Proposal To Exempt, Pursuant to the Authority in Section 4(c) of the Commodity Exchange Act, the Trading and Clearing of Certain Products Related to iShares® COMEX Gold Trust Shares and iShares® Silver Trust Shares, 66847-66849 [E8-26815]
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Federal Register / Vol. 73, No. 219 / Wednesday, November 12, 2008 / Notices
There are no capital costs or operating
and maintenance costs associated with
this collection.
Dated: November 5, 2008.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8–26834 Filed 11–10–08; 8:45 am]
BILLING CODE 6351–01–P
COMMODITY FUTURES TRADING
COMMISSION
Proposal To Exempt, Pursuant to the
Authority in Section 4(c) of the
Commodity Exchange Act, the Trading
and Clearing of Certain Products
Related to iShares COMEX Gold
Trust Shares and iShares Silver Trust
Shares
Commodity Futures Trading
Commission.
ACTION: Notice of proposed order and
request for comment.
mstockstill on PROD1PC66 with NOTICES
AGENCY:
SUMMARY: The Commodity Futures
Trading Commission (‘‘CFTC’’ or the
‘‘Commission’’) is proposing to exempt
the trading and clearing of certain
contracts called ‘‘options’’ and other
contracts called ‘‘security futures’’ on
each of iShares COMEX Gold Trust
Shares (‘‘Gold Products’’) and iShares
Silver Trust Shares (‘‘Silver Products’’)
(collectively, ‘‘Gold and Silver
Products’’), proposed to be traded on
national securities exchanges (as to
options) and designated contract
markets registered with the Securities
and Exchange Commission (‘‘SEC’’) as
limited purpose national securities
associations (as to security futures), and
in either case cleared through the
Options Clearing Corporation (‘‘OCC’’)
in its capacity as a registered securities
clearing agency, from the provisions of
the Commodity Exchange Act (‘‘CEA’’) 1
and the regulations thereunder, to the
extent necessary to permit them to be so
traded and cleared. Authority for this
exemption is found in Section 4(c) of
the CEA.2
DATES: Comments must be received on
or before November 19, 2008.
ADDRESSES: Comments may be
submitted by any of the following
methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• E-mail: secretary@cftc.gov. Include
‘‘Options and Security Futures on Gold
and Silver Products’’ in the subject line
of the message.
• Fax: 202–418–5521.
17
27
U.S.C. 1 et seq.
U.S.C. 6(c).
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18:30 Nov 10, 2008
Jkt 217001
• 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:
Robert B. Wasserman, Associate
Director, 202–418–5092,
rwasserman@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. Introduction
The OCC is both a Derivatives
Clearing Organization (‘‘DCO’’)
registered pursuant to Section 5b of the
CEA,3 and a securities clearing agency
registered pursuant to Section 17A of
the Securities Exchange Act of 1934
(‘‘the ’34 Act’’).4
OCC has filed with the CFTC,
pursuant to Section 5c(c) of the CEA
and Commission Regulations 39.4(a)
and 40.5 thereunder,5 requests for
approval of rules and rule amendments
that would enable OCC (1) to clear and
settle contracts called ‘‘options’’
(‘‘Options’’) on Gold and Silver
Products traded on national securities
exchanges, in its capacity as a registered
securities clearing agency (and not in its
capacity as a DCO) and (2) to clear and
settle contracts called ‘‘security futures’’
(‘‘Security Futures’’) on Gold and Silver
Products traded on designated contract
markets 6 registered with the SEC as
limited purpose national securities
associations pursuant to Section 15A(k)
of the ’34 Act 7 (‘‘DCMs’’) as security
futures subject to the CEA and CFTC
regulations thereunder governing
security futures, in either case in OCC’s
capacity as a registered securities
clearing agency (and not in its capacity
as a DCO).8 Section 5c(c)(3) provides
that the CFTC must approve such rules
and rule amendments submitted for
approval unless it finds that the rules or
rule amendments would violate the
CEA.
The request for approval concerning
the Options and Security Futures on
37
U.S.C. 7a–1.
U.S.C. 78q–1.
5 7 U.S.C. 7a–2(c), 17 CFR 39.4(a), 40.5.
6 See Section 5 of the CEA, 7 U.S.C. 7.
7 15 U.S.C. 78o–3(k).
8 See SR–OCC–2008–13 and SR–OCC–2008–14.
OCC has also filed these proposed rule changes
with the Securities and Exchange Commission
(‘‘SEC’’).
4 15
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66847
Gold and Silver Products was filed
effective July 23, 2008. By letter dated
August 20, 2008, the Director of the
Division of Clearing and Intermediary
Oversight, pursuant to delegated
authority, extended the review period of
the request until October 21, 2008 due
to the novel and complex issues raised
by the products that are the subject of
the request. By letter dated October 16,
2008, OCC consented to an extension of
the review period until November 20,
2008.
II. Section 4(c) of the Commodity
Exchange Act
Section 4(c)(1) of the CEA empowers
the CFTC to ‘‘promote responsible
economic or financial innovation and
fair competition’’ by exempting any
transaction or class of transactions from
any of the provisions of the CEA
(subject to exceptions not relevant here)
where the Commission determines that
the exemption would be consistent with
the public interest.9 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.’’ 10 Permitting
Options and Security Futures on Gold
and Silver Products to trade on national
securities exchanges (as to Options) and
DCMs (as to Security Futures) and in
9 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.
10 HOUSE CONF. REPORT NO. 102–978, 1992
U.S.C.C.A.N. 3179, 3213 (‘‘4(c) Conf. Report’’).
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66848
Federal Register / Vol. 73, No. 219 / Wednesday, November 12, 2008 / Notices
either case to be cleared by OCC in its
capacity as a securities clearing agency,
as discussed above, may foster both
financial innovation and competition. In
accordance with the Memorandum of
Understanding entered into between the
CFTC and the SEC on March 11, 2008,
and in particular the addendum thereto
concerning Principles Governing the
Review of Novel Derivative Products, the
Commission believes that novel
derivative products that implicate areas
of overlapping regulatory concern
should be permitted to trade in either or
both a CFTC- or SEC-regulated
environment, in a manner consistent
with laws and regulations (including the
appropriate use of all available
exemptive and interpretive authority).
The CFTC is requesting comment on
whether it should exempt Options and
Security Futures on Gold and Silver
Products, as described above, that are
traded on a national securities exchange
or a DCM, respectively, and cleared
through OCC in its capacity as a
registered securities clearing agency,
from the CEA and the Commission’s
regulations thereunder, to the extent
necessary to permit them to be so traded
and cleared.
In proposing this exemption, the
CFTC need not—and does not—find
that Options on the Gold and Silver
Products are (or are not) options subject
to the CEA, or find that Security Futures
on the Gold and Silver Products are (or
are not) security futures as defined in
Section 1a(31) of the CEA.11 During the
legislative process leading to the
enactment of Section 4(c) of the CEA,
the House-Senate Conference
Committee noted that:
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The Conferees do not intend that the
exercise of exemptive authority by the
Commission would require any
determination beforehand that the agreement,
instrument, or transaction for which an
exemption is sought is subject to the Act.
Rather, this provision provides flexibility for
the Commission to provide legal certainty to
novel instruments where the determination
as to jurisdiction is not straightforward.
Rather than making a finding as to whether
a product is or is not a futures contract, the
Commission in appropriate cases may
proceed directly to issuing an exemption.12
The Options and Security Futures on
Gold and Silver Products described
above are ‘‘novel instruments.’’ Given
their potential usefulness to the market,
however, the Commission believes that
this may be an appropriate case for
issuing an exemption without making a
finding as to the nature of these
particular instruments.
11 7
U.S.C. 1a(31).
Conf. Report at 3214–3215.
12 4(c)
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Section 4(c)(2) provides that the
Commission may grant exemptions only
when it determines: that the
requirements for which an exemption is
being provided should not be applied to
the agreements, contracts or transactions
at issue, and the exemption is consistent
with the public interest and the
purposes of the CEA; that the
agreements, contracts or transactions
will be entered into solely between
appropriate persons; and that the
exemption will not have a material
adverse effect on the ability of the
Commission or any contract market or
derivatives transaction execution
facility to discharge its regulatory or
self-regulatory responsibilities under the
CEA.13
The purposes of the CEA include
‘‘promot[ing] responsible innovation
and fair competition among boards of
trade, other markets and market
participants.’’ 14 It may be consistent
with these and the other purposes of the
CEA, with the public interest, with the
CFTC–SEC Memorandum of
Understanding of March 11, 2008, and
with the addendum thereto, for the
mode of trading and clearing the
Options and Security Futures on Gold
and Silver Products—whether the mode
applicable to options on securities or
commodities, or to security futures or
futures—to be determined by
competitive market forces. Accordingly,
the CFTC is requesting comment as to
whether this exemption from the
requirements of the CEA and regulations
thereunder should be granted in the
context of these transactions.
Section 4(c)(3) includes within the
term ‘‘appropriate persons’’ a number of
specified categories of persons, and also
in subparagraph (K) thereof ‘‘such other
persons that the Commission
determines to be appropriate in light of
* * * the applicability of appropriate
regulatory protections.’’ National
13 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.
14 CEA 3(b), 7 U.S.C. 5(b). See also CEA 4(c)(1),
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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securities exchanges and OCC, as well
as their members who will intermediate
Options on Gold and Silver Products,
are subject to extensive and detailed
regulation by the SEC under the ’34 Act.
Similarly, DCMs and OCC, as well as
their members who will intermediate
Security Futures on Gold and Silver
Products, are subject to regulation by
the SEC and CFTC. The CFTC is
requesting comment as to whether all
persons trading Options and Security
Futures on Gold and Silver Products on
national securities exchanges and
DCMs, respectively, and clearing such
products on OCC, are appropriate
persons.
In light of the above, the Commission
also is requesting comment as to
whether this exemption will interfere
with its ability to discharge its
regulatory responsibilities under the
CEA or with the self-regulatory duties of
any contract market or derivatives
transaction execution facility.
III. Request for Comment
The Commission requests comment
on all aspects of the issues presented by
this proposed order.
IV. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(‘‘PRA’’) 15 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
proposed exemptive order would not, if
approved, require a new collection of
information from any entities that
would be subject to the proposed order.
B. Cost-Benefit Analysis
Section 15(a) of the CEA,16 as
amended by Section 119 of the
Commodity Futures Modernization Act
of 2000, 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) as
amended 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;
15 44
16 7
U.S.C. 3507(d).
U.S.C. 19(a).
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66849
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Federal Register / Vol. 73, No. 219 / Wednesday, November 12, 2008 / Notices
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 this proposed order
in light of the specific provisions of
Section 15(a) of the CEA, as follows:
1. Protection of market participants
and the public. National securities
exchanges, DCMs, OCC and their
members who would intermediate the
above-described Options and Security
Futures on Gold and Silver Products are
subject to extensive regulatory
oversight.
2. Efficiency, competition, and
financial integrity. The proposed
exemption may enhance market
efficiency and competition since it
could encourage potential trading of
Options and Security Futures on Gold
and Silver Products through modes
other than those normally applicable to
designated contract markets or
derivatives transaction execution
facilities. Financial integrity will not be
affected since the Options and Security
Futures on Gold and Silver Products
will be cleared by OCC, a DCO and SECregistered clearing agency, and
intermediated by SEC-registered brokerdealers.
3. Price discovery. Price discovery
may be enhanced through market
competition.
4. Sound risk management practices.
The Options and Security Futures on
Gold and Silver Products will be subject
to OCC’s current risk-management
practices including its margining
system.
5. Other public interest
considerations. The proposed
exemption may encourage development
of derivative products through market
competition without unnecessary
regulatory burden.
After considering these factors, the
Commission has determined to seek
comment on the proposed order as
discussed above. The Commission
invites public comment on its
application of the cost-benefit provision.
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18:30 Nov 10, 2008
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Issued in Washington, DC, on November 5,
2008 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8–26815 Filed 11–10–08; 8:45 am]
BILLING CODE 6351–01–P
DEPARTMENT OF DEFENSE
December 12, 2008 unless comments are
received which result in a contrary
determination.
Send comments to the
Privacy Act Officer, Office of Freedom
of Information, Washington
Headquarters Services, 1155 Defense
Pentagon, Washington, DC 20301–1155.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Mrs.
Cindy Allard at (703) 588–2386.
Office of the Secretary
Meeting of the Defense Policy Board
Advisory Committee
Department of Defense, Defense
Policy Board Advisory Committee.
ACTION: Notice.
AGENCY:
SUMMARY: The Defense Policy Board
Advisory Committee will meet in closed
session on December 1, 2008 from 0800
hrs until 1730 hrs and on December 2,
2008 from 0800 hrs until 1130 hrs at the
Pentagon.
The purpose of the meeting is to
provide the Secretary of Defense,
Deputy Secretary of Defense and Under
Secretary of Defense for Policy with
independent, informed advice on major
matters of defense policy. The Board
will hold classified discussions on
national security matters.
In accordance with Section 10(d) of
the Federal Advisory Committee Act,
Public Law No. 92–463, as amended [5
U.S.C. App II (1982)], it has been
determined that this meeting concerns
matters listed in 5 U.S.C.
552B(c)(1)(1982), and that accordingly
this meeting will be closed to the
public.
Dated: November 4, 2008.
Patricia L. Toppings,
OSD Federal Register Liaison Officer,
Department of Defense.
[FR Doc. E8–26760 Filed 11–10–08; 8:45 am]
BILLING CODE 5001–06–P
The Office
of the Secretary of Defense systems of
records notices subject to the Privacy
Act of 1974, (5 U.S.C. 552a), as
amended, have been published in the
Federal Register and are available from
the address above.
The specific changes to the record
systems being amended are set forth
below followed by the notice, as
amended, published in its entirety. The
proposed amendments are not within
the purview of subsection (r) of the
Privacy Act of 1974, (5 U.S.C. 552a), as
amended, which requires the
submission of a new or altered system
report.
SUPPLEMENTARY INFORMATION:
Dated: November 4, 2008.
Morgan E. Frazier,
Alternate OSD Federal Register Liaison
Officer, Department of Defense.
DPR 36
SYSTEM NAME:
Defense Integrated Military Human
Resources System (DIMHRS) Records
(September 30, 2008, 73 FR 56807).
CHANGES:
*
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*
*
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CATEGORIES OF RECORDS IN THE SYSTEM:
Delete ‘‘mother’s maiden name’’ from
first paragraph.
*
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*
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DPR 36
DEPARTMENT OF DEFENSE
SYSTEM NAME:
Office of the Secretary
Defense Integrated Military Human
Resources System (DIMHRS) Records.
[Docket ID: DoD–2008–OS–0139]
Privacy Act of 1974; System of
Records
Office of the Secretary, DoD.
ACTION: Notice to amend a system of
records notice.
AGENCY:
SUMMARY: The Office of the Secretary of
Defense is amending a system of records
notice in its existing inventory of record
systems subject to the Privacy Act of
1974, (5 U.S.C. 552a), as amended.
DATES: This proposed action will be
effective without further notice on
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SYSTEM LOCATION:
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Decentralized segments are located at
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]]>Agencies
[Federal Register Volume 73, Number 219 (Wednesday, November 12, 2008)]
[Notices]
[Pages 66847-66849]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-26815]
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
Proposal To Exempt, Pursuant to the Authority in Section 4(c) of
the Commodity Exchange Act, the Trading and Clearing of Certain
Products Related to iShares[reg] COMEX Gold Trust Shares and
iShares[reg] Silver Trust Shares
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed order and request for comment.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or the
``Commission'') is proposing to exempt the trading and clearing of
certain contracts called ``options'' and other contracts called
``security futures'' on each of iShares[reg] COMEX Gold Trust Shares
(``Gold Products'') and iShares[reg] Silver Trust Shares (``Silver
Products'') (collectively, ``Gold and Silver Products''), proposed to
be traded on national securities exchanges (as to options) and
designated contract markets registered with the Securities and Exchange
Commission (``SEC'') as limited purpose national securities
associations (as to security futures), and in either case cleared
through the Options Clearing Corporation (``OCC'') in its capacity as a
registered securities clearing agency, from the provisions of the
Commodity Exchange Act (``CEA'') \1\ and the regulations thereunder, to
the extent necessary to permit them to be so traded and cleared.
Authority for this exemption is found in Section 4(c) of the CEA.\2\
---------------------------------------------------------------------------
\1\ 7 U.S.C. 1 et seq.
\2\ 7 U.S.C. 6(c).
---------------------------------------------------------------------------
DATES: Comments must be received on or before November 19, 2008.
ADDRESSES: Comments may be submitted by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: secretary@cftc.gov. Include ``Options and Security
Futures on Gold and Silver Products'' 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: Robert B. Wasserman, Associate
Director, 202-418-5092, rwasserman@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. Introduction
The OCC is both a Derivatives Clearing Organization (``DCO'')
registered pursuant to Section 5b of the CEA,\3\ and a securities
clearing agency registered pursuant to Section 17A of the Securities
Exchange Act of 1934 (``the '34 Act'').\4\
---------------------------------------------------------------------------
\3\ 7 U.S.C. 7a-1.
\4\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
OCC has filed with the CFTC, pursuant to Section 5c(c) of the CEA
and Commission Regulations 39.4(a) and 40.5 thereunder,\5\ requests for
approval of rules and rule amendments that would enable OCC (1) to
clear and settle contracts called ``options'' (``Options'') on Gold and
Silver Products traded on national securities exchanges, in its
capacity as a registered securities clearing agency (and not in its
capacity as a DCO) and (2) to clear and settle contracts called
``security futures'' (``Security Futures'') on Gold and Silver Products
traded on designated contract markets \6\ registered with the SEC as
limited purpose national securities associations pursuant to Section
15A(k) of the '34 Act \7\ (``DCMs'') as security futures subject to the
CEA and CFTC regulations thereunder governing security futures, in
either case in OCC's capacity as a registered securities clearing
agency (and not in its capacity as a DCO).\8\ Section 5c(c)(3) provides
that the CFTC must approve such rules and rule amendments submitted for
approval unless it finds that the rules or rule amendments would
violate the CEA.
---------------------------------------------------------------------------
\5\ 7 U.S.C. 7a-2(c), 17 CFR 39.4(a), 40.5.
\6\ See Section 5 of the CEA, 7 U.S.C. 7.
\7\ 15 U.S.C. 78o-3(k).
\8\ See SR-OCC-2008-13 and SR-OCC-2008-14. OCC has also filed
these proposed rule changes with the Securities and Exchange
Commission (``SEC'').
---------------------------------------------------------------------------
The request for approval concerning the Options and Security
Futures on Gold and Silver Products was filed effective July 23, 2008.
By letter dated August 20, 2008, the Director of the Division of
Clearing and Intermediary Oversight, pursuant to delegated authority,
extended the review period of the request until October 21, 2008 due to
the novel and complex issues raised by the products that are the
subject of the request. By letter dated October 16, 2008, OCC consented
to an extension of the review period until November 20, 2008.
II. Section 4(c) of the Commodity Exchange Act
Section 4(c)(1) of the CEA empowers the CFTC to ``promote
responsible economic or financial innovation and fair competition'' by
exempting any transaction or class of transactions from any of the
provisions of the CEA (subject to exceptions not relevant here) where
the Commission determines that the exemption would be consistent with
the public interest.\9\ 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.
---------------------------------------------------------------------------
\9\ 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.'' \10\ Permitting Options and Security Futures on
Gold and Silver Products to trade on national securities exchanges (as
to Options) and DCMs (as to Security Futures) and in
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either case to be cleared by OCC in its capacity as a securities
clearing agency, as discussed above, may foster both financial
innovation and competition. In accordance with the Memorandum of
Understanding entered into between the CFTC and the SEC on March 11,
2008, and in particular the addendum thereto concerning Principles
Governing the Review of Novel Derivative Products, the Commission
believes that novel derivative products that implicate areas of
overlapping regulatory concern should be permitted to trade in either
or both a CFTC- or SEC-regulated environment, in a manner consistent
with laws and regulations (including the appropriate use of all
available exemptive and interpretive authority). The CFTC is requesting
comment on whether it should exempt Options and Security Futures on
Gold and Silver Products, as described above, that are traded on a
national securities exchange or a DCM, respectively, and cleared
through OCC in its capacity as a registered securities clearing agency,
from the CEA and the Commission's regulations thereunder, to the extent
necessary to permit them to be so traded and cleared.
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\10\ HOUSE CONF. REPORT NO. 102-978, 1992 U.S.C.C.A.N. 3179,
3213 (``4(c) Conf. Report'').
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In proposing this exemption, the CFTC need not--and does not--find
that Options on the Gold and Silver Products are (or are not) options
subject to the CEA, or find that Security Futures on the Gold and
Silver Products are (or are not) security futures as defined in Section
1a(31) of the CEA.\11\ During the legislative process leading to the
enactment of Section 4(c) of the CEA, the House-Senate Conference
Committee noted that:
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\11\ 7 U.S.C. 1a(31).
The Conferees do not intend that the exercise of exemptive
authority by the Commission would require any determination
beforehand that the agreement, instrument, or transaction for which
an exemption is sought is subject to the Act. Rather, this provision
provides flexibility for the Commission to provide legal certainty
to novel instruments where the determination as to jurisdiction is
not straightforward. Rather than making a finding as to whether a
product is or is not a futures contract, the Commission in
appropriate cases may proceed directly to issuing an exemption.\12\
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\12\ 4(c) Conf. Report at 3214-3215.
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The Options and Security Futures on Gold and Silver Products
described above are ``novel instruments.'' Given their potential
usefulness to the market, however, the Commission believes that this
may be an appropriate case for issuing an exemption without making a
finding as to the nature of these particular instruments.
Section 4(c)(2) provides that the Commission may grant exemptions
only when it determines: that the requirements for which an exemption
is being provided should not be applied to the agreements, contracts or
transactions at issue, and the exemption is consistent with the public
interest and the purposes of the CEA; that the agreements, contracts or
transactions will be entered into solely between appropriate persons;
and that the exemption will not have a material adverse effect on the
ability of the Commission or any contract market or derivatives
transaction execution facility to discharge its regulatory or self-
regulatory responsibilities under the CEA.\13\
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\13\ 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.'' \14\ It may be consistent with these and the
other purposes of the CEA, with the public interest, with the CFTC-SEC
Memorandum of Understanding of March 11, 2008, and with the addendum
thereto, for the mode of trading and clearing the Options and Security
Futures on Gold and Silver Products--whether the mode applicable to
options on securities or commodities, or to security futures or
futures--to be determined by competitive market forces. Accordingly,
the CFTC is requesting comment as to whether this exemption from the
requirements of the CEA and regulations thereunder should be granted in
the context of these transactions.
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\14\ CEA 3(b), 7 U.S.C. 5(b). See also CEA 4(c)(1), 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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Section 4(c)(3) includes within the term ``appropriate persons'' a
number of specified categories of persons, and also in subparagraph (K)
thereof ``such other persons that the Commission determines to be
appropriate in light of * * * the applicability of appropriate
regulatory protections.'' National securities exchanges and OCC, as
well as their members who will intermediate Options on Gold and Silver
Products, are subject to extensive and detailed regulation by the SEC
under the '34 Act. Similarly, DCMs and OCC, as well as their members
who will intermediate Security Futures on Gold and Silver Products, are
subject to regulation by the SEC and CFTC. The CFTC is requesting
comment as to whether all persons trading Options and Security Futures
on Gold and Silver Products on national securities exchanges and DCMs,
respectively, and clearing such products on OCC, are appropriate
persons.
In light of the above, the Commission also is requesting comment as
to whether this exemption will interfere with its ability to discharge
its regulatory responsibilities under the CEA or with the self-
regulatory duties of any contract market or derivatives transaction
execution facility.
III. Request for Comment
The Commission requests comment on all aspects of the issues
presented by this proposed order.
IV. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \15\ 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 proposed exemptive order would
not, if approved, require a new collection of information from any
entities that would be subject to the proposed order.
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\15\ 44 U.S.C. 3507(d).
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B. Cost-Benefit Analysis
Section 15(a) of the CEA,\16\ as amended by Section 119 of the
Commodity Futures Modernization Act of 2000, 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) as amended 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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\16\ 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;
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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 this
proposed order in light of the specific provisions of Section 15(a) of
the CEA, as follows:
1. Protection of market participants and the public. National
securities exchanges, DCMs, OCC and their members who would
intermediate the above-described Options and Security Futures on Gold
and Silver Products are subject to extensive regulatory oversight.
2. Efficiency, competition, and financial integrity. The proposed
exemption may enhance market efficiency and competition since it could
encourage potential trading of Options and Security Futures on Gold and
Silver Products through modes other than those normally applicable to
designated contract markets or derivatives transaction execution
facilities. Financial integrity will not be affected since the Options
and Security Futures on Gold and Silver Products will be cleared by
OCC, a DCO and SEC-registered clearing agency, and intermediated by
SEC-registered broker-dealers.
3. Price discovery. Price discovery may be enhanced through market
competition.
4. Sound risk management practices. The Options and Security
Futures on Gold and Silver Products will be subject to OCC's current
risk-management practices including its margining system.
5. Other public interest considerations. The proposed exemption may
encourage development of derivative products through market competition
without unnecessary regulatory burden.
After considering these factors, the Commission has determined to
seek comment on the proposed order as discussed above. The Commission
invites public comment on its application of the cost-benefit
provision.
Issued in Washington, DC, on November 5, 2008 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8-26815 Filed 11-10-08; 8:45 am]
BILLING CODE 6351-01-P
