Significant Price Discovery Contracts on Exempt Commercial Markets, 12178-12203 [E9-6044]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 74, Number 54 (Monday, March 23, 2009)]
[Rules and Regulations]
[Pages 12178-12203]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-6044]



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Part II





 Commodity Futures Trading Commission





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17 CFR Parts 15, 16, 17 et al.



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Significant Price Discovery Contracts on Exempt Commercial Markets; 
Final Rule

Federal Register / Vol. 74, No. 54 / Monday, March 23, 2009 / Rules 
and Regulations

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 15, 16, 17, 18, 19, 21, 36, 40

RIN 3038-AC76


Significant Price Discovery Contracts on Exempt Commercial 
Markets

AGENCY: Commodity Futures Trading Commission.

ACTION: Final Rules.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or 
``Commission'') is promulgating final rules to implement those 
provisions of the CFTC Reauthorization Act of 2008 (``Reauthorization 
Act'') \1\ relating to exempt commercial markets (``ECMs'') on which 
significant price discovery contracts (``SPDCs'') are traded or 
executed. In addition to promulgating regulations mandated by the 
Reauthorization Act, the Commission also is amending existing 
regulations applicable to registered entities in order to clarify that 
such regulations are now applicable to ECMs with SPDCs.
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    \1\ Incorporated as Title XIII of the Food, Conservation and 
Energy Act of 2008, Public Law 110-246, 122 Stat. 1624 (June 18, 
2008).

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DATES: Effective Date: April 22, 2009.

FOR FURTHER INFORMATION CONTACT: Susan Nathan, Senior Special Counsel, 
Division of Market Oversight, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. 
Telephone: (202) 418-5133. E-mail: snathan@cftc.gov.

SUPPLEMENTARY INFORMATION:

I. Background

A. Overview

    The Commodity Futures Modernization Act of 2000 (``CFMA'') amended 
the Commodity Exchange Act (``CEA'' or the ``Act'') \2\ to replace the 
Act's ``one-size-fits-all'' supervisory framework for futures trading 
with a multi-tiered approach to oversight of derivatives markets. The 
CFMA applies different levels of oversight to markets based primarily 
on the nature of the underlying commodity being traded, the 
participants who are trading, and the manner in which trading is 
conducted. In general, the more sophisticated the traders or commercial 
participants, or the less susceptible a commodity is to manipulation or 
other market or trading abuses, the less regulatory oversight is 
required under the CFMA. In addition to creating three new categories 
of trading facility,\3\ the CFMA created a number of exemptions and 
exclusions from regulation for certain swaps and other derivative 
products traded either bilaterally or on electronic trading facilities-
including an exemption for transactions in exempt commodities traded on 
electronic trading facilities, also known as exempt commercial markets 
(``ECMs'').\4\
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    \2\ 7 U.S.C. 1 et seq.
    \3\ Designated Contract Markets (``DCMs'') are open to all 
participants and may offer all types of commodities; Derivatives 
Transaction Execution Facilities (``DTEFs'') generally are open only 
to sophisticated participants and are limited as to the types of 
commodities that may be traded; and Exempt Boards of Trade 
(``EBOTs'') may trade only excluded commodities and are open only to 
eligible contract participants and are subject to no regulatory 
oversight, exempt from most provisions of the CEA and not registered 
with or designated by the CFTC.
    \4\ The CFMA established the ECM exemption in section 2(h)(3) of 
the CEA, 7 U.S.C. 2(h)(3).
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    Since the adoption of the CFMA, ECMs have evolved such that some no 
longer are simple trading platforms with low trading volumes relative 
to DCMs. Also over time, these facilities began to offer ``look-alike'' 
contracts that are linked to the settlement prices of their exchange-
traded counterparts, and in at least one case these look-alike 
contracts began to garner significant volumes. More recently, several 
active ECMs began to offer the option of centralized clearing for their 
contracts--an option which became widely utilized by their customers to 
manage counterparty risk. This evolution, particularly the linkage of 
ECM contract settlement prices to DCM futures contract settlement 
prices, began to raise questions about whether ECM trading activity 
could impact trading on DCMs and whether the CFTC had adequate 
authority to address that impact and protect markets from manipulation 
and abuse.
    The Commission responded to these changing markets in a variety of 
ways. Its Office of the Chief Economist (``OCE'') conducted a study of 
the relationship between the natural gas contracts that trade on the 
New York Mercantile Exchange (``NYMEX''), a DCM, and the 
InterContinental Exchange (``ICE''), an ECM. Concurrently, the 
Commission's Division of Market Oversight issued a series of special 
calls \5\ for information related to ICE's cleared natural gas swap 
contracts that are cash-settled based on the settlement price of the 
NYMEX physical delivery natural gas contract. Following the OCE study 
and the special calls, the Commission held a public hearing in 
September 2007 to further explore a number of issues, including the 
adequacy of the CFMA's regulatory approach; the similarities and 
differences between ECMs and DCMs; the associated regulatory risks of 
each market category; the types of regulatory changes that might be 
appropriate to address identified risks; and the impact that regulatory 
or legislative changes might have on the U.S. futures industry and the 
global competitiveness of the U.S. financial industry. Based on 
information developed as a result of these efforts, the Commission 
published its October 2007 ``Report on the Oversight of Trading on 
Regulated Futures Exchanges and Exempt Commercial Markets'' (``ECM 
Report''). The ECM Report, which was provided to the Commission's 
Congressional oversight committees, recommended, among other things, 
that the CEA be amended to grant the CFTC additional authority over ECM 
contracts serving a significant price discovery function and that 
certain self-regulatory responsibilities be assigned to ECMs offering 
such contracts.
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    \5\ Section 2(h)(5)(B)(iii) of the Act, 7 U.S.C. 
2(h)(5)(B)(iii), requires that an ECM relying on the exemption 
provided in section 2(h)(3) must, upon a special call by the 
Commission, provide such information related to its business as the 
Commission may determine appropriate to enforce the antifraud 
provisions of the Act, to evaluate a systemic market event, or to 
obtain information requested by a Federal financial regulatory 
authority in connection with its regulatory or supervisory 
responsibilities.
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    The Reauthorization Act's provisions regarding ECMs were based 
largely on the Commission's recommendations for improving oversight of 
ECMs whose contracts perform a significant price discovery function. 
The legislation significantly expanded the CFTC's regulatory authority 
over ECMs by adding a new section 2(h)(7) to the CEA establishing 
criteria for the Commission to consider in determining whether a 
particular ECM contract performs a significant price discovery function 
and providing for greater regulation of SPDCs traded on ECMs. In 
addition to extending the CFTC's regulatory oversight to the trading of 
SPDCs, the Reauthorization Act requires ECMs to adopt position limit 
and accountability level provisions for SPDCs; authorizes the 
Commission to require the reporting of large trader positions in SPDCs; 
and establishes core principles governing ECMs with SPDCs. The core 
principles applicable to ECMs with SPDCs are derived from selected DCM 
core principles and designation criteria set forth in the CEA, and 
Congress intended that they be construed in a like manner.\6\
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    \6\ Joint Explanatory Statement of the Committee of Conference, 
H.R. Rep. No. 110-627, 110 Cong., 2d Sess. at 985 (2008) 
(``Conference Committee Report''). The core principles and 
designation criteria for DCMs are contained in section 5 of the CEA, 
7 U.S.C. 7.

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    The legislation directed the Commission to issue rules implementing 
the provisions of new section 2(h)(7) and to include in such rules the 
conditions under which an ECM will have the responsibility to notify 
the Commission that an agreement, contract or transaction conducted in 
reliance on section 2(h)(3) of the Act may perform a significant price 
discovery function. The Reauthorization Act mandated that the 
``significant price discovery standards'' rules be proposed not later 
than 180 days after the date of enactment of the Reauthorization Act, 
and that the Commission issue final rules not later than 270 days after 
the date of implementation of that Act.\7\
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    \7\ Public Law 110-246, sec. 13204(b)(1).
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    Consistent with Congress' directive, the Commission on December 12, 
2008 issued a notice of proposed rulemaking (``NPRM'' or ``proposing 
release'') to substantially amend rule 36.3 \8\ of the Commission's 
rules applicable to ECMs to implement the broadened regulatory 
authority conferred by section 2(h)(7) of the CEA over ECMs with SPDCs. 
In addition, the proposed rules implicated parts 16 through 21 (market, 
transaction and large trader reporting rules) and part 40 (provisions 
common to contract markets, derivatives transaction execution 
facilities and derivatives clearing organizations). In promulgating 
these final rules, the Commission recognizes that these are rapidly 
evolving markets. We are mindful that, as we carry out Congressional 
directives in the present context, we continue to maintain careful 
scrutiny of the marketplace with regard to new products and trading 
platforms in the future. As markets evolve, we acknowledge our 
obligation to continue to adapt our regulatory oversight to protect 
consumers and ensure the integrity of the core risk management and 
price discovery functions of our markets.
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    \8\ Part 36 of the Commission's rules contains the provisions 
that apply to exempt markets regardless of whether the markets are a 
significant source for price discovery. Rule 36.3 imposes a number 
of requirements on ECMs, including required notification of intent 
to rely on the exemption in section 2(h)(3) of the Act; initial and 
ongoing information submission requirements; prohibited 
representations; required price discovery notification; and price 
dissemination requirements.
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B. The Proposed Rules

1. Part 36: Exempt Markets--Rules Applicable to ECMs
    The Commission proposed to amend rule 36.3(b) to: (1) Specify the 
information submission requirements, both initially and on an ongoing 
basis, for all ECMs and also for ECMs with respect to agreements, 
contracts or transactions that have not been determined to perform a 
significant price discovery function; and (2) to enumerate separately 
the enhanced information submission obligations for ECMs with SPDCs. 
Consistent with the Reauthorization Act's directive that the 
Commission's rulemaking address specific statutory criteria for 
identifying a SPDC and the conditions under which an ECM will be 
responsible for notifying the Commission of a possible SPDC, proposed 
rule 36.3(c) addressed (1) The criteria on which the Commission will 
rely in making a determination that an agreement, contract or 
transaction performs a significant price discovery function; (2) the 
factors that will trigger an ECM's obligation to notify the Commission 
of a possible SPDC; (3) the procedures the Commission will follow in 
reaching its determination whether a contract is a SPDC; and (4) the 
procedures, standards and timetables by which an ECM with a SPDC must 
demonstrate compliance with the core principles. Because the criteria 
mandated by Congress for determining the existence of a SPDC do not 
lend themselves to bright-line rules or formulas, proposed Appendix A 
to Part 36 explains how the Commission anticipates applying the 
criteria, on a case-by-case basis, to the facts and circumstances under 
consideration.
    Consistent with the Reauthorization Act, the CFTC's proposed rules 
required ECMs with SPDCs to establish a self-regulatory regime with 
respect to those contracts. Those responsibilities generally are set 
forth in nine core principles, largely derived from counterpart 
provisions for DCMs, including core principles that require the ECM to 
implement an acceptable trade monitoring program; to develop an audit 
trail in order to detect and deter market abuses; to adopt position 
limitations or position accountability levels for speculators in SPDCs; 
to develop and implement procedures for the exercise of emergency 
authority; to make public daily trading information; to develop a 
program to monitor compliance with the ECM's rules; to establish rules 
to minimize conflicts of interest in the decision-making process of the 
ECM; and to avoid taking any actions or adopting any rules that result 
in any unreasonable restraints of trade or impose any material 
anticompetitive burden on trading on the ECM. Proposed Appendix B to 
Part 36 offers guidance and non-exclusive safe harbors for compliance 
with the core principles. In proposing this guidance, the Commission 
made every effort to construe the ECM core principles in a like manner 
as it construes the DCM core principles.
Parts 15-21: Market, Transaction and Large Trader Reporting Rules
    Collectively, the Commission's market, transaction, and large 
trader reporting rules (``reporting rules'') effectuate the 
Commission's market and financial surveillance programs. The market 
surveillance program analyzes market data to detect and prevent market 
manipulation and disruptions and to enforce speculative position 
limits. The financial surveillance program uses market data to measure 
the financial and systemic risks that large contract positions may pose 
to Commission registrants and clearing organizations. The 
Reauthorization Act authorized the Commission to establish a 
comprehensive transaction and position reporting system for SPDCs when 
it defined ECMs with SPDCs as registered entities and made certain 
provisions of the Act directly applicable to SPDCs.\9\ In addition to 
proposing technical and conforming amendments to parts 15 through 21 of 
its rules, the Commission sought in the proposed rules to extend to 
SPDCs the reporting rules that currently apply to DCMs and DTEFs by 
defining clearing member and clearing organization and amending the 
definition of reporting market in Commission rule 15.00 to apply to 
positions in, and the trading and clearing of, SPDCs.\10\
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    \9\ Specifically, section 4a of the CEA permits the Commission 
to set, approve exchange-set, and enforce speculative position 
limits. 7 U.S.C. 6a. Section 4c(b) of the Act, 7 U.S.C. 6c(b), gives 
the Commission plenary authority to establish rules pursuant to 
which the terms and conditions on which commodity options 
transactions may be conducted and provides the basis for the 
Commission's authority to establish a large trader reporting system 
for transactions on ECMs that involve commodity options. Section 4g 
of the Act imposes reporting and recordkeeping obligations on 
registered persons and requires them to file reports on positions 
executed on any board of trade and in any SPDC traded or executed on 
an ECM. 7 U.S.C. 6g. Finally, section 4i of the Act requires the 
filing of such reports as the Commission may require when positions 
made or obtained on DCMs, DTEFs or ECMs with respect to SPDCs equal 
or exceed Commission-set levels. 7 U.S.C. 6i.
    \10\ Consistent with ECM Core Principle IV's directive that ECMs 
take into account contracts that are treated by DCOs as fungible 
with a SPDC when establishing position limits or accountability 
levels for SPDCs, in this section the term SPDC will include any 
contracts that are fungible and cleared by DCOs together with SPDCs.
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    Specifically, the NPRM proposed that ECMs be required to provide 
clearing member reports for SPDCs pursuant to rule16.00. Under proposed 
rule 16.01, ECMs, like DCMs, would be required to

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submit to the Commission and publicly disseminate option deltas and 
aggregated trading data on a daily basis.\11\ ECM clearing members that 
clear SPDCs would, regardless of their registration status with the 
Commission or their status as domestic or foreign persons, be required 
to file reports for large SPDC positions when the positions meet or 
exceed the contract reporting levels of Commission rule 15.03(b). In 
addition, the NPRM proposed to require clearing members to identify the 
owners of reportable SPDC positions on Form 102.\12\ Under the proposed 
rules, SPDC traders likewise would be subject to the special call 
provisions of the Commission's part 18 rules for reportable positions. 
Furthermore, the Commission proposed that clearing members clearing 
SPDCs, SPDC traders, and ECMs listing SPDCs would each be subject to 
the special call provisions of the part 21 rules.\13\
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    \11\ The NPRM also proposed to uniformly apply the public 
dissemination requirement of Commission rule 16.01(e) to DCMs, 
DTEFs, and ECMs with SPDCs.
    \12\ The Commission's Division of Market Oversight (``DMO'') 
increasingly has been charged with administering the procedural 
requirements of the reporting rules. Accordingly, the Commission 
proposed to shift the delegation of the Commission's authority to 
determine the format of reports and the manner of reporting under 
parts 15 to 21 of the Commission's rules from the Executive Director 
to the Director of DMO.
    \13\ Part 21 of the Commission's rules establishes the 
Commission's ability to request information on persons that exercise 
trading control over commodity futures and options accounts along 
with additional account-related information for positions that may 
or may not be reportable under Commission rule 15.03(b). The final 
rules amend paragraphs (i)(1) and (i)(2) of rule 21.02 to ensure 
that any special call to an intermediary for information that 
classifies a trader as commercial or noncommercial, and the 
positions of the trader as speculative, spread positions, or 
positions held to hedge commercial risks, can be made with respect 
to both commodity futures and commodity options contracts. 17 CFR 
21.02)(i).
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    In order to communicate effectively with foreign clearing members 
and foreign traders and to properly administer the proposed special 
call provisions of parts 17, 18 and 21 of the Commission's rules, the 
Commission also proposed to amend the designation of agent provisions 
of rule 15.05 to require ECMs that list SPDCs to act as the agent of 
foreign clearing members and foreign traders for the purpose of 
accepting service or delivery of any communication, including special 
calls, issued by the Commission to a foreign clearing member or trader. 
The Commission also proposed new rule 16.02 to require all reporting 
markets, including ECMs listing SPDCs, to report on a daily basis trade 
data and related order information for each transaction that is 
executed on the market,\14\ and to specify the information to be 
included in such reports.\15\ In this regard, while the Commission 
proposed amendments to its part 17 rules dealing with reportable 
positions, it did not extend those proposals to SPDC transactions that 
are not cleared for the simple reason that no clearing members are 
involved in clearing such transactions. For purposes of enforcing SPDC 
position limits and monitoring large SPDC positions, the Commission 
anticipated using proposed rule 16.02 to access transaction information 
and trader identification to enforce position limits and monitor large 
positions for market and financial surveillance purposes.
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    \14\ For some time, DCMs consistently have provided transaction 
level data on request by the Commission pursuant to rule 38.5(a). 
Proposed rule 16.02 would make such submissions mandatory.
    \15\ Such reports would include time and sales data, reference 
files and other information as the Commission or its designee may 
request; upon request, this information could be accompanied by data 
that identifies or facilitates the identification of each trader for 
each transaction or order included in a submitted report. The 
Commission noted in the NPRM that recent acquisitions of technology 
have enabled the agency to more effectively integrate trade data and 
related orders into its trade practice, market, and financial 
surveillance programs. Accordingly, new rule 16.02 would make the 
submission of such information mandatory.
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Part 40: Provisions Common to Registered Entities
    The Reauthorization Act amended the definition of ``registered 
entity'' in section 1a(29) of the CEA to include ECMs with SPDCs. 
Because certain provisions in part 40 of the Commission's rules apply 
to registered entities--and, accordingly, to ECMs with SPDCs--the 
Commission proposed to amend part 40 to specify the provisions which 
would be applicable to all registered entities.\16\ The Commission 
emphasized in its NPRM that although not all provisions of part 40 will 
be applicable to ECMs with SPDCs, even sections that are not being 
amended in this rulemaking may be de facto amended by virtue of the 
fact that the term ``registered entity'' now includes ECMs with SPDCs.
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    \16\ In particular, the proposed amendments to part 40 made 
rules 40.1, 40.2 and 40.5-40.8 and Appendix D specifically 
applicable to ECMs with SPDCs.
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C. Overview of Comments Received \17\

    General. The Commission received a total of eleven comments from a 
range of commenters, including a government agency,\18\ several trade 
associations,\19\ two ECMs,\20\ an interdealer broker in over-the-
counter (``OTC'') energy markets,\21\ and a DCM.\22\ Most commenters 
expressed support for the proposed rules and several particularly 
commended the Commission's adherence to the letter and spirit of the 
Reauthorization Act. Several commenters offered specific 
recommendations for clarification or modification of certain 
provisions. These comments will be addressed more fully below. The 
Commission notes that some commenters requested that particular rules 
and core principle guidance proposed for ECMs be modified to mirror 
analogous provisions for DCMs. In this regard, the Commission reminds 
interested parties that the Reauthorization Act did not mandate 
identical rules for ECMs and DCMs, and the Commission has attempted to 
craft rules tailored to the special concerns raised by SPDCs. In that 
same vein, interested parties should bear in mind that Commission 
acceptable practices for all core principles do not denote requirements 
under the Act; rather, they offer safe harbors. Registered entities 
always have the option of crafting alternate means of complying with 
core principles than those set forth in the Commission's acceptable 
practices.
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    \17\ In this NPRM, comment letters (``CL'') are referenced by 
the letter's author and/or file number and page. These letters are 
available through the Commission's Internet Web site: https://www.cftc.gov/lawandregulation/federalregister/federalregistercomments/2008/08-012.html.
    \18\ The Federal Energy Regulatory Commission (``FERC'') (CL 05) 
responded to the CFTC's request for comments but did not comment on 
the particulars of the proposed rules.
    \19\ American Feed Industry Association (``AFIA'') (CL 04) 
(representing animal feed interests); International Swaps and 
Derivatives Association, Inc. (``ISDA'') (CL 06) (representing 
participants in the privately negotiated derivatives industry); 
American Public Gas Association (``APGA'') (CL 07) (the national 
association for publicly-owned natural gas distribution systems); 
Society of Independent Gasoline Marketers of America (``SIGMA'') (CL 
08) (a national trade association representing independent chain 
retailers and marketers of motor fuel); Air Transport Association of 
America, Inc. (``ATA'') (CL 09) (airline trade association); Managed 
Funds Association (``MFA'') (CL 10) (representing the global 
alternative investment community).
    \20\ HoustonStreet Exchange (CL 01); InterContinental Exchange, 
Inc. (``ICE'') (CL 03).
    \21\ OTC Global Holdings, Inc. (CL 11) OTC Global Holdings has 
submitted notification to the Commission of its intent to operate a 
market pursuant to the exemption found in section 2(h)(3) of the 
Act.
    \22\ CME Group (CL 02).
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    Core Principle IV. Several commenters expressed substantive 
concerns with respect to the Commission's proposed guidance and 
acceptable practices for compliance with Core Principle IV (Position 
Limitations or Accountability). Specifically, these commenters objected 
to the Commission's proposal that ECM market surveillance programs 
account

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for uncleared transactions through volume accountability levels (based 
on a measure of net uncleared trading calculated by netting each 
trader's long and short uncleared transactions against the same 
counterparty). As more fully discussed below, the Commission believes 
the issues and recommendations raised by these commenters merit further 
attention and study. The Commission is mindful, however, that the time 
constraints imposed by the Reauthorization Act for issuing final rules 
implementing section 2(h)(7) do not permit the level of study necessary 
to properly address and resolve these issues.\23\ Moreover, even if the 
Commission was prepared immediately to adopt some or all of the 
suggested changes, they reflect a substantial departure from the 
proposed guidance that might warrant re-proposal under the 
Administrative Procedure Act.\24\
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    \23\ Congress has directed that the Commission issue proposed 
rules implementing section 2(h)(7) of the CEA not later than 180 
days after the date of enactment of the Reauthorization Act (June 
18, 2008), and that the Commission issue final rules no later than 
270 days after the date of enactment. Public Law 110-246 at section 
13204.
    \24\ 5 U.S.C. 553.
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    For these reasons, the Commission, in an abundance of caution, has 
determined not to make final its Core Principle IV proposed guidance 
and acceptable practices relating to uncleared trades pending a full 
and complete evaluation of the issues raised in these comments. 
Accordingly, upon publication of this notice of final rulemaking, the 
Commission intends to immediately examine these issues and to issue a 
notice of proposed rulemaking that specifically addresses appropriate 
guidance and acceptable practices for uncleared trades on ECMs.
    Like all core principles, Core Principle IV is statutory, and the 
Commission's decision not to provide particular guidance or safe 
harbors with respect to ECM uncleared trades at this time does not 
diminish an ECM's obligation to comply with the core principle itself. 
In that regard, the Commission reminds interested parties that section 
2(h)(7)(C)(ii) of the CEA gives an electronic trading facility explicit 
discretion to take into account differences between cleared and 
uncleared SPDCs in applying the position limits and accountability core 
principle.\25\ Likewise, the Commission will take these differences 
into account when reviewing an ECM's implementation of a core 
principle, as directed by section 2(h)(7)(D)(i).
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    \25\ See also Conference Committee Report at 985-86.
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II. The Final Rules

A. Part 36--Exempt Markets

    Part 36 of the Commission's rules governs both exempt boards of 
trade and ECMs, regardless of whether any individual contract traded 
thereon is a significant source for price discovery. As described 
infra, Rule 36.3 more particularly imposes a number of requirements and 
restrictions on ECMs, including notification of the ECM's intent to 
rely on the section 2(h)(3) exemption; initial and ongoing information 
submission requirements; prohibited representations; price discovery 
notification; and price dissemination requirements. The Commission is 
adopting as proposed the provisions of Rule 36.3(b) that separately 
specify the information submission requirements, both initially and on 
an ongoing basis, for all ECMs and for ECMs with respect to agreements, 
contracts or transactions that have not been determined to perform a 
significant price discovery function.
    The Commission is adopting as proposed the substance of that 
provision's enhanced reporting requirements for ECMs with SPDCs. 
However, the final rules will correct an error in numbering in rule 
36.3(b)(2). As proposed, rule 36.3(b)(2)(i) provided that ECMs, with 
respect to contracts that have not been determined to be SPDCs, must 
identify to the CFTC those contracts that averaged five trades per day 
or more over the most recent calendar quarter, and for each such 
contract, either: pursuant to subparagraph (A), submit a weekly report 
to the CFTC showing specific information; or, pursuant to subparagraph 
(B)(1), provide the Commission with electronic access sufficient to 
allow it to compile the same information. The rule then also required 
in subparagraph (B)(2) through (B)(4) that the ECM maintain and provide 
the CFTC with other records.\26\ These last three requirements were 
incorrectly numbered. Because they apply regardless of whether the ECM 
has elected the weekly reporting path of rule 36.3(b)(2)(i)(A) or to 
provide access to the CFTC pursuant to rule 36.3(b)(2)(i)(B), these 
requirements properly are numbered as 36.3(b)(2)(ii)-(iv) rather than 
as 36.3(b)(2)(i)(B)(2)-(4).\27\
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    \26\ Subparagraph (B)(2) required that the ECM maintain a record 
of allegations and complaints; subparagraph (B)(3) direct the ECM to 
provide the CFTC with a copy of the record of each complaint 
relating to violations of the CEA; pursuant to subparagraph (B)(4) 
the ECM must provide the Commission with a quarterly list of 
transactions executed in reliance on the section 2(h)(3) exemption 
and indicate the terms and conditions, average daily trading volume, 
and most recent open interest figures for each such transaction.
    \27\ To complete this technical correction, proposed rule 
36.3(b)(2)(i)(B)(1) is properly numbered as 36.3(b)(2)(i)(B) in the 
final rules.
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    Proposed rule 36.3(c) and Appendix A to Part 36 set forth the 
procedures and guidance, respectively, which the Commission will use in 
determining whether an ECM agreement, contract or transaction is a 
SPDC. The Commission is adopting, substantially as proposed, Appendix A 
and its general guidance as to how the Commission expects flexibly to 
apply the four criteria specified in section 2(h)(7) of the CEA for 
determining a SPDC--price linkage, arbitrage, material price reference 
and material liquidity. Although much of rule 36.3(c) and its SPDC-
determination procedures are being adopted as proposed, some provisions 
have been modified in response to comments and some have been modified 
to reflect technical and clarifying changes.
    The Commission has made a technical correction to proposed new rule 
36.3(c)(1)(i). This rule is intended to track the statutory language 
added to the CEA by the Reauthorization Act as section 2(h)(7)(B)(i), 
which provides that in determining a SPDC, the Commission shall 
consider, as appropriate,

    PRICE LINKAGE--The extent to which the agreement, contract, or 
transaction uses or otherwise relies on a daily or final settlement 
price, or other major price parameter, of a contract or contracts 
listed for trading on or subject to the rules of a designated 
contract market or a derivatives transaction execution facility, or 
a significant price discovery contract traded on an electronic 
trading facility, to value a position, transfer or convert a 
position, cash or financially settle a position, or close out a 
position.

    As proposed, section 36.3(c)(1)(i) inadvertently dropped a portion 
of the statutory language. The final rules have been corrected to 
reflect the complete statutory provision.
    As proposed, rule 36.3(c)(3) provides that the Commission will 
issue an order determining whether a contract is a SPDC after 
consideration of all relevant information, including any ``data, views 
and arguments'' submitted to the Commission in response to Federal 
Register notification of the Commission's intent to so evaluate the 
contract. The proposed rule did not include a timeframe for issuance of 
such an order. CME Group suggests that the public interests underlying 
the regulatory oversight requirements for

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SPDCs dictate that such determinations be issued within a reasonable 
timeframe following the close of the comment period for the Federal 
Register notification.\28\ The Commission is committed to the prompt 
and thorough processing of SPDC determinations and agrees, as CME Group 
suggests, that absent special circumstances, its order generally should 
issue within 60 days of the closing of the comment period. We are 
aware, however, that the term ``special circumstances'' may take its 
meaning from the particular context, including but not limited to the 
volume of work before the agency and the complexity of the submission 
under review, and we are reluctant to define those circumstances by 
rule. The Commission instead has modified rule 36.3(c)(3) to specify 
that the Commission shall promptly consider relevant information and 
shall issue an order explaining its determination within a reasonable 
period of time after the close of the comment period.\29\
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    \28\ CME Group CL 02 at 7-8.
    \29\ The ATA urged the Commission to revise proposed rule 
36.3(c)(3) ``to provide 14 calendar days notice, not 30, of its 
intention to designate a contract as an SPDC.'' CL 09 at 5. The 
Commission wishes to clarify that rule 36.3(c)(3) establishes a 30-
day notice and comment period following the Commission's notice of 
its intention to undertake a determination whether a particular 
contract is a SPDC. ATA further urges the Commission to specify that 
it will issue a final determination no later than 14 days from the 
end of the comment period. As discussed supra, while the Commission 
is committed to reviewing potential SPDCs as expeditiously as 
possible, in our view 14 days is inadequate to review and issue a 
determination on any SPDC and in most cases would preclude an 
adequate evaluation of complex matters.
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    Proposed rule 36.3(c)(4) established the timetables for compliance 
with the core principles by ECMs that have been determined to have a 
SPDC, providing a 90-day grace period for an ECM's initial SPDC and a 
15-day grace period for subsequently-identified SPDCs traded on the 
same ECM. CME Group suggests that the passage of the Reauthorization 
Act put ECMs on notice that one or more of their contracts may become a 
SPDC at some future date; in its view, a 45-day grace period should be 
sufficient for all ECMs. ATA also views a 90-day grace period as 
excessive in light of ECMs' sophistication and suggests that ECMs can 
demonstrate compliance with the core principles in 60 days. With due 
regard for the market integrity interests associated with the core 
principles, we disagree that all ECMs will be able, in every 
circumstance, to demonstrate compliance with all the core principles 
within 45 or 60 days. While larger, established ECMs may be prepared to 
develop core principle compliance strategies in anticipation of a SPDC 
determination, the grace period must also permit ECMs that are less 
well-established sufficient time to develop and implement programs 
responsive to the core principles. Accordingly, the Commission has 
adopted as final the 90-day grace period for initial compliance with 
the core principles.
    Although ISDA found the 90-day time frame reasonable, noting that 
it allows market participants to make necessary changes to their 
trading system to ensure compliance with the core principles,\30\ it 
objected to the 15-day grace period for subsequently-identified SPDCs 
and urged the Commission to extend the timeframe in recognition of the 
additional obligations compliance imposes and the likely system changes 
required of ECMs.\31\ ICE noted that both the 90-day and 15-day grace 
periods generally allow sufficient time for an ECM to comply with the 
core principles, but warned that 15 calendar days may not be sufficient 
time for clearing firms that outsource large trader reporting to meet 
the reporting requirements. The Commission has considered these 
suggestions and believes that 30 calendar days should be sufficient to 
ensure that clearing firms can meet the reporting requirements and 
avoid market disruptions. Rule 36.3(c)(4) has been modified accordingly 
to grant a 30-day period for ECMs to come into core principle 
compliance for their subsequent SPDCs. In addition to this change, the 
Commission has determined to clarify rule 36.3(c)(4) by changing the 
second sentence of this provision \32\ to read ``* * * one of the 
electronic trading facility's agreements, contracts or transactions 
performs a significant price discovery function* * *''
---------------------------------------------------------------------------

    \30\ ISDA CL 06 at 3.
    \31\ Id. ISDA's comment did not recommend a specific time 
period.
    \32\ As proposed, the relevant phrase reads as follows: ``* * * 
the electronic trading facility's agreement, contract or transaction 
performs a significant price discovery function* * *'' See 73 FR 
75888 at 75911.
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    In order to clarify its intent and eliminate a redundancy in 
paragraph (B)(4) of Appendix A, the Commission is amending Appendix A 
to part 36 as follows: Paragraph (B)(4) is deleted in its entirety as 
repetitive of paragraph (B)(3). In paragraph (B)(3), the language 
beginning with ``In combination with this volume level'' will become 
new paragraph (B)(4).

B. Substantive Compliance With Core Principle IV: Guidance and 
Acceptable Practices

    Although comments addressing the nine ECM SPDC core principles 
generally expressed satisfaction with the Commission's proposed 
guidance and acceptable practices, the Commission's guidance for 
substantive compliance with Core Principle IV--particularly with 
respect to speculative position limits and the treatment of uncleared 
contracts--was a cause for concern among several commenters. Their 
comments are summarized below.
    1. The Commission's authority with respect to uncleared trades. In 
its comment letter, ISDA questioned the Commission's authority under 
the Reauthorization Act to address limits for uncleared SPDC 
transactions in its Core Principle IV acceptable practices.\33\ In 
support, ISDA cites Core Principle IV's direction that ECMs take into 
account positions in other ``agreements, contracts, and transactions 
that are treated by a derivatives clearing organization, whether 
registered or not registered, as fungible'' with a SPDC when 
determining appropriate position limitations or accountability for the 
SPDC.\34\ The Commission believes that Congress did not so limit the 
Commission's authority with respect to uncleared SPDC transactions; on 
the contrary, both the statutory language and the legislative history 
make plain that Congress intended for new CEA section 2(h)(7) to apply 
to all SPDCs, whether cleared or uncleared. The Conference Committee 
report emphasizes that the legislation gives electronic trading 
facilities ``the explicit discretion to take into account differences 
between cleared and uncleared SPDCs in applying the position limits or 
accountability core principle.'' \35\ And CEA section 2(h)(7)(D) 
directs the Commission to ``take into consideration the differences'' 
between cleared and uncleared trades in reviewing an ECM's 
implementation of the core principles. Under principles of statutory 
construction, Congress must be presumed to have said what it meant.\36\ 
The Commission believes that the ECM SPDC Core Principle IV clause 
cited by ISDA in support of its argument stands for a different 
proposition altogether. Specifically, the clause pertains to

[[Page 12183]]

transactions in ``other agreements, contracts and transactions.'' 
Accordingly, Congress directed ECMs to include certain non-SPDC 
transactions when applying position limitations and/or accountability 
levels to a SPDC. So, for example, if another non-SPDC ECM contract or 
even a contract executed off of a trading facility pursuant to CEA 
Section 2(h)(1) is fungible and cleared together with a SPDC, the 
subject ECM should take those non-SPDC positions ``into account'' when 
administering the SPDC's position limit or accountability regime.
---------------------------------------------------------------------------

    \33\ ISDA CL 06 at 2.
    \34\ Id.
    \35\ Conference Committee Report at 985-86; Public Law 110-246 
at 13201.
    \36\ Where the plain language of a statute is clear, courts 
generally will presume that Congress meant precisely what it said 
absent a showing that ``as a matter of historical fact, Congress did 
not mean what it appears to have said, or that, as a matter of logic 
and statutory structure, it almost surely could not have meant it.'' 
Engine Mfrs. Ass'n v. EPA, 88 F.3d 1075, 1089 (D.C. Cir. 1996), 
quoted in National Public Radio, Inc. et al. v. FCC, 254 F.3d 226, 
230 (D.C. Cir. 2001).
---------------------------------------------------------------------------

    2. Grace period for open positions. As proposed, the acceptable 
practices for Core Principle IV permitted a grace period of 90 calendar 
days from the ECM's implementation of speculative position limit rules 
for traders to comply with those rules unless a hedge exemption is 
granted by the ECM. MFA has recommended that the Commission, rather 
than creating a new grace period applicable only to SPDCs, should rely 
on the existing standards of section 4a(b)(2) of the CEA\37\ and the 
standards applied to exchange-set speculative position limits under 
rule 150.5(f).\38\ The Commission believes that this recommendation is 
premised on a misunderstanding of the statutory and regulatory 
structures governing exchange-set speculative position limits. As MFA 
notes, section 4a(b)(2) applies to Commission-set speculation limits, 
not exchange-set limits.\39\
---------------------------------------------------------------------------

    \37\ 7 U.S.C. 6a(b)(2).
    \38\ MFA CL 10 at 6.
    \39\ Id.
---------------------------------------------------------------------------

    Furthermore, Rule 150.5(f) no longer has direct application to DCM-
set position limits. The statutory authority governing DCM-set limits 
is found in CEA section 5(d)(5)-- DCM Core Principle 5.\40\ That core 
principle does not contain any aspect of the exemptive language found 
in either CEA section 4a or Rule 150.5(f). Moreover, it should be noted 
that the part 38 rules explicitly exempt agreements, contracts or 
transactions traded on a DCM from all Commission rules other than those 
specifically referenced in Rule 38.2. That provision did not retain 
Rule 150.5(f).\41\ Further, although the acceptable practices for Core 
Principle 5 (which are found in Appendix B to part 38) contain many of 
rule 150.5's provisions, they do not specify the rule 150.5(f) good 
faith exemption. Accordingly, the part 150 rules essentially constitute 
guidance for DCMs administering position limit regimes, Commission 
staff in overseeing such regimes has not required that position limits 
include an exemption for positions acquired in good faith.
---------------------------------------------------------------------------

    \40\ ``(5) Position Limitations or Accountability.--To reduce 
the potential threat of market manipulation or congestion, 
especially during trading in the delivery month, the board of trade 
shall adopt position limitations or position accountability for 
speculators, where necessary and appropriate.'' 7 U.S.C. 7(d)(5).
    \41\ 17 CFR 38.2.
---------------------------------------------------------------------------

    The Reauthorization Act established Core Principle IV as part of 
new CEA section 2(h)(7) to require the establishment of position 
limitations or accountability levels for SPDCs listed on ECMs. As with 
DCM Core Principle 5, ECM Core Principle IV does not contain the 
exemptive provision for positions established in good faith--nor do its 
acceptable practices rely for authority on section 4a of the CEA. For 
this reason, the Commission was not obliged to adopt such a good faith 
exemption.\42\ In the Commission's view, the primary goal for an ECM 
with a SPDC should be to ensure that large positions not be disruptive 
to the market. Indeed, a sudden decrease in a position to meet an ECM's 
newly-adopted position limit could itself be disruptive. The 
Commission's proposed acceptable practice was crafted to permit market 
participants to make any necessary adjustments to their positions in an 
orderly fashion, thus reducing market disruptions and avoiding, as much 
as possible, an unfair impact on position holders. For the reasons 
discussed in these sections, the Commission has determined to adopt the 
acceptable practice as proposed (except with respect to uncleared 
trades, as discussed infra), and reminds interested parties that 
acceptable practices serve as a safe harbor and do not represent the 
only means of compliance with the core principles.
---------------------------------------------------------------------------

    \42\ In part for the reasons discussed in this section, the 
Commission expects in the near future to revisit and clarify Core 
Principle 5 for DCMs.
---------------------------------------------------------------------------

3. Position Accountability
    MFA also encourages the Commission to bring its Core Principle IV 
acceptable practices with respect to position accountability into 
closer alignment with its acceptable practices for DCMs. Although 
perfect symmetry between the DCM and ECM core principles and acceptable 
practices was not mandated by the Reauthorization Act and is not a 
primary goal of this rulemaking, it is the Commission's view that its 
expectations for DCMs and ECMs in this regard are not significantly 
different. MFA argues that ``DCMs are not mandated to conduct an 
inquiry in response to every breach of a position accountability level. 
Rather, DCMs have the discretion to determine whether to open an 
inquiry in particular cases.'' \43\ So, too, do ECMs under the Core 
Principle IV acceptable practices.\44\ Unlike position limits, 
accountability levels are not limitations on position sizes, as traders 
are permitted to take positions in excess of the established 
accountability levels. ECMs are obliged to monitor trading in their 
markets and to discourage manipulative activity in the spot month as 
well as in back months; the purpose of accountability levels is to 
provide the ECM with additional information and authority to address 
positions that threaten to create disorderly trading or market abuses. 
For positions that exceed a position accountability level, appropriate 
action by the ECM may be dictated by a number of factors, including 
characteristics of the market and the size of the position relative to 
the market. For smaller positions that exceed the accountability level, 
the ECM may find that placing such positions on a ``close watch'' is 
appropriate. For larger positions, depending on the potential threat to 
the market, it may be appropriate for the ECM to request that the 
trader not further increase (or even reduce) a position. Market 
liquidity also should be considered when monitoring traders with 
positions above the accountability level; an ECM may find it 
appropriate to more aggressively limit positions in markets that are 
relatively illiquid. In any event, ECMs are reminded that the 
acceptable practices serve as safe harbors; alternative methods to 
monitor trading may be sufficient.
---------------------------------------------------------------------------

    \43\ MFA CL 10 at 4.
    \44\ MFA points to the directive in the Core Principle IV 
acceptable practices that an ECM ``should initiate'' an inquiry once 
a trader exceeds a position accountability level as an indication 
that action is mandated in every case. The Commission does not view 
this language as a mandate; as noted above, acceptable practices 
serve as safe harbors and do not represent the only means of 
compliance with the core principles.
---------------------------------------------------------------------------

    Also in connection with the ECM's monitoring of positions, the 
Commission has considered MFA's concern that the term ``investigation'' 
may connote a level of wrongdoing which, in turn, might inadvertently 
render a commodity pool ineligible to receive investor funds\45\ or 
otherwise have an adverse effect on a trader's business. Although the 
Commission believes such a misimpression is unlikely, we have modified 
the acceptable practice to replace the word ``investigation'' with 
``inquiry.''
---------------------------------------------------------------------------

    \45\ MFA CL 10 at 4.
---------------------------------------------------------------------------

    With regard to establishing position accountability levels in non-
spot months and all months combined, MFA questioned why ECMs are given 
specific guidance--that is, the ``10% of open

[[Page 12184]]

interest'' standard--while DCMs are free to determine their own 
methodology.\46\ Again, the Commission wishes to emphasize that its 
guidance for ECMs need not follow precisely the guidance it has 
offered--or not offered--for DCMs. The Commission believes it is sound 
practice for DCMs and ECMs to adopt non-spot month and all-months-
combined position accountability levels or position limits and believes 
the specific guidance offered in this acceptable practice will be 
beneficial to ECMs wishing to take advantage of the safe harbor. 
Moreover, the Commission intends shortly to revisit DCM Core Principle 
5 with a view to providing more specific guidance with respect to non-
spot month and all-months-combined position accountability levels. 
Finally, the Commission wishes to remind interested parties that the 
``10% of open interest'' standard for determining position 
accountability levels applies to unique SPDCs (i.e., cleared ECM 
contracts that are determined to be SPDCs based on material price 
reference grounds, rather than on the basis of economic equivalence 
\47\ with another contract through a price linkage or arbitrage 
relationship). The acceptable practices for non-unique, economically-
equivalent SPDCs provide that the ECM may adopt the accountability 
levels adopted by the DCM for the underlying contract.\48\ As noted, 
the Commission expects to further consider the treatment of uncleared 
trades and anticipates proposing rule amendments as well as guidance 
and acceptable practices in the near future.
     Speculative Position Limits: Accountability Levels for Uncleared 
Trades.
---------------------------------------------------------------------------

    \46\ Id. at 4-5.
    \47\ With regard to ICE and ISDA's concern that economic 
equivalence is subjective (ICE CL 03 at 5; ISDA CL 06 at 2-3); the 
Commission believes the concept of economic equivalence is 
relatively straightforward. Essentially, the concept is designed to 
capture SPDCs that replicate or serve as a close substitute for a 
corresponding DCM, DTEF or second ECM SPDC contract. In this regard, 
any SPDC that is cash settled based on another contract's settlement 
price will be considered economically equivalent, assuming 
sufficient volume. In addition, SPDCs that can be used to arbitrage 
price discrepancies may be considered economically equivalent to DCM 
contracts. For arbitragable contracts to be considered economically 
equivalent, both the prices and the contract terms would have to be 
highly correlated. As part of its determination whether a particular 
contract is an SPDC, the Commission will indicate whether it 
considers the SPDC economically equivalent to another contract.
    \48\ ICE and ISDA warned that requiring an ECM to adopt a DCM's 
position limits for its economically-equivalent SPDCs may have 
anticompetitive implications for trading on an ECM (ICE CL 03 at 6; 
ISDA CL 06 at 3): a DCM could set an artificially low position limit 
for its own contract in order to squeeze out an ECM. The Commission 
does not believe this is a likely consequence of its acceptable 
practice. First, assuming that the DCM contract is the dominant 
market, setting the spot-month limit at an extraordinarily low level 
would limit trading in its own contract, which would be self-
defeating. Secondly, the instant procedures are acceptable practices 
that provide a safe harbor; they are not rules or requirements, and 
they do not comprise all possible means of satisfying Core Principle 
IV. If an ECM believes that a DCM is engaging in anticompetitive 
behavior (which is itself the subject of a core principle for both 
ECMs and DCMs), it should notify the Commission and should propose 
alternative position limits and/or accountability levels that are 
reasonable and based on economic analysis.
---------------------------------------------------------------------------

    Both ISDA\49\ and ICE \50\ opined that requiring ECMs to adopt the 
same speculative position limits as an ``unaffiliated'' DCM would be 
anticompetitive since the DCM would have the authority to dictate the 
ECM's position limits even where an ECM is the dominant, more liquid 
market. CME Group and APGA suggest that the Commission should propose 
comprehensive, industry-wide speculative position limits that would 
apply to both cleared and uncleared transactions.\51\ Similarly, MFA 
suggested that SPDCs should be incorporated into the existing 
regulatory framework because a separate category for uncleared trades 
could impede a trader's ability to reflect the true net economic 
exposure of a position and could chill legitimate economic 
activity.\52\
---------------------------------------------------------------------------

    \49\ ISDA CL 06 at 3.
    \50\ ICE CL 03 at 5-6.
    \51\ CME Group CL 02 at 6; APGA CL 07 at 3-4.
    \52\ MFA CL 10 at 6. AFIA requests that as part of the final 
rule the Commission exercise its authority to remove the exemption 
for position limits that has been given to Index Speculator Funds. 
CL 04 at 2-3. The Commission appreciates AFIA's concern but notes 
that such an action is beyond the scope of the instant rulemaking.
---------------------------------------------------------------------------

    APGA supports the use of spot month speculative position limits as 
an effective tool for addressing contracts on commodities--such as 
natural gas--with constrained deliverable supplies.\53\ It urges, 
however, that the Commission modify its proposed guidance such that an 
ECM must account for positions that may be held on another registered 
entity in economically-related SPDCs in setting such limits. Without 
such a revision, APGA believes that traders will be able to amass a far 
larger speculative position in the spot month by dividing its position 
among several markets or market segments for SPDCs.\54\ Accordingly 
APGA urges that the volume accountability level for uncleared contracts 
should be included in calculating the size of a trader's position for 
speculative position limits purposes. APGA expresses similar concerns 
with respect to the Commission's proposal in the Core Principle IV 
guidance, and similarly suggests the establishment of separate 
accountability levels for cleared and uncleared trades and a separate 
volume accountability level in the spot month.\55\ CME Group agrees 
that the proposed guidance should be reconsidered, and pointed out that 
the disparate standards provided by the acceptable practices make it 
possible for a trader to maintain double the position permitted for an 
economically equivalent contract on a DCM. CME Group believes that 
there should be one position limit and one associated set of 
accountability levels for non-spot contracts that apply across all 
activities for a SPDC, including cleared and uncleared trades.\56\
---------------------------------------------------------------------------

    \53\ APGA CL 07 at 2-3. APGA also suggested that the Commission 
set federal speculative limits for exempt commodities and that such 
limits should be applied to a given trader's aggregate position in 
economically-equivalent contracts across all registered entities. 
While innovative and worthy of further consideration in the future, 
the Commission believes these recommendations are beyond the scope 
of the instant rulemaking.
    \54\ APGA CL 07 at 2-3.
    \55\ Id. at 5-6. APGA argues that the separate volume 
accountability category potentially would enable speculative traders 
to amass a larger position before prompting an inquiry by the ECM. 
More critically, where there is a separate volume accountability 
level in the spot-month, APGA stated that a trader can readily avoid 
a spot month speculative position limit by holding a combination of 
cleared and uncleared positions, even on the same market.
    \56\ CME Group CL 02 at 6.
---------------------------------------------------------------------------

    As noted above, these and other recommendations related to the 
proposed guidance and acceptable practices for Core Principle IV with 
respect to uncleared trades raise complex issues which, in the 
Commission's view, warrant further serious consideration before a 
decision can be made whether, and to what extent, they should be 
implemented. For this reason, the Commission has determined not to make 
final those aspects of the Core Principle IV guidance and acceptable 
practices relating to uncleared trades pending additional study of 
these comments and consultation with the commenters and others, 
culminating in a subsequent rulemaking proposing guidance and 
acceptable practices applicable to uncleared trades. As part of this 
process, and in the course of formulating that proposed guidance, the 
Commission will consider the issues raised in the comments received in 
connection with the instant rulemaking.

C. Market, Transaction and Large Trader Reporting Rules

    Reporting Rules. With the three substantive exceptions noted below, 
the

[[Page 12185]]

Commission is promulgating the reporting rules as proposed.\57\ Five 
commenters addressed the proposed reporting rules. ATA expresses 
support for the extension of the reporting rules to SPDCs--
specifically, ATA endorses the application of the reporting 
requirements to ECM clearing members that clear SPDCs, regardless of 
their registration status with the Commission or their status as 
foreign or domestic persons.\58\ ATA additionally expressed support for 
the use of transaction and trader identification data that would be 
collected under new rule 16.02 to monitor large SPDC positions. Four 
commenters expressed general concerns or recommended the adoption of 
additional or alternative amendments to the reporting rules.
---------------------------------------------------------------------------

    \57\ 17 CFR parts 15 through 21.
    \58\ ATA CL 09 at 8.
---------------------------------------------------------------------------

    CME Group, for example, observes that while the acceptable 
practices for Core Principle IV advise ECMs to establish an effective 
program for enforcement of SPDC position limits that should include a 
large trader reporting system to monitor and enforce daily compliance 
with position limit rules, Appendix B to Part 36 does not establish 
similar acceptable practices that tie large trader reporting 
requirements to the daily monitoring of volume accountability levels 
for uncleared SPDCs.\59\ As noted above, the Commission intends 
expeditiously to propose rules and acceptable practices that will focus 
on position limit and accountability rules for uncleared SPDCs. The 
Commission intends to address CME Group's concern at that time.
---------------------------------------------------------------------------

    \59\ CME Group CL 02 at 5.
---------------------------------------------------------------------------

    HoustonStreet, an ECM, opined that voice brokers must be subject to 
the same reporting requirements as ECMs to ensure a level playing field 
in the OTC energy markets and to prevent market participants from 
avoiding transparency and disclosure obligations.\60\ The Commission 
does not have authority under the CEA to directly extend the reporting 
rules to voice-brokered transactions which are not entered into in 
reliance on a section 2(h)(3) exemption and are not otherwise fungible 
with SPDCs for clearing purposes. Although the Commission does have the 
authority to require the reporting of all OTC and cash market positions 
(including voice-brokered transactions) under section 4i of the Act 
when traders' positions in contracts executed on or subject to the 
rules of a registered entity exceeds fixed thresholds, such an 
extension of the reporting rules is beyond the scope of this 
rulemaking.\61\
---------------------------------------------------------------------------

    \60\ HoustonStreet, CL 01 at 1.
    \61\ A routine trader reporting requirement, including the 
routine reporting of OTC positions, is not a current requirement for 
any contract traded on or subject to the rules of a DCM.
---------------------------------------------------------------------------

    ISDA comments that the reporting rules' references to clearing 
members ``carrying'' large positions may be inappropriate in the 
context of transactions that are executed on ECMs, which by definition 
are principal-to-principal markets that do not permit some forms of 
intermediation.\62\ With respect to ECMs, the Commission reiterates 
that the large trader reporting requirements of part 17 place the 
burden of routine position reporting on cl