Request To Exempt Certain Over-the-Counter Swaps From Certain of the Requirements Imposed by Commission Regulation 35.2, Pursuant to the Authority in Section 4(C) of the Commodity Exchange Act, 38403-38405 [E8-15274]
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Federal Register / Vol. 73, No. 130 / Monday, July 7, 2008 / Notices
the education, stewardship, and
research goals of the reserve; and the
plans for future land acquisition and
facility development to support reserve
operations. The reserve management
goals and objectives can be categorized
within the following five management
challenges: Public use, habitat and
species management, watershed land
use, cultural preservation and
interpretation, and global processes.
These issues can be directly or
indirectly linked to anthropogenic land
use of increasing population densities
accompanied by increasing
development, recreation and economic
pressures.
The Guana Tolomato Matanzas
Environmental Education Center is a
notable addition since the last
management plan and serves as the
administrative, education, research, and
stewardship facility for the northern
component of the Reserve. The facility
will provide an opportunity for further
outreach to the community and serve as
a center of excellence for regional
science, education and stewardship
forums.
This management plan calls for a
boundary expansion incorporating 8,865
acres of publicly owned land in the
southern component of the reserve.
Approximately 4,166 acres of the FaverDykes State Park adding to the 1,333
acres of Faver-Dykes State Park
incorporated at designation. The
additional park lands will provide new
resources and allow for an extension of
the existing partnership. Additionally,
4,699 acres of the Matanzas State Forest
will be added to the Reserve boundary.
This property will be incorporated to
further protect the last remaining
undisturbed salt marsh within the
Reserve and is part of a 16,000 acre
continuous conservation corridor. This
land is comprised 75% by upland pine
and 25% by wetlands. The area serves
as an important bird habitat and
contains significant natural and cultural
resources. These additions will bring
the total Reserve acreage to 73,352 acres
protected for long-term research,
education and stewardship.
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FOR FURTHER INFORMATION CONTACT:
Erica Seiden at (301) 563–1172 or Laurie
McGilvray at (301) 563–1158 of NOAA’s
National Ocean Service, Estuarine
Reserves Division, 1305 East-West
Highway, N/ORM5, 10th floor, Silver
Spring, MD 20910. For copies of the
Guana Tolomato Matanzas, FL
Management Plan revision, visit https://
www.dep.state.fl.us/coastal/sites/gtm/
plan/.
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17:39 Jul 03, 2008
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Dated: June 30, 2008.
David M. Kennedy,
Director, Office of Ocean and Coastal
Resource Management National Oceanic and
Atmospheric Administration.
[FR Doc. E8–15351 Filed 7–3–08; 8:45 am]
BILLING CODE 3510–08–P
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration
National Estuarine Research Reserve
System
Estuarine Reserves Division,
Office of Ocean and Coastal Resource
Management, National Ocean Service,
National Oceanic and Atmospheric
Administration, U.S. Department of
Commerce.
ACTION: Notice of Public Comment
Period for the Revised Management Plan
for the Padilla Bay National Estuarine
Research Reserve.
AGENCY:
Notice is hereby given that
the Estuarine Reserves Division, Office
of Ocean and Coastal Resource
Management, National Ocean Service,
National Oceanic and Atmospheric
Administration (NOAA), U.S.
Department of Commerce is announcing
a thirty day public comment period on
the revised management plan for the
Padilla Bay National Estuarine Research
Reserve.
The Padilla Bay National Estuarine
Research Reserve is located in Skagit
County, Washington. The Reserve was
designated in 1980 pursuant to Section
315 of the Coastal Zone Management
Act of 1972, as amended, 16 U.S.C.
1461. The reserve is revising their plan
pursuant to 15 CFR. The submission of
this revised plan sets a course for
successful implementation of the goals
and objectives of the reserve. New
facilities, a focus on broad Puget Sound
issues and climate change, and updated
programmatic objectives are notable
revisions to the previous approved
management plan.
The revised management plan
outlines the administrative structure;
the education, stewardship, and
research goals of the reserve; and the
plans for future land acquisition and
facility development to support reserve
operations. Since 2002, the reserve has
added a coastal training program that
delivers science-based information to
key decision makers in Washington
State. The reserve has realized nearly all
aspects of the original plan and
expanded its programs dramatically
since the original plan. The reserve has
completed major facility expansion and
SUMMARY:
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38403
renovation projects that provide
classrooms, lab space, exhibit space,
dormitory, and office space. The reserve
has expanded, but not yet completed, its
ownership of in-holdings within its
boundary and increased staff which
have resulted in the implementation of
research, education, stewardship, GIS,
and volunteer activities at the reserve.
This management plan calls for
continued land acquisition within its
boundaries from willing sellers,
implementation of a habitat mapping
and change plan, responsiveness to
existing and emerging regional
partnerships focusing on the
management of Puget Sound, a focus on
climate change within all reserve
programs, implementation of the
National Estuarine Research Reserve’s
K–12 Estuarine Education Program and
continued implementation of the
graduate research fellowship, coastal
training, and system-wide monitoring
programs.
FOR FURTHER INFORMATION CONTACT:
Nina Garfield at (301) 563–1171 or
Laurie McGilvray at (301) 563–1158 of
NOAA’s National Ocean Service,
Estuarine Reserves Division, 1305 EastWest Highway, N/ORM5, 10th floor,
Silver Spring, MD 20910. For copies of
the Padilla Bay Management Plan
revision, visit https://
www.padillabay.gov/.
Dated: June 30, 2008.
David M. Kennedy,
Director, Office of Ocean and Coastal
Resource Management, National Oceanic and
Atmospheric Administration.
[FR Doc. E8–15362 Filed 7–3–08; 8:45 am]
BILLING CODE 3510–08–P
COMMODITY FUTURES TRADING
COMMISSION
Request To Exempt Certain Over-theCounter Swaps From Certain of the
Requirements Imposed by
Commission Regulation 35.2, Pursuant
to the Authority in Section 4(C) of the
Commodity Exchange Act
Commodity Futures Trading
Commission.
ACTION: Notice of request for comment
on exemption request.
AGENCY:
SUMMARY: The Commodity Futures
Trading Commission (‘‘Commission’’) is
requesting comment on whether to
exempt certain over-the-counter
(‘‘OTC’’) swaps from certain of the
requirements otherwise imposed by
Commission Regulation 35.2.
Specifically, the petitioners request
authority to clear certain agricultural
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38404
Federal Register / Vol. 73, No. 130 / Monday, July 7, 2008 / Notices
swaps. This exemption has been
requested by the Chicago Mercantile
Exchange Inc. (‘‘CME’’), a registered
derivatives clearing organization
(‘‘DCO’’), and the Board of Trade of the
City of Chicago, Inc. (‘‘CBOT’’), a
designated contract market. Authority
for extending this relief is found in
Section 4(c) of the Commodity Exchange
Act (‘‘CEA’’).1
DATES: Comments must be received on
or before August 21, 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
‘‘CME/CBOT Section 4(c) Petition’’ 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:
Sarah E. Josephson, Special Counsel,
202–418–5684, sjosephson@cftc.gov, or
Phyllis P. Dietz, Associate Director,
202–418–5449, pdietz@cftc.gov,
Division of Clearing and Intermediary
Oversight, Commodity Futures Trading
Commission, Three Lafayette Centre,
1151 21st Street, NW., Washington, DC
20581.
SUPPLEMENTARY INFORMATION:
I. The CME/CBOT Petition
CME, the DCO that provides clearing
services for the CBOT, and the CBOT
jointly submitted a request to the
Commission for an exemptive order
under Section 4(c) of the CEA.2 The
order would grant CME approval to
clear OTC corn basis swaps and corn,
wheat, and soybean calendar swaps,3
and it would permit the CBOT to list
those products for ‘‘clearing-only.’’ The
contract size for the basis and calendar
swap products will be the same as that
for corn, wheat, and soybean futures—
17
U.S.C. 6(c).
copy of the petition is available on the
Commission’s Web site at https://www.CFTC.gov/.
3 The suite of OTC agricultural swap products
that the CBOT proposes to list for clearing-only is
comprised of corn basis swap contracts for the
following regions: Northeastern Iowa, Northwestern
Iowa, Southern Iowa, Eastern Nebraska, Eastern
South Dakota, and Southern Minnesota; and corn,
wheat, and soybean calendar swaps.
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5,000 bushels. However, each of the
proposed cleared-only OTC products
will be cash-settled, in contrast to the
CBOT’s corn, wheat, and soybean
futures contracts, which are physicallysettled.
Part 35 of the Commission’s
regulations 4 exempts swap agreements
and eligible persons entering into such
agreements from most provisions of the
CEA.5 The term ‘‘swap agreement’’ is
defined to include, among other types of
agreements, a ‘‘basis swap’’ or a
‘‘commodity swap.’’ 6 Part 35 was
promulgated pursuant to authority
conferred upon the Commission in
Section 4(c) of the CEA to exempt
certain transactions in order to promote
innovation and competition.7 Various
exemptions and exclusions were
subsequently added to the CEA by the
Commodity Futures Modernization Act
of 2000 (‘‘CFMA’’),8 but none apply to
agricultural contracts.9
Part 35 requires, among other things,
that a swap agreement not be part of a
fungible class of agreements that are
standardized as to their material
economic terms 10 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.11 Under the arrangement
proposed by CME and the CBOT, a
cleared-only OTC contract could be
offset by another cleared-only OTC
contract. Thus, clearing of these OTC
contracts would result in contracts that
are fungible with other cleared-only
contracts with equivalent terms. In
addition, the creditworthiness of the
counterparty would not be a
consideration. Accordingly, the OTC
contracts CME would clear would not
satisfy all of the conditions of Part 35.12
However, Part 35 further permits ‘‘any
person [to] apply to the Commission for
exemption from any of the provisions of
the Act * * * for other arrangements or
4 17 CFR Part 35 (Commission regulations are
hereinafter cited as ‘‘Reg. ll’’).
5 Jurisdiction is retained for, among other things,
provisions of the CEA proscribing fraud and
manipulation. See Reg. 35.2.
6 Reg. 35.1(b)(1)(i). ‘‘Commodity’’ is defined in
Section 1a(4) of the CEA 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.’’
7 See 58 FR 5587 (Jan. 22, 1993).
8 Pub. L. 106–554, 114 Stat. 2763 (2000).
9 See, e.g., CEA 2(d), (g) and (h).
10 Reg. 35.2(b).
11 Reg. 35.2(c).
12 The contracts that the CBOT proposes to list for
clearing-only would, however, meet the
requirements of Reg. 35.2(a) and (d) in that they
would be entered into solely between eligible swap
participants and executed OTC.
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Fmt 4703
Sfmt 4703
facilities.’’ 13 CME and the CBOT have
petitioned the Commission for an order
under Section 4(c) of the CEA that
would exempt cleared-only OTC swaps
involving corn, wheat, or soybeans to
the same extent as contracts that are
exempt pursuant to Part 35 of the
Commission’s regulations.
II. Section 4(c) of the Commodity
Exchange Act
Section 4(c)(1) of the CEA empowers
the Commission 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
and competitive manner.’’ 15 Permitting
the clearing of OTC corn, wheat, and
soybean swaps by CME may foster both
financial innovation and competition. It
may benefit the marketplace by
providing market participants the ability
to combine flexible negotiation with
central counterparty guarantees and
capital efficiencies. In addition, the
13 Reg.
35.2(d).
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.
15 House Conf. Report No. 102–978, 1992
U.S.C.C.A.N. 3179, 3213.
14 Section
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mstockstill on PROD1PC66 with NOTICES
CBOT has represented that it expects
that the proposed cleared-only OTC
corn basis and calendar swaps will be
a complement to the CBOT’s corn
futures and will enable corn suppliers
and users, including participants in the
ethanol industry, to manage volatile
basis risk while realizing the benefits of
centralized clearing. Similarly, the
CBOT has stated that it expects that its
proposed cleared-only OTC wheat and
soybean calendar swaps will
complement wheat and soybean futures,
respectively, and will result in similar
benefits.
The Commission is requesting
comment on whether it should exempt
the OTC corn basis swaps and corn,
wheat, and soybean calendar swaps that
are proposed to be cleared by CME and
listed by the CBOT, as described above,
to the same extent as are other contracts
that are exempt pursuant to Part 35 of
the Commission’s regulations.
Section 4(c)(2) provides that the
Commission may grant an exemption
only when it determines that the
requirements for which the 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
participants.’’ 17 It may be consistent
with these and the other purposes of the
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.
17 Section 3(b) of the CEA, 7 U.S.C. 5(b). See also
Section 4(c)(1) of the CEA, 7 U.S.C. 6(c)(1) (purpose
of exemptions is ‘‘to promote responsible economic
or financial innovation and fair competition’’).
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17:39 Jul 03, 2008
Jkt 214001
CEA, and with the public interest, for
the cleared-only contracts 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 Commission
is requesting comment as to whether an
exemption from the requirements of the
CEA should be granted in the context of
these transactions.
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
designated contract market.
III. Request for Comment
The Commission requests comment
on all aspects of the issues presented by
this exemption request.
IV. 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
PO 00000
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
these OTC swap agreements to allow
them to be cleared may promote
liquidity and transparency in the
markets for OTC derivatives on corn,
wheat, and soybeans, as well as futures
on those commodities. Extending the
exemption also may promote financial
integrity by providing the benefits of
clearing to these OTC markets.
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. CME’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 derivatives
products without unnecessary
regulatory burden.
After considering these factors, the
Commission has determined to seek
comment on the exemption request as
discussed above. The Commission also
invites public comment on its
application of the cost-benefit provision.
Issued in Washington, DC, on June 30,
2008 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8–15274 Filed 7–3–08; 8:45 am]
BILLING CODE 6351–01–P
18 44
19 7
U.S.C. 3507(d).
U.S.C. 19(a).
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Agencies
[Federal Register Volume 73, Number 130 (Monday, July 7, 2008)]
[Notices]
[Pages 38403-38405]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-15274]
=======================================================================
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COMMODITY FUTURES TRADING COMMISSION
Request To Exempt Certain Over-the-Counter Swaps From Certain of
the Requirements Imposed by Commission Regulation 35.2, Pursuant to the
Authority in Section 4(C) of the Commodity Exchange Act
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of request for comment on exemption request.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
requesting comment on whether to exempt certain over-the-counter
(``OTC'') swaps from certain of the requirements otherwise imposed by
Commission Regulation 35.2. Specifically, the petitioners request
authority to clear certain agricultural
[[Page 38404]]
swaps. This exemption has been requested by the Chicago Mercantile
Exchange Inc. (``CME''), a registered derivatives clearing organization
(``DCO''), and the Board of Trade of the City of Chicago, Inc.
(``CBOT''), a designated contract market. Authority for extending this
relief is found in Section 4(c) of the Commodity Exchange Act
(``CEA'').\1\
---------------------------------------------------------------------------
\1\ 7 U.S.C. 6(c).
---------------------------------------------------------------------------
DATES: Comments must be received on or before August 21, 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 ``CME/CBOT Section
4(c) Petition'' 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: Sarah E. Josephson, Special Counsel,
202-418-5684, sjosephson@cftc.gov, or Phyllis P. Dietz, Associate
Director, 202-418-5449, pdietz@cftc.gov, Division of Clearing and
Intermediary Oversight, Commodity Futures Trading Commission, Three
Lafayette Centre, 1151 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. The CME/CBOT Petition
CME, the DCO that provides clearing services for the CBOT, and the
CBOT jointly submitted a request to the Commission for an exemptive
order under Section 4(c) of the CEA.\2\ The order would grant CME
approval to clear OTC corn basis swaps and corn, wheat, and soybean
calendar swaps,\3\ and it would permit the CBOT to list those products
for ``clearing-only.'' The contract size for the basis and calendar
swap products will be the same as that for corn, wheat, and soybean
futures--5,000 bushels. However, each of the proposed cleared-only OTC
products will be cash-settled, in contrast to the CBOT's corn, wheat,
and soybean futures contracts, which are physically-settled.
---------------------------------------------------------------------------
\2\ A copy of the petition is available on the Commission's Web
site at https://www.CFTC.gov/.
\3\ The suite of OTC agricultural swap products that the CBOT
proposes to list for clearing-only is comprised of corn basis swap
contracts for the following regions: Northeastern Iowa, Northwestern
Iowa, Southern Iowa, Eastern Nebraska, Eastern South Dakota, and
Southern Minnesota; and corn, wheat, and soybean calendar swaps.
---------------------------------------------------------------------------
Part 35 of the Commission's regulations \4\ exempts swap agreements
and eligible persons entering into such agreements from most provisions
of the CEA.\5\ The term ``swap agreement'' is defined to include, among
other types of agreements, a ``basis swap'' or a ``commodity swap.''
\6\ Part 35 was promulgated pursuant to authority conferred upon the
Commission in Section 4(c) of the CEA to exempt certain transactions in
order to promote innovation and competition.\7\ Various exemptions and
exclusions were subsequently added to the CEA by the Commodity Futures
Modernization Act of 2000 (``CFMA''),\8\ but none apply to agricultural
contracts.\9\
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\4\ 17 CFR Part 35 (Commission regulations are hereinafter cited
as ``Reg. ----'').
\5\ Jurisdiction is retained for, among other things, provisions
of the CEA proscribing fraud and manipulation. See Reg. 35.2.
\6\ Reg. 35.1(b)(1)(i). ``Commodity'' is defined in Section
1a(4) of the CEA 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.''
\7\ See 58 FR 5587 (Jan. 22, 1993).
\8\ Pub. L. 106-554, 114 Stat. 2763 (2000).
\9\ See, e.g., CEA 2(d), (g) and (h).
---------------------------------------------------------------------------
Part 35 requires, among other things, that a swap agreement not be
part of a fungible class of agreements that are standardized as to
their material economic terms \10\ 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.\11\ Under the arrangement proposed by CME and the CBOT, a
cleared-only OTC contract could be offset by another cleared-only OTC
contract. Thus, clearing of these OTC contracts would result in
contracts that are fungible with other cleared-only contracts with
equivalent terms. In addition, the creditworthiness of the counterparty
would not be a consideration. Accordingly, the OTC contracts CME would
clear would not satisfy all of the conditions of Part 35.\12\
---------------------------------------------------------------------------
\10\ Reg. 35.2(b).
\11\ Reg. 35.2(c).
\12\ The contracts that the CBOT proposes to list for clearing-
only would, however, meet the requirements of Reg. 35.2(a) and (d)
in that they would be entered into solely between eligible swap
participants and executed OTC.
---------------------------------------------------------------------------
However, Part 35 further permits ``any person [to] apply to the
Commission for exemption from any of the provisions of the Act * * *
for other arrangements or facilities.'' \13\ CME and the CBOT have
petitioned the Commission for an order under Section 4(c) of the CEA
that would exempt cleared-only OTC swaps involving corn, wheat, or
soybeans to the same extent as contracts that are exempt pursuant to
Part 35 of the Commission's regulations.
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\13\ Reg. 35.2(d).
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II. Section 4(c) of the Commodity Exchange Act
Section 4(c)(1) of the CEA empowers the Commission 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.
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\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.
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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 and
competitive manner.'' \15\ Permitting the clearing of OTC corn, wheat,
and soybean swaps by CME may foster both financial innovation and
competition. It may benefit the marketplace by providing market
participants the ability to combine flexible negotiation with central
counterparty guarantees and capital efficiencies. In addition, the
[[Page 38405]]
CBOT has represented that it expects that the proposed cleared-only OTC
corn basis and calendar swaps will be a complement to the CBOT's corn
futures and will enable corn suppliers and users, including
participants in the ethanol industry, to manage volatile basis risk
while realizing the benefits of centralized clearing. Similarly, the
CBOT has stated that it expects that its proposed cleared-only OTC
wheat and soybean calendar swaps will complement wheat and soybean
futures, respectively, and will result in similar benefits.
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\15\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179,
3213.
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The Commission is requesting comment on whether it should exempt
the OTC corn basis swaps and corn, wheat, and soybean calendar swaps
that are proposed to be cleared by CME and listed by the CBOT, as
described above, to the same extent as are other contracts that are
exempt pursuant to Part 35 of the Commission's regulations.
Section 4(c)(2) provides that the Commission may grant an exemption
only when it determines that the requirements for which the 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
cleared-only contracts 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 Commission is requesting comment as
to whether an exemption from the requirements of the CEA should be
granted in the context of these transactions.
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\17\ Section 3(b) of the CEA, 7 U.S.C. 5(b). See also Section
4(c)(1) of the CEA, 7 U.S.C. 6(c)(1) (purpose of exemptions is ``to
promote responsible economic or financial innovation and fair
competition'').
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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 designated contract market.
III. Request for Comment
The Commission requests comment on all aspects of the issues
presented by this exemption request.
IV. 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. 3507(d).
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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.
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\19\ 7 U.S.C. 19(a).
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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 these OTC swap agreements to allow
them to be cleared may promote liquidity and transparency in the
markets for OTC derivatives on corn, wheat, and soybeans, as well as
futures on those commodities. Extending the exemption also may promote
financial integrity by providing the benefits of clearing to these OTC
markets.
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. CME'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 derivatives products
without unnecessary regulatory burden.
After considering these factors, the Commission has determined to
seek comment on the exemption request as discussed above. The
Commission also invites public comment on its application of the cost-
benefit provision.
Issued in Washington, DC, on June 30, 2008 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8-15274 Filed 7-3-08; 8:45 am]
BILLING CODE 6351-01-P