Position Reports for Physical Commodity Swaps, 67258-67277 [2010-27538]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 75, Number 211 (Tuesday, November 2, 2010)]
[Proposed Rules]
[Pages 67258-67277]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-27538]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 15 and 20

RIN 3038-AD17


Position Reports for Physical Commodity Swaps

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is proposing reporting regulations that are reasonably 
necessary for implementing and enforcing aggregate position limits for 
certain physical commodity derivatives. As a result of recent 
legislative reforms, the Commission may adopt regulations establishing 
aggregate position limits for designated contract market (``DCM'') 
physical commodity futures contracts and swaps that are economically 
equivalent to such contracts. The Commission currently receives, and 
uses for market surveillance purposes, including position limit 
enforcement, data on large positions in all physical commodity futures 
and option contracts traded on DCMs. However, there is no analogous 
reporting structure in place for economically equivalent swaps, which 
until recently were largely unregulated financial contracts. The 
Commission's proposal would require position reports on economically 
equivalent swaps from clearing organizations, their members and swap 
dealers. Notably, the proposed regulations also include a sunset 
provision. The sunset provision would render the regulations 
ineffective upon the Commission's issuance of an order finding that 
operating swap data repositories (``SDRs'') are capable of processing 
positional data in a manner that would enable the Commission to set and 
enforce aggregate position limits.

DATES: Comments must be received on or before December 2, 2010.

ADDRESSES: You may submit comments, identified by RIN number, by any of 
the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow instructions for submitting comments.
     Agency Web Site: https://www.cftc.gov.
     E-mail: Swaps.Reporting@cftc.gov.
     Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
     Hand Delivery/Courier: Same as mail above.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
https://www.cftc.gov. You should submit only information that you wish 
to make available publicly. If you wish the Commission to consider 
information that is exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the procedure established in 
CFTC regulation 145.9 (17 CFR 145.9). The Commission reserves the 
right, but shall have no obligation, to review, pre-screen, filter, 
redact, refuse or remove any or all of your submission from https://www.cftc.gov that it may deem to be inappropriate for publication, such 
as obscene language. All submissions that have been redacted or removed 
that contain comments on the merits of the rulemaking will be retained 
in the public comment file and will be considered as required under the 
Administrative Procedure Act and other applicable laws, and may be 
accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Stephen Sherrod, Acting Deputy 
Director, Market Surveillance, (202) 418-5452, ssherrod@cftc.gov, or 
Bruce Fekrat, Senior Special Counsel, Office of the Director, (202) 
418-5578, bfekrat@cftc.gov, Division of Market Oversight, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Economically Equivalent Swaps

A. Background

    The Commodity Exchange Act (``CEA or Act'') of 1936,\1\ as amended 
by Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (``Dodd-Frank Act''),\2\ includes provisions 
imposing clearing and trade execution requirements on standardized 
derivatives as well as comprehensive recordkeeping and reporting 
requirements that extend to all swaps, a defined term in CEA section 
1a(47). New section 4a(a)(2) of the CEA, as introduced by section 737 
of the Dodd-Frank Act, charges the Commission with promulgating 
regulations, as appropriate, to limit the amount of positions, other 
than bona fide hedge positions, that may be held by any person with 
respect to commodity futures and option contracts in exempt and 
agricultural commodities \3\ traded on or subject to the rules of a DCM 
within 180 and 270 days, respectively, of the legislation's enactment 
on July 21, 2010. New section 4a(a)(6)(A) of the Act requires 
Commission-set position limits to apply aggregately across DCMs to 
contracts that are based on the same commodity. The exempt and 
agricultural commodity futures and option contracts for which the 
Commission may consider position limits are listed in proposed 
regulation 20.2 (``20.2 listed futures contracts'' or ``20.2 
contracts''). The list in proposed regulation 20.2, however, is non-
exclusive and preliminary. Should the Commission propose regulations to 
establish position limits, it may decide not to propose position limits 
for all of the 20.2 listed futures contracts or, alternatively, may 
decide to propose

[[Page 67259]]

position limits for futures contracts other than the 20.2 contracts.
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    \1\ 7 U.S.C. 1 et seq.
    \2\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at https://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
    \3\ Section 1a(20) of the Act defines the term ``exempt 
commodity'' to mean a commodity that is not an excluded commodity or 
an agricultural commodity. Section 1a(19) defines the term 
``excluded commodity'' to mean, among other things, an interest 
rate, exchange rate, currency, credit risk or measure, debt or 
equity instrument, measure of inflation, or other macroeconomic 
index or measure. Although the term ``agricultural commodity'' is 
not defined in the Act, CEA section 1a(9) enumerates a non-exclusive 
list of several agricultural-based commodities. The Commission will 
consider the issuance of a notice of rulemaking proposing a 
definition for the term ``agricultural commodity'' in October of 
2010. Although broadly defined, exempt commodity futures contracts 
are often viewed as energy and metals products.
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    Similar to CEA section 4a(a)(2), new section 4a(a)(5) of the Act 
charges the Commission with establishing position limits, including 
aggregate position limits, as appropriate, for swaps that are 
economically equivalent to DCM contracts in exempt and agricultural 
commodities with CFTC-set position limits. The definition of the term 
``paired swaps and swaptions'' in proposed regulation 20.1 attempts to 
recognize a readily identifiable and partial set of swaps and swaptions 
(for ease of reference, collectively ``swaps'') that could potentially 
be considered as economically equivalent to 20.2 listed futures 
contracts.
    As discussed in more detail below, proposed regulation 20.1 defines 
paired swaps, and hence economically equivalent swaps, in two ways. 
First, paired swaps are defined as swaps that are directly or 
indirectly linked to the price of one or more 20.2 listed futures 
contract. Second, paired swaps are defined as swaps that are based on 
the price of the same commodity for delivery at the same location(s) as 
that of a 20.2 listed futures contract, or another delivery location, 
with substantially the same supply and demand fundamentals as the 
delivery location(s) referenced by a 20.2 listed futures contract. The 
paired swap definition's second part therefore proposes to include 
swaps that are settled to a price series that is not based on, but is 
nonetheless highly correlated to, the price of a 20.2 listed futures 
contract.

B. The Necessity of the Proposed Regulations

    New section 4a(a)(5) of the Act provides that position limits for 
economically equivalent swaps be developed concurrently with position 
limits established for DCM contracts in exempt and agricultural 
commodities. In order to have the ability to enforce market-specific 
and aggregate position limits for the relevant DCM contracts and 
economically equivalent swaps, the Commission would require positional 
data for DCM contracts and economically equivalent swaps. The 
Commission currently obtains DCM futures and option positional data 
under parts 15 through 19 and 21 of its regulations,\4\ which derive 
their statutory authority in significant part from sections 4a, 4g and 
4i of the CEA. In contrast, the Commission has limited access to swaps 
positional data. In this regard, the Commission receives positional 
data on swaps that are significant price discovery contracts 
(``SPDCs'') under part 36 of its regulations. Such contracts are 
executed through exempt commercial markets and typically cleared. 
SPDCs, however, do not encompass all economically equivalent swaps (as 
defined by proposed regulation 20.1 through the term paired swaps). 
SPDC positional data would therefore not supply sufficient information 
to the Commission to monitor all economically equivalent swaps for 
aggregate position limit violations, should such limits be adopted. 
Moreover, parts 15 through 19 and 21 of the Commission's regulations do 
not apply to uncleared swaps that may be SPDCs. To have consistency in 
reporting, regulation 20.2(a) would require SPDCs that are paired swaps 
to be reported under proposed part 20 instead of parts 15 through 19 
and 21 of the Commission's regulations (which include position 
reporting regulations for clearing organizations and futures 
intermediaries that are analogous to those proposed herein).
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    \4\ Commission regulations referred to herein are found at 17 
CFR chapter 1.
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    The Commission also receives positional data for some swaps that 
are cleared by certain clearing organizations but not listed for 
trading (``cleared-only swaps'').\5\ This positional data is received 
from a limited number of clearing organizations, and depending on the 
contract and the clearing organization, does not necessarily provide 
disaggregated data on swaps held by non-clearing member counterparties. 
As with SPDCs, cleared-only swaps positional data would not supply 
sufficient data to the Commission to monitor for aggregate position 
limit violations across DCM contracts with CFTC-set position limits and 
economically equivalent swaps. To the extent that cleared-only swaps 
are paired swaps, regulation 20.2(a) would require reporting under 
proposed part 20 instead of parts 15 through 19 and 21 of the 
Commission's regulations.
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    \5\ See, e.g., Order (1) Pursuant to Section 4(c) of the 
Commodity Exchange Act, Permitting the Chicago Mercantile Exchange 
to Clear Certain Over-the-Counter Agricultural Swaps and (2) 
Pursuant to Section 4d of the Commodity Exchange Act, Permitting 
Customer Positions in Such Cleared-Only Contracts and Associated 
Funds To Be Commingled With Other Positions and Funds Held in 
Customer Segregated Accounts, 74 FR 12316, 12320 (March 24, 2009) 
(requiring reporting under parts 15, 16 and 17 of the Commission's 
regulations for cleared-only swaps).
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    The Commission notes that the Dodd-Frank Act also provides for the 
establishment of SDRs. Once established and operationally able to 
receive swaps data, SDRs would have the potential to serve as the 
Commission's primary positional data source. The Congressionally 
mandated deadline for establishing position limits, however, predates 
the deadline for Commission regulations for SDR registration. Thus, the 
position reports for physical commodity swaps contemplated by these 
proposed regulations would function as a transitional tool until SDRs 
are in operation and able to provide the Commission with swap 
positional data. If implemented in whole or in part, the Commission may 
determine to continue or discontinue the proposed reporting system once 
SDRs are operational.
    CEA sections 4a and 8a(5), considered in tandem, provide the 
statutory authority for these proposed regulations. The Commission 
cannot fully effectuate the mandate of section 4a of the Act without an 
operational data collection system. In proposing these regulations, the 
Commission relies on its CEA section 8a(5) general rulemaking 
authority. Section 8a(5) authorizes the Commission ``to make and 
promulgate such rules and regulations as, in the judgment of the 
Commission, are reasonably necessary to effectuate any of the 
provisions or to accomplish any of the purposes of this Act.'' For the 
reasons discussed above, the proposed regulations, in the Commission's 
judgment, are reasonably necessary to effectuate CEA section 4a as 
amended by the Dodd-Frank Act.

II. The Proposed Regulations

A. Listed Futures Contracts

    Section 4a(a)(2) of the Act provides that the Commission shall set, 
as appropriate, position limits for exempt and agricultural DCM futures 
and option contracts.\6\ The Act also provides that the Commission 
shall establish position limits, including aggregate limits, as 
appropriate, for swaps that are economically equivalent to futures 
contracts (and options thereon or options on commodities) with CFTC-set 
position limits. Proposed regulation 20.2 lists a broad set of futures 
contracts and options thereon which may be the subject of CFTC-set 
position limits. These 20.2 listed futures contracts can be divided 
into two categories. The first category contains futures contracts that 
have high levels of open interest and significant notional value (and 
certain

[[Page 67260]]

related contracts).\7\ The contracts in this category are:
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    \6\ New section 4a(a)(2) by its terms also applies to options on 
physicals. With respect to options on physicals traded on DCMs, the 
current open interest levels in such DCM contracts on the 
commodities underlying the 20.2 listed futures contracts are 
minimal.
    \7\ These contracts can function as anchors to many other DCM 
contracts and therefore directly or indirectly correspond to a 
substantial fraction of open interest for listed physical commodity 
derivatives. See, e.g., Federal Speculative Position Limits for 
Referenced Energy Contracts and Associated Regulations, 75 FR 4133, 
4154 (January 26, 2010) (``January 2010 proposed regulations for 
major energy contracts'') (showing the spoke contracts linked to the 
physically delivered NYMEX Crude Oil, Light Sweet futures contract).

   Reference DCM Contracts With High Open Interest and Notional Value
                  (Including Certain Related Contracts)
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Chicago Board of Trade (``CBOT'') Corn.
CBOT Rough Rice.
CBOT Soybeans.
CBOT Soybean Meal.
CBOT Soybean Oil.
CBOT Wheat.
Chicago Mercantile Exchange (``CME'') Feeder Cattle.
CME Live Cattle.
CME Milk Class III.
Comex (``CMX'') Copper Grade 1.
CMX Gold.
CMX Silver.
ICE Futures US (``ICUS'') Cocoa.
ICUS Coffee C.
ICUS Cotton No. 2.
ICUS Frozen Concentrated Orange Juice.
ICUS Sugar No. 11.
ICUS Sugar No. 16.
Kansas City Board of Trade (``KCBT'') Wheat.
Minneapolis Grain Exchange (``MGEX'') Wheat.
NYSELiffe (``NYL'') Gold, 100 Troy Oz.
NYL Silver, 5000 Troy Oz.
New York Mercantile Exchange (``NYMEX'') Cocoa.
NYMEX Coffee.
NYMEX Cotton.
NYMEX Crude Oil, Light Sweet (``WTI'').
NYMEX Gasoline Blendstock (RBOB).
NYMEX Natural Gas.
NYMEX No. 2 Heating Oil, New York Harbor.
NYMEX Palladium.
NYMEX Platinum.
NYMEX Sugar No. 11.
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    The contracts in the second category, listed below, do not have 
high levels of open interest or represent significant notional values. 
However, based on feedback from inquiries posed to swap market 
participants relating to the size and level of activity in certain 
markets, Commission staff recommended their inclusion in proposed 
regulation 20.2.\8\ Such contracts may serve as the pricing basis of a 
significant number of swap market transactions, thereby warranting some 
measure of Commission scrutiny.
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    \8\ Staff tasked with assisting the Commission in developing the 
proposed regulations made this recommendation after meeting with or 
speaking to 23 outside parties, representing commercial end-users, 
commercial merchants, commodity-based swap trading arms of large 
financial institutions, futures exchanges, swap data service 
providers, and our sister financial regulators. See https://www.cftc.gov/LawRegulation/DoddFrankAct/ExternalMeetings/otc_meetings.html.

                   Additional DCM Reference Contracts
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CBOT Ethanol.
CBOT Oats.
CME Butter.
CME Cheese.
CME Dry Whey.
CME Hardwood Pulp.
CME Lean Hogs.
CME Non Fat Dry Milk.
CME Random Length Lumber.
CME Softwood Pulp.
NYMEX Brent Financial.
NYMEX Central Appalachian Coal.
NYMEX Hot Rolled Coil Steel.
NYMEX Uranium.
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B. Scope of Economically Equivalent Swaps

    The Commission, through the definition of paired swap or paired 
swaption (for ease of reference, collectively ``paired swaps'') in 
proposed regulation 20.1, defines a subset of swaps that may qualify as 
economically equivalent to the DCM contracts listed in proposed 
regulation 20.2. Proposed regulation 20.1 identifies paired swaps 
(i.e., economically equivalent swaps) in two paragraphs. The first 
paragraph of proposed regulation 20.1 defines paired swaps to include 
those that directly or indirectly are linked to the price of a 20.2 
listed futures contract. This category includes swaps that are 
partially or fully settled or priced at a differential to a 20.2 listed 
futures contract. The following list provides examples of the types of 
swaps that are intended to be covered under the first paragraph of the 
proposed definition of paired swap.
    1. Directly linked to a listed contract--A swap settled to the 
price of the NYMEX Heating Oil Calendar Swap Futures Contract is 
directly linked to a 20.2 listed DCM futures contract because the 
floating price of the futures contract is equal to the monthly average 
settlement price of the first nearby contract month for the NYMEX New 
York Harbor No. 2 Heating Oil Futures Contract.
    2. Indirectly linked to a listed contract--The ICE WTI Average 
Price Option is indirectly linked to a 20.2 listed futures contract 
because the floating price of the swap references the ICE WTI 1st Line 
Swap Contract which in turn is equal to the monthly average settlement 
price of the NYMEX Front Month WTI Crude Futures Contract.
    3. Partially settled to a listed contract--A swap settled to the 
Argus Sour Crude Index (``ASCI'') (which also underlies the CME Argus 
WTI Formula Basis Calendar Month Swap Futures Contract) is partially 
settled to a 20.2 listed futures contract.\9\ Because the ASCI index 
uses both a physical cash market component and the NYMEX WTI Futures 
Contract to establish the level of the index, it would partially settle 
to a 20.2 listed futures contract and would be a paired swap under the 
first paragraph of the proposed definition.\10\
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    \9\ The floating price of the CME futures contract is equal to 
the arithmetic average of the ASCI (1st month) outright price from 
Argus Media for each business day that the ASCI is determined during 
the contract month.
    \10\ For a description of the ASCI methodology, see, e.g., 
https://web04.us.argusmedia.com/ArgusStaticContent//Meth/ASCI.pdf.
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    4. Priced at a differential to a listed contract--The ICE Henry 
Physical Basis LD1 Contract is priced at a differential to a 20.2 
listed futures contract because the settlement price is the final 
settlement price for natural gas futures (a listed 20.2 contract) as 
reported by NYMEX for the specified month plus the contract price.
    The second paragraph of the proposed definition of a paired swap 
includes swaps that directly or indirectly link to, including being 
partially or fully settled or priced at a differential to, the price of 
the same commodity for delivery at the same location or locations as 
that of a 20.2 listed futures contract. As opposed to paragraph one, 
the second paragraph of the definition of paired swap looks to a swap's 
connection to the commodity underlying a 20.2 listed futures contract, 
and to the delivery locations with a nexus to those delivery locations 
specified in a 20.2 listed contract, as opposed to the price of the of 
the contract itself. Therefore, in contrast to paragraph one, the 
linkage is to the price of the underlying commodity and its physical 
marketing channels.
    Under paragraph two, a paired swap would include swaps that are 
based on the same commodity\11\ as that of a 20.2 listed futures 
contract but deliverable at locations that are different than a 20.2 
listed futures contract's delivery locations, so long as such locations 
have substantially the same supply and demand fundamentals as that of a 
20.2

[[Page 67261]]

listed futures contract reference delivery location. The following list 
provides examples of the types of swaps that are reportable under the 
second paragraph of the definition.
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    \11\ As provided in the Commission's January 2010 proposed 
regulations for major energy contracts, a commodity will be 
considered to be the same (for the purposes of reporting under this 
regulation) if such commodity has the same economic characteristics 
with respect to grade and quality specifications as those referenced 
by a 20.2 listed futures contract.
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    1. Same commodity with a delivery point that shares substantially 
the same supply and demand fundamentals--An uncleared swap based on a 
NYMEX Columbia Gulf, Mainline Natural Gas Index Swap (Platts Gas Daily/
Platts IFERC) Futures Contract provides an example of a futures 
contract which references an underlying spot market that is affected by 
substantially similar supply and demand forces as the pricing location 
to which the NYMEX Natural Gas Futures Contract references. In this 
case, the floating price of the NYMEX Columbia Gulf, Mainline Natural 
Gas Index Swap (Platts Gas Daily/Platts IFERC) Futures Contract is 
equal to the difference in the monthly average prices for Mainline 
Midpoint (Midpoint) and the Platts Inside FERC's Gas Market Report 
(Platts IFERC) Columbia Gulf Transmission Co., Mainline Index. This 
swap would be on based the same commodity as that of a 20.2 listed 
contract, but deliverable at a different location. The different 
location, however, shares substantially the same supply and demand 
fundamentals as the Henry Hub, which is the delivery location for the 
NYMEX Natural Gas contract. The swap's delivery location is in close 
proximity to the Henry Hub, and there is tight arbitrage between the 
two pricing hubs.
    2. Same commodity at different locations--The NYMEX Transco, Zone 6 
Natural Gas Index Swap (Platts Gas Daily/Platts IFERC) Futures Contract 
provides an example of a futures contract which references an 
underlying spot market that is interconnected with a spot market to 
which the NYMEX Natural Gas Futures Contract references. The floating 
price of the NYMEX Transco, Zone 6 Natural Gas Index Swap (Platts Gas 
Daily/Platts IFERC) Futures is equal to the difference in the monthly 
average prices for the Platts Gas Daily Transco, Zone 6 N.Y. Midpoint 
(Midpoint) and the Platts Inside FERC's Gas Market Report (Platts 
IFERC) Transco Zone 6 Index (Index) for the stipulated period within 
the contract specifications. The index price represents a natural gas 
spot market that is physically linked, via the Transco pipeline, to a 
spot market (Henry Hub) which is referenced by a 20.2 listed futures 
contract.

C. Reporting Under the Proposed Regulations

1. Reports by Clearing Organizations
    Regulation 20.3 proposes to collect paired swap reports from 
clearing organizations. Clearing organizations are defined in proposed 
regulation 20.1 as persons or organizations that act as a medium 
between clearing members for the purpose of clearing swaps or swaptions 
or effecting settlements of swaps or swaptions. The intent of the 
definition, which is modeled on the definition used in Commission 
regulation 15.00 (the definitional section for the Commission's large 
trader reporting rules), is to apply the reporting regulations only to 
entities that perform clearing functions as clearing intermediaries and 
counterparties to each side of a swap for the purpose of clearing the 
trade. The proposed definition is intended to cover entities that are 
commonly known as clearing organizations, regardless of their 
registration status with the Commission. It is not meant to apply to 
financial institutions or parties to swaps that provide counterparties 
with financing, credit support, or hold collateral to facilitate or to 
ensure that payments are made under the terms of a paired swap.
    Pursuant to proposed regulation 20.3, clearing organizations, for 
paired swap positions, would report the aggregate proprietary and 
aggregate customer accounts of each clearing member of that clearing 
organization. Proposed regulation 20.1 defines clearing member as any 
person who is a member of, or enjoys the privilege of clearing trades 
in its own name through, a clearing organization. The paired swap 
positions would be reported to the Commission as futures equivalent 
positions in terms of a swap's related 20.2 listed futures contract. 
Proposed Appendix A to this part provides several examples of the 
methods used for converting swap positions into futures equivalent 
positions. The proposed regulations would ask for reporting in futures 
equivalents because such conversions are made by entities that deal in 
swaps to effectively manage residual price risks by entering into 20.2 
listed futures contracts. Reporting in futures equivalents would result 
in a measure of equivalency between positions in paired swaps and their 
related 20.2 listed futures contracts, and it would allow for the 
enforcement of aggregate position limits across futures and swaps 
should the Commission adopt such limits.
    As required under paragraph (a) and (b) of proposed regulation 
20.3, each clearing organization would submit to the Commission a data 
record that identifies either gross long and gross short futures 
equivalent positions if the record corresponds to a paired swap 
position, or gross long and gross short futures equivalent positions on 
a non-delta-adjusted basis if the data record corresponds to a paired 
swaption position. A data record (for the purposes of this rulemaking) 
can be thought of as a grouped subset of the overall set of reported 
data elements that communicates a unique (non-repetitive) positional 
message to the Commission.
    Clearing organizations would be required to report a data record 
for each clearing member for each reporting day, which is defined in 
proposed regulation 20.1 as the daily period of time between a clearing 
organization or reporting entity's usual and customary last internal 
valuation of paired swaps or swaptions and the next such period. In 
order to provide clearing organizations with some flexibility in 
determining daily operational cycles that would coincide with their 
obligation to provide clearing member reports on a daily basis, the 
proposed definition would permit such cycles of time to vary for 
different clearing organizations, so long as the daily period of time 
is consistently observed and the Commission is notified, upon its 
request, of the manner by which a cycle is calculated. Data records 
would be reported electronically in a manner consistent with current 
Commission practice.
    The positional data elements in paragraphs (a) and (b) of proposed 
regulation 20.3 would require daily reports for each aggregated 
proprietary account and each aggregated customer account, by each 
cleared product, and by each futures equivalent month. Each data record 
would indicate the commodity reference price with which each cleared 
product is associated. As defined in proposed regulation 20.1, a 
commodity reference price is the price series used by the parties to a 
swap or swaption to determine payments made, exchanged, or accrued 
under the terms of that swap or swaption. In addition, data records for 
swaptions would be required to be broken down further by expiration 
date, put or call indicator, and strike price. Proposed Appendix B to 
part 20 includes examples of data records that would be required of 
clearing organizations. The examples in Appendix B are provided to 
facilitate the public's ability to comment on these reports, and if 
adopted as part of a final rulemaking, increase a clearing 
organization's familiarity with the type of reporting the regulations 
would require.

[[Page 67262]]

    In addition to reports for clearing members, clearing organizations 
would, pursuant to proposed regulation 20.3(c), be required to provide 
to the Commission, for each futures equivalent month, end of reporting 
day settlement prices for each cleared product and deltas for every 
unique swaption put and call, expiration date, and strike price. This 
second daily report would provide the type of information that is 
necessary to assign a weight to a trader's positions.
2. Reports by Reporting Entities
    Proposed regulation 20.4 would require reporting entities to report 
proprietary positions in paired swaps and their paired swap 
counterparty positions. Proposed regulation 20.1 identifies a reporting 
entity as a clearing member or a swap dealer as defined in section 1a 
of the CEA and as subject to definitional changes that may be made 
through the issuance of Commission regulations.
    The definition of reporting entity is intended to identify 
financial firms that regularly make markets in swaps, as well as 
divisions or subsidiaries of large commercial swap market participants 
that provide risk management services to other commercial entities in 
the normal course of their business operations. Proposed regulation 
20.4 is intended to require reports from such financial firms and not 
from commercial end-users with swaps activities of limited scope. By 
requiring reporting from these large market participants, proposed 
regulation 20.4 could provide visibility into the majority of paired 
swaps trading activity without burdening commercial entities that may 
have less experience with compliance and reporting requirements 
stemming from the regulation of financial institutions.\12\ The 
Commission solicits comment specifically on the proposed definition of 
reporting entity and the sufficiency of the market visibility gained by 
requiring reports only from a limited set of market participants.
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    \12\ The proposed definition of reporting entity includes an 
exemption from the definition of reporting entity for entities that 
are not commonly known as swap dealers.
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    Proposed regulation 20.4 would require reporting entities to 
provide the Commission with positional reports only if the reporting 
entities hold reportable paired swap positions. Proposed regulation 
20.1 defines a reportable position as a position, in any one futures 
equivalent month, comprised of fifty or more futures equivalent paired 
swaps or swaptions based on the same commodity. This proposed level is 
calibrated to capture data on a sufficiently large percentage of paired 
swap positions and was arrived at after consultation with multiple 
market participants.\13\ The Commission specifically requests comment 
on whether this reporting level is appropriate relative to the size of 
positions held by paired swap counterparties.
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    \13\ See https://www.cftc.gov/LawRegulation/DoddFrankAct/ExternalMeetings/otc_meetings.html.
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    Once a reporting entity's paired swaps position meets or exceeds 
the fifty futures equivalent paired swaps or swaptions threshold, 
proposed regulation 20.1 defines all other paired swap positions held 
by the reporting entity (in the commodity that initially caused the 
reporting entity's positions to be deemed reportable) to be part of the 
entity's reportable position.\14\ Clearing members and other reporting 
entities would follow the same procedure for determining if their 
proprietary positions or any counterparty positions are reportable to 
the Commission. As with clearing member reports that would be provided 
by clearing organizations to the Commission under proposed regulation 
20.3, proposed regulation 20.4 would require paired swap positions to 
be represented and reported in futures equivalents. Without a common 
method of accounting for positions in swaps and futures, aggregate 
positions could potentially not be enforceable, should the Commission 
promulgate such limits.
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    \14\ In order to verify that a reporting entity's paired swap 
positions are no longer above the threshold, the proposed definition 
of reportable position would also encompass positions in paired 
swaps held by the reporting entity on the first day after which the 
reporting entity's paired swap positions are no longer reportable.
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    To determine what to report under proposed regulation 20.4, 
reporting entities would separately consider proprietary positions, 
counterparty positions, and positions in controlled accounts. For each 
actual swap or swaption account that includes a paired swap or swaption 
in which the reporting entity is reportable, such entities would be 
required to provide for each reporting day a data record that either 
identifies long and short paired swap positions (if the record pertains 
to swap positions) or long and short non-delta-adjusted paired swaption 
positions and long and short delta-adjusted swaption positions (if the 
record pertains to swaptions positions). For uncleared paired swaps, 
the proposed regulations would require a reporting entity to use 
economically reasonable and analytically supported deltas.
    As proposed under regulation 20.4, this information would be 
grouped separately by swap or swaption account that is a part of a 
reportable account, by futures equivalent month, by cleared or 
uncleared contracts, by commodity reference price, and by clearing 
organization, if the data record pertains to cleared swaps. Data 
records pertaining to cleared swaption positions under the proposed 
regulations would be further grouped by put or call, expiration date, 
and strike price. Uncleared swaption positions, however, would not be 
required to be grouped by put or call, expiration date, and strike 
price. The reports provided under proposed regulation 20.4 would also 
include identifiers for the commodity underlying the reportable 
position, the counterparties of the account and the 102S filing 
identifier, as described in more detail below, assigned by the 
reporting entity to the owner(s) of the account, as well as the 
controller(s) of the account. Proposed Appendix B to this part includes 
several examples of required records.
3. Series S Filings
    Proposed regulation 20.5(a) would require a 102S filing for the 
identification of the direct owner or controller of a ``reportable 
account'' by the reporting entity holding or carrying the account. The 
102S filing would consist of the ``name, address, and contact 
information of the direct owner or controller of the reportable 
account'' and a ``brief description of the nature of such person's 
paired swaps and swaptions' market activity'' (e.g., whether it is an 
omnibus account for another broker or an individual account). The 
reporting entity is required to submit a 102S filing only once for each 
person associated with a reportable account.
    Once an account holder or controller is reportable, the Commission 
may contact the trader directly and require that the trader file a more 
detailed identification report, a 40S filing. The Commission would 
require a 40S filing if a trader has become reportable for the first 
time and is not known to the Commission. A 40S filing would consist of 
the submission of a CFTC Form 40 ``Statement of Reporting Trader.'' As 
the current version of Form 40 covers information on positions in 
futures and options, the trader would be required to complete the form 
as if the form covered

[[Page 67263]]

information related to positions in paired swaps and swaptions.\15\
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    \15\ The Commission plans to revise Form 40 in the future so 
that the form would explicitly target information on paired swaps 
and swaptions positions as well as futures and options positions.
---------------------------------------------------------------------------

    The 102S filings and the 40S filing together would allow the 
Commission to identify the person(s) owning the account or controlling 
its trading, the person to contact regarding trading, the nature of the 
account, whether the reported account is related--by financial interest 
or control--to another account, and the principal occupation or 
business of the account owner. The filings also would provide the 
Commission information on whether the account is being used for hedging 
cash market exposure.
    Commission staff would use the information in these two filings to 
determine if the reported account corresponds to a new trader or is an 
additional account of an existing trader. If the account is an 
additional one of an existing trader, it would then be aggregated with 
that of other related accounts currently being reported. By properly 
identifying and aggregating accounts, Commission surveillance staff 
would be able to assess a trader's compliance with speculative position 
limits across futures and swaps markets, should the Commission adopt 
such limits.
4. Maintenance of Books and Records
    Proposed regulation 20.6 would impose recordkeeping requirements on 
reporting clearing organizations, reporting entities, and persons with 
reportable swaps positions. Proposed regulation 20.6(a) would require 
clearing organizations to keep records of transactions in paired swaps 
or swaptions. Proposed regulation 20.6(b) would require reporting 
entities and persons with reportable positions to maintain ``books and 
records * * * showing all records for transactions concerning all 
reportable positions.'' In addition, reporting entities and persons 
with reportable positions would be required to keep books and records 
on ``transactions in the cash commodity'' and its products and 
byproducts, and ``all commercial activities'' that are hedged in 20.2 
listed futures contract, ``or options thereon,'' or paired swaps and 
swaptions. These recordkeeping requirements are very similar to those 
in current regulation 18.05.
    The recordkeeping duties imposed by proposed regulation 20.6 are to 
be in accordance with the requirements of regulation 1.31. Most 
pertinently, regulation 1.31(a)(1) requires that these transaction 
records be kept for five years, the first two of which they ``shall be 
readily accessible.'' Such books and records ``shall be open to 
inspection by any representative of the Commission.''
    These recordkeeping requirements would allow the Commission to have 
ready access to records that would enable Commission staff to 
reconstruct the transaction history of reported positions. These 
requirements would ensure that data records submitted to the Commission 
could be audited. In addition, these records would enable Commission 
staff to better reconstruct trading activity that may have had a 
material impact on the price discovery process.
    The recordkeeping burden imposed by proposed regulation 20.6 is not 
anticipated to be high. These requirements are not unlike the 
recordkeeping requirements imposed by Congress in new CEA section 
4r(c)(2) on all swap market participants, and by the Commission on 
those entities with reportable futures accounts under the existing 
recordkeeping provision of regulation 18.05.
5. Form and Manner of Reporting
    Proposed regulation 20.7(a) provides that the Commission would 
specify, in writing to persons required to report, the format, coding 
structure, and electronic data transmission procedures for these 
reports and submissions. The purpose of this provision would be to 
provide notice on how the Commission would determine the means by which 
the part 20 reports are to be formatted and submitted.
6. Delegation of Authority
    Proposed regulation 20.8 delegates certain of the Commission's 
proposed part 20 authority to the Director of the Division of Market 
Oversight and through the Director to other employee or employees as 
designated by the Director. The delegated authority extends to: (1) 
Issuing a special call for a 40S or 102S filing; and (2) providing 
instructions or determining the format, coding structure, and 
electronic data transmission procedures for submitting data records and 
any other information required under proposed part 20. The purpose of 
this delegation provision is to facilitate the ability of the 
Commission to respond to changing market and technological conditions 
for the purpose of ensuring timely and accurate data reporting.
7. Sunset Provision
    Proposed regulation 20.9 includes a sunset provision. The sunset 
provision would render the proposed regulations ineffective and 
unenforceable upon the Commission's finding (through the issuance of an 
order) that operating SDRs are capable of processing positional data in 
a manner that would enable the Commission to effectively surveil paired 
swaps trading and paired swap markets. Proposed regulation 20.9 also 
provides the Commission with the authority to retain the effectiveness 
and enforceability of any requirement in part 20, such as the reporting 
of deltas for uncleared paired swaps or the reporting of paired swap 
positions in futures equivalents, should the Commission determine that 
such reporting is of material value to conducting market surveillance.

D. Solicitation of Comments

    Pursuant to the Dodd-Frank Act, the Commission will refine the 
definition of swap dealer in CEA section 1a. The Commission solicits 
comments on whether it should delay the implementation of proposed part 
20 to sixty days following a final Commission rulemaking further 
defining the term swap dealer. The Commission also specifically 
requests comments on any role self-regulatory organizations could play 
in gathering positional data on paired swaps. In addition, the 
Commission solicits comments on alternative approaches that may be 
employed to gather positional data on paired swaps.

III. Related Matters

A. Cost-Benefit Analysis

1. Introduction
    Section 15(a) of the Act requires that the Commission, before 
promulgating a regulation under the Act or issuing an order, consider 
the costs and benefits of its action. By its terms, CEA section 15(a) 
does not require the Commission to quantify the costs and benefits of a 
new regulation or determine whether the benefits of the regulation 
outweigh its costs. Rather, CEA section 15(a) simply requires the 
Commission to ``consider the costs and benefits'' of its action.
    CEA section 15(a) specifies that costs and benefits shall be 
evaluated in light of the following considerations: (1) Protection of 
market participants and the public; (2) efficiency, competitiveness, 
and financial integrity of futures markets; (3) price discovery; (4) 
sound risk management practices; and (5) other public interest 
considerations. Accordingly, the Commission could, in its discretion, 
give greater weight to any of the five considerations and could, in its 
discretion, determine that,

[[Page 67264]]

notwithstanding its costs, a particular regulation 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 Act.
2. Costs
    As mentioned above, under CEA section 4a(a)(2), the Commission has 
been directed to establish position limits, as appropriate, on traders 
in certain physical commodity futures and swaps markets within 180 or 
270 days of the enactment of the Dodd-Frank Act, for exempt and 
agricultural commodities, respectively. As explained in this release, 
the Commission lacks the information it needs with respect to paired 
swaps to be able to conduct surveillance for limits that may be 
established under CEA section 4a.
    In developing these proposed regulations, the Commission has aimed 
to minimize the cost and burden associated with reporting positional 
data to the Commission. As discussed above, the Commission has tailored 
the regulations to conform to the market structure for cleared and 
uncleared paired swaps. The cost of proposed part 20 regulations would 
be borne by firms that are clearing organizations reporting under 
proposed regulation 20.3 and clearing member reportable entities 
reporting under proposed regulation 20.4. For such firms, the 
additional cost to implement a reporting system is expected to be 
minimal since the Commission understands these firms track their own 
and their counterparties' positions for risk-management purposes.
    Although the Commission has proposed a reporting system for cleared 
paired swaps that resembles the large trader reporting system, the 
Commission proposes a structurally different reporting system for 
uncleared paired swaps. The structure of the uncleared paired swaps 
market is not as centralized as the cleared paired swaps market: There 
is no central counterparty that corresponds to a clearing organization 
in the uncleared paired swaps market. The Commission believes that swap 
dealers may be counterparties to a significant portion of the market 
for uncleared paired swaps and swaptions.
    Accordingly, the Commission has proposed to require position 
reporting from swap dealers. These firms are to report their positions 
as well as those of their counterparties, provided that they are above 
the ``reportable position'' level. These firms have the 
creditworthiness to be able to negotiate a substantial swaps portfolio 
in paired swaps across many counterparties. As is the case for clearing 
member reportable entities, it is likely that creating or purchasing an 
information technology system that can present such a firm's net 
position exposures on a daily basis would not be an overly burdensome 
marginal expense, since the Commission understands swap dealers track 
their exposures for risk management purposes.
    For counterparties that would be subject to the recordkeeping 
requirements of proposed regulation 20.6, it should be noted that these 
requirements would place new burdens (in terms of reporting and 
retaining information on cash market transactions) only on persons that 
are reportable solely in paired swaps. This is because recordkeeping 
requirements are imposed by Congress with respect to all swaps in new 
section 4r(c)(2) of the CEA. Likewise, counterparties that hold 
reportable futures positions (in addition to reportable paired swaps 
positions) are currently subject to existing recordkeeping requirements 
under regulation 18.05. Thus, the Commission believes that these 
additional burdens, in marginal terms, are not expected to be overly 
burdensome, given that firms collect information on their commercial 
activities in the normal course of business operations.
3. Benefits
    As discussed above, implementing proposed part 20 would enable the 
Commission to monitor and enforce position limits, if established by 
the Commission, to diminish, eliminate, or prevent excessive 
speculation; to deter and prevent market manipulation; ensure 
sufficient market liquidity for bona fide hedgers; and to ensure that 
the price discovery function of the underlying market is not disrupted. 
By enabling the Commission to monitor compliance with position limits 
to address these concerns, the Commission would be better able to 
protect the price discovery process (CEA section 15(a)(2)(C)) and 
market participants and the public from the threats of excessive 
speculation and price manipulation (CEA section 15(a)(2)(A)).
    In addition to providing increased market transparency through the 
reporting of paired swap positions to the Commission, the Commission 
would be better able to first, protect market participants and the 
public (CEA section 15(a)(2)(A)) and second, increase the efficiency 
and competitiveness of the markets (CEA section 15(a)(2)(B)). The 
extension of the Commission's surveillance activities to these paired 
swap markets would help ensure the integrity of these markets and 
thereby protect market participants and the public from disruptive 
trading, price manipulation, and the effects of market congestion. 
Further, with the extension, the Commission would be able to expand its 
Commitments of Traders report to include aggregate position data on the 
paired swaps markets, and thus, would provide the public, including 
market participants, greater transparency into the constitution of 
markets covered by the proposed part. This increased transparency may 
reduce the informational asymmetries in the paired swap markets and 
thereby improve the efficiency of the market and promote competition.
4. Conclusion
    The Commission, after considering the CEA section 15(a) factors, 
finds that the expected incremental cost imposed by proposed part 20 is 
outweighed by the expected benefit. Accordingly, the Commission has 
determined to propose part 20. The Commission invites public comment on 
its cost-benefit considerations. Commenters are also are invited to 
submit any data or other information that they may have quantifying or 
qualifying the costs and benefits of proposed part 20.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires Federal agencies, 
in proposing regulations, to consider the impact of those regulations 
on ``small entities.'' \16\ The proposed regulations detailed in this 
release would affect organizations including registered derivatives 
clearing organization (``DCOs''), clearing members (many of whom would 
be registered with the Commission already as futures commission 
merchants (``FCMs'')), swap dealers, and persons who have reportable 
paired swaps positions and otherwise have not been reportable based on 
futures positions.
---------------------------------------------------------------------------

    \16\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    The Commission has previously determined that DCOs \17\ and FCMs 
\18\ are not ``small entities'' for purposes of the RFA. As noted 
above, a reportable paired swaps position would include 50 or more 
paired swaps positions in a futures equivalent month. The Commission 
notes this threshold is higher than the minimum 25 contract reporting 
levels in effect for futures positions under regulation 15.03. 
Previously, the Commission had determined that the reporting levels in 
regulation 15.03 would not affect small

[[Page 67265]]

entities.\19\ The Commission does not believe that entities who meet 
the proposed larger quantitative threshold would constitute small 
entities for RFA purposes.
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    \17\ 66 FR 45604, 45609 (August 29, 2001).
    \18\ Policy Statement and Establishment of Definitions of 
``Small Entities'' for Purposes of the Regulatory Flexibility Act, 
47 FR 18618, 18619 (Apr. 30, 1982).
    \19\ Id. at 18620 (excluding large traders from the definition 
of small entity).
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    Accordingly, the Commission does not expect the regulations, as 
proposed herein, to have a significant impact on a substantial number 
of small entities. Therefore, the Chairman, on behalf of the 
Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the 
proposed regulations would not have a significant economic impact on a 
substantial number of small entities. The Commission invites the public 
to comment on whether the entities covered by these proposed 
regulations should be considered small entities for purposes of the 
RFA.

C. Paperwork Reduction Act

1. Overview
    The Paperwork Reduction Act (``PRA'') \20\ imposes certain 
requirements on Federal agencies in connection with their conducting or 
sponsoring any collection of information as defined by the PRA. This 
proposed rulemaking would result in new collection of information 
requirements within the meaning of the PRA. The Commission therefore is 
submitting this proposal to the Office of Management and Budget 
(``OMB'') for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 
1320.11. The title for this collection of information is ``Part 20--
Position Reports for Physical Commodity Swaps'' (OMB control number 
3038-NEW). If adopted, responses to this collection of information 
would be mandatory.
---------------------------------------------------------------------------

    \20\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid control number. OMB has not yet assigned a control 
number to the new collection for proposed part 20. The requirements of 
new part 20 are not currently covered by any existing OMB control 
number.
    The Commission is submitting this proposal to OMB for review in 
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    As noted earlier, in section 737 of the Dodd-Frank Act, Congress 
amended section 4a of the CEA to require the Commission to establish, 
as appropriate, aggregate position limits for futures contracts traded 
on a DCM and for economically equivalent swaps. Pursuant to new section 
4a(a)(2)(B) of the CEA, Congress mandated that the Commission set these 
position limits within 180 days of enactment of the Dodd-Frank Act for 
exempt commodities and 270 days for agricultural commodities. In order 
to enforce regulations establishing position limits for economically 
equivalent swaps, the Commission has determined that it first needs to 
establish the reporting regulations proposed herein. Given the short 
timeframe in which the Commission must determine whether to set 
position limits under the Dodd-Frank Act, the Commission has determined 
that it needs to adopt a swaps reporting system on an expedited basis 
to comply with the statutory deadline contained in new section 
4a(a)(2)(B) of the CEA.
2. Information Provided and Recordkeeping Duties
    As a result of the Dodd-Frank Act, new part 20 proposes putting 
into place reporting requirements for ``clearing organizations'' and 
``reporting entities'' and recordkeeping requirements for these firms 
in addition to firms that become reportable because of a reportable 
paired swap or swaption positions. Accordingly, the Commission is 
seeking a new and separate control number for reporting from ``clearing 
organizations'' and ``reporting entities'' (collectively 
``respondents'') and recordkeeping for firms that become reportable 
because of a reportable paired swap or swaption position operating in 
compliance with the requirements of proposed part 20. Upon OMB's 
approval and assignment of a new control number specifically for the 
collection of information and recordkeeping requirements of proposed 
part 20, the Commission intends to submit the necessary documentation 
to OMB to enable it to apply a new OMB control number exclusively for 
part 20 reports.
    Proposed part 20 would result in the collection of information on 
``paired swaps and swaptions'' positions as defined in proposed 
regulation 20.1. Specifically, proposed part 20 provides for three new 
kinds of reports:
    1. Under proposed regulation 20.3, swap ``clearing organizations'' 
would provide daily reports of relevant position and clearing data.
    2. Under proposed regulation 20.4, ``reporting entities'' would 
produce position reports on a daily basis on their own and individual 
counterparty accounts. Within this class of ``reporting entities,'' 
there are two categories of ``reporting entities:'' (a) ``clearing 
members'' and (b) ``swap dealers'' that are not clearing members. The 
former category, ``clearing members,'' would include many firms that 
are currently registered as FCMs with the Commission. The Commission 
estimates that a total of 180 swap dealers transact in physical 
commodity swaps and thereby may be reporting entities under proposed 
part 20 (clearing members and non-clearing members combined).
    3. Finally, under proposed regulation 20.5, all ``reporting 
entities'' would submit identifying information to the Commission on 
new reportable accounts through a 102S filing.
    In addition to creating these reporting requirements, proposed 
regulation 20.6 would impose recordkeeping requirements for (1) 
clearing organizations, (2) reporting entities, and (3) persons with 
``reportable positions'' in the covered futures contract listed in 
proposed regulation 20.2 or ``paired swaps or swaptions.'' Proposed 
regulation 20.6(a) would require clearing organizations to maintain 
``all records of transactions in paired swaps or swaptions'' on 
clearing organizations. Proposed regulation 20.6(b) would require 
reporting entities and ``persons with reportable positions'' to 
maintain for all commodities in which it holds a reportable position 
``all records for transactions * * * in the cash commodity * * * [and] 
its products and byproducts'' and in ``commercial activities'' 
underlying a hedge in a covered futures contract or in paired swaps or 
swaptions. These provisions extend those recordkeeping requirements 
currently applicable to those traders holding reportable positions in 
futures contracts, as currently found in regulation 18.05, to those 
traders holding reportable positions in swaps.
    The Commission estimates that the recordkeeping requirements of 
proposed regulation 20.6 would not be overly burdensome. For the firms 
subject to the reporting and recordkeeping requirements of proposed 
regulation 20.6, it should be noted that these requirements are not 
unlike the recordkeeping requirements imposed by Congress in the new 
CEA section 4r(c)(2) of the CEA and by existing recordkeeping 
regulation 18.05. If a firm subject to these recordkeeping requirements 
was previously reportable due to a futures position in the relevant 
commodity above the ``reporting level'' (see regulation 15.03), then 
the proposed regulation 20.6(b) recordkeeping burdens would not be new, 
as that firm would already be subject to these requirements under 
regulation 18.05. If a firm becomes subject to the proposed regulation 
20.6 recordkeeping requirements only because of a reportable swaps 
position (not because of a futures position above

[[Page 67266]]

the reportable level) then the requirements contained in the proposal 
add only the duty to keep records on ``all commercial activities that a 
reporting entity or person hedges'' to the swaps-related recordkeeping 
duties imposed by CEA section 4r(c)(2). These additional burdens are 
not expected to be substantial, given that in the normal course of 
business firms would collect this information on their commercial 
activities.
    The Commission estimates that implementing proposed part 20 would 
create a total annual reporting and recordkeeping hour burden of 79,503 
hours across 705 firms. Based on a weighted average wage rate of 
$74.36,\21\ this would amount to an annualized labor cost of $5.9 
million. In addition, the Commission estimates that total annualized 
capital/start-up, operating, and maintenance costs \22\ would amount to 
a combined $32.7 million. This overall total reporting and 
recordkeeping hour burden is the sum of estimated burdens for the three 
reporting categories and the three recordkeeping categories mentioned 
above.
---------------------------------------------------------------------------

    \21\ The Commission staff's estimates concerning the wage rates 
are based on salary information for the securities industry compiled 
by the Securities Industry and Financial Markets Association 
(``SIFMA''). The $74.36 per hour is derived from figures from a 
weighted average of salaries and bonuses across different 
professions from the SIFMA Report on Management & Professional 
Earnings in the Securities Industry 2009, modified to account for an 
1,800-hour work-year and multiplied by 1.3 to account for overhead 
and other benefits. The wage rate is a weighted national average of 
salary and bonuses for professionals with the following titles (and 
their relative weight); ``programmer (senior)'' (60% weight), 
``compliance advisor (intermediate)'' (20%), ``systems analyst'' 
(10%), and ``assistant/associate general counsel'' (10%).
    \22\ The capital/start-up cost component of ``annualized 
capital/start-up, operating, and maintenance costs'' is based on an 
initial capital/start-up cost that is straight-line depreciated over 
five years.
---------------------------------------------------------------------------

    Reporting burdens:
    1. Proposed regulation 20.3 clearing organization reports would 
account for 938 of these annual reporting and recordkeeping hours. 
These hours would be spread across 5 respondents. Annualized capital/
start-up, operating, and maintenance costs for all affected clearing 
organizations combined would be approximately $100,000.\23\
---------------------------------------------------------------------------

    \23\ All of the capital cost estimates in these estimates are 
based on a 5 year, straight-line depreciation.
---------------------------------------------------------------------------

    2. Proposed regulation 20.4 reporting entity reports would have two 
separate burden estimates based on the kind of reporting entity 
providing the report:
    a. Clearing member (80 clearing member/swap dealers plus 20 
clearing member/non-swap dealers) reporting entity reports would create 
an annual reporting and recordkeeping burden of 25,000 hours spread 
across 100 respondents. Annualized capital/start-up, operating, and 
maintenance costs for all firms in this category combined would be 
approximately $6 millio