Notice of Request for Comment on Exemption Requests, 68862-68865 [E7-23635]

Download as PDF 68862 Federal Register / Vol. 72, No. 234 / Thursday, December 6, 2007 / Notices Aquatic Release Conservation ((877) 411–4272), 1870 Mason Ave., Daytona Beach, FL 32117. COMMODITY FUTURES TRADING COMMISSION Registration Materials Notice of Request for Comment on Exemption Requests To ensure that workshop certificates are linked to the correct permits, participants will need to bring the following items with them to the workshop: Individual vessel owners must bring a copy of the appropriate permit(s), a copy of the vessel registration or documentation, and proof of identification. Representatives of a business owned or co–owned vessel must bring proof that the individual is an agent of the business (such as articles of incorporation), a copy of the applicable permit(s), and proof of identification. Vessel operators must bring proof of identification. Workshop Objectives The protected species safe handling, release, and identification workshops are designed to teach longline and gillnet fishermen the required techniques for the safe handling and release of entangled and/or hooked protected species, such as sea turtles, marine mammals, and smalltooth sawfish. Identification of protected species will also be taught at these workshops in an effort to improve reporting. Additionally, individuals attending these workshops will gain a better understanding of the requirements for participating in these fisheries. The overall goal for these workshops is to provide participants the skills needed to reduce the mortality of protected species, which may prevent additional regulations on these fisheries in the future. Grandfathered Permit Holders mstockstill on PROD1PC66 with NOTICES Participants in the industry– sponsored workshops on safe handling and release of sea turtles that were held in Orlando, FL (April 8, 2005) and in New Orleans, LA (June 27, 2005) were issued a NOAA workshop certificate in December 2006 that is valid for three years. Grandfathered permit holders must include a copy of this certificate when renewing limited access shark and limited access swordfish permits each year. Failure to provide a valid NOAA workshop certificate may result in a permit denial. Dated: December 3, 2007. Alan D. Risenhoover, Director, Office of Sustainable Fisheries, National Marine Fisheries Service. [FR Doc. E7–23697 Filed 12–5–07; 8:45 am] 18:57 Dec 05, 2007 Requests to extend, pursuant to the exemptive authority in section 4(c) of the Commodity Exchange Act, the exemption granted under Part 35 of the Commission’s regulations to certain over-the-counter swaps that do not otherwise meet certain of the requirements imposed by Commission Regulation 35.2 and to determine that, subject to certain conditions, floor brokers and floor traders are eligible swap participants. SUMMARY: The Commodity Futures Trading Commission (‘‘CFTC’’ or ‘‘Commission’’) is requesting comment on whether to extend the exemption granted under Part 35 of the Commission’s regulations to certain over-the-counter (‘‘OTC’’) swaps that do not meet certain of the requirements otherwise imposed by Commission Regulation 35.2. This exemption has been requested by ICE Clear U.S., Inc. (‘‘ICE Clear’’), a registered derivatives clearing organization. The Commission is also requesting comment on whether ICE Futures U.S., Inc. (‘‘ICE Futures U.S.’’) floor traders and floor brokers who are registered with the Commission, when trading for their own accounts, may be determined to be eligible swap participants and permitted to enter into certain specified OTC swap transactions. This exemption has been requested by ICE Futures U.S., a designated contract market. Authority for extending this relief is found in Section 4(c) of the Commodity Exchange Act (‘‘CEA’’ or ‘‘Act’’).1 DATES: Comments must be received on or before January 7, 2008. ADDRESSES: Comments may be submitted by any of the following methods: • Federal eRulemaking Portal: https:// www.regulations.gov/https:// frwebgate.access.gpo/cgi-bin/leaving. Follow the instructions for submitting comments. • E-mail: secretary@cftc.gov. Include ‘‘ICE Clear Section 4(c) Request’’ in the subject line of the message. • Fax: 202–418–5521. • Mail: Send to David A. Stawick, Secretary, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. 17 BILLING CODE 3510–22–S VerDate Aug<31>2005 Commodity Futures Trading Commission. AGENCY: Jkt 214001 PO 00000 U.S.C. § 6(c). Frm 00006 Fmt 4703 Sfmt 4703 • Courier: Same as mail above. All comments received will be posted without change to https:// www.CFTC.gov/. FOR FURTHER INFORMATION CONTACT: Lois J. Gregory, Special Counsel, 816–960– 7719, lgregory@cftc.gov, or Robert B. Wasserman, Associate Director, 202– 418–5092, rwasserman@cftc.gov, Division of Clearing and Intermediary Oversight; or Duane C. Andresen, Special Counsel, 202–418–5492, dandresen@cftc.gov, Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st Street, NW., Washington, DC 20581. SUPPLEMENTARY INFORMATION: I. The ICE Clear Petition ICE Clear, the clearing organization for ICE Futures U.S., seeks to offer eligible swap participants who enter into certain bilateral swap transactions involving coffee, sugar, or cocoa the opportunity to submit them to ICE Clear for clearing. ICE Clear has represented that swap transactions in various agricultural products, including coffee, sugar, and cocoa, currently trade in OTC markets exempt from provisions of the CEA pursuant to Part 35 of the Commission’s regulations. These are commonly swap agreements entered into by participants exchanging fixed for floating reference prices. Participants in these markets include trade houses, commodity lenders, producers, end users, and large speculators. Part 35 of the Commission’s regulations 2 exempts swap agreements and eligible persons entering into these agreements from most provisions of the Act.3 The term ‘‘swap agreement’’ is defined to include, among other types of agreements, ‘‘a * * * commodity swap,’’ 4 which latter term includes swaps on agricultural products.5 Part 35 was promulgated pursuant to authority provided to the Commission in Section 4(c) of the Act to exempt certain transactions in order to promote innovation and competition.6 Various exemptions and exclusions were subsequently added to the Act by the Commodity Futures Modernization Act 2 17 CFR Part 35. is retained for, inter alia, provisions of the CEA proscribing fraud and manipulation. See Commission Reg. § 35.2, 17 CFR § 35.2 (Commission regulations are hereinafter cited as ‘‘Reg. § _’’). 4 Reg. § 35.1(b)(1)(i). 5 ‘‘Commodity’’ is defined in Section 1a(4) of the Act to include a variety of specified agricultural products, ‘‘and all other goods and articles, except onions * * * and all services, rights and interests in which contracts for future delivery are presently or in the future dealt in.’’ 6 See 58 F.R. 5587 (January 22, 1993). 3 Jurisdiction E:\FR\FM\06DEN1.SGM 06DEN1 Federal Register / Vol. 72, No. 234 / Thursday, December 6, 2007 / Notices of 2000 (‘‘CFMA’’),7 but none apply to agricultural contracts.8 Part 35 requires, inter alia, that a swap agreement not be part of a fungible class of agreements that are standardized as to their material economic terms 9 and that the creditworthiness of any party having an interest under the agreement be a material consideration in entering into or negotiating the terms of the agreement.10 Under the arrangement that ICE Clear seeks to establish, OTC contracts would be submitted for clearing, a process that would extinguish the original OTC contract and replace it with an equivalent number of cash-settled ‘‘cleared-only’’ futures contracts, with the clearinghouse interposed as central counterparty.11 A cleared-only contract could be offset by another cleared-only contract. Thus, clearing of these OTC contracts would result in contracts that are fungible with other cleared-only contracts with approximately equivalent terms. In addition, the creditworthiness of the counterparty would not be a consideration. Accordingly, the OTC contracts ICE Clear would clear in the fashion proposed would not fulfill all of the conditions of Part 35. However, Part 35 further invites ‘‘any person [to] apply to the Commission for exemption from any of the provisions of the Act * * * for other arrangements or facilities.’’ ICE Clear has petitioned the Commission for an order under Section 4(c) of the Act that would permit cleared OTC swaps involving coffee, sugar, and cocoa to be exempt on the same basis as other swaps are exempt under Part 35. II. The ICE Futures U.S. Petition ICE Futures U.S. seeks to permit floor traders and floor brokers (collectively, floor members) who are registered with the Commission, when trading for their own accounts, to enter into the OTC swap transactions discussed above. Part 35, however, defines the term eligible swap participant (‘‘ESP’’) to include floor members only as follows: (1) Floor members generally who are other than natural persons or proprietorships; (2) floor members who are natural persons, provided they have total assets 7 Pub. L. 106–554, 114 Stat. 2763 (2000). e.g., CEA §§ 2(d), (g) and (h). 9 Reg. § 35.2(b). 10 Reg.§ 35.2(c). 11 The OTC transaction would be required to involve the coffee, sugar, or cocoa underlying the corresponding cleared-only contract. The unit size, quality, and other specifications for the OTC coffee, sugar, or cocoa transaction would be approximately equivalent to the unit size, quality, and other specifications of the corresponding physical delivery futures contract listed on ICE Futures. mstockstill on PROD1PC66 with NOTICES 8 See, VerDate Aug<31>2005 18:57 Dec 05, 2007 Jkt 214001 exceeding at least $10,000,000; or (3) floor members who are proprietorships, provided they have total assets exceeding at least $10,000,000, or have the obligations under the swap agreement guaranteed or otherwise supported by certain other ESPs, or have a net worth of $1,000,000 and enter into the swap agreement in connection with the conduct of their business or to manage the risk of an asset or liability owned or incurred in the conduct of their business or reasonably likely to be owned or incurred in the conduct of their business.12 ICE Futures U.S. has petitioned the Commission for an order under Section 4(c) of the Act that would permit all ICE Futures U.S. floor members who are registered with the Commission, when trading for their own accounts, to be ESPs for the purpose of entering into bilateral swap transactions involving agricultural commodities as described above. ICE Futures U.S. represents that all floor members entering into the swap transactions would be sophisticated and knowledgeable in the relevant products and markets and would be fully capable of evaluating the transactions. Further, because the transaction results in a cleared-only futures contract, floor members would not be subject to counterparty credit risk and would rely on the credit of ICE CLEAR and their clearing futures commission merchants (‘‘FCMs’’). The Commission anticipates that any Section 4(c) order issued in response to this request would be subject to the following conditions: (1) The contracts, agreement or transactions would have to be executed pursuant to the requirements of Part 35, as modified herein. (2) The ICE Futures U.S. floor member would have to obtain a financial guarantee for the OTC swap transactions from an ICE Futures U.S. clearing member that: (i) Is registered with the Commission as an FCM; and (ii) Clears the OTC swap transactions thus guaranteed. (3) Permissible OTC swap transactions would be limited to ‘‘cleared-only’’ contracts in the following eligible products: cocoa, coffee and sugar. (4) Permissible OTC swap transactions would have to be submitted for clearance by an ICE Futures U.S. clearing member to ICE Clear pursuant to ICE Clear Rules. (5) An ICE Futures U.S. floor member could not enter into OTC swap transactions with another ICE Futures 12 Reg. PO 00000 § 35.1(b)(2)(x). Frm 00007 Fmt 4703 Sfmt 4703 68863 U.S. floor member as the counterparty for ICE Clear ‘‘cleared-only’’ contracts. (6) ICE Futures U.S. would maintain appropriate compliance systems in place to monitor the OTC swap transactions of its floor members.13 III. Section 4(c) of the Commodity Exchange Act Section 4(c)(1) of the CEA empowers the CFTC to ‘‘promote responsible economic or financial innovation and fair competition’’ by exempting any transaction or class of transactions from any of the provisions of the CEA (subject to exceptions not relevant here) where the Commission determines that the exemption would be consistent with the public interest.14 The Commission may grant such an exemption by rule, regulation, or order, after notice and opportunity for hearing, and may do so on application of any person or on its own initiative. In enacting Section 4(c), Congress noted that the goal of the provision ‘‘is to give the Commission a means of providing certainty and stability to existing and emerging markets so that financial innovation and market development can proceed in an effective 13 These conditions are substantially similar to the conditions included in two previously issued Commission orders that permit floor members to be eligible contract participants (‘‘ECPs’’) pursuant to Section 1a(12)(C) of the Act, 7 U.S.C. 1a(12)(C). On March 14, 2006, the Commission issued an order that permitted Chicago Mercantile Exchange floor members to be ECPs with respect to OTC transactions in excluded commodities entered into pursuant to Section 2(d)(1) of the Act. On August 3, 2006, the Commission issued an order that permitted New York Mercantile Exchange floor members to be ECPs with respect to OTC transactions in exempt commodities entered into pursuant to Section 2(h)(1) of the Act. 14 Section 4(c)(1) of the CEA, 7 U.S.C. 6(c)(1), provides in full that: In order to promote responsible economic or financial innovation and fair competition, the Commission by rule, regulation, or order, after notice and opportunity for hearing, may (on its own initiative or on application of any person, including any board of trade designated or registered as a contract market or derivatives transaction execution facility for transactions for future delivery in any commodity under section 7 of this title) exempt any agreement, contract, or transaction (or class thereof) that is otherwise subject to subsection (a) of this section (including any person or class of persons offering, entering into, rendering advice or rendering other services with respect to, the agreement, contract, or transaction), either unconditionally or on stated terms or conditions or for stated periods and either retroactively or prospectively, or both, from any of the requirements of subsection (a) of this section, or from any other provision of this chapter (except subparagraphs (c)(ii) and (D) of section 2(a)(1) of this title, except that the Commission and the Securities and Exchange Commission may by rule, regulation, or order jointly exclude any agreement, contract, or transaction from section 2(a)(1)(D) of this title), if the Commission determines that the exemption would be consistent with the public interest. E:\FR\FM\06DEN1.SGM 06DEN1 68864 Federal Register / Vol. 72, No. 234 / Thursday, December 6, 2007 / Notices mstockstill on PROD1PC66 with NOTICES and competitive manner.’’15 Permitting the clearing of OTC coffee, sugar, and cocoa transactions by ICE Clear, as well as permitting ICE Futures U.S. floor members to trade such products, as discussed above, may foster both financial innovation and competition. It may benefit the marketplace by providing ESPs the ability to bring together flexible negotiation with central counterparty guarantees and capital efficiencies. The CFTC is requesting comment on whether it should exempt the OTC transactions in coffee, sugar, and cocoa that are proposed to be cleared through ICE Clear as described above, in the same fashion as are other contracts that are exempt pursuant to Part 35 of the Commission’s regulations. The CFTC is also requesting comment on whether it should determine ICE Futures U.S. floor members, subject to certain conditions, to be ESPs for the purpose of entering into the OTC transactions in coffee, sugar and cocoa. Section 4(c)(2) provides that the Commission may grant exemptions only when it determines that the requirements for which an exemption is being provided should not be applied to the agreements, contracts, or transactions at issue, and the exemption is consistent with the public interest and the purposes of the CEA; that the agreements, contracts or transactions will be entered into solely between appropriate persons; and that the exemption will not have a material adverse effect on the ability of the Commission or any contract market or derivatives transaction execution facility to discharge its regulatory or self-regulatory responsibilities under the CEA.16 The purposes of the CEA include ‘‘promot[ing] responsible innovation and fair competition among boards of trade, other markets, and market 15 House Conf. Report No. 102–978, 1992 U.S.C.C.A.N. 3179, 3213. 16 Section 4(c)(2) of the CEA, 7 U.S.C. 6(c)(2), provides in full that: The Commission shall not grant any exemption under paragraph (1) from any of the requirements of subsection (a) of this section unless the Commission determines that— (A) the requirement should not be applied to the agreement, contract, or transaction for which the exemption is sought and that the exemption would be consistent with the public interest and the purposes of this Act; and (B) the agreement, contract, or transaction— (i) will be entered into solely between appropriate persons; and (ii) will not have a material adverse effect on the ability of the Commission or any contract market or derivatives transaction execution facility to discharge its regulatory or self-regulatory duties under this Act. VerDate Aug<31>2005 18:57 Dec 05, 2007 Jkt 214001 participants.’’ 17 It may be consistent with these and the other purposes of the CEA, and with the public interest, for the OTC contracts described herein and submitted for clearing as described herein to be exempt as are other contracts under Part 35 of the Commission’s regulations. However, the exception of agricultural commodities from the exemptions and exclusions provided under the CFMA for OTC transactions may be relevant to the analysis. Accordingly, the CFTC is requesting comment as to whether an exemption from the requirements of the CEA should be granted in the context of these transactions and these potential participants. Section 4(c)(3) includes within the term ‘‘appropriate persons’’ a number of specified categories of persons deemed appropriate under the Act for entering into transactions exempt by the Commission under Section 4(c). This includes persons the Commission determines to be appropriate in light of their financial or other qualifications, or the applicability of appropriate regulatory protections. ESPs, as defined in Part 35 of the Commission’s regulations, will be eligible to submit for clearing to ICE Clear the OTC transactions described above. That definition includes many of the classes of persons explicitly referred to in CEA Section 4(c)(3) (e.g., a bank or trust company) as well as some classes of persons who are included under the category of Section 4(c)(3)(K) (‘‘[s]uch other persons that the Commission determines to be appropriate in light of their financial or other qualifications, or the applicability of appropriate regulatory protections’’). The Commission is proposing to include as appropriate persons for this extended relief under Part 35 all of the persons who meet the definition of ESP in Commission Regulation § 35.1(b)(2). For the purposes of the extended relief requested by ICE Futures U.S., the Commission is also proposing to expand upon this list of appropriate persons to include, as discussed above, ICE Futures U.S. floor members. The Commission seeks comment on this determination. In light of the above, the Commission also is requesting comment as to whether these exemptions will affect its ability to discharge its regulatory responsibilities under the CEA, or with the self-regulatory duties of any contract market or derivatives clearing organization. 17 CEA § section 3(b), 7 U.S.C. 5(b). See also CEA § section 4(c)(1), 7 U.S.C. § 6(c)(1) (purpose of exemptions is ‘‘to promote responsible economic or financial innovation and fair competition’’). PO 00000 Frm 00008 Fmt 4703 Sfmt 4703 IV. Request for Comment The Commission requests comment on all aspects of the issues presented by these exemption requests. V. Related Matters A. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (‘‘PRA’’) 18 imposes certain requirements on federal agencies (including the Commission) in connection with their conducting or sponsoring any collection of information as defined by the PRA. The exemption would not, if approved, require a new collection of information from any entities that would be subject to the exemption. B. Cost-Benefit Analysis Section 15(a) of the CEA,19 requires the Commission to consider the costs and benefits of its action before issuing an order under the CEA. By its terms, Section 15(a) does not require the Commission to quantify the costs and benefits of an order or to determine whether the benefits of the order outweigh its costs. Rather, Section 15(a) simply requires the Commission to ‘‘consider the costs and benefits’’ of its action. Section 15(a) of the CEA further specifies that costs and benefits shall be evaluated in light of five broad areas of market and public concern: protection of market participants and the public; efficiency, competitiveness, and financial integrity of futures markets; price discovery; sound risk management practices; and other public interest considerations. Accordingly, the Commission could in its discretion give greater weight to any one of the five enumerated areas and could in its discretion determine that, notwithstanding its costs, a particular order was necessary or appropriate to protect the public interest or to effectuate any of the provisions or to accomplish any of the purposes of the CEA. The Commission is considering the costs and benefits of an exemptive order in light of the specific provisions of Section 15(a) of the CEA, as follows: 1. Protection of market participants and the public. The contracts that are the subject of the exemptive request will only be entered into by persons who are ‘‘appropriate persons’’ as set forth in Section 4(c) of the Act. 2. Efficiency, competition, and financial integrity. Extending the exemption granted under Part 35 to 18 44 19 7 U.S.C. § 3507(d). U.S.C. § 19(a). E:\FR\FM\06DEN1.SGM 06DEN1 Federal Register / Vol. 72, No. 234 / Thursday, December 6, 2007 / Notices these swap agreements to allow them to be cleared may promote liquidity and transparency in the markets for OTC derivatives on coffee, sugar, and cocoa, as well as on futures on those commodities. Extending the exemption also may promote financial integrity by providing the benefits of clearing to these OTC markets. Determining ICE Futures U.S. floor members to be ESPs may increase the flow of trading information between markets, increase the pool of potential counterparties for participants trading OTC, and provide essential trading expertise to the market. 3. Price discovery. Price discovery may be enhanced through market competition. 4. Sound risk management practices. Clearing of OTC transactions may foster risk management by the participant counterparties. ICE Clear’s risk management practices in clearing these transactions would be subject to the Commission’s supervision and oversight. 5. Other public interest considerations. The requested exemption may encourage market competition in agricultural derivative products without unnecessary regulatory burden. After considering these factors, the Commission has determined to seek comment on the exemption requests as discussed above. The Commission also invites public comment on its application of the cost-benefit provision. * * * * * Issued in Washington, DC, on November 30, 2007 by the Commission. David A. Stawick, Secretary of the Commission. [FR Doc. E7–23635 Filed 12–5–07; 8:45 am] BILLING CODE 6351–01–P DEPARTMENT OF DEFENSE Office of Secretary [DOD–2007–OS–0130] Privacy Act of 1974; Systems of Records Defense Finance and Accounting Service. ACTION: Notice to Add a System of Records. AGENCY: The Defense Finance and Accounting Service (DFAS) is proposing to add a system of records notices to its inventory of record systems subject to the Privacy Act of 1974, (5 U.S.C. 552a), as amended. DATES: This action will be effective without further notice on January 7, mstockstill on PROD1PC66 with NOTICES SUMMARY: VerDate Aug<31>2005 18:57 Dec 05, 2007 Jkt 214001 2008 unless comments are received that would result in a contrary determination. Send comments to the FOIA/PA Program Manager, Corporate Communications and Legislative Liaison, Defense Finance and Accounting Service, 6760 E. Irvington Place, Denver, CO 80279–8000. FOR FURTHER INFORMATION CONTACT: Ms. Linda Krabbenhoft at (303) 676–6045. SUPPLEMENTARY INFORMATION: The Defense Finance and Accounting Service notices for systems of records subject to the Privacy Act of 1974 (5 U.S.C. 552a), as amended, have been published in the Federal Register and are available from the address above. The proposed system report, as required by 5 U.S.C. 552a(r) of the Privacy Act of 1974, as amended, was submitted on November 29, 2007 to the House Committee on Oversight and Government Reform, the Senate Committee on Government Affairs, and the Office of Management and Budget (OMB) pursuant to paragraph 4c of Appendix I to OMB Circular No. A–130, ‘Federal Agency Responsibilities for Maintaining Records about Individuals,’ dated December 12, 2000, 65 FR 239. ADDRESSES: Dated: November 30, 2007. L.M. Bynum, Alternate OSD Federal Register Liaison Officer, Department of Defense. T7901 SYSTEM NAME: Standard Finance and Accounting Payment System. SYSTEM LOCATIONS: Defense Information Systems Agency, Defense Enterprise Computing Center-St Louis, Post Office Box 20012, St. Louis, MO 63120–0012. Defense Finance and Accounting Service—Indianapolis, 8899 East 56th Street, Indianapolis, IN 46249–2700. Defense Finance Accounting Service—Columbus, 3990 East Broad Street, Building 21, Columbus OH 43213–2317. Defense Finance and Accounting Service—Kansas City, 1500 E. Bannister Street, Kansas City, MO 64197–0001. For a list of other DFAS, U.S. Army, and Marine Corps sites utilizing the system contact the Standard Finance System, Redesigned Subsystem, System Manager, Defense Finance and Accounting Service—Indianapolis, Information Technology Directorate, 8899 East 56th Street, Indianapolis, IN 46249–2700. Telephone number (317) 510–4003. PO 00000 Frm 00009 Fmt 4703 Sfmt 4703 68865 CATEGORIES OF INDIVIDUALS COVERED BY THE SYSTEM: Active duty military members (Army and U.S. Marine Corps), Reserve and Guard military members, Army Military Academy cadets, Army Reserve Officer Training Corps (ROTC) students, DoD contractors, and vendors. CATEGORIES OF RECORDS IN THE SYSTEM: Individual’s name, Social Security Number (SSN), home address, and military branch of service, military status, disbursing and accounting transaction data. AUTHORITY FOR MAINTENANCE OF THE SYSTEM: 5 U.S.C. 301, Departmental Regulations; Department of Defense Financial Management Regulation (DoDFMR) 7000.14–R, Volume 5; 31 U.S.C. Sections 3511, 3512, and 3513; and E.O. 9397 (SSN). PURPOSE(S): The system processes payments and collections utilizing the Electronic Funds Transfer system. It is a multifunctional, interactive, automated disbursing and accounting system composed of several functional modules that perform vendor pay, travel pay, and military payroll payment. Defense Finance and Accounting Service, U.S. Army, and Marine Corps will use the system for processing accounting and disbursing transactions in contingency locations requiring foreign currency operations. ROUTINE USES OF RECORDS MAINTAINED IN THE SYSTEM, INCLUDING CATEGORIES OF USERS AND THE PURPOSES OF SUCH USES: In addition to those disclosures generally permitted under 5 U.S.C. 552a(b) of the Privacy Act, these records or information contained therein may specifically be disclosed outside the DoD as a routine use pursuant to 5 U.S.C. 552a(b)(3) as follows: To Federal Reserve banks to distribute payments made through the direct deposit system to financial organizations or their processing agents authorized by individuals to receive and deposit payments in their accounts. The ‘Blanket Routine Uses’ published at the beginning of the DoD compilation of systems of records notices apply to this system. POLICIES AND PRACTICES FOR STORING, RETRIEVING, ACCESSING, RETAINING, AND DISPOSING OF RECORDS IN THE SYSTEM: STORAGE: Electronic storage media. RETRIEVABILITY: Name and Social Security Number (SSN). E:\FR\FM\06DEN1.SGM 06DEN1

Agencies

Commodity Futures Trading Commission

[Federal Register Volume 72, Number 234 (Thursday, December 6, 2007)]
[Notices]
[Pages 68862-68865]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-23635]


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COMMODITY FUTURES TRADING COMMISSION


Notice of Request for Comment on Exemption Requests

AGENCY: Commodity Futures Trading Commission.

    Requests to extend, pursuant to the exemptive authority in section 
4(c) of the Commodity Exchange Act, the exemption granted under Part 35 
of the Commission's regulations to certain over-the-counter swaps that 
do not otherwise meet certain of the requirements imposed by Commission 
Regulation 35.2 and to determine that, subject to certain conditions, 
floor brokers and floor traders are eligible swap participants.
SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or 
``Commission'') is requesting comment on whether to extend the 
exemption granted under Part 35 of the Commission's regulations to 
certain over-the-counter (``OTC'') swaps that do not meet certain of 
the requirements otherwise imposed by Commission Regulation 35.2. This 
exemption has been requested by ICE Clear U.S., Inc. (``ICE Clear''), a 
registered derivatives clearing organization. The Commission is also 
requesting comment on whether ICE Futures U.S., Inc. (``ICE Futures 
U.S.'') floor traders and floor brokers who are registered with the 
Commission, when trading for their own accounts, may be determined to 
be eligible swap participants and permitted to enter into certain 
specified OTC swap transactions. This exemption has been requested by 
ICE Futures U.S., a designated contract market. Authority for extending 
this relief is found in Section 4(c) of the Commodity Exchange Act 
(``CEA'' or ``Act'').\1\
---------------------------------------------------------------------------

    \1\ 7 U.S.C. Sec.  6(c).

---------------------------------------------------------------------------
DATES: Comments must be received on or before January 7, 2008.

ADDRESSES: Comments may be submitted by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov/
http://frwebgate.access.gpo/cgi-bin/leaving. Follow the instructions 
for submitting comments.
     E-mail: secretary@cftc.gov. Include ``ICE Clear Section 
4(c) Request'' in the subject line of the message.
     Fax: 202-418-5521.
     Mail: Send to David A. Stawick, Secretary, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581.
     Courier: Same as mail above.
    All comments received will be posted without change to https://
www.CFTC.gov/.

FOR FURTHER INFORMATION CONTACT: Lois J. Gregory, Special Counsel, 816-
960-7719, lgregory@cftc.gov, or Robert B. Wasserman, Associate 
Director, 202-418-5092, rwasserman@cftc.gov, Division of Clearing and 
Intermediary Oversight; or Duane C. Andresen, Special Counsel, 202-418-
5492, dandresen@cftc.gov, Division of Market Oversight, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1151 21st Street, 
NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. The ICE Clear Petition

    ICE Clear, the clearing organization for ICE Futures U.S., seeks to 
offer eligible swap participants who enter into certain bilateral swap 
transactions involving coffee, sugar, or cocoa the opportunity to 
submit them to ICE Clear for clearing. ICE Clear has represented that 
swap transactions in various agricultural products, including coffee, 
sugar, and cocoa, currently trade in OTC markets exempt from provisions 
of the CEA pursuant to Part 35 of the Commission's regulations. These 
are commonly swap agreements entered into by participants exchanging 
fixed for floating reference prices. Participants in these markets 
include trade houses, commodity lenders, producers, end users, and 
large speculators.
    Part 35 of the Commission's regulations \2\ exempts swap agreements 
and eligible persons entering into these agreements from most 
provisions of the Act.\3\ The term ``swap agreement'' is defined to 
include, among other types of agreements, ``a * * * commodity swap,'' 
\4\ which latter term includes swaps on agricultural products.\5\ Part 
35 was promulgated pursuant to authority provided to the Commission in 
Section 4(c) of the Act to exempt certain transactions in order to 
promote innovation and competition.\6\ Various exemptions and 
exclusions were subsequently added to the Act by the Commodity Futures 
Modernization Act

[[Page 68863]]

of 2000 (``CFMA''),\7\ but none apply to agricultural contracts.\8\
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    \2\ 17 CFR Part 35.
    \3\ Jurisdiction is retained for, inter alia, provisions of the 
CEA proscribing fraud and manipulation. See Commission Reg. Sec.  
35.2, 17 CFR Sec.  35.2 (Commission regulations are hereinafter 
cited as ``Reg. Sec.  --'').
    \4\ Reg. Sec.  35.1(b)(1)(i).
    \5\ ``Commodity'' is defined in Section 1a(4) of the Act to 
include a variety of specified agricultural products, ``and all 
other goods and articles, except onions * * * and all services, 
rights and interests in which contracts for future delivery are 
presently or in the future dealt in.''
    \6\ See 58 F.R. 5587 (January 22, 1993).
    \7\ Pub. L. 106-554, 114 Stat. 2763 (2000).
    \8\ See, e.g., CEA Sec. Sec.  2(d), (g) and (h).
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    Part 35 requires, inter alia, that a swap agreement not be part of 
a fungible class of agreements that are standardized as to their 
material economic terms \9\ and that the creditworthiness of any party 
having an interest under the agreement be a material consideration in 
entering into or negotiating the terms of the agreement.\10\ Under the 
arrangement that ICE Clear seeks to establish, OTC contracts would be 
submitted for clearing, a process that would extinguish the original 
OTC contract and replace it with an equivalent number of cash-settled 
``cleared-only'' futures contracts, with the clearinghouse interposed 
as central counterparty.\11\ A cleared-only contract could be offset by 
another cleared-only contract. Thus, clearing of these OTC contracts 
would result in contracts that are fungible with other cleared-only 
contracts with approximately equivalent terms. In addition, the 
creditworthiness of the counterparty would not be a consideration. 
Accordingly, the OTC contracts ICE Clear would clear in the fashion 
proposed would not fulfill all of the conditions of Part 35.
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    \9\ Reg. Sec.  35.2(b).
    \10\ Reg.Sec.  35.2(c).
    \11\ The OTC transaction would be required to involve the 
coffee, sugar, or cocoa underlying the corresponding cleared-only 
contract. The unit size, quality, and other specifications for the 
OTC coffee, sugar, or cocoa transaction would be approximately 
equivalent to the unit size, quality, and other specifications of 
the corresponding physical delivery futures contract listed on ICE 
Futures.
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    However, Part 35 further invites ``any person [to] apply to the 
Commission for exemption from any of the provisions of the Act * * * 
for other arrangements or facilities.'' ICE Clear has petitioned the 
Commission for an order under Section 4(c) of the Act that would permit 
cleared OTC swaps involving coffee, sugar, and cocoa to be exempt on 
the same basis as other swaps are exempt under Part 35.

II. The ICE Futures U.S. Petition

    ICE Futures U.S. seeks to permit floor traders and floor brokers 
(collectively, floor members) who are registered with the Commission, 
when trading for their own accounts, to enter into the OTC swap 
transactions discussed above. Part 35, however, defines the term 
eligible swap participant (``ESP'') to include floor members only as 
follows: (1) Floor members generally who are other than natural persons 
or proprietorships; (2) floor members who are natural persons, provided 
they have total assets exceeding at least $10,000,000; or (3) floor 
members who are proprietorships, provided they have total assets 
exceeding at least $10,000,000, or have the obligations under the swap 
agreement guaranteed or otherwise supported by certain other ESPs, or 
have a net worth of $1,000,000 and enter into the swap agreement in 
connection with the conduct of their business or to manage the risk of 
an asset or liability owned or incurred in the conduct of their 
business or reasonably likely to be owned or incurred in the conduct of 
their business.\12\ ICE Futures U.S. has petitioned the Commission for 
an order under Section 4(c) of the Act that would permit all ICE 
Futures U.S. floor members who are registered with the Commission, when 
trading for their own accounts, to be ESPs for the purpose of entering 
into bilateral swap transactions involving agricultural commodities as 
described above.
---------------------------------------------------------------------------

    \12\ Reg. Sec.  35.1(b)(2)(x).
---------------------------------------------------------------------------

    ICE Futures U.S. represents that all floor members entering into 
the swap transactions would be sophisticated and knowledgeable in the 
relevant products and markets and would be fully capable of evaluating 
the transactions. Further, because the transaction results in a 
cleared-only futures contract, floor members would not be subject to 
counterparty credit risk and would rely on the credit of ICE CLEAR and 
their clearing futures commission merchants (``FCMs'').
    The Commission anticipates that any Section 4(c) order issued in 
response to this request would be subject to the following conditions:
    (1) The contracts, agreement or transactions would have to be 
executed pursuant to the requirements of Part 35, as modified herein.
    (2) The ICE Futures U.S. floor member would have to obtain a 
financial guarantee for the OTC swap transactions from an ICE Futures 
U.S. clearing member that:
    (i) Is registered with the Commission as an FCM; and
    (ii) Clears the OTC swap transactions thus guaranteed.
    (3) Permissible OTC swap transactions would be limited to 
``cleared-only'' contracts in the following eligible products: cocoa, 
coffee and sugar.
    (4) Permissible OTC swap transactions would have to be submitted 
for clearance by an ICE Futures U.S. clearing member to ICE Clear 
pursuant to ICE Clear Rules.
    (5) An ICE Futures U.S. floor member could not enter into OTC swap 
transactions with another ICE Futures U.S. floor member as the 
counterparty for ICE Clear ``cleared-only'' contracts.
    (6) ICE Futures U.S. would maintain appropriate compliance systems 
in place to monitor the OTC swap transactions of its floor members.\13\
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    \13\ These conditions are substantially similar to the 
conditions included in two previously issued Commission orders that 
permit floor members to be eligible contract participants (``ECPs'') 
pursuant to Section 1a(12)(C) of the Act, 7 U.S.C. 1a(12)(C). On 
March 14, 2006, the Commission issued an order that permitted 
Chicago Mercantile Exchange floor members to be ECPs with respect to 
OTC transactions in excluded commodities entered into pursuant to 
Section 2(d)(1) of the Act. On August 3, 2006, the Commission issued 
an order that permitted New York Mercantile Exchange floor members 
to be ECPs with respect to OTC transactions in exempt commodities 
entered into pursuant to Section 2(h)(1) of the Act.
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III. Section 4(c) of the Commodity Exchange Act

    Section 4(c)(1) of the CEA empowers the CFTC to ``promote 
responsible economic or financial innovation and fair competition'' by 
exempting any transaction or class of transactions from any of the 
provisions of the CEA (subject to exceptions not relevant here) where 
the Commission determines that the exemption would be consistent with 
the public interest.\14\ The Commission may grant such an exemption by 
rule, regulation, or order, after notice and opportunity for hearing, 
and may do so on application of any person or on its own initiative.
---------------------------------------------------------------------------

    \14\ Section 4(c)(1) of the CEA, 7 U.S.C. 6(c)(1), provides in 
full that:
    In order to promote responsible economic or financial innovation 
and fair competition, the Commission by rule, regulation, or order, 
after notice and opportunity for hearing, may (on its own initiative 
or on application of any person, including any board of trade 
designated or registered as a contract market or derivatives 
transaction execution facility for transactions for future delivery 
in any commodity under section 7 of this title) exempt any 
agreement, contract, or transaction (or class thereof) that is 
otherwise subject to subsection (a) of this section (including any 
person or class of persons offering, entering into, rendering advice 
or rendering other services with respect to, the agreement, 
contract, or transaction), either unconditionally or on stated terms 
or conditions or for stated periods and either retroactively or 
prospectively, or both, from any of the requirements of subsection 
(a) of this section, or from any other provision of this chapter 
(except subparagraphs (c)(ii) and (D) of section 2(a)(1) of this 
title, except that the Commission and the Securities and Exchange 
Commission may by rule, regulation, or order jointly exclude any 
agreement, contract, or transaction from section 2(a)(1)(D) of this 
title), if the Commission determines that the exemption would be 
consistent with the public interest.
---------------------------------------------------------------------------

    In enacting Section 4(c), Congress noted that the goal of the 
provision ``is to give the Commission a means of providing certainty 
and stability to existing and emerging markets so that financial 
innovation and market development can proceed in an effective

[[Page 68864]]

and competitive manner.''\15\ Permitting the clearing of OTC coffee, 
sugar, and cocoa transactions by ICE Clear, as well as permitting ICE 
Futures U.S. floor members to trade such products, as discussed above, 
may foster both financial innovation and competition. It may benefit 
the marketplace by providing ESPs the ability to bring together 
flexible negotiation with central counterparty guarantees and capital 
efficiencies. The CFTC is requesting comment on whether it should 
exempt the OTC transactions in coffee, sugar, and cocoa that are 
proposed to be cleared through ICE Clear as described above, in the 
same fashion as are other contracts that are exempt pursuant to Part 35 
of the Commission's regulations. The CFTC is also requesting comment on 
whether it should determine ICE Futures U.S. floor members, subject to 
certain conditions, to be ESPs for the purpose of entering into the OTC 
transactions in coffee, sugar and cocoa.
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    \15\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179, 
3213.
---------------------------------------------------------------------------

    Section 4(c)(2) provides that the Commission may grant exemptions 
only when it determines that the requirements for which an exemption is 
being provided should not be applied to the agreements, contracts, or 
transactions at issue, and the exemption is consistent with the public 
interest and the purposes of the CEA; that the agreements, contracts or 
transactions will be entered into solely between appropriate persons; 
and that the exemption will not have a material adverse effect on the 
ability of the Commission or any contract market or derivatives 
transaction execution facility to discharge its regulatory or self-
regulatory responsibilities under the CEA.\16\
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    \16\ Section 4(c)(2) of the CEA, 7 U.S.C. 6(c)(2), provides in 
full that:
    The Commission shall not grant any exemption under paragraph (1) 
from any of the requirements of subsection (a) of this section 
unless the Commission determines that--
    (A) the requirement should not be applied to the agreement, 
contract, or transaction for which the exemption is sought and that 
the exemption would be consistent with the public interest and the 
purposes of this Act; and
    (B) the agreement, contract, or transaction--
    (i) will be entered into solely between appropriate persons; and
    (ii) will not have a material adverse effect on the ability of 
the Commission or any contract market or derivatives transaction 
execution facility to discharge its regulatory or self-regulatory 
duties under this Act.
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    The purposes of the CEA include ``promot[ing] responsible 
innovation and fair competition among boards of trade, other markets, 
and market participants.'' \17\ It may be consistent with these and the 
other purposes of the CEA, and with the public interest, for the OTC 
contracts described herein and submitted for clearing as described 
herein to be exempt as are other contracts under Part 35 of the 
Commission's regulations. However, the exception of agricultural 
commodities from the exemptions and exclusions provided under the CFMA 
for OTC transactions may be relevant to the analysis. Accordingly, the 
CFTC is requesting comment as to whether an exemption from the 
requirements of the CEA should be granted in the context of these 
transactions and these potential participants.
---------------------------------------------------------------------------

    \17\ CEA Sec.  section 3(b), 7 U.S.C. 5(b). See also CEA Sec.  
section 4(c)(1), 7 U.S.C. Sec.  6(c)(1) (purpose of exemptions is 
``to promote responsible economic or financial innovation and fair 
competition'').
---------------------------------------------------------------------------

    Section 4(c)(3) includes within the term ``appropriate persons'' a 
number of specified categories of persons deemed appropriate under the 
Act for entering into transactions exempt by the Commission under 
Section 4(c). This includes persons the Commission determines to be 
appropriate in light of their financial or other qualifications, or the 
applicability of appropriate regulatory protections. ESPs, as defined 
in Part 35 of the Commission's regulations, will be eligible to submit 
for clearing to ICE Clear the OTC transactions described above. That 
definition includes many of the classes of persons explicitly referred 
to in CEA Section 4(c)(3) (e.g., a bank or trust company) as well as 
some classes of persons who are included under the category of Section 
4(c)(3)(K) (``[s]uch other persons that the Commission determines to be 
appropriate in light of their financial or other qualifications, or the 
applicability of appropriate regulatory protections''). The Commission 
is proposing to include as appropriate persons for this extended relief 
under Part 35 all of the persons who meet the definition of ESP in 
Commission Regulation Sec.  35.1(b)(2). For the purposes of the 
extended relief requested by ICE Futures U.S., the Commission is also 
proposing to expand upon this list of appropriate persons to include, 
as discussed above, ICE Futures U.S. floor members. The Commission 
seeks comment on this determination.
    In light of the above, the Commission also is requesting comment as 
to whether these exemptions will affect its ability to discharge its 
regulatory responsibilities under the CEA, or with the self-regulatory 
duties of any contract market or derivatives clearing organization.

IV. Request for Comment

    The Commission requests comment on all aspects of the issues 
presented by these exemption requests.

V. Related Matters

A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \18\ imposes certain 
requirements on federal agencies (including the Commission) in 
connection with their conducting or sponsoring any collection of 
information as defined by the PRA. The exemption would not, if 
approved, require a new collection of information from any entities 
that would be subject to the exemption.
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    \18\ 44 U.S.C. Sec.  3507(d).
---------------------------------------------------------------------------

B. Cost-Benefit Analysis

    Section 15(a) of the CEA,\19\ requires the Commission to consider 
the costs and benefits of its action before issuing an order under the 
CEA. By its terms, Section 15(a) does not require the Commission to 
quantify the costs and benefits of an order or to determine whether the 
benefits of the order outweigh its costs. Rather, Section 15(a) simply 
requires the Commission to ``consider the costs and benefits'' of its 
action.
---------------------------------------------------------------------------

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

    Section 15(a) of the CEA further specifies that costs and benefits 
shall be evaluated in light of five broad areas of market and public 
concern: protection of market participants and the public; efficiency, 
competitiveness, and financial integrity of futures markets; price 
discovery; sound risk management practices; and other public interest 
considerations. Accordingly, the Commission could in its discretion 
give greater weight to any one of the five enumerated areas and could 
in its discretion determine that, notwithstanding its costs, a 
particular order was necessary or appropriate to protect the public 
interest or to effectuate any of the provisions or to accomplish any of 
the purposes of the CEA.
    The Commission is considering the costs and benefits of an 
exemptive order in light of the specific provisions of Section 15(a) of 
the CEA, as follows:
    1. Protection of market participants and the public. The contracts 
that are the subject of the exemptive request will only be entered into 
by persons who are ``appropriate persons'' as set forth in Section 4(c) 
of the Act.
    2. Efficiency, competition, and financial integrity. Extending the 
exemption granted under Part 35 to

[[Page 68865]]

these swap agreements to allow them to be cleared may promote liquidity 
and transparency in the markets for OTC derivatives on coffee, sugar, 
and cocoa, as well as on futures on those commodities. Extending the 
exemption also may promote financial integrity by providing the 
benefits of clearing to these OTC markets. Determining ICE Futures U.S. 
floor members to be ESPs may increase the flow of trading information 
between markets, increase the pool of potential counterparties for 
participants trading OTC, and provide essential trading expertise to 
the market.
    3. Price discovery. Price discovery may be enhanced through market 
competition.
    4. Sound risk management practices. Clearing of OTC transactions 
may foster risk management by the participant counterparties. ICE 
Clear's risk management practices in clearing these transactions would 
be subject to the Commission's supervision and oversight.
    5. Other public interest considerations. The requested exemption 
may encourage market competition in agricultural derivative products 
without unnecessary regulatory burden.
    After considering these factors, the Commission has determined to 
seek comment on the exemption requests as discussed above. The 
Commission also invites public comment on its application of the cost-
benefit provision.
* * * * *

    Issued in Washington, DC, on November 30, 2007 by the 
Commission.
David A. Stawick,
Secretary of the Commission.
 [FR Doc. E7-23635 Filed 12-5-07; 8:45 am]
BILLING CODE 6351-01-P

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