant which 
concerns crop or market information or conditions that affect or tend 
to affect the price of any commodity, including any exchange rate, and 
the true source of or authority for the information contained therein.


Sec.  1.44  [Removed and Reserved]

0
25. Remove and reserve Sec.  1.44.
0
26. Amend Sec.  1.46 by revising paragraph (a)(1) introductory text and 
paragraphs (a)(1)(iii), (a)(1)(iv), (a)(2)(iii), (a)(2)(iv), and (b), 
to read as follows:


Sec.  1.46  Application and closing out of offsetting long and short 
positions.

    (a) Application of purchases and sales. (1) Except with respect to 
purchases or sales which are for omnibus accounts, or where the 
customer or account controller has instructed otherwise, any futures 
commission merchant who, on or subject to the rules of a designated 
contract market:
* * * * *
    (iii) Purchases a put or call option for the account of any 
customer when the account of such customer at the time of such purchase 
has a short put or call option position with the same underlying 
futures contract or same underlying commodity, strike price, expiration 
date and contract market as that purchased; or
    (iv) Sells a put or call option for the account of any customer 
when the account of such customer at the time of such sale has a long 
put or call option position with the same underlying futures contract 
or same underlying commodity, strike price, expiration date and 
contract market as that sold--shall on the same day apply such purchase 
or sale against such previously held short or long futures or option 
position, as the case may be, and shall, for futures transactions, 
promptly furnish such

[[Page 66330]]

customer a statement showing the financial result of the transactions 
involved and, if applicable, that the account was introduced to the 
futures commission merchant by an introducing broker and the names of 
the futures commission merchant and introducing broker.
    (2) * * *
    (iii) Purchases a put or call option involving foreign currency for 
the account of any customer when the account of such customer at the 
time of such purchase has a short put or call option position with the 
same underlying currency, strike price, and expiration date as that 
purchased; or
    (iv) Sells a put or call option involving foreign currency for the 
account of any customer when the account of such customer at the time 
of such sale has a long put or call option position with the same 
underlying currency, strike price, and expiration date as that sold--
shall immediately apply such purchase or sale against such previously 
held opposite transaction, and shall promptly furnish such retail forex 
customer a statement showing the financial result of the transactions 
involved and, if applicable, that the account was introduced to the 
futures commission merchant or retail foreign exchange dealer by an 
introducing broker and the names of the futures commission merchant or 
retail foreign exchange dealer, and the introducing broker.
    (b) Close-out against oldest open position. In all instances 
wherein the short or long futures, retail forex transaction or option 
position in such customer's or retail forex customer's account 
immediately prior to such offsetting purchase or sale is greater than 
the quantity purchased or sold, the futures commission merchant or 
retail foreign exchange dealer shall apply such offsetting purchase or 
sale to the oldest portion of the previously held short or long 
position: Provided, That upon specific instructions from the customer 
the offsetting transaction shall be applied as specified by the 
customer without regard to the date of acquisition of the previously 
held position; and Provided, further, that a futures commission 
merchant or retail foreign exchange dealer, if permitted by the rules 
of a registered futures association, may offset, at the customer's 
request, retail forex transactions of the same size, even if the 
customer holds other transactions of a different size, but in each case 
must offset the transaction against the oldest transaction of the same 
size. Such instructions may also be accepted from any person who, by 
power of attorney or otherwise, actually directs trading in the 
customer's or retail forex customer's account unless the person 
directing the trading is the futures commission merchant or retail 
foreign exchange dealer (including any partner thereof), or is an 
officer, employee, or agent of the futures commission merchant or 
retail foreign exchange dealer. With respect to every such offsetting 
transaction that, in accordance with such specific instructions, is not 
applied to the oldest portion of the previously held position, the 
futures commission merchant or retail foreign exchange dealer shall 
clearly show on the statement issued to the customer or retail forex 
customer in connection with the transaction, that because of the 
specific instructions given by or on behalf of the customer or retail 
forex customer the transaction was not applied in the usual manner, 
i.e., against the oldest portion of the previously held position. 
However, no such showing need be made if the futures commission 
merchant or retail foreign exchange dealer has received such specific 
instructions in writing from the customer or retail forex customer for 
whom such account is carried.
* * * * *

0
27. Revise paragraph (b)(1)(iii) of Sec.  1.49 to read as follows:


Sec.  1.49  Denomination of customer funds and location of 
depositories.

* * * * *
    (b) * * *
    (1) * * *
    (iii) In a currency in which funds have accrued to the customer as 
a result of trading conducted on a designated contract market, to the 
extent of such accruals.
* * * * *


Sec.  1.53  [Removed and Reserved]

0
28. Remove and reserve Sec.  1.53.

0
29. Amend Sec.  1.57 by revising paragraph (a)(1), (a)(2) introductory 
text, (a)(2)(ii), (c) introductory text, (c)(1), (c)(2), (c)(4)(i), and 
(c)(4)(iv), to read as follows:


Sec.  1.57  Operations and activities of introducing brokers.

    (a) * * *
    (1) Open and carry each customer's account with a carrying futures 
commission merchant on a fully-disclosed basis: Provided, however, That 
an introducing broker which has entered into a guarantee agreement with 
a futures commission merchant in accordance with the provisions of 
Sec.  1.10(j) must open and carry such customer's account with such 
guarantor futures commission merchant on a fully-disclosed basis; and
    (2) Transmit promptly for execution all customer orders to:
* * * * *
    (ii) A floor broker, if the introducing broker identifies its 
carrying futures commission merchant and that carrying futures 
commission merchant is also the clearing member with respect to the 
customer's order.
* * * * *
    (c) An introducing broker may not accept any money, securities or 
property (or extend credit in lieu thereof) to margin, guarantee or 
secure any trades or contracts of customers, or any money, securities 
or property accruing as a result of such trades or contracts: Provided, 
however, That an introducing broker may deposit a check in a qualifying 
account or forward a check drawn by a customer if:
    (1) The futures commission merchant carrying the customer's account 
authorizes the introducing broker, in writing, to receive a check in 
the name of the futures commission merchant, and the introducing broker 
retains such written authorization in its files in accordance with 
Sec.  1.31;
    (2) The check is payable to the futures commission merchant 
carrying the customer's account;
* * * * *
    (4) * * *
    (i) Which is maintained in an account name which clearly identifies 
the funds therein as belonging to customers of the futures commission 
merchant carrying the customer's account;
* * * * *
    (iv) For which the bank or trust company provides the futures 
commission merchant carrying the customer's account with a written 
acknowledgment, which the futures commission merchant must retain in 
its files in accordance with Sec.  1.31, that it was informed that the 
funds deposited therein are those of customers and are being held in 
accordance with the provisions of the Act and the regulations in this 
chapter.

0
30. Amend Sec.  1.59 by revising paragraphs (a)(1), (a)(4)(i), (a)(5), 
(a)(7), (a)(8), (a)(9) introductory text, (a)(10), (b)(1) introductory 
text, (b)(1)(i)(A), (b)(1)(i)(C), and (c), to read as follows:


Sec.  1.59  Activities of self-regulatory organization employees, 
governing board members, committee members and consultants.

    (a) * * *
    (1) Self-regulatory organization means ``self-regulatory 
organization,'' as defined in Sec.  1.3(ee), and includes the

[[Page 66331]]

term ``clearing organization,'' as defined in Sec.  1.3(d).
    (4) * * *
    (i) Any governing board member compensated by a self-regulatory 
organization solely for governing board activities; or
* * * * *
    (5) Material information means information which, if such 
information were publicly known, would be considered important by a 
reasonable person in deciding whether to trade a particular commodity 
interest on a contract market or a swap execution facility, or to clear 
a swap contract through a derivatives clearing organization. As used in 
this section, ``material information'' includes, but is not limited to, 
information relating to present or anticipated cash positions, 
commodity interests, trading strategies, the financial condition of 
members of self-regulatory organizations or members of linked exchanges 
or their customers, or the regulatory actions or proposed regulatory 
actions of a self-regulatory organization or a linked exchange.
* * * * *
    (7) Linked exchange means:
    (i) Any board of trade, exchange or market outside the United 
States, its territories or possessions, which has an agreement with a 
contract market or swap execution facility in the United States that 
permits positions in a commodity interest which have been established 
on one of the two markets to be liquidated on the other market;
    (ii) Any board of trade, exchange or market outside the United 
States, its territories or possessions, the products of which are 
listed on a United States contract market, swap execution facility, or 
a trading facility thereof;
    (iii) Any securities exchange, the products of which are held as 
margin in a commodity account or cleared by a securities clearing 
organization pursuant to a cross-margining arrangement with a futures 
clearing organization; or
    (iv) Any clearing organization which clears the products of any of 
the foregoing markets.
    (8) Commodity interest means any commodity futures, commodity 
option or swap contract traded on or subject to the rules of a contract 
market, a swap execution facility or linked exchange, or cleared by a 
derivatives clearing organization, or cash commodities traded on or 
subject to the rules of a board of trade which has been designated as a 
contract market.
    (9) Related commodity interest means any commodity interest which 
is traded on or subject to the rules of a contract market, swap 
execution facility, linked exchange, or other board of trade, exchange, 
or market, or cleared by a derivatives clearing organization, other 
than the self-regulatory organization by which a person is employed, 
and with respect to which:
* * * * *
    (10) Pooled investment vehicle means a trading vehicle organized 
and operated as a commodity pool within the meaning of Sec.  4.10(d) of 
this chapter, and whose units of participation have been registered 
under the Securities Act of 1933, or a trading vehicle for which Sec.  
4.5 of this chapter makes available relief from regulation as a 
commodity pool operator, i.e., registered investment companies, 
insurance company separate accounts, bank trust funds, and certain 
pension plans.
    (b) Employees of self-regulatory organizations; Self-regulatory 
organization rules. (1) Each self-regulatory organization must maintain 
in effect rules which have been submitted to the Commission pursuant to 
section 5c(c) of the Act and part 40 of this chapter (or, pursuant to 
section 17(j) of the Act in the case of a registered futures 
association) that, at a minimum, prohibit:
    (i) * * *
    (A) Trading, directly or indirectly, in any commodity interest 
traded on or cleared by the employing contract market, swap execution 
facility, or clearing organization;
* * * * *
    (C) Trading, directly or indirectly, in a commodity interest traded 
on contract markets or swap execution facilities or cleared by 
derivatives clearing organizations other than the employing self-
regulatory organization if the employee has access to material, non-
public information concerning such commodity interest;
* * * * *
    (c) Governing board members, committee members, and consultants; 
Registered futures association rules. Each registered futures 
association must maintain in effect rules which have been submitted to 
the Commission pursuant to section 17(j) of the Act which provide that 
no governing board member, committee member, or consultant shall use or 
disclose--for any purpose other than the performance of official duties 
as a governing board member, committee member, or consultant--material, 
non-public information obtained as a result of the performance of such 
person's official duties.
* * * * *


Sec.  1.62  [Removed and Reserved]

0
31. Remove and reserve Sec.  1.62.

0
32. Amend Sec.  1.63 by revising paragraphs (a)(1), (b) introductory 
text and (d) to read as follows:


Sec.  1.63  Service on self-regulatory organization governing boards or 
committees by persons with disciplinary histories.

    (a) * * *
    (1) Self-regulatory organization means a ``self-regulatory 
organization'' as defined in Sec.  1.3(ee), and includes a ``clearing 
organization'' as defined in Sec.  1.3(d), except as defined in 
paragraph (b)(6) of this section.
* * * * *
    (b) Each self-regulatory organization must maintain in effect rules 
which have been submitted to the Commission pursuant to section 5c(c) 
of the Act and part 40 of this chapter or, in the case of a registered 
futures association, pursuant to section 17(j) of the Act, that render 
a person ineligible to serve on its disciplinary committees, 
arbitration panels, oversight panels or governing board who:
* * * * *
    (d) Each self-regulatory organization shall submit to the 
Commission a schedule listing all those rule violations which 
constitute disciplinary offenses as defined in paragraph (a)(6)(i) of 
this section and to the extent necessary to reflect revisions shall 
submit an amended schedule within thirty days of the end of each 
calendar year. Each self-regulatory organization must maintain and keep 
current the schedule required by this section, and post the schedule on 
the self-regulatory organization's Web site so that it is in a public 
place designed to provide notice to members and otherwise ensure its 
availability to the general public.
* * * * *
0
33. Revise Sec.  1.67 to read as follows:


Sec.  1.67  Notification of final disciplinary action involving 
financial harm to a customer.

    (a) Definitions. For purposes of this section:
    Final disciplinary action means any decision by or settlement with 
a contract market or swap execution facility in a disciplinary matter 
which cannot be further appealed at the contract market or swap 
execution facility, is not subject to the stay of the Commission or a 
court of competent jurisdiction, and has not been reversed by the 
Commission or any court of competent jurisdiction.
    (b) Upon any final disciplinary action in which a contract market 
or swap

[[Page 66332]]

execution facility finds that a member has committed a rule violation 
that involved a transaction for a customer, whether executed or not, 
and that resulted in financial harm to the customer:
    (1)(i) The contract market or swap execution facility shall 
promptly provide written notice of the disciplinary action to the 
futures commission merchant or other registrant; and
    (ii) A futures commission merchant or other registrant that 
receives a notice, under paragraph (b)(1)(i) of this section shall 
promptly provide written notice of the disciplinary action to the 
customer as disclosed on its books and records. If the customer is 
another futures commission merchant or other registrant, such futures 
commission merchant or other registrant shall promptly provide notice 
to the customer.
    (2) A written notice required by paragraph (b)(1) of this section 
must include the principal facts of the disciplinary action and a 
statement that the contract market or swap execution facility has found 
that the member has committed a rule violation that involved a 
transaction for the customer, whether executed or not, and that 
resulted in financial harm to the customer. For the purposes of this 
paragraph, a notice which includes the information listed in Sec.  
9.11(b) of this chapter shall be deemed to include the principal facts 
of the disciplinary action thereof.


Sec.  1.68  [Removed and Reserved]

0
34. Remove and reserve Sec.  1.68.

0
35. Amend Appendix B to part 1 by revising paragraph (b) to read as 
follows:

Appendix B--Fees for Contract Market Rule Enforcement Reviews and 
Financial Reviews

* * * * *
    (b) The Commission determines fees charged to exchanges based 
upon a formula that considers both actual costs and trading volume.
* * * * *

Appendix C to Part 1--[Removed and Reserved]

0
36. Remove and reserve Appendix C to Part 1.

PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

0
37. The authority citation for part 4 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a 
and 23, as amended by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).


Sec.  4.23  [Amended]


0
38. Amend Sec.  4.23 by removing the term ``physical'' in paragraphs 
(a)(1) and (b)(1) and adding in its place the term ``commodity''.


Sec.  4.33  [Amended]

0
39. Amend Sec.  4.33 by removing the word ``physical'' in paragraph 
(b)(1) and adding in its place the word ``commodity''.

PART 5--OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS

0
40. The authority citation for part 5 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 
6i, 6k, 6m, 6n, 6o, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21, 
and 23, as amended by Title VII of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (Jul. 
21, 2010).


0
41. Revise paragraphs (k) and (m) of Sec.  5.1 to read as follows:


Sec.  5.1  Definitions.

* * * * *
    (k) Retail forex customer means a person, other than an eligible 
contract participant as defined in section 1a(18) of the Act, acting on 
its own behalf and trading in any account, agreement, contract or 
transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the Act.
* * * * *
    (m) Retail forex transaction means any account, agreement, contract 
or transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the 
Act. A retail forex transaction does not include an account, agreement, 
contract or transaction in foreign currency that is a contract of sale 
of a commodity for future delivery (or an option thereon) that is 
executed, traded on or otherwise subject to the rules of a contract 
market designated pursuant to section 5(a) of the Act.

0
42. Revise Part 7 to read as follows:

PART 7--REGISTERED ENTITY RULES ALTERED OR SUPPLEMENTED BY THE 
COMMISSION

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

Subpart A--General Provisions


Sec.  7.1  Scope of rules.

    This part sets forth registered entity rules altered or 
supplemented by the Commission pursuant to section 8a(7) of the Act.

Subpart B--[Reserved]

Subpart C--[Reserved]

PART 8--[REMOVED AND RESERVED]

0
43. Remove and reserve part 8.

PART 15--REPORTS--GENERAL PROVISIONS

0
44. The authority citation for part 15 continues to read as follows:

    Authority:  7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 
7a, 9, 12a, 19, and 21, as amended by Title VII of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 
Stat. 1376 (2010).


0
45. Revise paragraph (p)(1)(ii) of Sec.  15.00 to read as follows:


Sec.  15.00  Definitions of terms used in parts 15 to 19, and 21 of 
this chapter.

* * * * *
    (p) * * *
    (1) * * *
    (ii) Long or short put or call options that exercise into the same 
future of any commodity, or other long or short put or call commodity 
options that have identical expirations and exercise into the same 
commodity, on any one reporting market.
* * * * *

0
46. Revise paragraphs (a), (e), (f), (g) and (h) of Sec.  15.05 to read 
as follows:


Sec.  15.05  Designation of agent for foreign persons.

    (a) For purposes of this section, the term ``futures contract'' 
means any contract for the purchase or sale of any commodity for future 
delivery, or a contract identified under Sec.  36.3(c)(1)(i) traded on 
an electronic trading facility operating in reliance on the exemption 
set forth in Sec.  36.3 of this chapter, traded or executed on or 
subject to the rules of any designated contract market, or for the 
purposes of paragraph (i) of this section, a reporting market 
(including all agreements, contracts and transactions that are treated 
by a clearing organization as fungible with such contracts); the term 
``option contract'' means any contract for the purchase or sale of a 
commodity option, or as applicable, any other instrument subject to the 
Act, traded or executed on or subject to the rules of any designated 
contract market, or for the purposes of paragraph (i) of this section, 
a reporting market (including all agreements, contracts and 
transactions that are treated by a clearing organization as fungible 
with such contracts); the term

[[Page 66333]]

``customer'' means any person for whose benefit a foreign broker makes 
or causes to be made any futures contract or option contract; and the 
term ``communication'' means any summons, complaint, order, subpoena, 
special call, request for information, or notice, as well as any other 
written document or correspondence.
* * * * *
    (e) Any designated contract market that permits a foreign broker to 
intermediate contracts, agreements or transactions, or permits a 
foreign trader to effect contracts, agreements or transactions on the 
facility or exchange, shall be deemed to be the agent of the foreign 
broker and any of its customers for whom the transactions were 
executed, or the foreign trader, for purposes of accepting delivery and 
service of any communication issued by or on behalf of the Commission 
to the foreign broker, any of its customers or the foreign trader with 
respect to any contracts, agreements or transactions executed by the 
foreign broker or the foreign trader on the designated contract market. 
Service or delivery of any communication issued by or on behalf of the 
Commission to a designated contract market shall constitute valid and 
effective service upon the foreign broker, any of its customers, or the 
foreign trader. A designated contract market which has been served 
with, or to which there has been delivered, a communication issued by 
or on behalf of the Commission to a foreign broker, any of its 
customers, or a foreign trader shall transmit the communication 
promptly and in a manner which is reasonable under the circumstances, 
or in a manner specified by the Commission in the communication, to the 
foreign broker, any of its customers or the foreign trader.
    (f) It shall be unlawful for any designated contract market to 
permit a foreign broker, any of its customers or a foreign trader to 
effect contracts, agreements or transactions on the facility unless the 
designated contract market prior thereto informs the foreign broker, 
any of its customers or the foreign trader, in any reasonable manner 
the facility deems to be appropriate, of the requirements of this 
section.
    (g) The requirements of paragraphs (e) and (f) of this section 
shall not apply to any contracts, transactions or agreements traded on 
any designated contract market if the foreign broker, any of its 
customers or the foreign trader has duly executed and maintains in 
effect a written agency agreement in compliance with this paragraph 
with a person domiciled in the United States and has provided a copy of 
the agreement to the designated contract market prior to effecting any 
contract, agreement or transaction on the facility. This agreement must 
authorize the person domiciled in the United States to serve as the 
agent of the foreign broker, any of its customers or the foreign trader 
for purposes of accepting delivery and service of all communications 
issued by or on behalf of the Commission to the foreign broker, any of 
its customers or the foreign trader and must provide an address in the 
United States where the agent will accept delivery and service of 
communications from the Commission. This agreement must be filed with 
the Commission by the designated contract market prior to permitting 
the foreign broker, any of its customers or the foreign trader to 
effect any transactions in futures or option contracts. Unless 
otherwise specified by the Commission, the agreements required to be 
filed with the Commission shall be filed with the Secretary of the 
Commission at Three Lafayette Centre, 1155 21st Street NW., Washington, 
DC 20581. A foreign broker, any of its customers or a foreign trader 
shall notify the Commission immediately if the written agency agreement 
is terminated, revoked, or is otherwise no longer in effect. If the 
designated contract market knows or should know that the agreement has 
expired, been terminated, or is no longer in effect, the designated 
contract market shall notify the Secretary of the Commission 
immediately. If the written agency agreement expires, terminates, or is 
not in effect, the designated contract market and the foreign broker, 
any of its customers or the foreign trader are subject to the 
provisions of paragraphs (e) and (f) of this section.
    (h) The provisions of paragraphs (e), (f) and (g) of this section 
shall not apply to a designated contract market on which all 
transactions of foreign brokers, their customers or foreign traders in 
futures or option contracts are executed through, or the resulting 
transactions are maintained in, accounts carried by a registered 
futures commission merchant or introduced by a registered introducing 
broker subject to the provisions of paragraphs (a), (b), (c) and (d) of 
this section.
* * * * *

PART 16--REPORTS BY REPORTING MARKETS

0
47. The authority citation for part 16 continues to read as follows:

    Authority:  7 U.S.C. 2, 6a, 6c, 6g, 6i, 7, 7a and 12a, as 
amended by Title XIII of the Food, Conservation and Energy Act of 
2008, Pub. L. 110-246, 122 Stat. 1624 (June 18, 2008), unless 
otherwise noted.


0
48. Revise paragraph (a) introductory text of Sec.  16.00 to read as 
follows:


Sec.  16.00  Clearing member reports.

    (a) Information to be provided. Each reporting market shall submit 
to the Commission, in accordance with paragraph (b) of this section, a 
report for each business day, showing for each clearing member, by 
proprietary and customer account, the following information separately 
for futures by commodity and by future, and, for options, by underlying 
futures contract (for options on futures contracts) or by underlying 
commodity (for other commodity options), and by put, by call, by 
expiration date and by strike price:
* * * * *

0
49. Amend Sec.  16.01 by revising the section heading and paragraphs 
(a)(1)(ii), (a)(1)(iv), (b)(1)(ii), and (b)(1)(iv) to read as follows:


Sec.  16.01  Publication of market data on futures, swaps and options 
thereon: trading volume, open contracts, prices, and critical dates.

    (a) * * *
    (1) * * *
    (ii) For options, by underlying futures contracts for options on 
futures contracts or by underlying commodity for options on 
commodities, and by put, by call, by expiration date and by strike 
price;
* * * * *
    (iv) For options on swaps or classes of options on swaps, by 
underlying swap contracts for options on swap contracts or by 
underlying commodity for options on swaps on commodities, and by put, 
by call, by expiration date and by strike price.
* * * * *
    (b) * * *
    (1) * * *
    (ii) For options, by underlying futures contracts for options on 
futures contracts or by underlying commodity for options on 
commodities, and by put, by call, by expiration date and by strike 
price;
* * * * *
    (iv) For options on swaps or classes of options on swaps, by 
underlying swap contracts for options on swap contracts or by 
underlying commodity for options on swaps on commodities, and by put, 
by call, by expiration date and by strike price.
* * * * *

PART 18--REPORTS BY TRADERS

0
50. The authority citation for part 18 continues to read as follows:


[[Page 66334]]


    Authority:  7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 
12a and 19, as amended by Title XIII of the Food, Conservation and 
Energy Act of 2008, Pub. L. 110-246, 122 Stat. 1624 (June 18, 2008); 
5 U.S.C. 552 and 552(b), unless otherwise noted.


0
51. Revise paragraphs (a)(2), (a)(3), and (a)(4) of Sec.  18.05 to read 
as follows:


Sec.  18.05  Maintenance of books and records.

    (a) * * *
    (2) Executed over the counter or pursuant to part 35 of this 
chapter;
    (3) On exempt commercial markets operating under a Commission 
grandfather relief order issued pursuant to Section 723(c)(2)(B) of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-
203, 124 Stat. 1376 (2010));
    (4) On exempt boards of trade operating under a Commission 
grandfather relief order issued pursuant to Section 734(c)(2) of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-
203, 124 Stat. 1376 (2010)); and
* * * * *

PART 21--SPECIAL CALLS

0
52. The authority citation for part 21 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 
6n, 7, 7a, 12a, 19 and 21, as amended by Pub. L. 111-203, 124 Stat. 
1376; 5 U.S.C. 552 and 552(b), unless otherwise noted.


0
53. Revise paragraph (b) of Sec.  21.03 to read as follows:


Sec.  21.03  Selected special calls--duties of foreign brokers, 
domestic and foreign traders, futures commission merchants, clearing 
members, introducing brokers, and reporting markets.

* * * * *
    (b) It shall be unlawful for a futures commission merchant to open 
a futures or options account or to effect transactions in futures or 
options contracts for an existing account, or for an introducing broker 
to introduce such an account, for any customer for whom the futures 
commission merchant or introducing broker is required to provide the 
explanation provided for in Sec.  15.05(c) of this chapter, or for a 
reporting market that is a registered entity under section 1a(40)(F) of 
the Act, to cause to open an account, or to cause transactions to be 
effected, in a contract traded in reliance on a Commission grandfather 
relief order issued pursuant to Section 723(c)(2)(B) of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 
Stat. 1376 (2010)), for an existing account for any person that is a 
foreign clearing member or foreign trader, until the futures commission 
merchant, introducing broker, clearing member or reporting market has 
explained fully to the customer, in any manner that such person deems 
appropriate, the provisions of this section.
* * * * *

PART 22--CLEARED SWAPS

0
54. The authority citation for part 22 continues to read as follows:

    Authority:  7 U.S.C. 1a, 6d, 7a-1 as amended by Pub. L. 111-203, 
124 Stat. 1376.


Sec.  22.1  [Amended]

0
55. Amend Sec.  22.1 by removing the definition of ``Customer.''

0
56. Amend Sec.  22.2 by revising paragraphs (c)(2)(ii) and (e)(1) to 
read as follows:


Sec.  22.2  Futures Commission Merchants: Treatment of Cleared Swaps 
and Associated Cleared Swaps Customer Collateral.

* * * * *
    (c) * * *
    (2) * * *
    (ii) Other categories of funds belonging to Futures Customers (as 
Sec.  1.3 of this chapter defines that term), or Foreign Futures or 
Foreign Options Customers (as Sec.  30.1 of this chapter defines that 
term) of the futures commission merchant, including Futures Customer 
Funds (as Sec.  1.3 of this chapter defines such term) or the foreign 
futures or foreign options secured amount (as Sec.  1.3 of this chapter 
defines such term), except as expressly permitted by Commission rule, 
regulation, or order, or by a derivatives clearing organization rule 
approved in accordance with Sec.  39.15(b)(2) of this chapter.
* * * * *
    (e) * * *
    (1) Permitted investments. A futures commission merchant may invest 
money, securities, or other property constituting Cleared Swaps 
Customer Collateral in accordance with Sec.  1.25 of this chapter.
* * * * *

0
57. Amend Sec.  22.3 by revising paragraphs (c)(2)(iii) and (d) to read 
as follows:


Sec.  22.3  Derivatives clearing organizations: Treatment of cleared 
swaps customer collateral.

* * * * *
    (c) * * *
    (2) * * *
    (iii) Futures Customer Funds (as Sec.  1.3 of this chapter defines 
such term) or the foreign futures or foreign options secured amount (as 
Sec.  1.3 of this chapter defines such term), except as expressly 
permitted by Commission rule, regulation, or order, (or by a 
derivatives clearing organization rule approved in accordance with 
Sec.  39.15(b)(2) of this chapter).
    (d) Exceptions; Permitted Investments. Notwithstanding the 
foregoing and Sec.  22.15, a derivatives clearing organization may 
invest the money, securities, or other property constituting Cleared 
Swaps Customer Collateral in accordance with Sec.  1.25 of this 
chapter.

0
58. Amend Sec.  22.5 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  22.5  Futures commission merchants and derivatives clearing 
organizations: Written acknowledgement.

    (a) Before depositing Cleared Swaps Customer Collateral, the 
futures commission merchant or derivatives clearing organization shall 
obtain and retain in its files a separate written acknowledgement 
letter from each depository in accordance with Sec. Sec.  1.20 and 1.26 
of this chapter, with all references to ``Futures Customer Funds'' 
modified to apply to Cleared Swaps Customer Collateral, and with all 
references to section 4d(a) or 4d(b) of the Act and the regulations 
thereunder modified to apply to section 4d(f) of the Act and the 
regulations thereunder.
    (b) The futures commission merchant or derivatives clearing 
organization shall adhere to all requirements specified in Sec. Sec.  
1.20 and 1.26 of this chapter regarding retaining, permitting access 
to, filing, or amending the written acknowledgement letter, in all 
cases as if the Cleared Swaps Customer Collateral comprised Futures 
Customer Funds subject to segregation pursuant to section 4d(a) or 
4d(b) of the Act and the regulations thereunder.
* * * * *

0
59. Amend Sec.  22.9 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  22.9  Denomination of Cleared Swaps Customer Collateral and 
location of depositories.

    (a) Subject to paragraph (b) of this section, futures commission 
merchants and derivatives clearing organizations may hold Cleared Swaps 
Customer Collateral in the denominations, at the locations and 
depositories, and subject to the segregation requirements specified in 
Sec.  1.49 of this chapter.
    (b) Notwithstanding the requirements in Sec.  1.49 of this chapter, 
a futures commission merchant's obligations to a Cleared Swaps Customer 
may be denominated in a currency in which funds have accrued to the 
Cleared

[[Page 66335]]

Swaps Customer as a result of a Cleared Swap carried through such 
futures commission merchant, to the extent of such accruals.
* * * * *

0
60. Revise Sec.  22.10 to read as follows:


Sec.  22.10  Application of other regulatory provisions.

    Sections 1.27, 1.28, 1.29, and 1.30 of this chapter shall apply to 
the Cleared Swaps Customer Collateral in accordance with the terms 
therein.

0
61. Amend Sec.  22.11 by revising the section heading and paragraphs 
(a)(1), (a)(2), (b)(2), (c)(1), (c)(2), and (d)(2), to read as follows:


Sec.  22.11  Information to be provided regarding Cleared Swaps 
Customers and their Cleared Swaps.

    (a) * * *
    (1) The first time that the Depositing Futures Commission Merchant 
intermediates a Cleared Swap for a Cleared Swaps Customer with a 
Collecting Futures Commission Merchant, provide information sufficient 
to identify such Cleared Swaps Customer to the relevant Collection 
Futures Commission Merchant; and
    (2) At least once each business day thereafter, provide information 
to the relevant Collecting Futures Commission Merchant sufficient to 
identify, for each Cleared Swaps Customer, the portfolio of rights and 
obligations arising from the Cleared Swaps that the Depositing Futures 
Commission Merchant intermediates for such Cleared Swaps Customer.
    (b) * * *
    (2) The information that such entity must provide to its Collecting 
Futures Commission Merchant pursuant to paragraph (a)(2) of this 
section shall also include information sufficient to identify, for each 
Cleared Swaps Customer referenced in paragraph (b)(1) of this section, 
the portfolio of rights and obligations arising from the Cleared Swaps 
that such entity intermediates as a Collecting Futures Commission 
Merchant, on behalf of its Depositing Futures Commission Merchant, for 
such Cleared Swaps Customer.
    (c) * * *
    (1) The first time that such futures commission merchant 
intermediates a Cleared Swap for a Cleared Swaps Customer, provide 
information to the relevant derivatives clearing organization 
sufficient to identify such Cleared Swaps Customer; and
    (2) At least once each business day thereafter, provide information 
to the relevant derivatives clearing organization sufficient to 
identify, for each Cleared Swaps Customer, the portfolio of rights and 
obligations arising from the Cleared Swaps that such futures commission 
merchant intermediates for such Cleared Swaps Customer.
    (d) * * *
    (2) The information that it must provide to the derivatives 
clearing organization pursuant to paragraph (c)(2) of this section 
shall also include information sufficient to identify, for each Cleared 
Swaps Customer referenced in paragraph (d)(1) of this section, the 
portfolio of rights and obligations arising from the Cleared Swaps that 
the Collecting Futures Commission Merchant intermediates, on behalf of 
the Depositing Futures Commission Merchant, for such Cleared Swaps 
Customer.
* * * * *

0
62. Amend Sec.  22.12 by revising paragraph (a) introductory text and 
paragraph (c) introductory text to read as follows:


Sec.  22.12  Information to be maintained regarding Cleared Swaps 
Customer Collateral.

    (a) Each Collecting Futures Commission Merchant receiving Cleared 
Swaps Customer Collateral from an entity serving as a Depositing 
Futures Commission Merchant shall, no less frequently than once each 
business day, calculate and record:
* * * * *
    (c) Each derivatives clearing organization receiving Cleared Swaps 
Customer Collateral from a futures commission merchant shall, no less 
frequently than once each business day, calculate and record:
* * * * *

0
63. Amend Sec.  22.13 by revising paragraph (a) to read as follows:


Sec.  22.13  Additions to Cleared Swaps Customer Collateral.

    (a)(1) At the election of the derivatives clearing organization or 
Collecting Futures Commission Merchant, the collateral requirement 
referred to in Sec.  22.12(a), (c), and (d) applicable to a particular 
Cleared Swaps Customer or group of Cleared Swaps Customers may be 
increased based on an evaluation of the credit risk posed by such 
Cleared Swaps Customer or group, in which case the derivatives clearing 
organization or Collecting Futures Commission Merchant shall collect 
and record such higher amount as provided in Sec.  22.12.
    (2) Nothing in paragraph (a)(1) of this section is intended to 
interfere with the right of a futures commission merchant to increase 
the collateral requirements at such futures commission merchant with 
respect to any of its Cleared Swaps Customers, Futures Customers (as 
Sec.  1.3 of this chapter defines that term), or Foreign Futures or 
Foreign Options Customers (as Sec.  30.1 of this chapter defines that 
term).
* * * * *

0
64. Amend Sec.  22.14 by revising the section heading and paragraphs 
(a)(2) and (c)(2) to read as follows:


Sec.  22.14  Futures Commission Merchant failure to meet a Cleared 
Swaps Customer Margin Call in full.

    (a) * * *
    (2) Advise the Collecting Futures Commission Merchant of the 
identity of each such Cleared Swaps Customer, and the amount 
transmitted on behalf of each such Cleared Swaps Customer.
* * * * *
    (c) * * *
    (2) Advise the derivatives clearing organization of the identity of 
each such Cleared Swaps Customer, and the amount transmitted on behalf 
of each such Cleared Swaps Customer.
* * * * *

0
65. Section 22.15 is revised to read as follows:


Sec.  22.15  Treatment of Cleared Swaps Customer Collateral on an 
individual basis.

    Subject to Sec.  22.3(d), each derivatives clearing organization 
and each Collecting Futures Commission Merchant receiving Cleared Swaps 
Customer Collateral from a futures commission merchant shall treat the 
value of collateral required with respect to the portfolio of rights 
and obligations arising out of the Cleared Swaps intermediated for each 
Cleared Swaps Customer, and collected from the futures commission 
merchant, as belonging to such Cleared Swaps Customer, and such amount 
shall not be used to margin, guarantee, or secure the Cleared Swaps or 
other obligations of the futures commission merchant, or of any other 
Cleared Swaps Customer, Futures Customer (as Sec.  1.3 of this chapter 
defines that term), or Foreign Futures or Foreign Options Customer (as 
Sec.  30.1 of this chapter defines that term). Nothing contained herein 
shall be construed to limit, in any way, the right of a derivatives 
clearing organization or Collecting Futures Commission Merchant to 
liquidate any or all positions in a Cleared Swaps Customer Account in 
the event of a default of a clearing member or Depositing Futures 
Commission Merchant.

0
66. Amend Sec.  22.16 by revising the section heading to read as 
follows:

[[Page 66336]]

Sec.  22.16  Disclosures to Cleared Swaps Customers.

* * * * *

PART 36--EXEMPT MARKETS

0
67. The authority citation for part 36 continues to read as follows:

    Authority:  7 U.S.C. 2, 2(h)(7), 6, 6c and 12a, as amended by 
Title XIII of the Food, Conservation and Energy Act of 2008, Pub. L. 
110-246, 122 Stat. 1624 (June 18, 2008).

0
68. Section 36.1 is revised to read as follows:


Sec.  36.1  Scope.

    The provisions of this part apply to any board of trade or 
electronic trading facility that operates as:
    (a) An exempt commercial market operating under:
    (1) Until July 16, 2012, a grandfather relief order issued by the 
Commission pursuant to Section 723(c)(2)(B) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 Stat. 
1376 (2010)), or
    (2) Any other applicable relief granted by the Commission; or
    (b) An exempt board of trade operating under:
    (1) Until July 16, 2012, a grandfather relief order issued by the 
Commission pursuant to Section 734(c)(2) of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Pub. L. 111-203, 124 Stat. 1376 
(2010)), or
    (2) Any other applicable relief granted by the Commission.

0
69. Amend Sec.  36.2 by:
0
a. Revising paragraph (a) introductory text and (a)(2)(i);
0
b. Adding paragraph (a)(3); and
0
c. Revising paragraph (b) introductory text, (c)(1), (c)(2)(i) 
introductory text, (c)(2)(ii) introductory text, (c)(2)(iii), 
(c)(2)(iv)(A) introductory text, and (c)(3), to read as follows:


Sec.  36.2  Exempt boards of trade.

    (a) Eligible commodities. Commodities eligible to be traded by an 
exempt board of trade are:
* * * * *
    (2) * * *
    (i) The commodities defined in section 1a(19) of the Act as 
``excluded commodities'' (other than a security, including any group or 
index thereof or any interest in, or based on the value of, any 
security or group or index of securities); and
* * * * *
    (3) Such contracts must be entered into only between persons that 
are eligible contract participants, as defined in section 1a(18) of the 
Act and as further defined by the Commission, at the time at which the 
persons entered into the contract.
    (b) Notification. Boards of trade operating as exempt boards of 
trade shall maintain on file with the Secretary of the Commission at 
the Commission's Washington, DC headquarters, in electronic form, a 
``Notification of Operation as an Exempt Board of Trade,'' and it shall 
include:
* * * * *
    (c) Additional requirements--(1) Prohibited representation. A board 
of trade that meets the criteria set forth in this section and operates 
as an exempt board of trade shall not represent to any person that it 
is registered with, designated, recognized, licensed or approved by the 
Commission.
    (2) Market data dissemination. (i) Criteria for price discovery 
determination. An exempt board of trade performs a significant price 
discovery function for transactions in the cash market for a commodity 
underlying any agreement, contract, or transaction executed or traded 
on the facility when:
* * * * *
    (ii) Notification. An exempt board of trade operating a market in 
reliance on the criteria set forth in this section shall notify the 
Commission when:
* * * * *
    (iii) Price discovery determination. Following receipt of notice 
under paragraph (c)(2)(ii) of this section, or on its own initiative, 
the Commission may notify an exempt board of trade that the facility 
appears to meet the criteria for performing a significant price 
discovery function under paragraph (c)(2)(i)(A) or (B) of this section. 
Before making a final price discovery determination under this 
paragraph, the Commission shall provide the exempt board of trade with 
an opportunity for a hearing through the submission of written data, 
views and arguments. Any such written data, views and arguments shall 
be filed with the Secretary of the Commission in the form and manner 
and within the time specified by the Commission. After consideration of 
all relevant matters, the Commission shall issue an order containing 
its determination whether the facility performs a significant price 
discovery function under the criteria of paragraph (c)(2)(i)(A) or (B) 
of this section.
    (iv) Price dissemination. (A) An exempt board of trade that the 
Commission has determined performs a significant price discovery 
function under paragraph (c)(2)(iii) of this section shall disseminate 
publicly, and on a daily basis, all of the following information with 
respect to transactions executed in reliance on the criteria set forth 
in this section:
* * * * *
    (3) Annual certification. A board of trade operating as an exempt 
board of trade shall file with the Commission annually, no later than 
the end of each calendar year, a notice that includes:
    (i) A statement that it continues to operate under the exemption; 
and
    (ii) A certification that the information contained in the previous 
Notification of Operation as an Exempt Board of Trade is still correct.


0
70. Section 36.3 is revised to read as follows:


Sec.  36.3  Exempt commercial markets.

    (a) Eligible transactions. Agreements, contracts or transactions in 
an exempt commodity eligible to be entered into on an exempt commercial 
market must be:
    (1) Entered into on a principal-to-principal basis solely between 
persons that are eligible commercial entities, as that term is defined 
in section 1a(17) of the Act, at the time the persons enter into the 
agreement, contract or transaction; and
    (2) Executed or traded on an electronic trading facility.
    (b) Notification. An electronic trading facility relying upon the 
exemption set forth in this section shall maintain on file with the 
Secretary of the Commission at the Commission's Washington, DC 
headquarters, in electronic form, a ``Notification of Operation as an 
Exempt Commercial Market,'' and it shall include the information and 
certifications specified in this section.
    (c) Required information--(1) All electronic trading facilities. A 
facility operating in reliance on the exemption set forth in this 
section on an on-going basis, must:
    (i) Provide the Commission with the terms and conditions, as 
defined in Sec.  40.1(i) of this chapter and product descriptions for 
each agreement, contract or transaction listed by the facility in 
reliance on the exemption set forth in this section, as well as trading 
conventions, mechanisms and practices;
    (ii) Provide the Commission with information explaining how the 
facility meets the definition of ``trading facility'' contained in 
section 1a(51) of the Act and provide the Commission with access to the 
electronic trading facility's trading protocols, in a format specified 
by the Commission;
    (iii) Demonstrate to the Commission that the facility requires, and 
will require, with respect to all current and future agreements, 
contracts and transactions, that each participant

[[Page 66337]]

agrees to comply with all applicable laws; that the authorized 
participants are ``eligible commercial entities'' as defined in section 
1a(17) of the Act; that all agreements, contracts and transactions are 
and will be entered into solely on a principal-to-principal basis; and 
that the facility has in place a program to routinely monitor 
participants' compliance with these requirements;
    (iv) At the request of the Commission, provide any other 
information that the Commission, in its discretion, deems relevant to 
its determination whether an agreement, contract, or transaction 
performs a significant price discovery function; and
    (v) File with the Commission annually, no later than the end of 
each calendar year, a completed copy of CFTC Form 205--Exempt 
Commercial Market Annual Certification. The information submitted in 
Form 205 shall include:
    (A) A statement indicating whether the electronic trading facility 
continues to operate under the exemption; and
    (B) A certification that affirms the accuracy of and/or updates the 
information contained in the previous Notification of Operation as an 
Exempt Commercial Market.
    (2) Electronic trading facilities trading or executing agreements, 
contracts or transactions other than significant price discovery 
contracts. In addition to the requirements of paragraph (c)(1) of this 
section, a facility operating in reliance on the exemption set forth in 
this section, with respect to agreements, contracts or transactions 
that have not been determined to perform significant price discovery 
function, on an on-going basis must:
    (i) Identify to the Commission those agreements, contracts and 
transactions conducted on the electronic trading facility with respect 
to which it intends, in good faith, to rely on the exemption set forth 
in this section, and which averaged five trades per day or more over 
the most recent calendar quarter; and, with respect to such agreements, 
contracts and transactions, either:
    (A) Submit to the Commission, in a form and manner acceptable to 
the Commission, a report for each business day. Each such report shall 
be electronically transmitted weekly, within such time period as is 
acceptable to the Commission after the end of the week to which the 
data applies, and shall show for each agreement, contract or 
transaction executed the following information:
    (1) The underlying commodity, the delivery or price-basing location 
specified in the agreement, contract or transaction maturity date, 
whether it is a financially settled or physically delivered instrument, 
and the date of execution, time of execution, price, and quantity;
    (2) Total daily volume and, if cleared, open interest;
    (3) For an option instrument, in addition to the foregoing 
information, the type of option (i.e., call or put) and strike prices; 
and
    (4) Such other information as the Commission may determine; or
    (B) Provide to the Commission, in a form and manner acceptable to 
the Commission, electronic access to those transactions conducted on 
the electronic trading facility in reliance on the exemption set forth 
in this section, and meeting the average five trades per day or more 
threshold test of this section, which would allow the Commission to 
compile the information set forth in paragraph (c)(2)(i)(A) of this 
section and create a permanent record thereof.
    (ii) Maintain a record of allegations or complaints received by the 
electronic trading facility concerning instances of suspected fraud or 
manipulation in trading activity conducted in reliance on the exemption 
set forth in this section. The record shall contain the name of the 
complainant, if provided, date of the complaint, market instrument, 
substance of the allegations, and name of the person at the electronic 
trading facility who received the complaint;
    (iii) Provide to the Commission, in the form and manner prescribed 
by the Commission, a copy of the record of each complaint received 
pursuant to paragraph (c)(2)(ii) of this section that alleges, or 
relates to, facts that would constitute a violation of the Act or 
Commission regulations. Such copy shall be provided to the Commission 
no later than 30 calendar days after the complaint is received; 
Provided, however, that in the case of a complaint alleging, or 
relating to, facts that would constitute an ongoing fraud or market 
manipulation under the Act or Commission rules, such copy shall be 
provided to the Commission within three business days after the 
complaint is received; and
    (iv) Provide to the Commission on a quarterly basis, within 15 
calendar days of the close of each quarter, a list of each agreement, 
contract or transaction executed on the electronic trading facility in 
reliance on the exemption set forth in this section and indicate for 
each such agreement, contract or transaction the contract terms and 
conditions, the contract's average daily trading volume, and the most 
recent open interest figures.
    (3) Electronic trading facilities trading or executing significant 
price discovery contracts. In addition to the requirements of paragraph 
(c)(1) of this section, if the Commission determines that a facility 
operating in reliance on the exemption set forth in this section trades 
or executes an agreement, contract or transaction that performs a 
significant price discovery function, the facility must, with respect 
to any significant price discovery contract, publish and provide to the 
Commission the information required by Sec.  16.01 of this chapter.
    (4) Delegation of authority. The Commission hereby delegates, until 
the Commission orders otherwise, the authority to determine the form 
and manner of submitting the required information under paragraphs 
(c)(1) through (3) of this section, to the Director of the Division of 
Market Oversight and such members of the Commission's staff as the 
Director may designate. The Director may submit to the Commission for 
its consideration any matter that has been delegated by this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph (c)(4).
    (5) Special calls. (i) All information required upon special call 
of the Commission shall be transmitted at the same time and to the 
office of the Commission as may be specified in the call.
    (ii) Such information shall include information related to the 
facility's business as an exempt electronic trading facility in 
reliance on the exemption set forth in this section, including 
information relating to data entry and transaction details in respect 
of transactions entered into in reliance on the exemption, as the 
Commission may determine appropriate--
    (A) To enforce the antifraud and anti-manipulation provisions in 
the Act and Commission regulations, and
    (B) To evaluate a systemic market event; or
    (C) To obtain information requested by a Federal financial 
regulatory authority in order to enable the regulator to fulfill its 
regulatory or supervisory responsibilities.
    (iii) The Commission hereby delegates, until the Commission orders 
otherwise, the authority to make special calls to the Directors of the 
Division of Market Oversight, the Division of Clearing and Risk, the 
Division of Swap Dealer and Intermediary Oversight, and the Division of 
Enforcement to be exercised by each such Director or by such other 
employee or employees as

[[Page 66338]]

the Director may designate. The Directors may submit to the Commission 
for its consideration any matter that has been delegated in this 
paragraph. Nothing in this paragraph prohibits the Commission, at its 
election, from exercising the authority delegated in this paragraph 
(c)(5).
    (6) Subpoenas to foreign persons. A foreign person whose access to 
an electronic trading facility is limited or denied at the direction of 
the Commission based on the Commission's belief that the foreign person 
has failed timely to comply with a subpoena shall have an opportunity 
for a prompt hearing under the procedures provided in Sec.  21.03(b) 
and (h) of this chapter.
    (7) Prohibited representation. An electronic trading facility 
relying upon the exemption set forth in this section, with respect to 
agreements, contracts or transactions that are not significant price 
discovery contracts, shall not represent to any person that it is 
registered with, designated, recognized, licensed or approved by the 
Commission.
    (d) Significant price discovery contracts--(1) Criteria for 
significant price discovery determination. The Commission may 
determine, in its discretion, that an electronic trading facility 
operating a market in reliance on the exemption set forth in this 
section performs a significant price discovery function for 
transactions in the cash market for a commodity underlying any 
agreement, contract or transaction executed or traded on the facility. 
In making such a determination, the Commission shall consider, as 
appropriate:
    (i) Price linkage. The extent to which the agreement, contract or 
transaction uses or otherwise relies on a daily or final settlement 
price, or other major price parameter, of a contract or contracts 
listed for trading on or subject to the rules of a designated contract 
market, or a significant price discovery contract traded on an 
electronic trading facility, to value a position, transfer or convert a 
position, cash or financially settle a position, or close out a 
position;
    (ii) Arbitrage. The extent to which the price for the agreement, 
contract or transaction is sufficiently related to the price of a 
contract or contracts listed for trading on or subject to the rules of 
a designated contract market, or a significant price discovery contract 
or contracts trading on or subject to the rules of an electronic 
trading facility, so as to permit market participants to effectively 
arbitrage between the markets by simultaneously maintaining positions 
or executing trades in the contracts on a frequent and recurring basis;
    (iii) Material price reference. The extent to which, on a frequent 
and recurring basis, bids, offers, or transactions in a commodity are 
directly based on, or are determined by referencing, the prices 
generated by agreements, contracts or transactions being traded or 
executed on the electronic trading facility;
    (iv) Material liquidity. The extent to which the volume of 
agreements, contracts or transactions in the commodity being traded on 
the electronic trading facility is sufficient to have a material effect 
on other agreements, contracts or transactions listed for trading on or 
subject to the rules of a designated contract market or an electronic 
trading facility operating in reliance on the exemption set forth in 
this section;
    (v) Other material factors. [Reserved]
    (2) Notification of possible significant price discovery contract 
conditions. An electronic trading facility operating in reliance on the 
exemption set forth in this section shall promptly notify the 
Commission, and such notification shall be accompanied by supporting 
information or data concerning any contract that:
    (i) Averaged five trades per day or more over the most recent 
calendar quarter; and
    (ii)(A) For which the exchange sells its price information 
regarding the contract to market participants or industry publications; 
or
    (B) Whose daily closing or settlement prices on 95 percent or more 
of the days in the most recent quarter were within 2.5 percent of the 
contemporaneously determined closing, settlement or other daily price 
of another agreement, contract or transaction.
    (3) Procedure for significant price discovery determination. Before 
making a final price discovery determination under this paragraph, the 
Commission shall publish notice in the Federal Register that it intends 
to undertake a determination with respect to whether a particular 
agreement, contract or transaction performs a significant price 
discovery function and to receive written data, views and arguments 
relevant to its determination from the electronic trading facility and 
other interested persons. Any such written data, views and arguments 
shall be filed with the Secretary of the Commission, in the form and 
manner specified by the Commission, within 30 calendar days of 
publication of notice in the Federal Register or within such other time 
specified by the Commission. After prompt consideration of all relevant 
information, the Commission shall, within a reasonable period of time 
after the close of the comment period, issue an order explaining its 
determination whether the agreement, contract or transaction executed 
or traded by the electronic trading facility performs a significant 
price discovery function under the criteria specified in paragraph 
(d)(1)(i) through (v) of this section.
    (4) Compliance with core principles. (i) Following the issuance of 
an order by the Commission that the electronic trading facility 
executes or trades an agreement, contract or transaction that performs 
a significant price discovery function, the electronic trading facility 
must demonstrate, with respect to that agreement, contract or 
transaction, compliance with the Core Principles set forth in this 
section and the applicable provisions of this part. If the Commission's 
order represents the first time it has determined that one of the 
electronic trading facility's agreements, contracts or transactions 
performs a significant price discovery function, the facility must 
submit a written demonstration of compliance with the Core Principles 
within 90 calendar days of the date of the Commission's order. For each 
subsequent determination by the Commission that the electronic trading 
facility has an additional agreement, contract or transaction that 
performs a significant price discovery function, the facility must 
submit a written demonstration of compliance with the Core Principles 
within 30 calendar days of the date of the Commission's order. 
Attention is directed to Appendix B of this part for guidance on and 
acceptable practices for complying with the Core Principles. 
Submissions demonstrating how the electronic trading facility complies 
with the Core Principles with respect to its significant price 
discovery contract must be filed with the Secretary of the Commission 
at its Washington, DC headquarters. Submissions must include the 
following:
    (A) A written certification that the significant price discovery 
contract(s) complies with the Act and regulations thereunder;
    (B) A copy of the electronic trading facility's rules (as defined 
in Sec.  40.1 of this chapter) and any technical manuals, other guides 
or instructions for users of, or participants in, the market, including 
minimum financial standards for members or market participants. 
Subsequent rule changes must be certified by the electronic trading 
facility pursuant to section 5c(c) of the Act and Sec.  40.6 of this 
chapter. The electronic trading facility also may request Commission 
approval of any

[[Page 66339]]

rule changes pursuant to section 5c(c) of the Act and Sec.  40.5 of 
this chapter;
    (C) A description of the trading system, algorithm, security and 
access limitation procedures with a timeline for an order from input 
through settlement, and a copy of any system test procedures, tests 
conducted, test results and contingency or disaster recovery plans;
    (D) A copy of any documents pertaining to or describing the 
electronic trading system's legal status and governance structure, 
including governance fitness information;
    (E) An executed or executable copy of any agreements or contracts 
entered into or to be entered into by the electronic trading facility, 
including partnership or limited liability company, third-party 
regulatory service, or member or user agreements, that enable or 
empower the electronic trading facility to comply with a Core 
Principle;
    (F) A copy of any manual or other document describing, with 
specificity, the manner in which the trading facility will conduct 
trade practice, market and financial surveillance;
    (G) To the extent that any of the items in paragraphs (d)(4)(i)(A) 
through (F) of this section raise issues that are novel, or for which 
compliance with a Core Principle is not self-evident, an explanation of 
how that item satisfies the applicable Core Principle or Principles.
    (ii) The electronic trading facility must identify with 
particularity information in the submission that will be subject to a 
request for confidential treatment pursuant to Sec.  145.09 of this 
chapter. The electronic trading facility must follow the procedures 
specified in Sec.  40.8 of this chapter with respect to any information 
in its submission for which confidential treatment is requested.
    (5) Determination of compliance with core principles. The 
Commission shall take into consideration differences between cleared 
and uncleared significant price discovery contracts when reviewing the 
implementation of the Core Principles by an electronic trading 
facility. The electronic facility has reasonable discretion in 
accounting for differences between cleared and uncleared significant 
price discovery contracts when establishing the manner in which it 
complies with the Core Principles.
    (6) Information relating to compliance with core principles. Upon 
request by the Commission, an electronic trading facility trading a 
significant price discovery contract shall file with the Commission a 
written demonstration, containing such supporting data, information and 
documents, in the form and manner and within such time as the 
Commission may specify, that the electronic trading facility is in 
compliance with one or more Core Principles as specified in the 
request, or that is otherwise requested by the Commission to enable the 
Commission to satisfy its obligations under the Act.
    (7) Enforceability. An agreement, contract or transaction entered 
into on or pursuant to the rules of an electronic trading facility 
trading or executing a significant price discovery contract shall not 
be void, voidable, subject to rescission or otherwise invalidated or 
rendered unenforceable as a result of:
    (i) A violation by the electronic trading facility of the 
provisions set forth in this section; or
    (ii) Any Commission proceeding to alter or supplement a rule, term 
or condition under section 8a(7) of the Act, to declare an emergency 
under section 8a(9) of the Act, or any other proceeding the effect of 
which is to alter, supplement or require an electronic trading facility 
to adopt a specific term or condition, trading rule or procedure, or to 
take or refrain from taking a specific action.
    (8) Procedures for vacating a determination of a significant price 
discovery function--(i) By the electronic trading facility. An 
electronic trading facility that executes or trades an agreement, 
contract or transaction that the Commission has determined performs a 
significant price discovery function under paragraph (d)(3) of this 
section may petition the Commission to vacate that determination. The 
petition shall demonstrate that the agreement, contract or transaction 
no longer performs a significant price discovery function under the 
criteria specified in paragraph (d)(1), and has not done so for at 
least the prior 12 months. An electronic trading facility shall not 
petition for a vacation of a significant price discovery determination 
more frequently than once every 12 months for any individual contract.
    (ii) By the Commission. The Commission may, on its own initiative, 
begin vacation proceedings if it believes that an agreement, contract 
or transaction has not performed a significant price discovery function 
for at least the prior 12 months.
    (iii) Procedure. Before making a final determination whether an 
agreement, contract or transaction has ceased to perform a significant 
price discovery function, the Commission shall publish notice in the 
Federal Register that it intends to undertake such a determination and 
to receive written data, views and arguments relevant to its 
determination from the electronic trading facility and other interested 
persons. Written submissions shall be filed with the Secretary of the 
Commission in the form and manner specified by the Commission, within 
30 calendar days of publication of notice in the Federal Register, or 
within such other time specified by the Commission. After consideration 
of all relevant information, the Commission shall issue an order 
explaining its determination whether the agreement, contract or 
transaction has ceased to perform a significant price discovery 
function and, if so, vacating its prior order. If such an order issues, 
and the Commission subsequently determines, on its own initiative or 
after notification by the electronic trading facility, that the 
agreement, contract or transaction that was subject to the vacation 
order again performs a significant price discovery function, the 
electronic trading facility must comply with the Core Principles within 
30 calendar days of the date of the Commission's order.
    (iv) Automatic vacation of significant price discovery 
determination. Regardless of whether a proceeding to vacate has been 
initiated, any significant price discovery contract that has no open 
interest and in which no trading has occurred for a period of 12 
complete and consecutive calendar months shall, without further 
proceedings, no longer be considered to be a significant price 
discovery contract.
    (e) Commission review. The Commission shall, at least annually, 
evaluate as appropriate agreements, contracts or transactions conducted 
on an electronic trading facility in reliance on the exemption set 
forth in this section to determine whether they serve a significant 
price discovery function as set forth in paragraph (d)(1) of this 
section.

0
71. Amend Appendix A to part 36 by revising introductory paragraph 1, 
the headings to paragraphs (A), (B), and (C), and paragraphs (D)2. and 
(D)4., to read as follows:

Appendix A to Part 36--Guidance on Specific Price Discovery Contracts

    1. There are four factors that the Commission must consider, as 
appropriate, in making a determination that a contract is performing 
a significant price discovery function. The four factors prescribed 
by the statute are: Price Linkage; Arbitrage; Material Price 
Reference; and Material Liquidity.
* * * * *
    (A) MATERIAL LIQUIDITY--The extent to which the volume of 
agreements, contracts or transactions in the commodity being traded 
on the electronic trading facility is sufficient to have a material 
effect on other agreements, contracts or transactions listed for 
trading on or subject to the rules of a designated

[[Page 66340]]

contract market, or an electronic trading facility operating in 
reliance on the exemption set forth in this section.
* * * * *
    (B) PRICE LINKAGE--The extent to which the agreement, contract 
or transaction uses or otherwise relies on a daily or final 
settlement price, or other major price parameter, of a contract or 
contracts listed for trading on or subject to the rules of a 
designated contract market, or a significant price discovery 
contract traded on an electronic trading facility, to value a 
position, transfer or convert a position, cash or financially settle 
a position, or close out a position.
* * * * *
    (C) ARBITRAGE CONTRACTS--The extent to which the price for the 
agreement, contract or transaction is sufficiently related to the 
price of a contract or contracts listed for trading on or subject to 
the rules of a designated contract market or a significant price 
discovery contract or contracts trading on or subject to the rules 
of an electronic trading facility, so as to permit market 
participants to effectively arbitrage between the markets by 
simultaneously maintaining positions or executing trades in the 
contracts on a frequent and recurring basis.
* * * * *
    (D) * * *
    2. In evaluating a contract's price discovery role as a directly 
referenced price source, the Commission will perform an analysis to 
determine whether cash market participants are quoting bid or offer 
prices or entering into transactions at prices that are set either 
explicitly or implicitly at a differential to prices established for 
the contract. Cash market prices are set explicitly at a 
differential to the contract being traded on the electronic trading 
facility when, for instance, they are quoted in dollars and cents 
above or below the reference contract's price. Cash market prices 
are set implicitly at a differential to a contract being traded on 
the electronic trading facility when, for instance, they are arrived 
at after adding to, or subtracting from the contract being traded on 
the electronic trading facility, but then quoted or reported at a 
flat price. The Commission will also consider whether cash market 
entities are quoting cash prices based on a contract being traded on 
the electronic trading facility on a frequent and recurring basis.
* * * * *
    4. In applying this criterion, consideration will be given to 
whether prices established by a contract being traded on the 
electronic trading facility are reported in a widely distributed 
industry publication. In making this determination, the Commission 
will consider the reputation of the publication within the industry, 
how frequently it is published, and whether the information 
contained in the publication is routinely consulted by industry 
participants in pricing cash market transactions.
* * * * *

0
72. Revise Appendix B to part 36 to read as follows:

Appendix B to Part 36--Guidance on, and Acceptable Practices in, 
Compliance With Core Principles

    1. This Appendix provides guidance on complying with the core 
principles set forth in this part, both initially and on an ongoing 
basis. The guidance is provided in paragraph (a) following each core 
principle and can be used to demonstrate to the Commission core 
principle compliance under Sec.  36.3(d)(4). The guidance for each 
core principle is illustrative only of the types of matters an 
electronic trading facility may address, as applicable, and is not 
intended to be used as a mandatory checklist. Addressing the issues 
and questions set forth in this guidance will help the Commission in 
its consideration of whether the electronic trading facility is in 
compliance with the core principles. A submission pursuant to Sec.  
36.3(d)(4) should include an explanation or other form of 
documentation demonstrating that the electronic trading facility 
complies with the core principles.
    2. Acceptable practices meeting selected requirements of the 
core principles are set forth in paragraph (b) following each core 
principle. Electronic trading facilities on which significant price 
discovery contracts are traded or executed that follow the specific 
practices outlined under paragraph (b) for any core principle in 
this appendix will meet the selected requirements of the applicable 
core principle. Paragraph (b) is for illustrative purposes only, and 
does not state the exclusive means for satisfying a core principle.
    CORE PRINCIPLE I--CONTRACTS NOT READILY SUSCEPTIBLE TO 
MANIPULATION. The electronic trading facility shall list only 
significant price discovery contracts that are not readily 
susceptible to manipulation.
    (a) Guidance. Upon determination by the Commission that a 
contract listed for trading on an electronic trading facility is a 
significant price discovery contract, the electronic trading 
facility must self-certify the terms and conditions of the 
significant price discovery contract under Sec.  36.3(d)(4) within 
90 calendar days of the date of the Commission's order if the 
contract is the electronic trading facility's first significant 
price discovery contract; or 30 days from the date of the 
Commission's order if the contract is not the electronic trading 
facility's first significant price discovery contract. Once the 
Commission determines that a contract performs a significant price 
discovery function, subsequent rule changes must be self-certified 
to the Commission by the electronic trading facility pursuant to 
Sec.  40.6 of this chapter or submitted to the Commission for review 
and approval pursuant to Sec.  40.5 of this chapter.
    (b) Acceptable practices. Guideline No. 1, 17 CFR part 40, 
Appendix A may be used as guidance in meeting this core principle 
for significant price discovery contracts.
    CORE PRINCIPLE II--MONITORING OF TRADING. The electronic trading 
facility shall monitor trading in significant price discovery 
contracts to prevent market manipulation, price distortion, and 
disruptions of the delivery of cash-settlement process through 
market surveillance, compliance and disciplinary practices and 
procedures, including methods for conducting real-time monitoring of 
trading and comprehensive and accurate trade reconstructions.
    (a) Guidance. An electronic trading facility on which 
significant price discovery contracts are traded or executed should, 
with respect to those contracts, demonstrate a capacity to prevent 
market manipulation and have trading and participation rules to 
detect and deter abuses. The facility should seek to prevent market 
manipulation and other trading abuses through a dedicated regulatory 
department or by delegation of that function to an appropriate third 
party. An electronic trading facility also should have the authority 
to intervene as necessary to maintain an orderly market.
    (b) Acceptable practices--(1) An acceptable trade monitoring 
program. An acceptable trade monitoring program should facilitate, 
on both a routine and non-routine basis, arrangements and resources 
to detect and deter abuses through direct surveillance of each 
significant price discovery contract. Direct surveillance of each 
significant price discovery contract will generally involve the 
collection of various market data, including information on 
participants' market activity. Those data should be evaluated on an 
ongoing basis in order to make an appropriate regulatory response to 
potential market disruptions or abusive practices. For contracts 
with a substantial number of participants, an effective surveillance 
program should employ a much more comprehensive large trader 
reporting system.
    (2) Authority to collect information and documents. The 
electronic trading facility should have the authority to collect 
information and documents in order to reconstruct trading for 
appropriate market analysis. Appropriate market analysis should 
enable the electronic trading facility to assess whether each 
significant price discovery contract is responding to the forces of 
supply and demand. Appropriate data usually include various 
fundamental data about the underlying commodity, its supply, its 
demand, and its movement through market channels. Especially 
important are data related to the size and ownership of deliverable 
supplies--the existing supply and the future or potential supply--
and to the pricing of the deliverable commodity relative to the 
futures price and relative to the similar, but non-deliverable, 
kinds of the commodity. For cash-settled contracts, it is more 
appropriate to pay attention to the availability and pricing of the 
commodity making up the index to which the contract will be settled, 
as well as monitoring the continued suitability of the methodology 
for deriving the index.
    (3) Ability to assess participants' market activity and power. 
To assess participants' activity and potential power in a market, 
electronic trading facilities, with respect to significant price 
discovery contracts, at a minimum should have routine access to the 
positions and trading of its participants and, if applicable, should 
provide for such access through its agreements with its third-party 
provider of clearing services.

[[Page 66341]]

    CORE PRINCIPLE III--ABILITY TO OBTAIN INFORMATION. The 
electronic trading facility shall establish and enforce rules that 
allow the electronic trading facility to obtain any necessary 
information to perform any of the functions set forth in this 
subparagraph, provide the information to the Commission upon 
request, and have the capacity to carry out such international 
information-sharing agreements as the Commission may require.
    (a) Guidance. An electronic trading facility on which 
significant price discovery contracts are traded or executed should, 
with respect to those contracts, have the ability and authority to 
collect information and documents on both a routine and non-routine 
basis, including the examination of books and records kept by 
participants. This includes having arrangements and resources for 
recording full data entry and trade details and safely storing audit 
trail data. An electronic trading facility should have systems 
sufficient to enable it to use the information for purposes of 
assisting in the prevention of participant and market abuses through 
reconstruction of trading and providing evidence of any violations 
of the electronic trading facility's rules.
    (b) Acceptable practices--(1) The goal of an audit trail is to 
detect and deter market abuse. An effective contract audit trail 
should capture and retain sufficient trade-related information to 
permit electronic trading facility staff to detect trading abuses 
and to reconstruct all transactions within a reasonable period of 
time. An audit trail should include specialized electronic 
surveillance programs that identify potentially abusive trades and 
trade patterns. An acceptable audit trail must be able to track an 
order from time of entry into the trading system through its fill. 
The electronic trading facility must create and maintain an 
electronic transaction history database that contains information 
with respect to transactions executed on each significant price 
discovery contract.
    (2) An acceptable audit trail should include the following: 
original source documents, transaction history, electronic analysis 
capability, and safe storage capability. An acceptable audit trail 
system would satisfy the following practices.
    (i) Original source documents. Original source documents include 
unalterable, sequentially identified records on which trade 
execution information is originally recorded. For each order 
(whether filled, unfilled or cancelled, each of which should be 
retained or electronically captured), such records reflect the terms 
of the order, an account identifier that relates back to the 
account(s) owner(s), and the time of order entry.
    (ii) Transaction history. A transaction history consists of an 
electronic history of each transaction, including:
    (A) All the data that are input into the trade entry or matching 
system for the transaction to match and clear;
    (B) Timing and sequencing data adequate to reconstruct trading; 
and
    (C) The identification of each account to which fills are 
allocated.
    (iii) Electronic analysis capability. An electronic analysis 
capability permits sorting and presenting data included in the 
transaction history so as to reconstruct trading and to identify 
possible trading violations with respect to market abuse.
    (iv) Safe storage capability. Safe storage capability provides 
for a method of storing the data included in the transaction history 
in a manner that protects the data from unauthorized alteration, as 
well as from accidental erasure or other loss. Data should be 
retained in the form and manner specified by the Commission or, 
where no acceptable manner of retention is specified, in accordance 
with the recordkeeping standards of Sec.  1.31 of this chapter.
    (3) Arrangements and resources for the disclosure of the 
obtained information and documents to the Commission upon request. 
The electronic trading facility should maintain records of all 
information and documents related to each significant price 
discovery contract in a form and manner acceptable to the 
Commission. Where no acceptable manner of maintenance is specified, 
records should be maintained in accordance with the recordkeeping 
standards of Sec.  1.31 of this chapter.
    (4) The capacity to carry out appropriate information-sharing 
agreements as the Commission may require. Appropriate information-
sharing agreements could be established with other markets or the 
Commission can act in conjunction with the electronic trading 
facility to carry out such information sharing.
    CORE PRINCIPLE IV--POSITION LIMITATIONS OR ACCOUNTABILITY. The 
electronic trading facility shall adopt, where necessary and 
appropriate, position limitations or position accountability for 
speculators in significant price discovery contracts, taking into 
account positions in other agreements, contracts and transactions 
that are treated by a derivatives clearing organization, whether 
registered or not registered, as fungible with such significant 
price discovery contracts to reduce the potential threat of market 
manipulation or congestion, especially during trading in the 
delivery month.
    (a) Guidance. [Reserved]
    (b) Acceptable practices for uncleared trades. [Reserved]
    (c) Acceptable practices for cleared trades--(1) Introduction. 
In order to diminish potential problems arising from excessively 
large speculative positions, and to facilitate orderly liquidation 
of expiring contracts, an electronic trading facility relying on the 
exemption set forth in this section should adopt rules that set 
position limits or accountability levels on traders' cleared 
positions in significant price discovery contracts. These position 
limit rules specifically may exempt bona fide hedging; permit other 
exemptions; or set limits differently by market, delivery month or 
time period. For the purpose of evaluating a significant price 
discovery contract's speculative-limit program for cleared 
positions, the Commission will consider the specified position 
limits or accountability levels, aggregation policies, types of 
exemptions allowed, methods for monitoring compliance with the 
specified limits or levels, and procedures for dealing with 
violations.
    (2) Accounting for cleared trades--(i) Speculative-limit levels 
typically should be set in terms of a trader's combined position 
involving cleared trades in a significant price discovery contract, 
plus positions in agreements, contracts and transactions that are 
treated by a derivatives clearing organization, whether registered 
or not registered, as fungible with such significant price discovery 
contract. (This circumstance typically exists where an exempt 
commercial market lists a particular contract for trading but also 
allows for positions in that contract to be cleared together with 
positions established through bilateral or off-exchange 
transactions, such as block trades, in the same contract. 
Essentially, both the on-facility and off-facility transactions are 
considered fungible with each other.) In this connection, the 
electronic trading facility should make arrangements to ensure that 
it is able to ascertain accurate position data for the market.
    (ii) For significant price discovery contracts that are traded 
on a cleared basis, the electronic trading facility should apply 
position limits to cleared transactions in the contract.
    (3) Limitations on spot-month positions. Spot-month limits 
should be adopted for significant price discovery contracts to 
minimize the susceptibility of the market to manipulation or price 
distortions, including squeezes and corners or other abusive trading 
practices.
    (i) Contracts economically equivalent to an existing contract. 
An electronic trading facility that lists a significant price 
discovery contract that is economically-equivalent to another 
significant price discovery contract or to a contract traded on a 
designated contract market should set the spot-month limit for its 
significant price discovery contract at the same level as that 
specified for the economically-equivalent contract.
    (ii) Contracts that are not economically equivalent to an 
existing contract. There may not be an economically-equivalent 
significant price discovery contract or economically-equivalent 
contract traded on a designated contract market. In this case, the 
spot-month speculative position limit should be established in the 
following manner. The spot-month limit for a physical delivery 
market should be based upon an analysis of deliverable supplies and 
the history of spot-month liquidations. The spot-month limit for a 
physical-delivery market is appropriately set at no more than 25 
percent of the estimated deliverable supply. In the case where a 
significant price discovery contract has a cash settlement 
provision, the spot-month limit should be set at a level that 
minimizes the potential for price manipulation or distortion in the 
significant price discovery contract itself; in related futures and 
options contracts traded on a designated contract market; in other 
significant price discovery contracts; in other fungible agreements, 
contracts and transactions; and in the underlying commodity.
    (4) Position accountability for non-spot-month positions. The 
electronic trading facility should establish for its significant 
price discovery contracts non-spot individual

[[Page 66342]]

month position accountability levels and all-months-combined 
position accountability levels. An electronic trading facility may 
establish non-spot individual month position limits and all-months-
combined position limits for its significant price discovery 
contracts in lieu of position accountability levels.
    (i) Definition. Position accountability provisions provide a 
means for an exchange to monitor traders' positions that may 
threaten orderly trading. An acceptable accountability provision 
sets target accountability threshold levels that may be exceeded, 
but once a trader breaches such accountability levels, the 
electronic trading facility should initiate an inquiry to determine 
whether the individual's trading activity is justified and is not 
intended to manipulate the market. As part of its investigation, the 
electronic trading facility may inquire about the trader's rationale 
for holding a position in excess of the accountability levels. An 
acceptable accountability provision should provide the electronic 
trading facility with the authority to order the trader not to 
further increase positions. If a trader fails to comply with a 
request for information about positions held, provides information 
that does not sufficiently justify the position, or continues to 
increase contract positions after a request not to do so is issued 
by the facility, then the accountability provision should enable the 
electronic trading facility to require the trader to reduce 
positions.
    (ii) Contracts economically equivalent to an existing contract. 
When an electronic trading facility lists a significant price 
discovery contract that is economically equivalent to another 
significant price discovery contract or to a contract traded on a 
designated contract market, the electronic trading facility should 
set the non-spot individual month position accountability level and 
all-months-combined position accountability level for its 
significant price discovery contract at the same levels, or lower, 
as those specified for the economically-equivalent contract.
    (iii) Contracts that are not economically equivalent to an 
existing contract. For significant price discovery contracts that 
are not economically equivalent to an existing contract, the trading 
facility shall adopt non-spot individual month and all-months-
combined position accountability levels that are no greater than 10 
percent of the average combined futures and delta-adjusted option 
month-end open interest for the most recent calendar year. For 
electronic trading facilities that choose to adopt non-spot 
individual month and all-months-combined position limits in lieu of 
position accountability levels for their significant price discovery 
contracts, the limits should be set in the same manner as the 
accountability levels.
    (iv) Contracts economically equivalent to an existing contract 
with position limits. If a significant price discovery contract is 
economically equivalent to another significant price discovery 
contract or to a contract traded on a designated contract market 
that has adopted non-spot or all-months-combined position limits, 
the electronic trading facility should set non-spot month position 
limits and all-months-combined position limits for its significant 
price discovery contract at the same (or lower) levels as those 
specified for the economically-equivalent contract.
    (5) Account aggregation. An electronic trading facility should 
have aggregation rules for significant price discovery contracts 
that apply to accounts under common control, those with common 
ownership, i.e., where there is a ten percent or greater financial 
interest, and those traded according to an express or implied 
agreement. Such aggregation rules should apply to cleared 
transactions with respect to applicable speculative position limits. 
An electronic trading facility will be permitted to set more 
stringent aggregation policies. An electronic trading facility may 
grant exemptions to its price discovery contracts' position limits 
for bona fide hedging (as defined in Sec.  1.3(z) of this chapter) 
and may grant exemptions for reduced risk positions, such as 
spreads, straddles and arbitrage positions.
    (6) Implementation deadlines. An electronic trading facility 
with a significant price discovery contract is required to comply 
with Core Principle IV within 90 calendar days of the date of the 
Commission's order determining that the contract performs a 
significant price discovery function if such contract is the 
electronic trading facility's first significant price discovery 
contract, or within 30 days of the date of the Commission's order if 
such contract is not the electronic trading facility's first 
significant price discovery contract. For the purpose of applying 
limits on speculative positions in newly-determined significant 
price discovery contracts, the Commission will permit a grace period 
following issuance of its order for traders with cleared positions 
in such contracts to become compliant with applicable position limit 
rules. Traders who hold cleared positions on a net basis in the 
electronic trading facility's significant price discovery contract 
must be at or below the specified position limit level no later than 
90 calendar days from the date of the electronic trading facility's 
implementation of position limit rules, unless a hedge exemption is 
granted by the electronic trading facility. This grace period 
applies to both initial and subsequent price discovery contracts. 
Electronic trading facilities should notify traders of this 
requirement promptly upon implementation of such rules.
    (7) Enforcement provisions. The electronic trading facility 
should have appropriate procedures in place to monitor its position 
limit and accountability provisions and to address violations.
    (i) An electronic trading facility with significant price 
discovery contracts should use an automated means of detecting 
traders' violations of speculative limits or exemptions, 
particularly if the significant price discovery contracts have large 
numbers of traders. An electronic trading facility should monitor 
the continuing appropriateness of approved exemptions by 
periodically reviewing each trader's basis for exemption or 
requiring a reapplication. An automated system also should be used 
to determine whether a trader has exceeded applicable non-spot 
individual month position accountability levels and all-months-
combined position accountability levels.
    (ii) An electronic trading facility should establish a program 
for effective enforcement of position limits for significant price 
discovery contracts. Electronic trading facilities should use a 
large trader reporting system to monitor and enforce daily 
compliance with position limit rules. The Commission notes that an 
electronic trading facility may allow traders to periodically apply 
to the electronic trading facility for an exemption and, if 
appropriate, be granted a position level higher than the applicable 
speculative limit. The electronic trading facility should establish 
a program to monitor approved exemptions from the limits. The 
position levels granted under such hedge exemptions generally should 
be based upon the trader's commercial activity in related markets 
including, but not limited to, positions held in related futures and 
options contracts listed for trading on designated contract markets, 
fungible agreements, contracts and transactions, as determined by a 
derivatives clearing organization. Electronic trading facilities may 
allow a brief grace period where a qualifying trader may exceed 
speculative limits or an existing exemption level pending the 
submission and approval of appropriate justification. An electronic 
trading facility should consider whether it wants to restrict 
exemptions during the last several days of trading in a delivery 
month. Acceptable procedures for obtaining and granting exemptions 
include a requirement that the electronic trading facility approve a 
specific maximum higher level.
    (iii) An acceptable speculative limit program should have 
specific policies for taking regulatory action once a violation of a 
position limit or exemption is detected. The electronic trading 
facility policies should consider appropriate actions.
    (8) Violation of Commission rules. A violation of position 
limits for significant price discovery contracts that have been 
self-certified by an electronic trading facility is also a violation 
of section 4a(e) of the Act.
    CORE PRINCIPLE V--EMERGENCY AUTHORITY. The electronic trading 
facility shall adopt rules to provide for the exercise of emergency 
authority, in consultation or cooperation with the Commission, where 
necessary and appropriate, including the authority to liquidate open 
positions in significant price discovery contracts and to suspend or 
curtail trading in a significant price discovery contract.
    (a) Guidance. An electronic trading facility on which 
significant price discovery contracts are traded should have clear 
procedures and guidelines for decision-making regarding emergency 
intervention in the market, including procedures and guidelines to 
avoid conflicts of interest while carrying out such decision-making. 
An electronic trading facility on which significant price discovery 
contracts are executed or traded should also have the authority to 
intervene as necessary to maintain markets with fair and orderly 
trading as well as procedures for carrying out the intervention. 
Procedures and guidelines should include notifying the Commission of

[[Page 66343]]

the exercise of the electronic trading facility's regulatory 
emergency authority, explaining how conflicts of interest are 
minimized, and documenting the electronic trading facility's 
decision-making process and the reasons for using its emergency 
action authority. Information on steps taken under such procedures 
should be included in a submission of a certified rule and any 
related submissions for rule approval pursuant to part 40 of this 
chapter, when carried out pursuant to an electronic trading 
facility's emergency authority. To address perceived market threats, 
the electronic trading facility on which significant price discovery 
contracts are executed or traded should, among other things, be able 
to impose position limits in the delivery month, impose or modify 
price limits, modify circuit breakers, call for additional margin 
either from market participants or clearing members (for contracts 
that are cleared through a clearinghouse), order the liquidation or 
transfer of open positions, order the fixing of a settlement price, 
order a reduction in positions, extend or shorten the expiration 
date or the trading hours, suspend or curtail trading on the 
electronic trading facility, order the transfer of contracts and the 
margin for such contracts from one market participant to another, or 
alter the delivery terms or conditions or, if applicable, should 
provide for such actions through its agreements with its third-party 
provider of clearing services.
    (b) Acceptable practices. [Reserved]
    CORE PRINCIPLE VI--DAILY PUBLICATION OF TRADING INFORMATION. The 
electronic trading facility shall make public daily information on 
price, trading volume, and other trading data to the extent 
appropriate for significant price discovery contracts.
    (a) Guidance. An electronic trading facility, with respect to 
significant price discovery contracts, should provide to the public 
information regarding settlement prices, price range, volume, open 
interest, and other related market information for all applicable 
contracts as determined by the Commission on a fair, equitable and 
timely basis. Provision of information for any applicable contract 
can be through such means as provision of the information to a 
financial information service or by timely placement of the 
information on the electronic trading facility's public Web site.
    (b) Acceptable practices. Compliance with Sec.  16.01 of this 
chapter, which is mandatory, is an acceptable practice that 
satisfies the requirements of Core Principle VI.
    CORE PRINCIPLE VII--COMPLIANCE WITH RULES. The electronic 
trading facility shall monitor and enforce compliance with the rules 
of the electronic trading facility, including the terms and 
conditions of any contracts to be traded and any limitations on 
access to the electronic trading facility.
    (a) Guidance--(1) An electronic trading facility on which 
significant price discovery contracts are executed or traded should 
have appropriate arrangements and resources for effective trade 
practice surveillance programs, with the authority to collect 
information and documents on both a routine and non-routine basis, 
including the examination of books and records kept by its market 
participants. The arrangements and resources should facilitate the 
direct supervision of the market and the analysis of data collected. 
Trade practice surveillance programs may be carried out by the 
electronic trading facility itself or through delegation or 
contracting-out to a third party. If the electronic trading facility 
on which significant price discovery contracts are executed or 
traded delegates or contracts-out the trade practice surveillance 
responsibility to a third party, such third party should have the 
capacity and authority to carry out such programs, and the 
electronic trading facility should retain appropriate supervisory 
authority over the third party.
    (2) An electronic trading facility on which significant price 
discovery contracts are executed or traded should have arrangements, 
resources and authority for effective rule enforcement. The 
Commission believes that this should include the authority and 
ability to discipline and limit or suspend the activities of a 
market participant as well as the authority and ability to terminate 
the activities of a market participant pursuant to clear and fair 
standards. The electronic trading facility can satisfy this 
criterion for market participants by expelling or denying such 
person's future access upon a determination that such a person has 
violated the electronic trading facility's rules.
    (b) Acceptable practices. An acceptable trade practice 
surveillance program generally would include:
    (1) Maintenance of data reflecting the details of each 
transaction executed on the electronic trading facility;
    (2) Electronic analysis of this data routinely to detect 
potential trading violations;
    (3) Appropriate and thorough investigative analysis of these and 
other potential trading violations brought to the electronic trading 
facility's attention; and
    (4) Prompt and effective disciplinary action for any violation 
that is found to have been committed. The Commission believes that 
the latter element should include the authority and ability to 
discipline and limit or suspend the activities of a market 
participant pursuant to clear and fair standards that are available 
to market participants. See, e.g., 17 CFR part 8.
    CORE PRINCIPLE VIII--CONFLICTS OF INTEREST. The electronic 
trading facility on which significant price discovery contracts are 
executed or traded shall establish and enforce rules to minimize 
conflicts of interest in the decision-making process of the 
electronic trading facility and establish a process for resolving 
such conflicts of interest.
    (a) Guidance. (1) The means to address conflicts of interest in 
the decision-making of an electronic trading facility on which 
significant price discovery contracts are executed or traded should 
include methods to ascertain the presence of conflicts of interest 
and to make decisions in the event of such a conflict. In addition, 
the Commission believes that the electronic trading facility on 
which significant price discovery contracts are executed or traded 
should provide for appropriate limitations on the use or disclosure 
of material non-public information gained through the performance of 
official duties by board members, committee members and electronic 
trading facility employees or gained through an ownership interest 
in the electronic trading facility or its parent organization(s).
    (2) All electronic trading facilities on which significant price 
discovery contracts are traded bear special responsibility to 
regulate effectively, impartially, and with due consideration of the 
public interest, as provided in section 3 of the Act. Under Core 
Principle VIII, they are also required to minimize conflicts of 
interest in their decision-making processes. To comply with this 
core principle, electronic trading facilities on which significant 
price discovery contracts are traded should be particularly vigilant 
for such conflicts between and among any of their self-regulatory 
responsibilities, their commercial interests, and the several 
interests of their management, members, owners, market participants, 
other industry participants and other constituencies.
    (b) Acceptable practices. [Reserved]
    CORE PRINCIPLE IX--ANTITRUST CONSIDERATIONS. Unless necessary or 
appropriate to achieve the purposes of this Act, the electronic 
trading facility, with respect to any significant price discovery 
contracts, shall endeavor to avoid adopting any rules or taking any 
actions that result in any unreasonable restraints of trade or 
imposing any material anticompetitive burden on trading on the 
electronic trading facility.
    (a) Guidance. An electronic trading facility, with respect to a 
significant price discovery contract, may at any time request that 
the Commission consider under the provisions of section 15(b) of the 
Act any of the electronic trading facility's rules, which may be 
trading protocols or policies, operational rules, or terms or 
conditions of any significant price discovery contract. The 
Commission intends to apply section 15(b) of the Act to its 
consideration of issues under this core principle in a manner 
consistent with that previously applied to contract markets.
    (b) Acceptable practices. [Reserved]

PART 38--DESIGNATED CONTRACT MARKETS

0
73. The authority citation for part 38 continues to read as follows:

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


0
74. Revise Sec.  38.2 to read as follows:


Sec.  38.2  Exempt provisions.

    A designated contract market, the designated contract market's 
operator and transactions traded on or through a designated contract 
market under section 5 of the Act shall comply with all applicable 
regulations under Title 17

[[Page 66344]]

of the Code of Federal Regulations, except for the requirements of 
Sec.  1.39(b), Sec.  1.44, Sec.  1.53, Sec.  1.54, Sec.  1.59(b) and 
(c), Sec.  1.62, Sec.  1.63(a) and (b) and (d) through (f), Sec.  1.64, 
Sec.  1.69, part 8, Sec.  100.1, Sec.  155.2, and part 156.

PART 41--SECURITY FUTURES PRODUCTS

0
75. The authority citation for part 41 continues to read as follows:

    Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat. 
2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).

0
76. Revise paragraph (e) of Sec.  41.1 to read as follows:


Sec.  41.1  Definitions

* * * * *
    (e) Narrow-based security index has the same meaning as in section 
1a(35) of the Commodity Exchange Act.
* * * * *
0
77. Revise Sec.  41.2 to read as follows:


Sec.  41.2  Required records.

    A designated contract market that trades a security index or 
security futures product shall maintain in accordance with the 
requirements of Sec.  1.31 of this chapter books and records of all 
activities related to the trading of such products, including: Records 
related to any determination under subpart B of this part whether or 
not a futures contract on a security index is a narrow-based security 
index or a broad-based security index.

0
78. Amend Sec.  41.11 by revising paragraphs (a) introductory text, 
(b)(1) introductory text, (b)(2) introductory text, (c), and (d)(5) 
introductory text to read as follows:


Sec.  41.11  Method for determining market capitalization and dollar 
value of average daily trading volume; application of the definition of 
narrow-based security index.

    (a) Market capitalization. For purposes of section 1a(35)(B) of the 
Act (7 U.S.C. 1a(35)(B)):
* * * * *
    (b) * * *
    (1) For purposes of section 1a(35)(A) and (B) of the Act (7 U.S.C. 
1a(35)(A) and (B)):
* * * * *
    (2) For purposes of section 1a(35)(B)(III)(cc) of the Act (7 U.S.C. 
1a(35)(B)(III)(cc)):
* * * * *
    (c) Depositary Shares and Section 12 Registration. For purposes of 
section 1a(35)(B)(III)(aa) of the Act (7 U.S.C. 1a(35)(B)(III)(aa)), 
the requirement that each component security of an index be registered 
pursuant to section 12 of the Securities Exchange Act of 1934 (15 
U.S.C. 78l) shall be satisfied with respect to any security that is a 
depositary share if the deposited securities underlying the depositary 
share are registered pursuant to section 12 of the Securities Exchange 
Act of 1934 and the depositary share is registered under the Securities 
Act of 1933 (15 U.S.C. 77a et seq.) on Form F-6 (17 CFR 239.36).
    (d) * * *
    (5) Lowest weighted 25% of an index. With respect to any particular 
day, the lowest weighted component securities comprising, in the 
aggregate, 25% of an index's weighting for purposes of section 
1a(35)(A)(iv) of the Act (7 U.S.C. 1a(35)(A)(iv)) (``lowest weighted 
25% of an index'') means those securities:
* * * * *

0
79. Revise paragraph (a) introductory text of Sec.  41.12 to read as 
follows:


Sec.  41.12  Indexes underlying futures contracts trading for fewer 
than 30 days.

    (a) An index on which a contract of sale for future delivery is 
trading on a designated contract market or foreign board of trade is 
not a narrow-based security index under section 1a(35) of the Act (7 
U.S.C. 1a(35)) for the first 30 days of trading, if:
* * * * *

0
80. Revise Sec.  41.13 to read as follows:


Sec.  41.13  Futures contracts on security indexes trading on or 
subject to the rules of a foreign board of trade.

    When a contract of sale for future delivery on a security index is 
traded on or subject to the rules of a foreign board of trade, such 
index shall not be a narrow-based security index if it would not be a 
narrow-based security index if a futures contract on such index were 
traded on a designated contract market.

0
81. Revise paragraphs (a)(1), (a)(3), (b)(1), (b)(2), and (b)(4) of 
Sec.  41.21 to read as follows:


Sec.  41.21  Requirements for underlying securities.

    (a) * * *
    (1) The underlying security is registered pursuant to section 12 of 
the Securities Exchange Act of 1934;
* * * * *
    (3) The underlying security conforms with the listing standards for 
the security futures product that the designated contract market has 
filed with the SEC under section 19(b) of the Securities Exchange Act 
of 1934.
    (b) * * *
    (1) The index is a narrow-based security index as defined in 
section 1a(35) of the Act;
    (2) The securities in the index are registered pursuant to section 
12 of the Securities Exchange Act of 1934;
* * * * *
    (4) The index conforms with the listing standards for the security 
futures product that the designated contract market has filed with the 
SEC under section 19(b) of the Securities Exchange Act of 1934.

0
82. Revise the introductory text and paragraph (e) of Sec.  41.22 to 
read as follows:


Sec.  41.22  Required certifications.

    It shall be unlawful for a designated contract market to list for 
trading or execution a security futures product unless the designated 
contract market has provided the Commission with a certification that 
the specific security futures product or products and the designated 
contract market meet, as applicable, the following criteria:
* * * * *
    (e) If the board of trade is a designated contract market pursuant 
to section 5 of the Act, dual trading in these security futures 
products is restricted in accordance with Sec.  41.27;
* * * * *

0
83. Revise paragraph (a) introductory text, paragraph (a)(5), and 
paragraph (b) of Sec.  41.23 to read as follows:


Sec.  41.23  Listing of security futures products for trading.

    (a) Initial listing of products for trading. To list new security 
futures products for trading, a designated contract market shall submit 
to the Commission at its Washington, DC headquarters, either in 
electronic or hard-copy form, to be received by the Commission no later 
than the day prior to the initiation of trading, a filing that:
* * * * *
    (5) If the board of trade is a designated contract market pursuant 
to section 5 of the Act, it includes a certification that the security 
futures product complies with the Act and rules thereunder; and
* * * * *
    (b) Voluntary submission of security futures products for 
Commission approval. A designated contract market may request that the 
Commission approve any security futures product under the procedures of 
Sec.  40.5 of this chapter, provided however, that the registered 
entity shall include the certification required by Sec.  41.22 with its 
submission under Sec.  40.5 of this chapter. Notice designated contract 
markets may not request Commission approval of security futures 
products.

0
84. Amend Sec.  41.24 by removing paragraph (b), redesignating 
paragraph

[[Page 66345]]

(c) as paragraph (b), and revising redesignated paragraph (b), to read 
as follows:


Sec.  41.24  Rule amendments to security futures products.

* * * * *
    (b) Voluntary submission of rules for Commission review and 
approval. A designated contract market or a registered derivatives 
clearing organization clearing security futures products may request 
that the Commission approve any rule or proposed rule or rule amendment 
relating to a security futures product under the procedures of Sec.  
40.5 of this chapter, provided however, that the registered entity 
shall include the certifications required by Sec.  41.22 with its 
submission under Sec.  40.5 of this chapter. Notice designated contract 
markets may not request Commission approval of rules.

0
85. Revise paragraphs (a)(1), (a)(2) introductory text, (a)(3) 
introductory text, (a)(3)(i)(A), (a)(3)(i)(B), (a)(3)(iv), and (d) of 
Sec.  41.25 to read as follows:


Sec.  41.25  Additional conditions for trading for security futures 
products.

    (a) Common provisions--(1) Reporting of data. The designated 
contract market shall comply with part 16 of this chapter requiring the 
daily reporting of market data.
    (2) Regulatory trading halts. The rules of a designated contract 
market that lists or trades one or more security futures products must 
include the following provisions:
* * * * *
    (3) Speculative position limits. The designated contract market 
shall have rules in place establishing position limits or position 
accountability procedures for the expiring futures contract month. The 
designated contract market shall:
    (i) * * *
    (A) For security futures products where the average daily trading 
volume in the underlying security exceeds 20 million shares, or exceeds 
15 million shares and there are more than 40 million shares of the 
underlying security outstanding, the designated contract market may 
adopt a net position limit no greater than 22,500 (100-share) contracts 
applicable to positions held during the last five trading days of an 
expiring contract month; or
    (B) For security futures products where the average daily trading 
volume in the underlying security exceeds 20 million shares and there 
are more than 40 million shares of the underlying security outstanding, 
the designated contract market may adopt a position accountability 
rule. Upon request by the designated contract market, traders who hold 
net positions greater than 22,500 (100-share) contracts, or such lower 
level specified by exchange rules, must provide information to the 
exchange and consent to halt increasing their positions when so ordered 
by the exchange.
* * * * *
    (iv) For purposes of this section, average daily trading volume 
shall be calculated monthly, using data for the most recent six-month 
period. If the data justify a higher or lower speculative limit for a 
security future, the designated contract market may raise or lower the 
position limit for that security future effective no earlier than the 
day after it has provided notification to the Commission and to the 
public under the submission requirements of Sec.  41.24. If the data 
require imposition of a reduced position limit for a security future, 
the designated contract market may permit any trader holding a position 
in compliance with the previous position limit, but in excess of the 
reduced limit, to maintain such position through the expiration of the 
security futures contract; provided, that the designated contract 
market does not find that the position poses a threat to the orderly 
expiration of such contract.
* * * * *
    (d) The Commission may exempt a designated contract market from the 
provisions of paragraphs (a)(2) and (b) of this section, either 
unconditionally or on specified terms and conditions, if the Commission 
determines that such exemption is consistent with the public interest 
and the protection of customers. An exemption granted pursuant to this 
paragraph shall not operate as an exemption from any Securities and 
Exchange Commission rules. Any exemption that may be required from such 
rules must be obtained separately from the Securities and Exchange 
Commission.

0
86. Amend Sec.  41.27 by:
0
a. Revising paragraphs (a)(1), (a)(3) introductory text, (a)(4)(v), 
(a)(5), (b), (d) introductory text, (d)(1), (d)(4), and (f); and
0
b. Removing and reserving paragraphs (c)(2) and (e)(2), to read as 
follows:


Sec.  41.27  Prohibition of dual trading in security futures products 
by floor brokers.

    (a) * * *
    (1) Trading session means hours during which a designated contract 
market is scheduled to trade continuously during a trading day, as set 
forth in its rules, including any related post settlement trading 
session. A designated contract market may have more than one trading 
session during a trading day.
* * * * *
    (3) Broker association includes two or more designated contract 
market members with floor trading privileges of whom at least one is 
acting as a floor broker who:
* * * * *
    (4) * * *
    (v) An account for another member present on the floor of a 
designated contract market or an account controlled by such other 
member.
    (5) Dual trading means the execution of customer orders by a floor 
broker through open outcry during the same trading session in which the 
floor broker executes directly or by initiating and passing to another 
member, either through open outcry or through a trading system that 
electronically matches bids and offers pursuant to a predetermined 
algorithm, a transaction for the same security futures product on the 
same designated contract market for an account described in paragraphs 
(a)(4)(i) through (v) of this section.
    (b) Dual Trading Prohibition. (1) No floor broker shall engage in 
dual trading in a security futures product on a designated contract 
market, except as otherwise provided under paragraphs (d), (e), and (f) 
of this section.
    (2) A designated contract market operating an electronic market or 
electronic trading system that provides market participants with a time 
or place advantage or the ability to override a predetermined algorithm 
must submit an appropriate rule proposal to the Commission consistent 
with the procedures set forth in Sec.  40.5. The proposed rule must 
prohibit electronic market participants with a time or place advantage 
or the ability to override a predetermined algorithm from trading a 
security futures product for accounts in which these same participants 
have any interest during the same trading session that they also trade 
the same security futures product for other accounts. This paragraph, 
however, is not applicable with respect to execution priorities or 
quantity guarantees granted to market makers who perform that function, 
or to market participants who receive execution priorities based on 
price improvement activity, in accordance with the rules governing the 
designated contract market.
    (c) * * *
    (2) [Reserved]
    (d) Specific Permitted Exceptions. Notwithstanding the 
applicability of a dual trading prohibition under

[[Page 66346]]

paragraph (b) of this section, dual trading may be permitted on a 
designated contract market pursuant to one or more of the following 
specific exceptions:
    (1) Correction of errors. To offset trading errors resulting from 
the execution of customer orders, provided, that the floor broker must 
liquidate the position in his or her personal error account resulting 
from that error through open outcry or through a trading system that 
electronically matches bids and offers as soon as practicable, but, 
except as provided herein, not later than the close of business on the 
business day following the discovery of error. In the event that a 
floor broker is unable to offset the error trade because the daily 
price fluctuation limit is reached, a trading halt is imposed by the 
designated contract market, or an emergency is declared pursuant to the 
rules of the designated contract market, the floor broker must 
liquidate the position in his or her personal error account resulting 
from that error as soon as practicable thereafter.
* * * * *
    (4) Market emergencies. To address emergency market conditions 
resulting in a temporary emergency action as determined by a designated 
contract market.
    (e) * * *
    (2) [Reserved]
    (f) Unique or Special Characteristics of Agreements, Contracts or 
Transactions, or of Designated Contract Markets. Notwithstanding the 
applicability of a dual trading prohibition under paragraph (b) of this 
section, dual trading may be permitted on a designated contract market 
to address unique or special characteristics of agreements, contracts, 
or transactions, or of the designated contract market as provided 
herein. Any rule of a designated contract market that would permit dual 
trading when it would otherwise be prohibited, based on a unique or 
special characteristic of agreements, contracts, or transactions, or of 
the designated contract market must be submitted to the Commission for 
prior approval under the procedures set forth in Sec.  40.5. The rule 
submission must include a detailed demonstration of why an exception is 
warranted.

0
87. Revise paragraphs (a)(4)(i)(B) and (a)(30) of Sec.  41.43 to read 
as follows:


Sec.  41.43  Definitions.

    (a) * * *
    (4) * * *
    (i) * * *
    (B) If the instrument underlying such security future is a narrow-
based security index, as defined in section 1a(35)(A) of the Act, the 
product of the daily settlement price of such security future as shown 
by any regularly published reporting or quotation service, and the 
applicable contract multiplier.
* * * * *
    (30) Self-regulatory authority means a national securities exchange 
registered under section 6 of the Exchange Act, a national securities 
association registered under section 15A of the Exchange Act, or a 
contract market registered under section 5 of the Act or section 5f of 
the Act.
* * * * *

0
88. Revise paragraph (b) introductory text of Sec.  41.49 to read as 
follows:


Sec.  41.49  Filing proposed margin rule changes with the Commission.

* * * * *
    (b) Filing requirements under the Act. Any self-regulatory 
authority that is registered with the Commission as a designated 
contract market under section 5 of the Act shall, when filing a 
proposed rule change regarding customer margin for security futures 
with the SEC for approval in accordance with section 19(b)(2) of the 
Exchange Act, submit such proposed rule change to the Commission as 
follows:
* * * * *

PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION

0
89. The authority citation for part 140 continues to read as follows:

    Authority:  7 U.S.C. 2 and 12a.

0
90. Amend Sec.  140.72 by revising the section heading and paragraphs 
(a), (b), (d) and (f), to read as follows:


Sec.  140.72  Delegation of authority to disclose confidential 
information to a contract market, swap execution facility, swap data 
repository, registered futures association or self-regulatory 
organization.

    (a) Pursuant to the authority granted under sections 2(a)(11), 
8a(5) and 8a(6) of the Act, the Commission hereby delegates, until such 
time as the Commission orders otherwise, to the Executive Director, the 
Deputy Executive Director, the Special Assistant to the Executive 
Director, the Director of the Division of Clearing and Intermediary 
Oversight, each Deputy Director of the Division of Clearing and 
Intermediary Oversight, the Chief Accountant, the General Counsel, each 
Deputy General Counsel, the Director of the Division of Market 
Oversight, each Deputy Director of the Division of Market Oversight, 
the Deputy Director of the Market and Trade Practice Surveillance 
Branch, the Director of the Division of Enforcement, each Deputy 
Director of the Division of Enforcement, each Associate Director of the 
Division of Enforcement, the Chief Counsel of the Division of 
Enforcement, each Regional Counsel of the Division of Enforcement, each 
of the Regional Administrators, the Chief Economist of the Office of 
the Chief Economist, the Deputy Chief Economist of the Office of the 
Chief Economist, the Director of the Office of International Affairs, 
and the Deputy Director of the Office of International Affairs, the 
authority to disclose to an official of any contract market, swap 
execution facility, swap data repository, registered futures 
association, or self-regulatory organization as defined in section 
3(a)(26) of the Securities Exchange Act of 1934, any information 
necessary or appropriate to effectuate the purposes of the Act, 
including, but not limited to, the full facts concerning any 
transaction or market operation, including the names of the parties 
thereto. This authority to disclose shall be based on a determination 
that the transaction or market operation disrupts or tends to disrupt 
any market or is otherwise harmful or against the best interests of 
producers, consumers, or investors or that disclosure is necessary or 
appropriate to effectuate the purposes of the Act. The authority to 
make such a determination is also delegated by the Commission to the 
Commission employees identified in this section. A Commission employee 
delegated authority under this section may exercise that authority on 
his or her own initiative or in response to a request by an official of 
a contract market, swap execution facility, swap data repository, 
registered futures association or self-regulatory organization.
    (b) Disclosure under this section shall only be made to a contract 
market, swap execution facility, swap data repository, registered 
futures association or self-regulatory organization official who is 
named in a list filed with the Commission by the chief executive 
officer of the contract market, swap execution facility, swap data 
repository, registered futures association or self-regulatory 
organization, which sets forth the official's name, business address 
and telephone number. The chief executive officer shall thereafter 
notify the Commission of any deletions or additions to the list of 
officials authorized to receive disclosures under this section. The 
original list and any supplemental list required by this paragraph 
shall be filed with the Secretary of the Commission, and a

[[Page 66347]]

copy thereof shall also be filed with the Regional Coordinator for the 
region in which the contract market, swap execution facility, or swap 
data repository is located or in which the registered futures 
association or self-regulatory organization has its principal office.
* * * * *
    (d) For purposes of this section, the term ``official'' shall mean 
any officer or member of a committee of a contract market, swap 
execution facility, swap data repository, registered futures 
association or self-regulatory organization who is specifically charged 
with market surveillance or audit or investigative responsibilities, or 
their duly authorized representative or agent, who is named on the list 
filed pursuant to paragraph (b) of this section or any supplement 
thereto.
* * * * *
    (f) Any contract market, swap execution facility, swap data 
repository, registered futures association or self-regulatory 
organization receiving information from the Commission under these 
provisions shall not disclose such information except that disclosure 
may be made in any self-regulatory action or proceeding.

0
91. Amend Sec.  140.77 by revising the section heading and paragraph 
(a) to read as follows:


Sec.  140.77  Delegation of authority to determine that applications 
for contract market designation, swap execution facility registration, 
or swap data repository registration are materially incomplete.

    (a) The Commodity Futures Trading Commission hereby delegates, 
until such time as the Commission orders otherwise, to the Director of 
the Division of Market Oversight or the Director's designees, the 
authority to determine that an application for contract market 
designation, swap execution facility registration, or swap data 
repository registration is materially incomplete under section 6 of the 
Commodity Exchange Act and to so notify the applicant.
* * * * *

0
92. Revise paragraphs (a) and (b) of Sec.  140.96 to read as follows:


Sec.  140.96  Delegation of authority to publish in the Federal 
Register.

    (a) The Commodity Futures Trading Commission hereby delegates, 
until such time as the Commission orders otherwise, to the Director of 
the Division of Market Oversight or the Director's designee, with the 
concurrence of the General Counsel or the General Counsel's designee, 
the authority to publish in the Federal Register notice of the 
availability for comment of the proposed terms and conditions of 
applications for contract market designation, swap execution facility 
and swap data repository registration, and to determine to publish, and 
to publish, requests for public comment on proposed exchange, swap 
execution facility, or swap data repository rules, and rule amendments, 
when there exists novel or complex issues that require additional time 
to analyze, an inadequate explanation by the submitting registered 
entity, or a potential inconsistency with the Act, including 
regulations under the Act.
    (b) The Commodity Futures Trading Commission hereby delegates, 
until such time as the Commission orders otherwise, to the Director of 
the Division of Market Oversight or the Director's designee, and to the 
Director of the Division of Clearing and Intermediary Oversight or the 
Director's designee, with the concurrence of the General Counsel or the 
General Counsel's designee, the authority to determine to publish, and 
to publish, in the Federal Register, requests for public comment on 
proposed exchange and self-regulatory organization rule amendments when 
publication of the proposed rule amendment is in the public interest 
and will assist the Commission in considering the views of interested 
persons.
* * * * *

0
93. Revise paragraph (d)(2) of Sec.  140.99 to read as follows:


Sec.  140.99  Requests for exemptive, no-action and interpretative 
letters.

* * * * *
    (d) * * *
    (2) A request for a Letter relating to the provisions of the Act or 
the Commission's rules, regulations or orders governing designated 
contract markets, registered swap execution facilities, registered swap 
data repositories, exempt commercial markets, exempt boards of trade, 
the nature of particular transactions and whether they are exempt or 
excluded from being required to be traded on one of the foregoing 
entities, foreign trading terminals, hedging exemptions, and the 
reporting of market positions shall be filed with the Director, 
Division of Market Oversight, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. A 
request for a Letter relating to all other provisions of the Act or 
Commission rules shall be filed with the Director, Division of Clearing 
and Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. The 
request must be submitted electronically using the email address 
dmoletters@cftc.gov (for requests filed with the Division of Market 
Oversight), or dcioletters@cftc.gov (for requests filed with the 
Division of Clearing and Intermediary Oversight), as appropriate, and a 
properly signed paper copy of the request must be provided to the 
Division of Market Oversight or the Division of Clearing and 
Intermediary Oversight, as appropriate, within ten days for purposes of 
verification of the electronic submission.
* * * * *

0
94. Amend Sec.  140.735-2 by:
0
a. Redesignating paragraphs (b)(1)(i), (b)(1)(ii), and (b)(1)(iii) as 
(b)(1)(ii), (b)(1)(iv), and (b)(1)(v), respectively;
0
b. Adding paragraphs (b)(1)(i) and (b)(1)(iii); and
0
c. Revising paragraphs (b)(2) and (c), to read as follows:


Sec.  140.735-2  Prohibited transactions.

* * * * *
    (b) * * *
    (1) * * *
    (i) In swaps;
* * * * *
    (iii) In retail forex transactions, as that term is defined in 
Sec.  5.1(m) of this chapter;
* * * * *
    (2) Effect any purchase or sale of a commodity option, futures 
contract, or swap involving a security or group of securities;
* * * * *
    (c) Exception for farming, ranching, and natural resource 
operations. The prohibitions in paragraphs (b)(1)(i), (ii), and (iv) of 
this section shall not apply to a transaction in connection with any 
farming, ranching, oil and gas, mineral rights, or other natural 
resource operation in which the member or employee has a financial 
interest, if he or she is not involved in the decision to engage in, 
and does not have prior knowledge of, the actual futures, commodity 
option, or swap transaction and has previously notified the General 
Counsel \2\ in writing of the nature of the operation, the extent of 
the member's or employee's interest, the types of transactions in which 
the operation may engage, and the identity of the person or

[[Page 66348]]

persons who will make trading decisions for the operation; \3\ or
---------------------------------------------------------------------------

    \2\ As used in this subpart, ``General Counsel'' refers to the 
General Counsel in his or her capacity as counselor for the 
Commission and designated agency ethics official for the Commission, 
and includes his or her designee and the alternate designated agency 
ethics official appointed by the agency head pursuant to 5 CFR 
2638.202.
    \3\ Although not required, if they choose to do so, members or 
employees may use powers of attorney or other arrangements in order 
to meet the notice requirements of, and to assure that they have no 
control or knowledge of, futures, commodity option, or swap 
transactions permitted under paragraph (c) of this section. A member 
or employee considering such arrangements should consult with the 
Office of General Counsel in advance for approval. Should a member 
or employee gain knowledge of an actual futures, commodity option, 
or swap transaction entered into by an operation described in 
paragraph (c) of this section that has already taken place and the 
market position represented by that transaction remains open, he or 
she should promptly report that fact and all other details to the 
General Counsel and seek advice as to what action, including recusal 
from any particular matter that will have a direct and predictable 
effect on the financial interest in question, may be appropriate.
---------------------------------------------------------------------------

* * * * *

0
95. Revise paragraph (b)(1) of Sec.  140.735-2a to read as follows:


Sec.  140.735-2a  Prohibited interests.

* * * * *
    (b) * * *
    (1) Have a financial interest, through ownership of securities or 
otherwise, in any person \5\ registered with the Commission (including 
futures commission merchants, associated persons and agents of futures 
commission merchants, floor brokers, commodity trading advisors and 
commodity pool operators, and any other persons required to be 
registered in a fashion similar to any of the above under the Commodity 
Exchange Act or pursuant to any rule or regulation promulgated by the 
Commission), or any contract market, swap execution facility, swap data 
repository, board of trade, or other trading facility, or any 
derivatives clearing organization subject to regulation or oversight by 
the Commission; \6\
---------------------------------------------------------------------------

    \5\ As defined in section 1a(38) of the Commodity Exchange Act 
and 17 CFR 1.3(u) thereunder, a ``person'' includes an individual, 
association, partnership, corporation and a trust.
    \6\ Attention is directed to 18 U.S.C. 208.
---------------------------------------------------------------------------

* * * * *

0
96. Revise Sec.  140.735-3 to read as follows:


Sec.  140.735-3  Non-governmental employment and other outside 
activity.

    A Commission member or employee shall not accept employment or 
compensation from any person, exchange, swap execution facility, swap 
data repository or derivatives clearing organization subject to 
regulation by the Commission. For purposes of this section, a person 
subject to regulation by the Commission includes but is not limited to 
a contract market, swap execution facility, swap data repository or 
derivatives clearing organization or member thereof, a registered 
futures commission merchant, any person associated with a futures 
commission merchant or with any agent of a futures commission merchant, 
floor broker, commodity trading advisor, commodity pool operator or any 
person required to be registered in a fashion similar to any of the 
above or file reports under the Act or pursuant to any rule or 
regulation promulgated by the Commission.\11\
---------------------------------------------------------------------------

    \11\ Attention is directed to section 2(a)(8) of the Commodity 
Exchange Act, which provides, among other things, that no Commission 
member or employee shall accept employment or compensation from any 
person, exchange or derivatives clearing organization 
(``clearinghouse'') subject to regulation by the Commission, or 
participate, directly or indirectly, in any contract market 
operations or transactions of a character subject to regulation by 
the Commission.
---------------------------------------------------------------------------

PART 145--COMMISSION RECORDS AND INFORMATION

0
97. The authority citation for part 145 continues to read as follows:

    Authority:  Pub. L. 99-570, 100 Stat. 3207; Pub. L. 89-554, 80 
Stat. 383; Pub. L. 90-23, 81 Stat. 54; Pub. L. 98-502, 88 Stat. 
1561-1564 (5 U.S.C. 552); Sec. 101(a), Pub. L. 93-463, 88 Stat. 1389 
(5 U.S.C. 4a(j)); unless otherwise noted.


0
98. Revise paragraphs (c)(1), (d)(1) introductory text, and (d)(1)(vi) 
of Sec.  145.9 to read as follows:


Sec.  145.9  Petition for confidential treatment of information 
submitted to the Commission.

* * * * *
    (c) * * *
    (1) Submitter. A ``submitter'' is any person who submits any 
information or material to the Commission or who permits any 
information or material to be submitted to the Commission. For purposes 
of paragraph (d)(1)(ii) of this section only, ``submitter'' includes 
any person whose information has been submitted to a designated 
contract market, derivatives clearing organization, swap execution 
facility, swap data repository or registered futures association that 
in turn has submitted the information to the Commission.
* * * * *
    (d) Written request for confidential treatment. (1) Any submitter 
may request in writing that the Commission afford confidential 
treatment under the Freedom of Information Act to any information that 
he or she submits to the Commission. Except as provided in paragraph 
(d)(4) of this section, no oral requests for confidential treatment 
will be accepted by the Commission. The submitter shall specify the 
grounds on which confidential treatment is being requested but need not 
provide a detailed written justification of the request unless required 
to do so under paragraph (e) of this section. Confidential treatment 
may be requested only on the grounds that disclosure:
* * * * *
    (vi) Would reveal investigatory records compiled for law 
enforcement purposes when disclosure would interfere with enforcement 
proceedings or disclose investigative techniques and procedures, 
provided, that the claim may be made only by a designated contract 
market, derivatives clearing organization, swap execution facility, 
swap data repository or registered futures association with regard to 
its own investigatory records.
* * * * *

0
99. Revise paragraphs (a)(6), (a)(8), and (b)(13) of Appendix A to part 
145 to read as follows:

Appendix A to Part 145--Compilation of Commission Records Available to 
the Public

* * * * *
    (a) * * *
    (6) Rule enforcement and financial reviews (public version).
* * * * *
    (8) Commission rules and regulations, Federal Register notices, 
interpretative letters.
* * * * *
    (b) * * *
    (13) Publicly available portions of applications to become a 
registered entity including the transmittal letter, first page of 
the application cover sheet, proposed rules, proposed bylaws, 
corporate documents, any overview or similar summary provided by the 
applicant, any documents pertaining to the applicant's legal status 
and governance structure, including governance fitness information, 
and any other part of the application not covered by a request for 
confidential treatment.
* * * * *

PART 155--TRADING STANDARDS

0
100. The authority citation for part 155 continues to read as follows:

    Authority:  7 U.S.C. 6b, 6c, 6g, 6j, and 12a, unless otherwise 
noted.


0
101. Revise the introductory text of Sec.  155.2 to read as follows:


Sec.  155.2  Trading standards for floor brokers.

    Each contract market shall adopt rules which shall, at a minimum, 
with respect to each member of the contract market acting as a floor 
broker:
* * * * *

[[Page 66349]]


0
102. Revise paragraphs (a)(1), (b)(2)(ii), and (c)(1) of Sec.  155.3 to 
read as follows:


Sec.  155.3  Trading standards for futures commission merchants.

    (a) * * *
    (1) Insure, to the extent possible, that each order received from a 
customer which is executable at or near the market price is transmitted 
to the floor of the appropriate contract market before any order in any 
future or in any commodity option in the same commodity for any 
proprietary account, any other account in which an affiliated person 
has an interest, or any account for which an affiliated person may 
originate orders without the prior specific consent of the account 
owner, if the affiliated person has gained knowledge of the customer's 
order prior to the transmission to the floor of the appropriate 
contract market of the order for a proprietary account, an account in 
which the affiliated person has an interest, or an account in which the 
affiliated person may originate orders without the prior specific 
consent of the account owner; and
* * * * *
    (b) * * *
    (2) * * *
    (ii) In the case of a customer who does not qualify as an 
``institutional customer'' as defined in Sec.  1.3(g) of this chapter, 
a futures commission merchant must obtain the customer's prior consent 
through a signed acknowledgment, which may be accomplished in 
accordance with Sec.  1.55(d) of this chapter.
    (c) * * *
    (1) Receives written authorization from a person designated by such 
other futures commission merchant or introducing broker with 
responsibility for the surveillance over such account pursuant to 
paragraph (a)(2) of this section or Sec.  155.4(a)(2), respectively;
* * * * *

0
103. Revise paragraphs (a)(1), (b)(2)(ii), and (c)(2) of Sec.  155.4 to 
read as follows:


Sec.  155.4  Trading standards for introducing brokers.

    (a) * * *
    (1) Insure, to the extent possible, that each order received from a 
customer which is executable at or near the market price is transmitted 
to the futures commission merchant carrying the account of the customer 
before any order in any future or in any commodity option in the same 
commodity for any proprietary account, any other account in which an 
affiliated person has an interest, or any account for which an 
affiliated person may originate orders without the prior specific 
consent of the account owner, if the affiliated person has gained 
knowledge of the customer's order prior to the transmission to the 
floor of the appropriate contract market of the order for a proprietary 
account, an account in which the affiliated person has an interest, or 
an account in which the affiliated person may originate orders without 
the prior specific consent of the account owner; and
* * * * *
    (b) * * *
    (2) * * *
    (ii) In the case of a customer who does not qualify as an 
``institutional customer'' as defined in Sec.  1.3(g) of this chapter, 
an introducing broker must obtain the customer's prior consent through 
a signed acknowledgment, which may be accomplished in accordance with 
Sec.  1.55(d) of this chapter.
* * * * *
    (c) * * *
    (2) Copies of all statements for such account and of all written 
records prepared by such futures commission merchant upon receipt of 
orders for such account pursuant to Sec.  155.3(c)(2) are transmitted 
on a regular basis to the introducing broker with which such person is 
affiliated.


Sec.  155.6  [Removed and Reserved]

0
104. Remove and reserve Sec.  155.6.

PART 166--CUSTOMER PROTECTION RULES

0
105. The authority citation for part 155 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 6b, 6c, 6d, 6g, 6h, 6k, 6l, 6o, 7, 
12a, 21, and 23, as amended by Title VII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 
Stat. 1376 (2010).


0
106. Revise paragraph (a) introductory text and paragraph (b) of Sec.  
166.2 to read as follows:


Sec.  166.2  Authorization to trade.

* * * * *
    (a) With respect to a commodity interest as defined in any 
paragraph of the commodity interest definition in Sec.  1.3(yy) of this 
chapter, specifically authorized the futures commission merchant, 
retail foreign exchange dealer, introducing broker or any of their 
associated persons to effect the transaction (a transaction is 
``specifically authorized'' if the customer or person designated by the 
customer to control the account specifies--
* * * * *
    (b) With respect to a commodity interest as defined in paragraph 
(1) or (2) of the commodity interest definition in Sec.  1.3(yy) of 
this chapter, authorized in writing the futures commission merchant, 
introducing broker or any of their associated persons to effect 
transactions in commodity interests for the account without the 
customer's specific authorization; Provided, however, That if any such 
futures commission merchant, introducing broker or any of their 
associated persons is also authorized to effect transactions in foreign 
futures or foreign options without the customer's specific 
authorization, such authorization must be expressly documented.


0
107. Revise paragraph (a)(2) of Sec.  166.5 to read as follows:


Sec.  166.5  Dispute settlement procedures.

    (a) * * *
    (2) The term customer as used in this section includes any person 
for or on behalf of whom a member of a designated contract market, or a 
participant transacting on or through such designated contract market, 
effects a transaction on such contract market, except another member of 
or participant in such designated contract market. Provided, however, a 
person who is an ``eligible contract participant'' as defined in 
section 1a(18) of the Act shall not be deemed to be a customer within 
the meaning of this section.
* * * * *

    Issued in Washington, DC on October 16, 2012, by the Commission.
Sauntia S. Warfield,
Assistant Secretary of the Commission.

Appendices to Adaptation of Regulations To Incorporate Swaps--
Commission Voting Summary and Statements of Commissioners

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

Appendix 1--Commission Voting Summary

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

Appendix 2--Statement of Chairman Gary Gensler

    I support the final rule to amend and conform certain provisions 
of the Commodity Futures Trading Commission's (CFTC) regulations to 
incorporate swaps. These final conforming amendments are crucial to 
integrating the CFTC's regulations with the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act), which expanded 
the scope of the Commodity Exchange Act to cover swaps.

[[Page 66350]]

    Specifically, this final rule updates the CFTC's definitions of 
futures commission merchant (FCM) and introducing broker (IB) to 
fulfill the Dodd-Frank Act's requirement to permit these entities to 
trade swaps on behalf of their customers. This final rule also 
updates the definitions of commodity interest, customer, and 
customer funds to incorporate swaps. In addition, the final rule 
adds swap execution facilities (SEFs) to the list of CFTC-regulated 
trading venues.
    The final rule amends existing recordkeeping requirements for 
FCMs and IBs to ensure that similar records are kept for swaps as 
are currently kept for futures. In addition, SEF members will be 
obligated to comply with the same recordkeeping duties as are 
required of designated contract market (DCM) members.

[FR Doc. 2012-25764 Filed 11-1-12; 8:45 am]
BILLING CODE 6351-01-P