Swap Transaction Compliance and Implementation Schedule: Clearing and Trade Execution Requirements under Section 2(h) of the CEA, 58186-58197 [2011-24124]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 76, Number 182 (Tuesday, September 20, 2011)]
[Proposed Rules]
[Pages 58186-58197]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24124]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 37, 38, and 39

RIN 3038-AD60


Swap Transaction Compliance and Implementation Schedule: Clearing 
and Trade Execution Requirements under Section 2(h) of the CEA

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 regulations that would establish a schedule to phase in 
compliance with certain new statutory provisions enacted under Title 
VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act). These provisions include the clearing requirement 
under new section 2(h)(1)(A) of the Commodity Exchange Act (CEA or 
Act), and the trade execution requirement under new section 2(h)(8)(A) 
of the CEA. The proposed schedules would provide relief in the form of 
additional time for compliance with these requirements. This relief is 
intended to facilitate the transition to the new regulatory regime 
established by the Dodd-Frank Act in an orderly manner that does not 
unduly disrupt markets and transactions. The Commission requests 
comment on the proposed compliance schedules for these clearing and 
trade execution requirements.

DATES: Submit comments on or before November 4, 2011.

ADDRESSES: You may submit comments, identified by RIN number 3038-AD60 
and Swap Transaction Compliance and Implementation Schedule: Clearing 
and Trade Execution Requirements under Section 2(h) of the CEA, by any 
of the following methods:
     Agency Web site, via its Comments Online process at https://comments.cftc.gov. Follow the instructions for submitting comments 
through the Web site.
     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.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
    Please submit your comments using only one method.

    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 may be exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the established procedures in 
Sec.  145.9 of the Commission's regulations, 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

[[Page 58187]]

applicable laws, and may be accessible under the Freedom of Information 
Act.

FOR FURTHER INFORMATION CONTACT: Dhaval Patel, Counsel, Office of the 
General Counsel, 202-418-5125, dpatel@cftc.gov, or Camden Nunery, 
Office of the Chief Economist, cnunnery@cftc.gov, 202-418-5723, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\1\ 
Title VII of the Dodd-Frank Act amends the CEA \2\ to establish a 
comprehensive new regulatory framework for swaps. The legislation was 
enacted to reduce risk, increase transparency, and promote market 
integrity within the financial system by, among other things: (1) 
Providing for the registration and comprehensive regulation of swap 
dealers and major swap participants; (2) imposing clearing and trade 
execution requirements on standardized derivative products; (3) 
creating robust recordkeeping and real-time reporting regimes; and (4) 
enhancing the rulemaking and enforcement authorities of the Commission 
with respect to, among others, all registered entities and 
intermediaries subject to the Commission's oversight.
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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ 7 U.S.C. 1 et seq.
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    To implement the Dodd-Frank Act, the Commission has to-date issued 
55 advance notices of proposed rulemaking or notices of proposed 
rulemaking, two interim final rules, 12 final rules, and one proposed 
interpretive order. By the beginning of May 2011, the Commission had 
published in the Federal Register a significant number of notices of 
proposed rulemaking, which represented a substantially complete mosaic 
of the Commission's proposed regulatory framework under Title VII of 
the Dodd-Frank Act. In recognition of that fact and with the goal of 
giving market participants additional time to comment on the proposed 
new regulatory framework for swaps, either in part or as a whole, the 
Commission reopened or extended the comment period of many of its 
proposed rulemakings through June 3, 2011.\3\ In total, the Commission 
has received over 20,000 comments in response to its Dodd-Frank Act 
rulemaking proposals.
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    \3\ See Reopening and Extension of Comment Periods for 
Rulemakings Implementing the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, 76 FR 25274, May 4, 2011.
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    To give the public an opportunity to comment further on 
implementation phasing, on May 2-3, 2011, the Commission, along with 
the Securities and Exchange Commission (SEC), held a joint, two-day 
roundtable on issues related to implementation.\4\ In connection with 
this roundtable, Commission staff proposed thirteen concepts to be 
considered regarding implementation phasing, and staff asked a series 
of questions based on the concepts outlined.\5\ The Commission received 
numerous comments in response to both its roundtable and the staff 
concepts and questions.\6\
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    \4\ The transcripts from the roundtable are available at https://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/csjac_transcript050311.pdf (``Day 1 Roundtable Tr.'') and https://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/csjac_transcript050211.pdf (``Day 2 Roundtable Tr.'').
    \5\ See ``CFTC Staff Concepts and Questions Regarding Phased 
Implementation of Effective Dates for Final Dodd-Frank Rules,'' 
available at https://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/staffconcepts050211.pdf.
    \6\ Such comments are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1000.
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    These comments were submitted by a number of existing and potential 
market infrastructures, including clearinghouses, trading platforms, 
and swap data repositories. Comments also were submitted by entities 
that may potentially be swap dealers (SDs) or major swap participants 
(MSPs), as well as those financial entities that may not be required to 
register with the Commission, but whose swap transactions may be 
required to comply with the clearing requirement under section 
2(h)(1)(A) of the CEA, and a trade execution requirement under section 
2(h)(8)(A) of the CEA. The Commission also received many comments from 
non-financial entities.
    One of the key themes to emerge from the comments received by the 
Commission is that some market participants may require more time to 
bring their swap transactions into compliance with certain new 
regulatory requirements.\7\ For example, one commenter requested a 
``meaningful'' period after finalization of the suite of rulemakings 
that is applicable to it before actual compliance will be required.\8\ 
Similarly, several trade associations recommended the Commission allow 
``sufficient'' time for infrastructure and business practices to 
develop before requiring compliance with the new requirements.\9\ A 
group of international banks commented that the Commission should defer 
compliance until December 31, 2012, at which point the regulatory 
timetable as per the September 2009 G20 Pittsburgh statement will have 
reached a conclusion.\10\ Another commenter noted that some entities 
may be able to comply relatively quickly with certain documentation 
requirements that are largely consistent with current business 
practices while other requirements may need a longer implementation 
period.\11\ Although commenters varied in their recommendations 
regarding the time it would take to bring their swaps into compliance 
with the new regulatory requirements,\12\ many commenters agreed on 
phasing in compliance with these requirements by type of market 
participant based on a variety of factors, including a market 
participant's experience, resources, and the size and complexity of its 
transactions.\13\ The Commission has taken these comments into 
consideration in developing the proposed compliance schedules.
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    \7\ E.g., Letter from Karrie McMillan, Investment Company 
Institute, dated Jun. 10, 2011 at 8-11; Letter from Financial 
Services Forum, Futures Industry Association, International Swaps 
and Derivatives Association, and Securities Industry and Financial 
Markets Association, dated May 4, 2011 at 7-9; Letter from Jeff 
Gooch, MarkitSERV, dated Jun. 10, 2011 at 1-2 and 6; Letter from 
Electric Trade Association, dated May 4, 2011 at 5; Letter from John 
R. Gidman, Association of Institutional Investors, dated Jun. 10, 
2011 at 3.
    \8\ Letter from the Coalition of Physical Energy Companies, 
dated Mar. 14, 2011 at 4.
    \9\ Letter from the Futures Industry Association, the Financial 
Services Forum, the International Swaps and Derivatives Association 
and the Securities Industry and Financial Markets Association, dated 
May 4, 2011 at 5.
    \10\ Letter from the Bank of Tokyo-Mitsubishi UFJ, Ltd., et al., 
dated May 6, 2011 at 6.
    \11\ Letter from the Financial Services Roundtable, dated May 
12, 2011 at 4.
    \12\ For example, Javelin stated that it could be open for 
business and generally be in compliance with the clearing and trade 
execution requirements within 6 months. Day 1 Roundtable Tr. at 104-
105. Citadel suggested moving towards a voluntary clearing launch 
between day 180 and day 240, and eventually moving towards a 
mandatory clearing date. Day 1 Roundtable Tr. at 73-74. Moreover, 
the Swap Financial Group offered a different perspective stating 
that it generally thought implementation of Dodd-Drank could be 
accomplished in a year or two. Day 2 Roundtable Tr. at 269.
    \13\ These comments are more fully discussed later in the 
preamble.
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    The swap transaction compliance requirements that are the subject 
of this proposed rulemaking include compliance with the clearing 
requirement and the corresponding trade execution requirement under 
sections 2(h)(1)(A) and 2(h)(8)(A) of the CEA, respectively.\14\ The 
Commission's

[[Page 58188]]

proposed compliance schedules are designed to afford affected market 
participants a reasonable amount of time to bring their transactions 
into compliance with such requirements. The proposed schedules also 
would provide relief in the form of additional time for compliance with 
these transaction compliance requirements and are further explained 
below.\15\ This relief is intended to facilitate the transition to the 
new regulatory regime established by the Dodd-Frank Act in an orderly 
manner that does not unduly disrupt markets and transactions.
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    \14\ The Commission also is proposing Swap Transaction 
Compliance and Implementation Schedule: Trade Documentation and 
Margining Requirements under section 4s of the CEA.
    \15\ The proposed compliance schedules do not address the 
effective dates of the clearing and trade execution requirements in 
the Dodd-Frank Act, including the application of the Commission's 
Effective Date Order to such requirements. See Effective Date for 
Swap Regulation, 76 FR 42508, Jul. 19, 2011.
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II. Proposed Regulation

A. Authority to Implement Proposed Regulations

    In this Notice of Proposed Rulemaking, the Commission relies on its 
general authority to establish compliance dates with the rules and 
regulations enacted pursuant to the Dodd-Frank Act. Section 712(f) also 
authorizes the Commission to promulgate rules to prepare for the 
effective dates of the provisions of the Dodd-Frank Act.\16\ In 
addition, the Commission relies on section 8(a)(5) of the CEA, which 
authorizes the Commission to promulgate such 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 the CEA. In 
accordance with this authority, the proposed regulations would amend 
parts 37, 38, and 39 of the Commission's regulations to phase in 
compliance dates for the clearing and trade execution requirements 
under section 2(h) of the CEA.
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    \16\ Section 712(f) of the Dodd-Frank Act states: ``Beginning on 
the date of enactment of this Act and notwithstanding the effective 
date of any provision of this Act, the [Commission] * * * may, in 
order to prepare for the effective dates of the provisions of this 
Act--(1) promulgate rules, regulations, or orders permitted or 
required by this Act * * *.''
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B. Implementation Phasing of the Clearing Requirement under Section 
2(h)(1)

1. Background on Mandatory Clearing Determinations
    Section 723(a)(3) of the Dodd-Frank Act amended the CEA to provide, 
under new section 2(h)(1)(A), that ``it shall be unlawful for any 
person to engage in a swap unless that person submits such swap for 
clearing to a derivatives clearing organization that is registered 
under this Act or a derivatives clearing organization that is exempt 
from registration under this Act if the swap is required to be 
cleared.'' \17\ Section 2(h)(2) charges the Commission with the 
responsibility for determining whether a swap is required to be 
cleared, through one of two avenues: (1) Pursuant to a Commission-
initiated review; or (2) pursuant to a submission from a derivatives 
clearing organization (DCO) of each swap, or any group, category, type, 
or class of swaps that the DCO ``plans to accept for clearing.'' \18\
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    \17\ Section 2(h)(7) of the CEA provides an exception to the 
clearing requirement (``the end-user exception'') when one of the 
counterparties to a swap (i) Is not a financial entity, (ii) is 
using the swap to hedge or mitigate commercial risk, and (iii) 
notifies the Commission how it generally meets its financial 
obligations associated with entering into a non-cleared swap.
    \18\ Under section 2(h)(2)(B)(ii), the Commission must consider 
swaps listed for clearing by a DCO as of the date of enactment of 
the Dodd-Frank Act.
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    On July 26, 2011, the Commission published in the Federal Register 
a final rule regarding the process for review of swaps for mandatory 
clearing.\19\ Under Sec.  39.5(b)(6), the Commission will review a 
DCO's submission and determine whether the swap, or group, category, 
type, or class of swaps, described in the submission is required to be 
cleared. This determination will be made not later than 90 days after a 
complete submission has been received from a DCO, unless the submitting 
DCO agrees to an extension. Under Sec.  39.5(c), Commission-initiated 
reviews of swaps that have not been accepted for clearing by a DCO will 
take place on an ongoing basis. However, as explained in the preamble 
to the final rule, the ``Commission anticipates that the initial 
mandatory clearing determinations would only involve swaps that are 
already being cleared or that a DCO wants to clear.'' \20\
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    \19\ 76 FR 44464, Jul. 26, 2011.
    \20\ 76 FR at 44469.
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    Because the Commission initially will consider mandatory clearing 
determinations based on those swaps that DCOs are currently clearing or 
that a DCO would like to clear, the initial sequence of mandatory 
clearing determinations will be based on the market's view of which 
swaps can be cleared and which asset classes are ready for clearing, as 
reflected by the fact that a DCO is either currently clearing a group, 
category, type, or class of swaps or is intending to do so. For 
example, multiple registered DCOs currently clear interest rate, 
credit, and commodity swaps. For these swaps, the Commission will begin 
the review process for issuing mandatory clearing determinations in the 
near term.
    The Commission observes that before market participants could be 
required to comply with a mandatory clearing determination, the 
Commission must adopt its final rules related to the end-user exception 
to mandatory clearing established by section 2(h)(7) of the CEA. In 
December 2010, the Commission proposed rules governing this elective 
exception to mandatory clearing.\21\ The proposed rule generally 
provides that a swap otherwise subject to mandatory clearing is subject 
to an elective exception from clearing if one party to the swap is not 
a financial entity, is using swaps to hedge or mitigate commercial 
risk, and notifies the Commission how it generally meets its financial 
obligations associated with entering into non-cleared swaps (the ``end-
user clearing exception'').\22\ Because this proposed rule would 
establish the process by which a non-financial entity would elect not 
to clear a swap subject to a clearing requirement, this rule would need 
to be finalized prior to requiring compliance with a mandatory clearing 
determination.
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    \21\ End-User Exception to Mandatory Clearing of Swaps, 75 FR 
80747, Dec. 23, 2010.
    \22\ 75 FR at 80748.
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    In addition, the Commission recognizes that the swap transaction 
compliance schedules that are the subject of this proposal reference 
terms such as ``swap,'' ``swap dealer,'' and ``major swap participant'' 
that are the subject of rulemaking under sections 712(d)(1) and 721(c) 
of the Dodd-Frank Act.\23\ The Commission and the SEC have proposed 
rules that would further define each of these terms.\24\ As such,

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and in a manner consistent with the temporary relief provided in the 
Commission's Effective Date Order,\25\ the Commission must adopt its 
final rules regarding the further definitions in question prior to 
requiring compliance with a mandatory clearing determination.\26\
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    \23\ Section 712(d)(1) provides: ``Notwithstanding any other 
provision of this title and subsections (b) and (c), the Commodity 
Futures Trading Commission and the Securities and Exchange 
Commission, in consultation with the Board of Governors [of the 
Federal Reserve System], shall further define the terms `swap', 
`security-based swap', `swap dealer', `security-based swap dealer', 
`major swap participant', `major security-based swap participant', 
and `security-based swap agreement' in section 1a(47)(A)(v) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)(A)(v)) and section 3(a)(78) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(78)).'' 
Section 721(c) provides: ``To include transactions and entities that 
have been structured to evade this subtitle (or an amendment made by 
this subtitle), the Commodity Futures Trading Commission shall adopt 
a rule to further define the terms `swap', `swap dealer', `major 
swap participant', and `eligible contract participant'.''
    \24\ Further Definition of ``Swap Dealer,'' ``Security-Based 
Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-Based 
Swap Participant,'' and ``Eligible Contract Participant''; Proposed 
Rule, 75 FR 80174, Dec. 21, 2010 and Further Definition of ``Swap,'' 
``Security-Based Swap,'' and ``Security-Based Swap Agreement''; 
Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 76 FR 
29818, May 23, 2011.
    \25\ See Effective Date for Swap Regulation, 76 FR 42508, Jul. 
19, 2011.
    \26\ Notably, under section 712(f) of the Dodd-Frank Act, these 
definitions would not have to be finalized for the Commission to 
review swap submissions from DCOs.
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    Lastly, the Commission notes that it has yet to adopt final rules 
relating to the protection of cleared swaps customer contracts and 
collateral. These rules are essential for establishing the customer 
protection regime associated with client clearing for swaps through 
Commission-registered futures commission merchants (FCMs) at DCOs.\27\ 
The Commission believes that finalizing the rules regarding the 
segregation of customer collateral prior to requiring compliance with a 
mandatory clearing determination is necessary to effectuate the 
purposes of new section 4d(f) of the CEA.
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    \27\ Protection of Cleared Swaps Customer Contracts and 
Collateral; Conforming Amendments to the Commodity Broker Bankruptcy 
Provisions, 76 FR 33818, Jun. 9, 2011.
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2. Compliance Schedule for Clearing Requirement--Sec.  39.5(e)
    Proposed Sec.  39.5(e) would provide the Commission with the 
authority to phase in compliance with a clearing requirement upon 
issuance of a mandatory clearing determination. The proposed compliance 
schedule is based on the type of market participants entering into the 
swaps subject to the clearing requirement. The triggering event for the 
application of this compliance schedule would be the Commission's 
issuance of a determination that the swap, or group, category, type, or 
class of swaps, is required to be cleared.\28\
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    \28\ See discussion below at p. 21 and above at p. 7. It would 
be possible for the Commission to issue a mandatory clearing 
determination but postpone the overall compliance date for all 
market participants for some period of time. Additionally, market 
participants may begin clearing their swap transactions as soon as a 
DCO begins accepting such swaps for clearing, regardless of whether 
the Commission determines that such swaps are required to be 
cleared.
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    In proposing phased implementation schedules for the clearing 
requirement, the Commission seeks to balance several goals. First, the 
Commission believes that certain market participants may require 
additional time to bring their swaps into compliance with the new 
regulatory requirement for mandatory clearing of a swap or class of 
swaps. This is particularly true for market participants that may not 
be registered with the Commission and those market participants that 
may have hundreds or thousands of managed accounts, referred to as 
``third-party subaccounts'' for the purposes of this proposal. Under 
this proposal, these parties would be afforded additional time to 
document new client clearing arrangements, connect to market 
infrastructure such as DCOs, and prepare themselves and their customers 
for the new regulatory requirements. As one commenter noted, ``[i]n the 
context of asset managers, the account set up process has to be 
multiplied over hundreds of subaccounts. Processing all of these 
subaccounts will take time even for the largest and most 
technologically advanced asset managers.'' \29\
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    \29\ Letter from Karrie McMillan, Investment Company Institute, 
dated Jun. 10, 2011 at 9-10.
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    Moreover, several commenters emphasized the need to have adequate 
time to educate their clients regarding the new regulatory 
requirements.\30\ For instance, market participants not registered with 
the Commission may not be familiar with the new regulatory 
requirements. In addition, market participants with third-party 
subaccounts would have to educate additional clients. Accordingly, both 
types of participants should be given additional time to prepare for 
compliance with the new requirements.
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    \30\ See Letter from Financial Services Forum, Futures Industry 
Association, International Swaps and Derivatives Association, and 
Securities Industry Association, dated May 4, 2011 at 9; Letter from 
Karrie McMillan, Investment Company Institute, dated Jun. 10, 2011 
at 10-11.
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    Another goal of the proposed compliance schedule is to have 
adequate representation of market participants involved at the outset 
of implementing a new mandatory clearing regime for swaps. The 
Commission believes that having a cross-section of market participants 
involved at the outset of formulating and designing the rules and 
infrastructure under which mandatory clearing is implemented will best 
meet the needs of all market participants.
    Several commenters have recommended that the Commission take such 
an approach. For example, one commenter emphasized the importance of 
the initiation of so-called ``buy-side'' clearing access for credit 
default swaps in 2009 and recommended that ``[a]t the time that a class 
of products is ready for clearing, all market participants (including 
buy-side participants) should be permitted (but not required) to clear 
those products * * *.'' \31\ In another example, one commenter 
recommended that in phasing mandatory clearing the Commission should 
aim for open access to establish an ``all to all market'' with both 
sides of the trade involved with the initial implementation.\32\ In 
further response to these comments, the Commission notes that market 
participants can begin (and continue) voluntarily clearing swaps 
through eligible DCOs at any time.
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    \31\ Letter from Richard H. Baker, Managed Funds Association, 
dated Mar. 24, 2011 at Appendix 1, page 1 and Appendix 2, page 2.
    \32\ Letter from Chris Koppenheffer, Swaps & Derivatives Market 
Association, dated Jun. 1, 2011 at 2.
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C. Implementation Phasing of the Trade Execution Requirement Under 
Section 2(h)(8)

1. Background on Trade Execution Requirement
    Section 723 of the Dodd Frank Act amended the CEA to provide, under 
new section 2(h)(8)(A), that with respect to a swap that is subject to 
the clearing requirement of section 2(h)(1)(A), ``counterparties shall 
(i) execute the transaction on a board of trade designated as a 
contract market under section 5 [a DCM]; or (ii) execute the 
transaction on a swap execution facility [SEF] registered under section 
5h or a swap execution facility exempt from registration under section 
5h(f) of this Act.'' Under section 2(h)(8)(B), the only exceptions to 
the trade execution requirement are if no DCM or SEF ``makes the swap 
available to trade'' or the swap is subject to the clearing exception 
under section 2(h)(7) (i.e., the end-user exception).\33\
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    \33\ Section 2(h)(1)(B).
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    Based on the natural phasing provided for in the statute, a trade 
execution requirement is triggered for a swap when (1) The Commission 
has issued a determination that the swap is required to be cleared and 
(2) any DCM or SEF has made the swap available to trade.\34\
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    \34\ This rulemaking does not address the manner in which it may 
be determined or established that a DCM or a SEF has made a swap 
available for trading.
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    The Commission observes that before market participants could be 
required to comply with a trade execution requirement the Commission 
must adopt final rules related to SEFs and DCMs. The Commission has 
proposed rules related to the new core principles for DCMs and the 
changes to the 18 original DCM core principles.\35\ While

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none of the new rules proposed for DCMs relate directly to the trade 
execution requirement under section 2(h)(8), the Commission believes 
that it is necessary for DCMs to have their new policies, procedures, 
and rulebooks in place prior to the DCMs making a swap available for 
trading.
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    \35\ Core Principles and Other Requirements for Designated 
Contract Markets, 75 FR 80572, Dec. 22, 2010.
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    With regard to SEFs, the Commission also observes that it would 
have to adopt final rules allowing for SEF registration, including 
procedures for provisional registration, prior to any SEF making a swap 
that is required to be cleared available for trading.\36\ The 
finalization of these rules would enable SEFs to register with the 
Commission and ensure that they have developed their new policies, 
procedures, and rulebooks.
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    \36\ Core Principles and other Requirements for Swap Execution 
Facilities, 76 FR 1214, Jan. 7, 2011. As part of the SEF rulemaking, 
the Commission proposed regulation Sec.  37.10, which would require 
each SEF to conduct an annual review of whether it has made a swap 
available for trading and to provide a report to the Commission 
regarding its assessment. Id. at 1222 and 1241.
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2. Compliance Schedule for the Trading Execution Requirement--
Sec. Sec.  37.12 and 38.11
    Proposed regulations Sec. Sec.  37.12 and 38.11 provide for the 
phased implementation of a trade execution requirement by setting forth 
a compliance schedule tied to the schedule proposed for the clearing 
requirement.
    The proposed compliance schedules for the trade execution 
requirement would be triggered upon the later of (1) The applicable 
deadline established under the compliance schedule for the associated 
clearing mandate; or (2) 30 days after the swap is made available for 
trading on either a SEF or a DCM. Consequently, market participants 
always will have at least thirty days after a DCM or SEF has made a 
swap available for trading to comply with a trade execution 
requirement. Prior to a Commission-issued mandatory clearing 
determination, both DCMs and SEFs would be permitted to offer swaps for 
trading by market participants on a voluntarily basis. However, those 
swaps would not be required to be traded on a DCM or SEF, pursuant to 
section 2(h)(8) of the CEA until the associated clearing requirement 
took effect.

D. Three-Part Implementation Phasing

    The Commission proposes compliance schedules for phasing 
implementation that afford relief in the form of additional time for 
compliance with any clearing requirement or trade execution requirement 
by category of market participant. The Commission based its proposed 
categorization of entities on the definition of ``financial entity'' in 
section 2(h)(7)(C) of the CEA.\37\ Under this statutory provision, 
Congress identified financial entities that would not be eligible to 
claim an exception from a clearing requirement under section 2(h)(1) of 
the CEA.
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    \37\ CEA section 2(h)(7)(A)(i) limits availability of the end-
user clearing exception to counterparties to the swap that are not a 
financial entity. The term financial entity is defined in CEA 
section 2(h)(7)(C)(i), and includes the following eight entities: 
(i) A swap dealer; (ii) a security-based swap dealer; (iii) a major 
swap participant; (iv) a major security-based swap participant; (v) 
a commodity pool as defined in CEA section 1a(10); (vi) a private 
fund as defined in section 202(a) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b-2(a)); (vii) an employee benefit plan as defined 
in paragraphs (3) and (32) of section 3 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1002); or (viii) a person 
predominantly engaged in activities that are in the business of 
banking or financial in nature, as defined in section 4(k) of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
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Phase 1--Category 1 Entities
    The proposed compliance schedule would define ``Category 1 
Entities'' to include a swap dealer, a security-based swap dealer, a 
major swap participant, a major security-based swap participant, or an 
active fund.
    Category 1 Entities include those dealers and major participants in 
the swap and security-based swap markets that will be registered with 
the Commission or the Securities and Exchange Commission (SEC).\38\ 
Title VII of the Dodd-Frank Act requires these market participants to 
register with either the CFTC or SEC as a result of their swaps or 
security-based swaps activities. Based on their level of market 
experience and based on their status as registrants with either the 
CFTC or the SEC, the Commission believes they should be capable of 
complying with a clearing requirement and a trade execution requirement 
sooner than other market participants and that 90 days is a reasonable 
timeframe for these entities to come into compliance with these 
requirements.
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    \38\ If a security-based swap dealer or a major security-based 
swap participant is not yet required to register with the SEC at 
such time as the Commission issues mandatory clearing determination, 
then the security-based swap dealer or a major security-based swap 
participant would be treated as a Category 2 Entity.
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    The Commission also is proposing to include those entities it 
defines as ``active funds'' in the first category of market 
participants. The proposed definition of ``active fund'' would mean 
``any private fund as defined in section 202(a) of the Investment 
Advisors Act of 1940, that is not a third-party subaccount and that 
executes 20 or more swaps per month based on a monthly average over the 
12 months preceding the Commission issuing a mandatory clearing 
determination under section 2(h)(2) of the Act.''\39\
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    \39\ It should be noted that many commodity pools meet the 
definition of private fund under section 202(a) of the Investment 
Advisors Act of 1940. Such a commodity pool would only be a Category 
1 Entity if it met the other criteria of an active fund.
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    The Commission is relying on the definition of private fund from 
section 2(h)(7)(C) of the CEA, as well as section 402 of the Dodd-Frank 
Act. However, the Commission is limiting the definition in two ways. 
First, the definition excludes third-party subaccounts, as discussed 
further below. Second, the definition is limited to those private funds 
that execute 20 or more swaps per month based on the average over the 
12 months preceding the Commission's issuance of a mandatory clearing 
determination.\40\ In choosing this threshold, the Commission's goal 
was to ensure the involvement of a cross-section of market participants 
at the outset of both clearing and trading requirement implementation. 
The Commission also sought to address some commenters' concerns 
regarding adequate ``buy-side'' representation early in the mandatory 
clearing process. Based on a preliminary assessment, the Commission 
believes the proposed numerical threshold for active funds is 
appropriate because a private fund that conducts this volume of swaps 
would be likely to have: (1) Sufficient resources to enter into 
arrangements that comply with the clearing and trade execution 
requirement earlier than other types of market participants; and (2) 
sufficient market experience to contribute meaningfully to the ``buy-
side'' perspective as industry standards are being developed.\41\ In 
defining ``active fund'' accordingly, the Commission believes it has 
included those market participants that are likely to be among the most 
experienced participants with expertise and resources needed to come 
into transaction compliance quickly.
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    \40\ In calculating the numerical threshold, the Commission 
intends for funds to calculate all swaps it executes not just those 
that are the subject of a mandatory clearing determination.
    \41\ The Commission is unaware of any position-level or 
transaction-level data on private fund swap activity in a publicly 
available form. In order to determine private fund activity levels, 
the staff consulted with academics focusing their research in this 
area, with industry participants, and with groups that represent the 
industry.
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    The Commission proposes to phase in compliance with the mandatory 
clearing requirement for any swap transaction between a Category 1 
Entity and another Category 1 Entity, or any other entity

[[Page 58191]]

that desires to clear the transaction \42\ within the first 90 days 
after the Commission issues any mandatory clearing determination. With 
respect to the trade execution requirement, the Commission proposes to 
phase in compliance with this requirement either at the same time as 
the clearing requirement or thirty days after the swap is made 
available for trading, whichever is later. The Commission proposes 
phasing in all Category 1 Entities first because these market 
participants are likely to be the most active and experienced market 
participants whose involvement in the early stages of building and 
rolling out the clearing and trading requirements is critical. The 
Commission is attempting to include in this category those market 
participants with the expertise and resources to implement mandatory 
clearing and trading most quickly. The Commission also believes 
Category 1 Entities likely will have the most existing connectivity to 
clearinghouses and trading platforms and would be able to come into 
compliance sooner than other categories of participants.
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    \42\ The intent of this clause is to facilitate clearing by 
counterparties that desire to comply with a clearing mandate earlier 
than they would otherwise be required to under the compliance 
schedule. The Commission solicits comment on whether there would be 
a better way to accomplish this objective.
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Phase 2--Category 2 Entities
    The proposed compliance schedule would define ``Category 2 
Entities'' to include a commodity pool; a private fund as defined in 
section 202(a) of the Investment Advisors Act of 1940 other than an 
active fund; an employee benefit plan as defined in paragraphs (3) and 
(32) of section 3 of the Employee Retirement Income and Security Act of 
1974; or a person predominantly engaged in activities that are in the 
business of banking, or in activities that are financial in nature as 
defined in section 4(k) of the Bank Holding Company Act of 1956, 
provided that the entity is not a third-party subaccount.
    The Commission proposes to phase in compliance for swap 
transactions between a Category 2 Entity and Category 1 Entity, another 
Category 2 Entity, or any other entity that desires to clear the 
transaction.\43\ The Commission is proposing to afford swap 
transactions between these types of market participants 180 days to 
come into compliance with a clearing requirement. With respect to the 
trade execution requirement, the Commission proposes to phase in 
compliance with this requirement either at the same time as the 
clearing requirement or thirty days after the swap is made available 
for trading, whichever is later. In providing these market participants 
an additional 90 days to come into compliance, the Commission took into 
consideration the fact that Category 2 Entities may not be required to 
be registered with the Commission and may be less experienced and less 
frequent users of the swap markets than those in Category 1.
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    \43\ See footnote 42.
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    Additionally, Category 2 Entities may not have the same level of 
expertise and resources to bring their swaps into compliance with a 
clearing requirement as quickly as Category 1 Entities. As defined for 
purposes of these compliance schedules, Category 2 Entities do not 
include those financial entities that are third-party subaccounts, as 
described further below.
Phase 3--Third-Party Subaccounts and all Other Swap Transactions
    Finally, the Commission proposes to phase in compliance for all 
other swap transactions not excepted from the mandatory clearing 
requirement within 270 days after the Commission issues a clearing 
requirement. The Commission proposes to phase in compliance with the 
trade execution requirement either at the same time as the clearing 
requirement or thirty days after the swap is made available for 
trading, whichever is later.
    The Commission proposes to include all entities that are third-
party subaccounts in this 270-day period. This approach would give 
these entities the most time to bring their swaps into compliance 
because they are likely to require the most time for documentation, 
coordination, and management. A third-party subaccount is afforded 270 
days to bring its swaps into compliance because its portfolio is 
managed by an asset manager that may have to bring numerous accounts 
into compliance. The Commission also proposes to include any other swap 
transaction that would be subject to a clearing requirement into 
compliance within this proposed 270-day period.
    Under the Commission's proposed definition, a third-party 
subaccount would be a managed account that requires specific approval 
by the beneficial owner of the account to execute documentation 
necessary for executing, confirming, margining, or clearing swaps. By 
way of non-exclusive example, if investment management firm X manages 
the assets of pension fund Y, and does so in a separate account that 
requires the approval of pension fund Y to execute necessary 
documentation, then that account would be afforded 270 days to come 
into compliance. On the other hand, if pension fund Y manages its own 
assets, it would fall within Category 2 and be afforded 180 days to 
come into compliance. Likewise, if investment management firm X does 
not manage the assets of third parties, then it would fall within 
Category 2.
    The Commission is proposing to afford third-party subaccounts an 
additional 90 days beyond the 180 days proposed for Category 2 because 
such entities may have documentation obligations for hundreds or even 
thousands of third-party subaccounts, and each such account must meet 
the mandatory clearing and trading requirements. For example, according 
to a statement made during the Joint SEC-CFTC Roundtable by Mr. William 
DeLeon of the firm Pacific Investment Management Company, LLC (PIMCO), 
PIMCO manages hundreds of third-party subaccounts, as defined 
above.\44\ The proposed compliance schedules would not prohibit any 
type of market participant from voluntarily complying sooner than the 
compliance deadline. Indeed, the Commission would encourage market 
participants that can come into compliance more quickly to move their 
swaps into clearing and begin trading on trading platforms as soon as 
possible in order to facilitate development of infrastructure that 
takes into account the views of many types of market participants. As 
one commenter noted, ``Smaller entities, for example, may have unique 
issues that need to be accounted for before systems are hardwired. Many 
swap market participants are small entities; it is important to ensure 
that these entities and their liquidity are not squeezed out of the 
swaps market.'' \45\
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    \44\ Day 2 Roundtable Tr. at 62.
    \45\ Investment Company Institute, Jun. 10, 2011 letter, at 12.
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E. Prospective Application of Compliance Schedules

    The Commission anticipates that it will exercise its authority to 
trigger the proposed compliance schedules each time it issues a 
mandatory clearing determination for a new group, category, type, or 
class of swaps. Under this approach, when a DCO begins offering a new 
swap for clearing and it is in the same group, category, type, or class 
of swaps and it meets the requirements imposed under a previously 
issued mandatory clearing determination, then the proposed compliance 
schedules would not be triggered. However, if the Commission issues a 
mandatory clearing determination in any entirely new group, category, 
type, or class of

[[Page 58192]]

swaps then the compliance schedules could once again be triggered by 
the Commission. For example, if the Commission issues a mandatory 
clearing determination for 5 year credit default swap products and a 
new 5 year credit default swap product is offered for clearing based on 
a new 5 year index, then the proposed compliance schedules may not be 
triggered. If on the other hand, the Commission has not issued a 
mandatory clearing determination for 10 year credit default swap 
products and a new 10 year credit default swap product is offered for 
clearing, then the compliance schedules could be triggered by the 
Commission.
    When issuing a mandatory clearing determination, the Commission 
would set an effective date by which all market participants would have 
to comply. In other words, the proposed compliance schedules would be 
used only when the Commission believes that phasing is necessary based 
on the considerations outlined in this release. The Commission will 
provide the public with notice of its intent to rely upon the 
compliance schedule pursuant to the process outlined in Sec.  
39.5(b)(5).
    The Commission solicits comment on the ongoing usefulness of the 
proposed compliance schedules once market participants have established 
documentation and connectivity to DCOs, DCMs, and SEFs.

F. Comment Requested

    The Commission requests comment on all aspects of the proposed 
compliance schedules, Sec. Sec.  37.12, 38.11 and 39.5(e). The 
Commission may consider alternatives to the proposed compliance 
schedules and is requesting comment on the following questions:
     What, if any, other rules should have been taken into 
consideration when proposing an implementation schedule regarding the 
clearing and trade execution requirements? If applicable, how should 
the implementation requirements of those other rules be taken into 
consideration?
     Should there be a presumption that the Commission will 
rely on the compliance schedule for each mandatory clearing 
determination that it issues, unless the Commission finds that the 
compliance schedule is not necessary to achieve the benefits set forth 
herein (e.g., facilitating the transition to the new regulatory 
requirement established by the Dodd-Frank Act in an orderly manner that 
does not unduly disrupt markets and transactions)?
     What factors, if any, would prevent an entity in any of 
the proposed categories from adhering to the compliance schedules 
proposed by the Commission? How much additional time would be needed to 
address these factors?
     Are there other considerations that the Commission should 
have taken into account when designing this tiered implementation 
schedule? Are the timeframes outlined in this implementation schedule 
adequate? If not, what alternative schedule should the Commission 
consider, and why?
     Assuming a situation where a swap first becomes subject to 
the clearing requirement and then is made available for trading by a 
DCM or SEF, is an additional thirty days after the swap becomes made 
available for trading enough time for DCMs, SEFs, and market 
participants to come into compliance with the trade execution 
requirement? For example, would thirty days be sufficient for the 
needed technological linkages to be established between (i) the DCOs, 
DCMs, and SEFs and (ii) the DCMs, SEFs, and market participants.
     What other entities, if any, should be included in 
Category 1 or 2, and why? Should any entities be moved from Category 1 
or 2 to a later category? For example, where should the Commission 
place those entities described in section 2(h)(7)(C)(ii) of the CEA 
(e.g., small banks, savings associations, farm credit system 
institutions, and credit unions)?
     What adjustments to the compliance schedule and/or other 
steps could the Commission take to ensure there is adequate 
representation from all market participants at the outset of clearing 
and trade execution requirements?
     In suggesting phasing in transactions between Category 1 
or 2 Entities and ``any other entity that desires to clear the 
transaction,'' the Commission intended to facilitate clearing by 
counterparties that desire to comply with a clearing mandate earlier 
than they would otherwise be required to under the compliance schedule. 
Is there a better way to achieve this objective?
     Is an entity's average monthly swap transaction activity a 
useful proxy for that entity's ability to comply with the clearing and 
trade execution requirements? Or whether an entity is required to be 
registered with the Commission (rather than whether an entity is 
already registered with the Commission)?
     Is the Commission's definition of ``active fund'' overly 
inclusive or under-inclusive? Should the numerical threshold for number 
of monthly swap transactions be higher or lower than 20? If so, why? 
Should the number of monthly swap transactions be linked to swap 
activity in a particular asset class?
     Should the Commission exclude from the definition of 
``active fund'' any investment advisor of private funds acting solely 
as an advisor to private funds with assets under management in the 
United States of less than $150,000,000, as provided for in the 
reporting exemption for private funds under section 408 of the Dodd-
Frank Act?
     Would it be more appropriate for the Commission to measure 
a market participant's level of swap activity by measuring notional 
turnover and/or open exposure, as suggested by some commenters? \46\
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    \46\ Letter from Adam C. Cooper, Citadel, dated June 3, 2011, 
Appendix B.
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     Are there any anticompetitive implications to the proposed 
compliance schedules? If so, how could the proposed rules be 
implemented to achieve the purposes of the CEA in a less 
anticompetitive manner? If so, please quantify those costs, if 
possible, and provide underlying data sources, assumptions and 
calculations.
     Are there additional costs or benefits associated with the 
current proposal that the Commission has not already taken into 
account? Please discuss any such costs in detail and quantify in dollar 
terms, if possible.
     Are there any assumptions, including quantitative 
assumptions, underlying the Commission's cost benefit analysis that the 
Commission should consider?
     Should the Commission consider an alternative 
implementation schedule? Would such an alternative schedule reduce the 
costs market participants bear? Please describe any such alternative 
implementation schedule in detail, including how it will reduce costs 
and the benefits it will likely deliver. If possible, please quantify 
the cost and benefits associated with any alternative. If providing 
dollar values, please describe any data sources, assumptions, and 
calculations used to generate them.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires that agencies consider 
whether the rules they propose will have a significant economic impact 
on a substantial number of small entities and, if so, provide a 
regulatory flexibility analysis respecting the impact.\47\ The rules 
proposed by the CFTC provide compliance schedules for

[[Page 58193]]

certain new statutory requirements of the Dodd Frank Act and do not by 
themselves impose significant new regulatory requirements. Accordingly, 
the Chairman, on behalf of the CFTC, hereby certifies pursuant to 5 
U.S.C. 605(b) that the proposed rules will not have a significant 
economic impact on a substantial number of small entities. The CFTC 
invites public comment on this determination.
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    \47\ 5 U.S.C. 601 et seq.
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B. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) \48\ imposes certain requirements 
on federal agencies (including the Commission) in connection with 
conducting or sponsoring any collection of information as defined by 
the PRA. This notice of proposed rulemaking, if approved, would not 
require a new collection of information from any persons or entities.
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    \48\ 44 U.S.C. 3507(d).
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C. Consideration of Costs and Benefits

    Section 15(a) of the CEA \49\ requires the Commission to consider 
the costs and benefits of its action before promulgating a regulation 
under the CEA. Section 15(a) of the CEA specifies that the costs and 
benefits shall be evaluated in light of five broad areas of market and 
public concern: (1) Protection of market participants and the public; 
(2) efficiency, competitiveness and financial integrity of futures 
markets; (3) price discovery; (4) sound risk management practices; and 
(5) other public interest considerations. The Commission may in its 
discretion give greater weight to any one of the five enumerated areas 
and could in its discretion determine that, notwithstanding its costs, 
a particular regulation is necessary or appropriate to protect the 
public interest or to effectuate any of the provisions or accomplish 
any of the purposes of the Act.
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    \49\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    The purpose of the proposed compliance schedules is to afford 
market participants adequate time to comply with the clearing 
requirement under section 2(h)(1)(A) of the CEA and the trade execution 
requirements under section 2(h)(8). Without the proposed compliance 
schedules, market participants could be required to comply with the 
clearing requirement immediately upon issuance of a mandatory clearing 
determination by the Commission, and market participants could be 
required to comply with the trade execution requirement when (1) The 
Commission has issued a determination that the swap is required to be 
cleared and (2) any DCM or SEF has made the swap available to trade.
    The Commission recognizes that requiring such immediate compliance 
with the clearing and trade execution requirements may impose costs on 
market participants, particularly for market participants that may not 
be registered with the Commission and those market participants that 
have hundreds or thousands of third-party subaccounts to bring into 
compliance with the new requirements under section 2(h) of the CEA.\50\ 
Accordingly, the Commission's proposal provides substantial benefits in 
that it affords market participants additional time to document new 
clearing arrangements, connect to market infrastructures, and prepare 
themselves and their customers for the new regulatory requirements. The 
Commission believes that such an approach will help protect the public 
interest by facilitating an orderly transition to a new regulatory 
environment.
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    \50\ E.g., Letter from Richard H. Baker, Managed Funds 
Association, dated Mar. 24, 2011 at Appendix 1, page 1.
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1. Protection of Market Participants and the Public
    In devising the proposed compliance schedules, the Commission 
sought to balance the goal of protecting the public by bringing market 
participants into compliance with the clearing and trade execution 
requirements for swaps as quickly as possible while affording market 
participants adequate time to come into compliance.
    Market participants in Category 1 (e.g., SDs, MSPs, and active 
funds) are likely to be among the most experienced and active 
participants with the resources needed to come into compliance with the 
clearing and trading requirements more quickly.\51\ The swaps entered 
into by these market participants are likely to represent a significant 
portion of the total swap market volume. As a result, moving these 
transactions into central clearing and onto trading platforms before 
those of Category 2 and 3 Entities would provide additional protection 
for the public by ensuring that the most active participants in the 
swap market come into compliance as soon as possible, thus mitigating 
risk and promoting transparency in significant portions of the swap 
market.
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    \51\ In a letter from the Financial Services Forum, Futures 
Industry Association, International Swaps and Derivatives 
Association, and Securities Industry and Financial Markets 
Association, dated May 4, 2011, commenters noted that ``market 
participants vary dramatically in their resources, market 
sophistication and rationale for using Swaps. Swap Entities, in 
general, have greater resources, access to technology and clearing 
infrastructure than their end user counterparties.''
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    By requiring Category 2 Entities to comply within 180 days, the 
Commission is seeking to balance the needs of those market participants 
that are not registered with the Commission and may not be as active in 
the swap market with the public interest of bringing all market 
participants into compliance as soon as possible.
    The market participants in Category 2 are likely to be less 
experienced and less active participants than those in Category 1. To 
the extent these market participants are less active in the swap 
markets the balance between moving their transactions into central 
clearing and onto trading platforms and giving them additional time to 
comply with the new requirements, tips in favor of the latter approach. 
Additionally, these entities may not have the same level of resources 
as Category 1 Entities. Therefore, they will benefit from the 
opportunity to document new clearing arrangements, connect to market 
infrastructures, and prepare themselves and their customers for the new 
regulatory requirements by considering examples of how Category 1 
Entities have met these requirements.
    It should be noted that Category 2 Entities and other market 
participants wanting to come into compliance before their respective 
compliance schedule deadlines in order to take advantage of the risk-
mitigating benefits of central clearing and executing swaps on trading 
platforms are allowed, and encouraged, to do so.
    Entities that are third-party subaccounts have the additional 
challenge of transitioning hundreds, and in some cases, thousands of 
subaccounts into compliance with the clearing and trade execution 
requirements. This process may require that these entities negotiate 
and formalize new agreements with each of their customers. In order to 
accomplish this they also will need to educate their customers about 
how clearing and trade execution requirements will affect the costs and 
processes associated with their accounts. Each of these tasks requires 
time. By giving third-party subaccounts 270 days to come into 
compliance, the Commission seeks to balance the need of these entities 
and their customers for additional time with the benefits of reducing 
risks in the swap market and protecting the public as quickly as 
possible.
    It may be that the Category 1 Entities that constitute the first 
phase under the proposed compliance schedules will bear a larger 
proportion of the ``start-up''

[[Page 58194]]

costs associated with implementing the clearing and trade execution 
requirements. They are the entities likely to expend the most resources 
documenting new clearing arrangements, connecting to market 
infrastructures, and preparing themselves and their customers for the 
new regulatory requirements. The Commission is aware of these costs and 
believes that it is appropriate for the entities that are likely to be 
among the most active participants in these markets to shoulder a 
larger percentage of these start-up costs.
2. Efficiency, Competitiveness, and Financial Integrity of the Markets
    By necessity, the first group of market participants that are 
required to comply with the clearing and trade execution requirements, 
along with DCOs, DCMs, and SEFs, are likely to work together to 
establish methods for compliance that other market participants may 
later consider. The experience with swaps that the first group of 
market participants brings to this process should help to ensure the 
integrity and effectiveness of their solutions. These solutions will 
likely be helpful to other market participants that comply later. For 
example,