Amendments Pertinent to Registered Entities and Exempt Commercial Markets, 8599-8606 [E8-2580]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 73, Number 31 (Thursday, February 14, 2008)]
[Rules and Regulations]
[Pages 8599-8606]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-2580]



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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 36 and 40

RIN 3038-AC39


Amendments Pertinent to Registered Entities and Exempt Commercial 
Markets

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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SUMMARY: The Commission is adopting final regulations that effectuate 
the following amendments to the Commission's regulations. The 
amendments delegate the Commission's authority to issue special calls 
to exempt commercial markets to the Director of the Division of 
Enforcement and that Director's designees. The amendments clarify the 
process for listing, clearing, or implementing products or rules, 
including dormant products and rules, and amend the definition of 
emergency to clarify that persons other than persons comprising a 
registered entity's full governing board may declare an emergency on 
behalf of the governing board. The amendments also amend the approval 
period for designated contract market rules that may change a material 
term or condition of an enumerated agricultural futures or options 
contract. Lastly, the amendments clarify how far in advance of 
implementation registered entities must submit self-certified contracts 
and rules to the Commission, and identify three additional categories 
of rules that may be implemented without certification or Commission 
approval.

EFFECTIVE DATE: February 14, 2008.

FOR FURTHER INFORMATION CONTACT: Bruce Fekrat, Special Counsel, Office 
of the Director (telephone 202.418.5578, e-mail bfekrat@cftc.gov), 
Division of Market Oversight, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    The Commission published initial comprehensive final regulations 
for trading facilities on August 10, 2001 \1\ to implement amendments 
introduced to the Commodity Exchange Act (CEA or Act) by the Commodity 
Futures Modernization Act of 2000 (CFMA).\2\ The final regulations 
codified the procedural provisions common to exempt boards of trade and 
exempt commercial markets (ECM) operating pursuant to sections 5d and 
2(h)(3) through (5) of the Act, respectively, in part 36 of the 
Commission's regulations. The final regulations also codified the 
procedural provisions common to designated contract markets (DCM), 
derivatives transaction execution facilities (DTEF), and derivatives 
clearing organizations (DCO) in part 40 of the Commission's 
regulations, and further established the regulatory framework necessary 
to implement and interpret the provisions of the CEA, as amended by the 
CFMA, pertinent to trading facilities.
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    \1\ 66 FR 42256 (August 10, 2001).
    \2\ Pub. L. 106-554, 114 Stat. 2763 (December 21, 2000).
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    The Commission recently proposed additional amendments to parts 36 
and 40 of the Commission's regulations that, based upon its experience 
in administering the Act, will better implement certain provisions of 
the Act and provide clearer direction as to the Commission's regulatory 
requirements thereunder (August 2007 notice of proposed rulemaking).\3\ 
The Commission received two comment letters in response to the Federal 
Register publication of the August 2007 notice of proposed rulemaking. 
The material issues raised in each comment letter are addressed in the 
following discussion of the final amendments.

II. Exempt Commercial Markets

    ECMs are electronic trading facilities that offer a platform for 
executing or trading principal-to-principal transactions involving 
exempt commodities solely between persons that are eligible commercial 
entities (ECM transactions).\4\ ECM transactions, pursuant to section 
2(h)(3) of the Act, as amended by the CFMA, are subject to a qualified 
exemption from the Act that reserves the applicability of the Act's 
fraud and manipulation provisions as well as the Commission's 
regulations thereunder to such contracts.\5\ In accord with this 
reservation of applicability, the CEA specifically authorizes the 
Commission's issuance of special calls for information to ECMs in order 
to, among other things, enforce the Act's antifraud and 
antimanipulation provisions.\6\
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    \3\ 17 CFR parts 36 and 40, Amendments Pertinent to Registered 
Entities and Exempt Commercial Markets, 72 FR 45185 (August 13, 
2007).
    \4\ 7 U.S.C. 2(h)(3).
    \5\ 7 U.S.C. 2(h)(4).
    \6\ 7 U.S.C. 2(h)(5)(B)(iii).
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    In July 2004, the Commission amended regulation 36.3(b), which 
governs the Commission's access to ECM transaction data, to improve the 
quality of accessible information relevant to its antifraud and 
antimanipulation authority.\7\ In that rulemaking, the Commission 
stated that aberrant price behavior on ECMs may require further 
Commission investigation and the eventual use of special calls to 
identify wrongful conduct.\8\ The authority to issue special calls to 
ECMs currently is delegated only to the Directors of the Division of 
Market Oversight (DMO) and the Division of Clearing and Intermediary 
Oversight (DCIO) or their designees.\9\ Given that the Division of 
Enforcement is directly charged with the responsibility to enforce the 
provisions of the Act that apply to ECMs, and the importance of the 
authority to issue special calls to the Commission's ability to enforce 
its reserved antifraud and antimanipulation authority, the Commission 
is amending, as proposed, regulation 36.3 to expand the set of persons 
with delegated authority to issue ECM special calls to include the 
Director of the Division of Enforcement or that Director's designees.
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    \7\ 69 FR 43285 (July 20, 2004).
    \8\ Id. at 43289.
    \9\ The persons to whom the authority to issue special calls may 
be designated is not restricted by regulation. Nonetheless, pursuant 
to Commission practice, the persons who have been so designated by 
the Division Directors of DMO and DCIO have been limited to Deputy 
Directors, Associate Directors, Branch Chiefs and Chief Counsels of 
those Divisions.
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    In its comment letter submitted in response to the Commission's 
publication of the August 2007 notice of proposed rulemaking, the 
IntercontinentalExchange, Inc. (ICE), a Delaware corporation that, 
among other things, operates an ECM that predominantly lists energy 
commodities derivative contracts, emphasized that information subject 
to special calls may include confidential details of transactions that 
often reflect the proprietary trading activities of market 
participants.\10\ Citing its prior experience providing information to 
the Division of Enforcement and the potential sensitive nature of the 
information that may be submitted, ICE requested that the exercise of 
ECM special call authority, by regulation, be restricted to certain 
senior Enforcement staff, or in the alternative, be subject to 
consideration and review by a restricted group of senior Enforcement 
staff. ICE argued that such restrictions would develop channels of 
communication between ECMs and staff from the Division of Enforcement 
that would be

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particularly familiar with the type and working value of callable 
information. According to ICE, these procedural restrictions would 
facilitate the timely and efficient production of information by, for 
example, reducing the time spent on specifying the scope of particular 
productions.
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    \10\ Letter from Johnathan H. Short, Senior Vice President and 
General Counsel, ICE, to the Commission's Office of the Secretariat 
(September 12, 2007) (on file with the Commission), available at 
https://www.cftc.gov/stellent/groups/public/@lrfederalregister/
documents/frcomment/07-010c001.pdf.
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    The CEA specifically recognizes the value and sensitive nature of 
transaction data and expressly prohibits, with limited exceptions, the 
Commission's public disclosure of ``information that would separately 
disclose the business transactions or market positions of any person * 
* *'' \11\ The Commission appreciates and will remain aware of the 
concerns raised by ICE. The Commission, however, will not adopt ICE's 
recommendation that special call authority be restricted by regulation 
because adequate controls are in place to ensure the effective and 
proper use of delegated authority.
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    \11\ 7 U.S.C. 12(a)(1).
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    The issuance of an ECM special call by Enforcement staff will be an 
agency action undertaken pursuant to delegated authority to act on 
behalf of the Commission. The exercise of the authority to issue or 
assign the authority to issue special calls under Commission regulation 
36.3 will be the product of deliberation and substantial internal 
process and will involve the participation of the Division Director 
prior to the issuance of a special call. Pursuant to Commission 
practice with respect to the other divisions, Division of Enforcement 
staff that would be designated by the Director to exercise special 
calls should be limited to the Division's Deputy Directors, Associate 
Directors and Chief Counsel. Restricting, by regulation, the Division 
of Enforcement's authority to issue ECM special calls to certain senior 
Enforcement staff, or in the alternative, requiring that issuances be 
subject to consideration and review by a restricted group of senior 
Enforcement staff, in the judgment of the Commission, will not 
substantially facilitate the efficiencies referenced by ICE. 
Accordingly, the Commission is amending Commission regulation 36.3, as 
proposed, to expand the set of persons with delegated authority to 
issue ECM special calls to include the Director of the Division of 
Enforcement or that Director's designees.

III. Amendments to Part 40 of the Commission's Regulations

A. Self-Certification, Approval, and Dormancy

    The Commission applies the procedural requirements for listing, 
clearing or implementing initial submissions of contracts and rules 
(including rule amendments) to dormant contracts and rules, and with 
certain exceptions, requires DCMs and DCOs to certify or submit for 
Commission approval all products and rules prior to listing or 
implementation.\12\ Part 40 of the Commission's regulations, however, 
currently does not clearly indicate that the procedural requirements 
for listing, clearing or implementing dormant contracts and rules are 
identical to the requirements established for initial submissions of 
contracts and rules that have never been certified with, or approved 
by, the Commission.\13\ Furthermore, the current product and rule 
filing provisions of part 40 do not clearly indicate that DCMs and 
DCOs, in general, must choose either to comply with the approval 
process established in part 40, or in the alternative, the 
certification process established in part 40, prior to listing, 
clearing, or implementing any product or rule, including any product or 
rule that has become dormant.\14\
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    \12\ The Commission defines a dormant contract as a contract or 
product without open interest that, after the expiration of a 
thirty-six month development period following initial certification 
or approval, has not traded in the preceding twelve consecutive 
calendar months. 17 CFR 40.1(b). The Commission defines a dormant 
rule as a rule that has remained unimplemented for twelve 
consecutive calendar months following the rule's initial 
certification with, or approval by, the Commission. 17 CFR 40.1(f).
    \13\ This alignment of procedural requirements is based, in 
part, on the premise that certain contracts and rules, which have 
remained inactive or unimplemented for a significant period of time, 
may contain terms that are no longer consistent with the 
Commission's regulations or prevailing market conditions. 67 FR 
62783, 62784 (October 9, 2002).
    \14\ The Commission's regulations do not require a DTEF to 
either certify or submit for Commission approval a product or rule 
prior to listing or implementation. However, a DTEF, which is 
generally subject to notice filing requirements, may choose to self-
certify products or rules or submit them for Commission approval 
pursuant to the procedures established in part 40 of the 
Commission's regulations. See 17 CFR 37.7.
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    The Commission is herein adopting several amendments to address 
these matters. The Commission is amending regulations 40.2(a), 40.3(a), 
40.4(a), 40.5(a) and 40.6(a) to clarify that the procedural 
requirements for listing, clearing or implementing dormant contracts 
and rules are identical to the requirements established for submissions 
of contracts and rules (including rule amendments) that have never been 
certified with, or approved by, the Commission. The Commission is also 
amending the above referenced regulations to clarify that a DCM or DCO 
in general must choose either to list, clear, or implement a product or 
rule, including any dormant product or rule, pursuant to the self-
certification provisions of part 40 or, in the alternative, pursuant to 
the process established in part 40 for receiving the Commission's prior 
approval.\15\
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    \15\ Registered entities may voluntarily seek the Commission's 
approval for products, rules, and rule amendments. DCM rules that 
will materially change a term or condition of a contract with open 
interest that is based on an agricultural commodity enumerated in 
section 1a(4) of the Act, however, must be approved by the 
Commission prior to implementation. 7 U.S.C. 7a-2(c)(2)(B).
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B. Dormant Registered Entities, Contracts, and Rules

    The Commission has applied the concept of dormancy to registered 
entities by defining a dormant market or clearing organization as a 
registered entity that has been designated by, or registered with, the 
Commission for a period of thirty-six months or more but has not served 
as a facility for the trading or clearing of transactions for a period 
of twelve consecutive calendar months.\16\ The Commission recognizes 
that a significant period of inactivity can potentially have a negative 
impact on a registered entity's ability to implement rules and list and 
clear contracts in a manner that remains consistent with current market 
conditions, the Commission's regulations, and self-regulatory best 
practices.\17\ Accordingly, the Commission has deemed that upon a 
registered entity becoming dormant, its rules and contracts also become 
dormant.\18\
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    \16\ See 17 CFR 40.1.
    \17\ See 47 FR 29515 (July 7, 1982).
    \18\ See 71 FR 1953, 1960 (January 12, 2006).
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    In contrast to this view, the current language of the Commission's 
regulations implies that the earliest possible time that a rule can 
become dormant, regardless of whether a registered entity has entered 
into dormancy, is at the end of a twelve month rule implementation 
period.\19\ Similarly, the current language of the Commission's 
regulations implies that the earliest possible time that a contract can 
become dormant, regardless of whether a registered entity has entered 
into dormancy and absent affirmative

[[Page 8601]]

action on the part of the registered entity, is at the end of a thirty-
six month contract development period. The Commission therefore is 
revising the definition of a dormant product or contract, dormant rule, 
and dormant DCM, DTEF, and DCO in Commission regulation 40.1 to clearly 
establish that the dormancy of a registered entity will automatically 
and separately trigger the dormancy of that entity's contracts and 
rules.\20\
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    \19\ The term ``rule'' is defined to include any registered 
entity (DCM, DTEF, or DCO) ``* * * rule, regulation, resolution, 
interpretation, stated policy, term and condition * * * in whatever 
form adopted, and any amendment or addition thereto or repeal 
thereof * * *'' 17 CFR 40.1(h).
    \20\ The final amendments also clarify that only registered DCOs 
can be dormant.
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C. Definition of Emergency

    The Commission's regulations give registered entities the ability 
to implement emergency rules in response to market disruptions without 
certifying or receiving the Commission's approval prior to 
implementation.\21\ The current definition of emergency implies that 
the full governing board of a registered entity must determine whether 
particular developments constitute an emergency before the registered 
entity may operate under emergency procedures.\22\ The Commission, in 
its August 2007 notice of proposed rulemaking, proposed to amend the 
definition of emergency in regulation 40.1(g) to clarify that certain 
persons other than persons that comprise a registered entity's full 
governing board may properly issue an emergency determination on behalf 
of the governing board. The proposed revision was precipitated by a New 
York Mercantile Exchange (NYMEX) comment letter (submitted in response 
to the publication of a procedurally unrelated notice of proposed 
rulemaking) that suggested that the full governing board of an 
exchange, under emergency conditions, may not be able to issue a 
determination in a timely manner to address emergency conditions.\23\
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    \21\ See 17 CFR 40.6(a)(2).
    \22\ See 17 CFR 40.1(g).
    \23\ See letter from James A. Newsome, President, NYMEX, to Jean 
A. Webb, Secretary of the Commission (September 26, 2005) (on file 
with the Commission), available at https://www.cftc.gov/foia/
comment05/foi05-004_1page2.htm.
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    The Commission received one comment in response to its proposal to 
amend the definition of emergency. In its comment letter, the CME Group 
Inc., a DCM formed by the 2007 merger of the Chicago Mercantile 
Exchange Inc. and the Board of Trade of the City of Chicago, expressed 
its support for the proposed clarification.\24\ CME Group based its 
support on the premise that an authorized committee or an exchange 
official may be better able to respond in the first instance to market 
disruptions that may quickly evolve into emergencies.
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    \24\ See letter from Craig S. Donohue, Chief Executive Officer, 
CME Group, to David A. Stawick, Secretary of the Commission 
(September 12, 2007) (on file with the Commission), available at 
https://www.cftc.gov/stellent/groups/public/@lrfederalregister/
documents/frcomment/07-010c002.pdf.
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    The Commission agrees with CME Group and NYMEX, and pursuant to a 
broader interpretation of the definition of emergency, has previously 
approved registered entity rules that delegate the authority to make an 
emergency determination to persons other than persons that comprise the 
full governing board. Accordingly, the Commission herein revises the 
definition of emergency in regulation 40.1(g) to clarify that duly 
authorized persons may determine whether a particular occurrence or 
circumstance is an emergency that ``requires immediate action and 
threatens or may threaten such things as the fair and orderly trading 
in, or the liquidation of or delivery pursuant to, any agreements, 
contracts or transactions * * *'' \25\ The final amendments to the 
definition of emergency require, as proposed, that the authorization to 
act on behalf of the governing board be derived from registered entity 
rules that specify in detail: (1) The persons authorized to issue an 
emergency opinion on behalf of the governing board; and (2) the 
procedures for the exercise of such authority.\26\
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    \25\ 17 CFR 40.1(g).
    \26\ The Commission is further adopting, as proposed, amendments 
to the definition of emergency in Commission regulation 40.1(g) to 
clarify the definition's applicability to all registered entities, 
including DCOs.
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D. Commission Review and Approval of Registered Entity Rules

    In contrast to other registered entity rules that may be 
implemented pursuant to the self-certification process established in 
part 40, DCM rules that, as determined by the Commission, materially 
change a term or condition of a contract with open interest that is 
based on an agricultural commodity enumerated in section 1a(4) of the 
Act must be approved by the Commission prior to implementation.\27\ 
Since a finding of materiality is by statute at the reasonable 
discretion of the Commission, part 40 currently affords DCMs the 
opportunity to request a materiality opinion from the Commission for 
rules that a submitting DCM characterizes as non-material. Upon 
request, the Commission will determine whether a DCM rule submitted 
under regulation 40.4(b)(9) at least ten business days prior to 
implementation is material within the meaning of section 5c(c) of the 
Act.\28\
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    \27\ 7 U.S.C. 7a-2(c).
    \28\ Id.
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    DCMs often simultaneously request that agricultural rule changes be 
reviewed for materiality, and if found to be material, approved by the 
Commission. Commission regulation 40.5 does not specify when the 
approval period commences with respect to rules submitted for 
materiality review under the process framed by Commission regulation 
40.4(b)(9).\29\ To establish certainty, the Commission is amending 
regulation 40.5 to commence the rule approval period at the conclusion 
of the 10-day materiality review period under regulation 40.4(b)(9). As 
stated in the August 2007 notice of proposed rulemaking, the 
commencement of the approval period at this point is appropriate 
because determining a rule's consistency with the Act and the 
Commission's regulations thereunder requires an analysis that is 
qualitatively different from the analysis required to determine the 
materiality of the same rule within the meaning of section 5c(c) of the 
Act.\30\
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    \29\ See 17 CFR 40.4(b) and 40.5(b).
    \30\ August 2007 notice of proposed rulemaking, at 45187.
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E. Listing of Products and the Implementation of Registered Entity 
Rules

1. The Timing of Submissions
    The Commission understands that there may be some confusion as to 
how far in advance of implementation registered entities must submit 
self-certified products and rules to the Commission. Commission 
regulations 40.2(a) and 40.6(a) provide that such submissions must be 
filed electronically with the Commission at or before the close of 
business on the business day preceding implementation. Questions have 
arisen as to whether these provisions refer to the Commission's 
business day or the business day of the submitting registered entity.
    The Commission is adopting regulations to clarify that the 
specified date is the Commission's business day. For clarity and in 
order to ensure proper notice of certified products and rules, the 
Commission is defining business day in part 40 and adding language to 
Commission regulations 40.2(a) and 40.6(a) to expressly require the 
filing of certified submissions with the Commission at least one full 
Commission business day prior to

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implementation.\31\ In addition, to ensure that the appropriate 
operating divisions of the Commission have the ability to access 
electronic copies of submissions at the time of filing, the Commission 
is amending the mandatory recipients of electronic submissions filed 
under regulations 40.2(a)(1) and 40.6(a)(2) to include the Secretary of 
the Commission at submissions@cftc.gov, the relevant branch chief at 
the regional office having local jurisdiction over the registered 
entity, and, for filings submitted by a designated contract market or 
registered derivatives transaction execution facility, DMO at 
DMOSubmissions@cftc.gov.
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    \31\ These amendments are consistent with other Commission 
regulations that exclude the day on which a notice is given or an 
event occurs in computing time periods that begin upon the 
occurrence of that notice or event. See 17 CFR 1.3(b) and 10.5.
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2. Implementing Registered Entity Rules Without Certification
a. Additional Rule Categories
    The Commission's regulations generally permit a registered entity 
to implement a new or dormant rule without seeking prior Commission 
approval by certifying to the Commission that the rule complies with 
the Act and the Commission's regulations thereunder on the business day 
preceding implementation.\32\ Registered entities, however, are not 
required to file certified submissions prior to implementing several 
categories of registered entity rules that are enumerated in Commission 
regulation 40.6(c)(2).\33\ Registered entity rules that come within 
these categories typically are limited in scope and are implemented 
under enabling rules that have already been approved by, or certified 
with, the Commission. In order to lessen the burden placed on 
registered entities as well as better utilize Commission resources, the 
Commission is codifying several additional categories of registered 
entity rules that may be implemented without prior certification or 
Commission approval if subsequently included in a weekly notification 
of rule changes under regulation 40.6(c)(2). The categories of rules 
enumerated in Commission regulation 40.6(c)(2) are amended to include: 
(1) The initial listing of trading months that are consistent with 
previously approved or certified standards; (2) changes in lists of 
producers' brands or markings that are made pursuant to previously 
approved or certified standards or criteria relating to quality 
specifications; and (3) for existing delivery locations, changes in 
lists of approved delivery facilities and delivery service providers 
that are made pursuant to previously approved or certified standards or 
criteria.\34\
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    \32\ See 17 CFR 40.6(a).
    \33\ 17 CFR 40.6(c)(2).
    \34\ Commission regulation 40.4(b)(2) identifies rules that are 
changes in lists of approved delivery facilities as immaterial. In 
conformance with the amendments to Commission regulation 40.6(c)(2), 
the Commission is amending regulation 40.4(b)(2) to identify rules 
that are changes to lists of approved delivery service providers as 
immaterial.
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    A registered entity's ability to notice file changes that relate to 
trading months under amended regulation 40.6(c)(2) only extends to 
trading months within currently established cycles of trading months 
and does not extend to the delisting or relisting of trading months. By 
way of example, assume that the currently established cycle of trading 
months for a particular contract is December, March, May, July and 
September. Under the final amendments, the listing of a new trading 
month, such as November, would not qualify for notice filing under 
regulation 40.6(c) while an earlier than anticipated (or delayed) 
listing of a July contract could properly be notice filed.\35\ With 
respect to producer's brands or markings and delivery facilities and 
service providers, the Commission reviews the relevant enabling 
standards and criteria to ensure their consistency with cash market 
practices and to ensure that their terms do not unreasonably restrain 
trade by inappropriately prohibiting the open participation of certain 
producers, facilities or service providers.\36\ The identification of 
producers' brands and enumerated delivery facilities and service 
providers at an existing delivery location does not alter certified or 
Commission approved qualifying standards or criteria, nor does it 
change exchange procedures that verify compliance with those standards 
or criteria. The final regulations will therefore require that the 
Commission be kept apprised of changes in lists of approved producers' 
brands or markings, changes in lists of delivery location delivery 
facilities and service providers, and the initial listing of trading 
months that are consistent with previously certified or approved 
standards through weekly notices of rule changes filed under regulation 
40.6(c)(2) as opposed to requiring that such changes be certified with 
or approved by the Commission prior to implementation.\37\
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    \35\ The language of the final regulations for delivery months 
is different from the language that was proposed by the Commission 
in its August 2007 notice of proposed rulemaking. The final 
regulations discard redundant references to open interest and the 
delisting and relisting of trading months. The substantive effect of 
the final regulations, that is, allowing the initial listing of 
trading months (trading months that cannot have open interest or be 
delisted or relisted trading months) within the currently 
established cycle of trading months without prior certification or 
Commission approval, is equivalent to the substantive effect of the 
regulations and amendments proposed in the August 2007 notice of 
proposed rulemaking. See August 2007 notice of proposed rulemaking, 
at 45187 to 45188.
    \36\ See 17 CFR part 40, Appendix A (Application for Designation 
of Physical Delivery Futures Contracts).
    \37\ Registered entities must be able to cite clearly 
identifiable registered entity rules that establish the applicable 
enabling standards and criteria in any such submission made under 
Commission regulation 40.6(c)(2).
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b. Implementing Rules Without Notification
    Rule changes that may appear in a weekly notification pursuant to 
Commission regulation 40.6(c)(2)(iv) also include ``[c]hanges to option 
contract rules relating to the strike price listing procedures, strike 
price intervals, and the listing of strike prices on a discretionary 
basis.'' \38\ The Commission currently receives substantially the same 
information under part 16 of the Commission's regulations, which 
specifies the daily reporting requirements that apply to DCMs.\39\ In 
particular, regulation 16.01(b) stipulates that each reporting market 
must submit to the Commission on a daily basis various trade data, 
including trade volume, open interest and price information for all 
listed option strike prices, including discretionary prices.\40\
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    \38\ 17 CFR 40.6(c)(iv).
    \39\ See 17 CFR part 16.
    \40\ 17 CFR 16.01(b).
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    In January 2006, DMO staff granted no-action relief to permit DCMs 
to satisfy the regulation 40.6(c)(2)(iv) notification requirement by 
complying with the daily reporting requirements of regulation 16.01 of 
the Commission's regulations.\41\ In order to codify the no-action 
relief granted by DMO and avoid duplicative regulatory requirements, 
the Commission is amending regulation 40.6(c)(2)(iv) and adding 
paragraph (G) to regulation 40.6(c)(3)(ii) to allow registered entities 
that are in compliance with regulation 16.01(b) to implement the 
specified changes relating to option contract strike prices without 
either prior approval, certification or inclusion in a weekly 
notification to the Commission.\42\
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    \41\ See CFTC Staff Letter 06-01 (January 9, 2006).
    \42\ In July of 2006, the Commission adopted final rules to 
permit the trading of futures contracts based on corporate debt 
securities. 71 FR 39541 (July 13, 2006) (Debt Futures Release). The 
Commission herein adopts, as proposed, a technical amendment that 
conforms regulation 40.6(c)(2)(iii) to the adoption of the Debt 
Futures Release by replacing that regulation's reference to stock 
indexes with a reference to securities indexes, a general term that 
includes both equity and debt securities. Final Commission 
regulation 40.6(c)(2)(iii) also includes a reference to regulation 
40.6(c)(3)(ii)(F) to alert registered entities that certain rule 
changes relating to securities indexes may be implemented pursuant 
to notification or without such notice if implemented under 
regulation 40.6(c)(3).

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[[Page 8603]]

    The Commission is making a similar amendment for registered entity 
rules denoting changes to contract trading months within currently 
established cycles of trading months that may be implemented pursuant 
to a regulation 40.6(c)(2) notification filing.\43\ As with rules that 
are changes to option contract strike prices, the Commission currently 
receives adequate notification of the same information under regulation 
16.01(a). In order to avoid duplicative regulatory requirements, the 
Commission is adding paragraph (H) to regulation 40.6(c)(3)(ii) to 
provide that registered entities that are in compliance with regulation 
16.01(a) may effect the initial listing of contract trading months 
within the currently established cycle of trading months without prior 
approval, certification or inclusion in a weekly notification to the 
Commission.\44\
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    \43\ The Commission is amending the heading of regulation 40.6, 
and that provision's references to DCMs and DCOs, to clarify its 
potential applicability to all registered entities, including DTEFs.
    \44\ In its comment letter, CME Group stated that permitting 
DCMs that comply with the reporting requirements of Commission 
regulations 16.01(a) and (b) to implement changes in the listing of 
trading months within currently established cycles of trading months 
and changes to certain option contract rules relating to strike 
prices, without certification or prior Commission approval, will 
avoid duplicative requirements and will facilitate the efficient use 
of Commission resources.
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V. Related Matters

A. Cost Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its actions before issuing new regulations under 
the Act. Section 15(a) does not require the Commission to quantify the 
costs and benefits of new regulations or to determine whether the 
benefits of adopted regulations outweigh their costs. Rather, section 
15(a) requires the Commission to consider the cost and benefits of the 
subject regulations. Section 15(a) further specifies that the costs and 
benefits of the regulations shall be evaluated in light of five broad 
areas of market and public concern: (1) Protection of market 
participants and the public; (2) efficiency, competitiveness, and 
financial integrity of futures markets; (3) price discovery; (4) sound 
risk management practices; and (5) other public interest 
considerations. The Commission may, in its discretion, give greater 
weight to any one of the five enumerated areas of concern and may, in 
its discretion, determine that, notwithstanding its costs, a particular 
regulation is necessary or appropriate to protect the public interest 
or to effectuate any of the provisions or to accomplish any of the 
purposes of the Act.
    The final regulations expand the set of persons delegated by the 
Commission with the authority to issue ECM special calls to include the 
Director of the Division of Enforcement and that Director's designees. 
The final regulations do not expand the basis for issuing ECM special 
calls; rather, they simply expand the set of persons authorized to 
issue such special calls. There are no regulatory costs imposed by this 
extension of delegated special call authority.
    The final regulations clarify that a DCM or DCO must generally 
choose either to comply with the rule approval process established in 
part 40 of the Commission's regulations or, in the alternative, the 
certification process established in part 40, prior to listing or 
clearing any product, or implementing any rule, including any product 
or rule that has become dormant. The final regulations also clearly 
establish that the dormancy of a registered entity will automatically 
and separately trigger the dormancy of that entity's contracts and 
rules. These clarifications are consistent with current Commission 
practice, do not impose any regulatory cost, and serve the public 
interest by facilitating regulatory certainty for persons subject to 
the Act and the Commission's regulations thereunder.
    The final regulations clarify that the definition of emergency 
allows persons other than persons comprising the full governing board 
of a registered entity to declare an emergency on behalf of the 
governing board. The final regulations expressly recognize that the 
full governing board of an exchange under emergency conditions may not 
be able to issue an opinion in a timely manner to address an emergency. 
Accordingly, the Commission's final definition of emergency in part 40 
clearly permits duly authorized persons to determine whether a 
particular occurrence or circumstance is an emergency. The final 
regulations facilitate the ability of registered entities to undertake 
timely action in response to emergency events and thereby better 
protect market participants and the financial integrity of transactions 
executed and cleared on registered entities. The final regulations also 
limit the potential costs that may arise from any misuse of authority 
by requiring registered entities to adopt detailed procedural rules to 
effectuate the exercise of this delegated authority.
    The final regulations clearly set forth the duration of the rule 
approval period for DCM rules that may change a material term or 
condition of a contract based on the agricultural commodities 
enumerated in section 1a(4) of the Act by commencing the rule approval 
period at the conclusion of the 10-day materiality review period under 
Commission regulation 40.4(b)(9). Commencing the approval period at 
this point gives the Commission time to effectively discharge its 
separate regulatory responsibilities to review registered entity rule 
changes for their impact on contracts with open interest and to 
determine whether such changes are consistent with the Act and the 
Commission's regulations thereunder. The amended review period is 
consistent with current Commission regulatory practice and should not 
place any additional cost or burden on submitting DCMs.
    The final regulations address how far in advance of implementation 
registered entities must submit self-certified contracts and rules to 
the Commission pursuant to regulations 40.2(a) and 40.6(a) by 
clarifying that the date specified in those regulations refers to the 
Commission's business day. The final regulations ensure that there is 
at least one full Commission business day between the submission of a 
certified product or rule and such product or rule's listing or 
implementation. The final regulations provide regulatory clarity and 
impose no additional cost or burden.
    The final regulations lessen the burden placed on registered 
entities as well as better utilize Commission resources by codifying 
several additional rule categories that may be implemented without 
prior certification or Commission approval if noticed to the Commission 
through other required filings or disclosure requirements or 
subsequently included in a weekly notification of rule changes to the 
Commission under regulation 40.6(c)(2). The final regulations add lists 
of approved producers' brands or markings, changes in lists of approved 
delivery facilities and delivery service providers, certain changes in 
contract trading months, and certain specified changes to option 
contract strike prices to the categories of rules may be implemented 
without prior certification or Commission approval, or as applicable, 
notification. Registered entity rules that come within these categories 
typically are limited in scope

[[Page 8604]]

and are implemented under enabling rules that have already been 
certified with, or approved by, the Commission. Permitting their 
implementation without certification or approval, or as applicable, 
notification, avoids unnecessary or duplicative regulatory requirements 
and better utilizes the Commission's resources.
    The Commission's August 2007 notice of proposed rulemaking analyzed 
the aforementioned costs and benefits. No relevant comments were 
received with respect to the Commission's analysis. After considering 
these factors, the Commission has determined to amend parts 36 and 40 
of the Commission's regulations as set forth below.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires that agencies consider the impact of their regulations on 
small businesses. The requirements related to the final amendments fall 
mainly on registered entities. The Commission has previously determined 
that registered entities are not ``small entities'' for the purposes of 
the RFA.\45\ In addition, these final regulations, collectively, tend 
to relieve regulatory burdens. Accordingly, the Chairman, on behalf of 
the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the 
actions to be taken herein will not have a significant economic impact 
on a substantial number of small entities.
---------------------------------------------------------------------------

    \45\ See 47 FR 18618 (April 30, 1982).
---------------------------------------------------------------------------

C. Paperwork Reduction Act

    When publicizing final regulations, the Paperwork Reduction Act 
(PRA) of 1995 (44 U.S.C. 3501 et seq.) 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 information collection requirements associated with the 
final regulations are administered under Office of Management and 
Budget control numbers 3038-0022 and 3038-0054. These final amendments 
to parts 36 and 40 of the Commission's regulations would not impose any 
new or additional recordkeeping or information collection requirement 
that would require the approval of the Office of Management and Budget 
under 44 U.S.C. 3501, et seq.

List of Subjects

17 CFR Part 36

    Commodity futures.

17 CFR Part 40

    Commodity futures, Reporting and recordkeeping requirements.

0
In consideration of the foregoing, and pursuant to the authority 
contained in the Act, and, in particular, sections 2, 4, 5, 5a, 5b, 5c, 
5d and 8a of the Act, the Commission hereby amends Chapter I of Title 
17 of the Code of Federal Regulations as follows:

PART 36--EXEMPT MARKETS

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

    Authority: 7 U.S.C. 2, 5, 6, 6c, and 12a, as amended by the 
Commodity Futures Modernization Act of 2000, Appendix E of Public 
Law 106-554, 114 Stat. 2763 (2000).


0
2. In Sec.  36.3, revise paragraphs (b)(3)(ii) to read as follows:


Sec.  36.3  Exempt commercial markets.

* * * * *
    (b) * * *
    (3) * * *
    (ii) The Commission hereby delegates, until the Commission orders 
otherwise, the authority to make special calls as set forth in Section 
2(h)(5)(B)(iii) of the Act to the Directors of the Divisions of Market 
Oversight, the Division of Clearing and Intermediary Oversight, and the 
Division of Enforcement to be exercised by each such Director or by 
such other employee or employees as 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.
* * * * *

PART 40--PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES 
TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING 
ORGANIZATIONS

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

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 8 and 12a, as 
amended by appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.


0
4. In Sec.  40.1, revise paragraph (a) through (g) to read as follows:


Sec.  40.1  Definitions.

* * * * *
    (a) Business day means the intraday period of time starting at the 
business hour of 8:15 a.m. and ending at the business hour of 4:45 
p.m.; business hour means any hour between 8:15 a.m. and 4:45 p.m., 
Eastern Standard Time or Eastern Daylight Savings Time, whichever is 
currently in effect in Washington, DC, on all days except Saturdays, 
Sundays and federal holidays in Washington, DC.
    (b) Dormant contract or dormant product means:
    (1) Any agreement, contract, transaction, or instrument, or any 
commodity futures or option contract with respect to all future or 
option expiries that has no open interest and in which no trading has 
occurred for a period of twelve complete calendar months following a 
certification with, or approval by, the Commission; provided, however, 
that no contract or instrument under this paragraph (b)(1) initially 
and originally certified with, or approved by, the Commission within 
the preceding 36 complete calendar months shall be considered to be 
dormant; or
    (2) Any commodity futures or option contract or other agreement, 
contract, transaction or instrument of a dormant registered entity; or
    (3) Any commodity futures or option contract or other agreement, 
contract, transaction or instrument not otherwise dormant that a 
registered entity self-declares through certification to be dormant.
    (c) Dormant designated contract market means any designated 
contract market on which no trading has occurred for a period of twelve 
complete calendar months; provided, however, no designated contract 
market shall be considered to be dormant if its initial and original 
Commission order of designation was issued within the preceding 36 
complete calendar months.
    (d) Dormant derivatives clearing organization means any derivatives 
clearing organization registered pursuant to Section 5b of the Act that 
has not accepted for clearing any agreement, contract or transaction 
that is required or permitted to be cleared by a derivatives clearing 
organization under Sections 5b(a) and 5b(b) of the Act, respectively, 
for a period of twelve complete calendar months; provided, however, no 
derivatives clearing organization shall be considered to be dormant if 
its initial and original Commission order of registration was issued 
within the preceding 36 complete calendar months.
    (e) Dormant derivatives transaction execution facility means any 
derivatives transaction execution facility on which no trading has 
occurred for a period of twelve complete calendar months; provided, 
however, no derivatives transaction execution facility shall be 
considered to be dormant if its initial and original Commission order 
of

[[Page 8605]]

designation was issued within the preceding 36 complete calendar 
months.
    (f) Dormant rule means:
    (1) Any registered entity rule which remains unimplemented for 
twelve complete calendar months following a certification with, or an 
approval by, the Commission; or
    (2) Any rule or rule amendment of a dormant registered entity.
    (g) Emergency means any occurrence or circumstance that, in the 
opinion of the governing board of a registered entity, or a person or 
persons duly authorized to issue such an opinion on behalf of the 
governing board of a registered entity under circumstances and pursuant 
to procedures that are specified by rule, requires immediate action and 
threatens or may threaten such things as the fair and orderly trading 
in, or the liquidation of or delivery pursuant to, any agreements, 
contracts or transactions, including:
    (1) Any manipulative or attempted manipulative activity;
    (2) Any actual, attempted, or threatened corner, squeeze, 
congestion, or undue concentration of positions;
    (3) Any circumstances which may materially affect the performance 
of agreements, contracts or transactions, including failure of the 
payment system or the bankruptcy or insolvency of any participant;
    (4) Any action taken by any governmental body, or any other 
registered entity, board of trade, market or facility which may have a 
direct impact on trading; and
    (5) Any other circumstance which may have a severe, adverse effect 
upon the functioning of a registered entity.
* * * * *

0
5. In Sec.  40.2, revise the heading and paragraphs (a) introductory 
text, (a)(1) and (a)(2) to read as follows:


Sec.  40.2  Listing and accepting products for trading or clearing by 
certification.

    (a) Unless permitted otherwise by Sec.  37.7 of this chapter, a 
designated contract market or a registered derivatives transaction 
execution facility must comply with the submission requirements of this 
section prior to listing a product for trading that has not been 
approved under Sec.  40.3 of this chapter or that remains dormant 
subsequent to being submitted under this section or approved under 
Sec.  40.3 of this chapter. A registered derivatives clearing 
organization must comply with the submission requirements of this 
section prior to accepting for clearing a product that is not traded on 
a registered entity and has not been approved for clearing under Sec.  
40.5 of this chapter or that remains dormant subsequent to being 
submitted under this section or approved under Sec.  40.5 of this 
chapter. A submission shall comply with the following conditions:
    (1) The registered entity has filed its submission electronically 
in a format specified by the Secretary of the Commission with the 
Secretary of the Commission at submissions@cftc.gov, the relevant 
branch chief at the regional office having local jurisdiction over the 
registered entity, and, for filings submitted by a designated contract 
market or registered derivatives transaction execution facility, the 
Division of Market Oversight at DMOSubmissions@cftc.gov;
    (2) The Commission has received the submission at its headquarters 
by the open of business on the business day preceding the product's 
listing or acceptance for clearing; and
* * * * *

0
6. In Sec.  40.3, revise paragraph (a) introductory text to read as 
follows:


Sec.  40.3  Voluntary submission of new products for Commission review 
and approval.

    (a) Request for approval. Pursuant to Section 5c(c) of the Act and 
Sec. Sec.  37.7 and 38.4 of this chapter, a designated contract market 
or registered derivatives transaction execution facility may request 
that the Commission approve a new or dormant product prior to listing 
the product for trading, or if initially submitted under Sec.  40.2 of 
this chapter, subsequent to listing the product for trading. A 
submission requesting approval shall:
* * * * *

0
7. In Sec.  40.4, revise paragraph (a) and (b)(2) to read as follows:


Sec.  40.4  Amendments to terms or conditions of enumerated 
agricultural contracts.

    (a) Notwithstanding the provisions of this part, a designated 
contract market must submit for Commission approval under the 
procedures of Sec.  40.5, prior to its implementation, any rule or 
dormant rule that, for a delivery month having open interest, would 
materially change a term or condition, as defined in Sec.  40.1(i), of 
a contract for future delivery in an agricultural commodity enumerated 
in Section 1a(4) of the Act, or of an option on such a contract or 
commodity.
* * * * *
    (b) * * *
    (2) For each delivery location, changes in lists of approved 
delivery facilities and delivery service providers, including 
weighmasters and inspectors, pursuant to previously set standards or 
criteria;
* * * * *

0
8. In Sec.  40.5, revise paragraphs (a) introductory text and (c) 
introductory text to read as follows:


Sec.  40.5  Voluntary submission of rules for Commission review and 
approval.

    (a) Request for approval of rules. Pursuant to Section 5c(c) of the 
Act and Sec. Sec.  37.7, 38.4 and 39.4 of this chapter, a registered 
entity may request that the Commission approve a new or dormant rule 
prior to implementation, or if initially submitted under Sec. Sec.  
40.2 or 40.6 of this chapter, subsequent to implementation. A 
submission requesting approval shall:
* * * * *
    (c) Commencement and extension of time for review. The Commission 
shall commence the review period in paragraph (b) of this section for a 
compliant submission under Sec.  40.4(b)(9) ten business days after its 
receipt and further may extend the review period in paragraph (b) of 
this section for any approval request for:
* * * * *

0
9. Amend Sec.  40.6 as follows:
    A. Remove the term ``designated contract market or registered 
derivatives clearing organization'' and add in its place the term 
``registered entity'' in paragraphs (a)(2), (c)(1), and (c)(3)(i);
    B. Remove the term ``designated contract market or a registered 
derivatives clearing organization'' and add in its place the term 
``registered entity'' in paragraph (c) introductory text;
    C. Remove the term ``designated contract markets and registered 
derivatives clearing organizations'' and add in its place the term 
``registered entities'' in paragraph (c)(3) introductory text;
    D. Remove the term ``contract market or a derivatives clearing 
organization's'' and add in its place the term ``registered entity'' in 
paragraph (c)(3)(ii)(B); and
    E. In addition, revise the heading and paragraphs (a) introductory 
text, (a)(2), (c)(2)(iii), and (c)(2)(iv), and add paragraphs 
(c)(2)(vii) through (c)(2)(ix), (c)(3)(ii)(G) and (c)(3)(ii)(H) to read 
as follows:


Sec.  40.6  Self-certification of rules.

    (a) Required certification. Unless permitted otherwise by Sec.  
37.7 of this chapter, a registered entity must comply with the 
following conditions prior to the implementation of any rule that has 
not obtained Commission approval under Sec.  40.5 of this chapter or 
that remains dormant subsequent to being

[[Page 8606]]

submitted under this section or approved under Sec.  40.5 of this 
chapter:
    (1) * * *
    (2) The registered entity has filed its submission electronically 
in a format specified by the Secretary of the Commission with the 
Secretary of the Commission at submissions@cftc.gov, the relevant 
branch chief at the regional office having local jurisdiction over the 
registered entity, and, for filings submitted by a designated contract 
market or registered derivatives transaction execution facility, the 
Division of Market Oversight at DMOSubmissions@cftc.gov, and the 
Commission has received the submission at its headquarters by the open 
of business on the business day preceding implementation of the rule; 
provided, however, rules or rule amendments implemented under 
procedures of the governing board to respond to an emergency as defined 
in Sec.  40.1, shall, if practicable, be filed with the Commission 
prior to the implementation or, if not practicable, be filed with the 
Commission at the earliest possible time after implementation, but in 
no event more than twenty-four hours after implementation; and
* * * * *
    (c) * * *
    (2) * * *
    (iii) Index products. Routine changes in the composition, 
computation, or method of selection of component entities of an index 
(other than routine changes to securities indexes to the extent that 
such changes are not described in paragraph (c)(3)(ii)(F) of this 
section) referenced and defined in the product's terms, that do not 
affect the pricing basis of the index, which are made by an independent 
third party whose business relates to the collection or dissemination 
of price information and which was not formed solely for the purpose of 
compiling an index for use in connection with a futures or option 
product;
    (iv) Option contract terms. Changes to option contract rules, which 
may qualify for implementation without notice pursuant to paragraph 
(c)(3)(ii)(G) of this section, relating to the strike price listing 
procedures, strike price intervals, and the listing of strike prices on 
a discretionary basis;
* * * * *
    (vii) Approved brands. Changes in lists of approved brands or 
markings pursuant to previously certified or Commission approved 
standards or criteria;
    (viii) Delivery facilities and delivery service providers. Changes 
in lists of approved delivery facilities and delivery service providers 
(including weighmasters, assayers, and inspectors) at a delivery 
location, pursuant to previously certified or Commission approved 
standards or criteria; or
    (ix) Trading Months. The initial listing of trading months, which 
may qualify for implementation without notice pursuant to (c)(3)(ii)(H) 
of this section, within the currently established cycle of trading 
months.
    (3) * * *
    (ii) * * *
    (G) Option contract terms. For registered entities that are in 
compliance with the daily reporting requirements of Sec.  16.01(b) of 
this chapter, changes to option contract rules relating to the strike 
price listing procedures, strike price intervals, and the listing of 
strike prices on a discretionary basis.
    (H) Trading Months. For registered entities that are in compliance 
with the daily reporting requirements of Sec.  16.01(a) of this 
chapter, the initial listing of trading months which are within the 
currently established cycle of trading months.

    Issued in Washington, DC, on February 6, 2008, by the 
Commission.
David A. Stawik,
Secretary of the Commission.
 [FR Doc. E8-2580 Filed 2-13-08; 8:45 am]
BILLING CODE 6351-01-P