Conflicts of Interest in Self-Regulation and Self-Regulatory Organizations, 65658-65659 [E7-22878]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 72, Number 225 (Friday, November 23, 2007)]
[Rules and Regulations]
[Pages 65658-65659]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-22878]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 38

RIN 3038-AC28


Conflicts of Interest in Self-Regulation and Self-Regulatory 
Organizations

AGENCY: Commodity Futures Trading Commission (``Commission'')

ACTION: Final rule; notice of stay.

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SUMMARY: On January 31, 2007, the Commission adopted Acceptable 
Practices for Section 5(d)(15) (``Core Principle 15'') of the Commodity 
Exchange Act. The new Acceptable Practices were published in the 
Federal Register on February 14, 2007, and became effective on March 
16, 2007. On March 26, 2007, the Commission published certain proposed 
amendments to the Acceptable Practices in an effort to clarify the 
definition of ``public director'' contained therein.\1\ The Commission 
has yet to act upon the proposed amendments, which are central to every 
element of the Acceptable Practices. Accordingly, the Commission hereby 
notifies all designated contract markets (``DCMs'') that, until further 
notice, the Acceptable Practices contained in paragraph (b) of Core 
Principle 15 in Appendix B to 17 CFR part 38 are stayed indefinitely.
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    \1\ Under the Acceptable Practices, the definition of ``public 
director'' is also relevant to members of DCM regulatory oversight 
committees (all of whom must be public directors) and to members of 
DCM disciplinary panels (panelists need not be directors, but must 
include at least one member who meets certain elements of the 
definition of public director).

DATES: Effective November 23, 2007, paragraph (b) of Core Principle 15 
in Appendix B to 17 CFR part 38 is stayed indefinitely. The Commission 
will publish a new Federal Register document lifting the stay on a 
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future date.

FOR FURTHER INFORMATION CONTACT: Rachel F. Berdansky, Acting Deputy 
Director for Market Compliance, 202-418-5429, or Sebastian Pujol 
Schott, Special Counsel, 202-418-5641, Division of Market Oversight, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, Washington, DC 20581.

SUPPLEMENTARY INFORMATION: On January 31, 2007 the Commission adopted 
its first Acceptable Practices for Core Principle 15. The Acceptable 
Practices are structured in four parts, including three operational 
provisions. The operational provisions include: (1) DCM boards of 
directors composed of at least 35% public directors; (2) board-level 
regulatory oversight committees (``ROC'') consisting exclusively of 
public directors; and (3) disciplinary panels including at least one 
public person. The Acceptable Practices also include an important 
fourth provision which defines ``public director'' and also impacts ROC 
members and disciplinary panel members. All three operational 
provisions of the Acceptable Practices are dependent upon the 
definition of public director.
    The Acceptable Practices were published in the Federal Register on 
February 14, 2007, with an effective date of March 16, 2007. The 
Commission stated at that time that it would survey all DCMs within six 
months to evaluate their plans for compliance with Core Principle 15. 
The Commission further stated that all DCMs would be granted the lesser 
of two years or two regularly scheduled board elections to fully 
implement the new Acceptable Practices or otherwise demonstrate full 
compliance with Core Principle 15.
    On March 26, 2007, the Commission published proposed amendments to 
the definition of DCM ``public director,'' which, as noted above, also 
impacts ROC and disciplinary panel members. The comment period for the 
proposed amendments ended on April 25, 2007.

[[Page 65659]]

Six comment letters were received, including letters from the National 
Futures Association; the Futures Industry Association; the CBOE Futures 
Exchange; the Chicago Board of Trade; the Chicago Mercantile Exchange 
and Kansas City Board of Trade writing jointly; and Mr. Dennis Gartman. 
The comments received were studied carefully and are under advisement 
by the Commission. However, the Commission has yet to take final action 
on the proposed amendments.
    Until such time as the definition of ``public director'' is 
finalized, the operational provisions of the Acceptable Practices, 
which are dependent on the definition, cannot be properly applied by 
DCMs or enforced by the Commission. Recognizing this fact, and in order 
to carefully consider its next steps, the Commission has determined to 
stay the Acceptable Practices for Core Principle 15 adopted on January 
31, 2007. Accordingly, the two-year compliance period is also stayed.

Related Matters

A. Cost-Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its actions in advance of issuing any new 
regulation or order.\2\ More specifically, Section 15(a) states that 
the costs and benefits of a proposed rule or order shall be evaluated 
with regard to 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. In conducting its analysis, the Commission may 
give greater weight to any one of the five enumerated areas of market 
and public concern and determine, notwithstanding potential costs, that 
the implementation of a particular rule or order is necessary or 
appropriate to protect the public's interest or to effectuate or 
accomplish any of the provisions or purposes of the Act.\3\
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    \2\ 7 U.S.C. 19(a).
    \3\ Fishermen's Dock Co-op., Inc. v. Brown, 75 F.3d 164 (4th 
Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336 (D.C. Cir. 
1985) (agency has discretion to weigh factors in undertaking costs-
benefits analyses).
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    On February 14, 2007, the Commission published its first Acceptable 
Practices for Core Principle 15. The four-part Acceptable Practices, 
described above, were designed to facilitate the reduction of conflicts 
of interest in DCMs' decision making processes.\4\ Although the 
Acceptable Practices became effective on March 16, 2007, the Commission 
established a phase-in period for DCMs to implement the Acceptable 
Practices or to otherwise come into full compliance with Core Principle 
15. The phase-in period extended well beyond the date of effectiveness 
and consisted of the lesser of two years or two regularly scheduled 
board elections.
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    \4\ 72 FR 6936 (February 14, 2007).
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    On March 26, 2007, the Commission published proposed amendments to 
one element of the new Acceptable Practices--the definition of ``public 
director.'' To date, the Commission has yet to act upon the proposed 
amendments. The Commission recognizes that the operational provisions 
of Acceptable Practices cannot be properly applied by DCMs until the 
definition of ``public director'' is resolved. Accordingly, the 
Commission has determined, for the purpose of regulatory clarity, to 
stay the Acceptable Practices for Core Principle 15 and thereby lift 
any potential compliance costs associated with those Acceptable 
Practices.

B. Paperwork Reduction Act of 1995

    The stay of the effective date of the Acceptable Practices for Core 
Principle 15 reduces the information collection burden to levels 
previously approved by the Office of Management and Budget (OMB). The 
OMB control number for this collection is 3038-0052. The Commission has 
submitted the required Paperwork Reduction Act Change Worksheet (OMB-
83C) to OMB to reflect the change.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires 
federal agencies, in promulgating rules, to consider the impact of 
those rules on small entities. The stay of the effective date for the 
Acceptable Practices for Core Principle 15 affects DCMs. The Commission 
has previously determined that DCMs are not small entities for purposes 
of the Regulatory Flexibility Act.\5\ Accordingly, the acting Chairman, 
on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 
605(b) that the stay of the Acceptable Practices will not have a 
significant economic impact on a substantial number of small entities.
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    \5\ See Policy Statement and Establishment of Definitions of 
``Small Entities'' for Purposes of the Regulatory Flexibility Act, 
47 FR 18618, 18619 (Apr. 30, 1982).
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    Therefore, paragraph (b) of Core Principle 15 in Appendix B to 17 
CFR part 38 is stayed indefinitely.

    Issued in Washington, DC, on November 16, 2007, by the 
Commission.
David Stawick,
Secretary of the Commission.
 [FR Doc. E7-22878 Filed 11-21-07; 8:45 am]
BILLING CODE 6351-01-P