Amendment to Rule Filing Requirements for Dually-Registered Clearing Agencies, 21046-21058 [2013-08141]
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Federal Register / Vol. 78, No. 68 / Tuesday, April 9, 2013 / Rules and Regulations
List of Subjects in 17 CFR part 23
Antitrust, Commodity futures,
Conduct standards, Conflict of interests,
Major swap participants, Reporting and
recordkeeping, Swap dealers, Swaps.
Accordingly, 17 CFR part 23 is
corrected by making the following
correcting amendments:
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 240 and 249
[Release No. 34–69284; File No. S7–29–11]
RIN 3235–AL18
Amendment to Rule Filing
Requirements for Dually-Registered
Clearing Agencies
PART 23—SWAP DEALERS AND
MAJOR SWAP PARTICIPANTS
■
1. The authority citation for Part 23
continues to read as follows:
AGENCY:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b–
1, 6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c,
16a, 18, 19, 21.
ACTION:
Securities and Exchange
Commission.
2. In § 23.505, revise paragraphs (a)
introductory text, (a)(2), and (a)(5) to
read as follows:
■
§ 23.505 End user exception
documentation.
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(a) For swaps excepted from a
mandatory clearing requirement. Each
swap dealer and major swap participant
shall obtain documentation sufficient to
provide a reasonable basis on which to
believe that its counterparty meets the
statutory conditions required for an
exception from a mandatory clearing
requirement, as defined in section 2h(7)
of the Act and § 50.50 of this chapter.
Such documentation shall include:
*
*
*
*
*
(2) That the counterparty has elected
not to clear a particular swap under
section 2h(7) of the Act and § 50.50 of
this chapter;
*
*
*
*
*
(5) That the counterparty generally
meets its financial obligations
associated with non-cleared swaps.
Provided, that a swap dealer or major
swap participant need not obtain
documentation of paragraphs (a)(3), (4),
or (5) of this section if it obtains
documentation that its counterparty has
reported the information listed in
§ 50.50(b)(1)(iii) in accordance with
§ 50.50(b)(2) of this chapter.
*
*
*
*
*
Issued in Washington, DC, on April 4,
2013, by the Commission.
Christopher J. Kirkpatrick,
Deputy Secretary of the Commission.
[FR Doc. 2013–08197 Filed 4–8–13; 8:45 am]
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Final rule.
SUMMARY: The Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
is affirming recent amendments to Rule
19b–4 under the Securities Exchange
Act of 1934 (‘‘Exchange Act’’) in
connection with filings of proposed rule
changes by certain registered clearing
agencies and is expanding on those
amendments in response to comments
received (collectively, ‘‘Final Rule’’).
The Commission also is making
corresponding technical modifications
to the General Instructions for Form
19b–4 under the Exchange Act. The
amendments to Rule 19b–4 and the
instructions to Form 19b–4 are intended
to streamline the rule filing process in
areas involving certain activities
concerning non-security products that
may be subject to duplicative or
inconsistent regulation as a result of, in
part, certain provisions under Section
763(b) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of
2010 (‘‘Dodd-Frank Act’’).
DATES:
Effective June 10, 2013.
FOR FURTHER INFORMATION CONTACT:
Joseph P. Kamnik, Assistant Director;
Gena Lai, Senior Special Counsel; and
Neil Lombardo, Attorney, Office of
Clearance and Settlement, Division of
Trading and Markets, Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549–7010 at (202)
551–5710.
The
Commission is adopting a Final Rule
that affirms and expands upon recent
amendments to Rule 19b–4 under the
Exchange Act concerning categories of
proposed rule changes that qualify for
effectiveness upon filing under Section
19(b)(3)(A) of the Exchange Act. The
Commission also is making a
corresponding technical modification to
the General Instructions for Form 19b–
4 under the Exchange Act.
SUPPLEMENTARY INFORMATION:
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I. Introduction
A. Background on the Commission’s
Process for Proposed Rule Changes
Section 19(b)(1) of the Exchange Act 1
requires each self-regulatory
organization (‘‘SRO’’), including any
Registered Clearing Agency,2 to file with
the Commission copies of any proposed
rule or any proposed change in,
addition to, or deletion from the rules of
such SRO (collectively, ‘‘proposed rule
change’’),3 which must be submitted on
Form 19b–4 4 in accordance with the
General Instructions thereto. Once a
proposed rule change has been filed, the
Commission is required to publish it in
the Federal Register to provide an
opportunity for public comment.5 A
proposed rule change generally may not
take effect unless the Commission
approves it,6 or it otherwise becomes
effective under Section 19(b).7
Section 19(b)(2) of the Exchange Act
sets forth the standards and time
periods for Commission action either to
approve, disapprove, or institute
proceedings to determine whether the
proposed rule change should be
disapproved.8 The Commission must
approve a proposed rule change if it
1 15
U.S.C. 78s(b)(1).
Section 3(a)(26) of the Exchange Act, 15
U.S.C. 78c(a)(26) (defining the term ‘‘self-regulatory
organization’’ to mean any national securities
exchange, registered securities association,
registered clearing agency, and, for purposes of
Section 19(b) and other limited purposes, the
Municipal Securities Rulemaking Board) (emphasis
added).
3 15 U.S.C. 78s(b)(1). Section 3(a)(27) of the
Exchange Act defines ‘‘rules’’ to include ‘‘the
constitution, articles of incorporation, bylaws, and
rules, or instruments corresponding to the foregoing
* * * and such of the stated policies, practices, and
interpretations of such exchange, association, or
clearing agency as the Commission, by rule, may
determine to be necessary or appropriate in the
public interest or for the protection of investors to
be deemed to be rules of such exchange,
association, or clearing agency.’’ 15 U.S.C.
78c(a)(27). Rule 19b–4(b) under the Exchange Act
defines ‘‘stated policy, practice, or interpretation’’
to mean, in part, ‘‘[a]ny material aspect of the
operation of the facilities of the self-regulatory
organization’’ or ‘‘[a]ny statement made generally
available’’ that ‘‘establishes or changes any
standard, limit, or guideline’’ with respect to the
‘‘rights, obligations, or privileges’’ of persons or the
‘‘meaning, administration, or enforcement of an
existing rule.’’ 17 CFR 240.19b–4(b).
4 See 17 CFR 249.819.
5 See 15 U.S.C. 78s(b)(1). The SRO is required to
prepare the notice of its proposed rule change on
Exhibit 1 of Form 19b–4 that the Commission then
publishes in the Federal Register.
6 See 15 U.S.C. 78s(b)(2). However, as provided in
Section 19(b)(2)(D) of the Exchange Act, 15 U.S.C.
78s(b)(2)(D), a proposed rule change shall be
‘‘deemed to have been approved by the
Commission’’ if the Commission does not take
action on a proposal that is subject to Commission
approval within the statutory time frames specified
in Section 19(b)(2).
7 See, e.g., 15 U.S.C. 78s(b)(3)(A).
8 See 15 U.S.C. 78s(b)(2).
2 See
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finds that the underlying rule change is
consistent with the requirements of the
Exchange Act and the rules and
regulations thereunder applicable to the
SRO proposing the rule change.9
At the same time, Section 19(b)(3)(A)
of the Exchange Act provides that a
proposed rule change may become
effective upon filing with the
Commission, without pre-effective
notice and opportunity for comment, if
it is appropriately designated by the
SRO as: (i) Constituting a stated policy,
practice, or interpretation with respect
to the meaning, administration, or
enforcement of an existing rule of the
SRO; (ii) establishing or changing a due,
fee, or other charge imposed by the SRO
on any person, whether or not the
person is a member of the SRO; or (iii)
relating solely to the administration of
the SRO.10
Section 19(b)(3)(B) of the Exchange
Act also separately provides that a
proposed rule change may be put into
effect summarily if it appears to the
Commission that such action is
necessary for the protection of investors,
the maintenance of fair and orderly
markets, or the safeguarding of
securities or funds, and provides that
any proposed rule change so put into
effect shall be filed promptly thereafter
with the Commission under Section
19(b)(1) of the Exchange Act.11
Accordingly, a proposed rule change
put into effect summarily under Section
19(b)(3)(B) of the Exchange Act is also
subject to the procedures of Section
19(b)(2) of the Exchange Act—in other
words, that it is summarily effective
only until such time as the Commission:
(i) enters an order, pursuant to Section
19(b)(2)(A) of the Act, to approve or
disapprove such proposed rule change;
or (ii) institutes proceedings to
determine whether the proposed rule
change should be disapproved.12
Under Section 19(b)(3)(C) of the
Exchange Act, the Commission
summarily may temporarily suspend a
proposed rule change of an SRO that has
taken effect pursuant to either Section
19(b)(3)(A) or 19(b)(3)(B) of the
Exchange Act within sixty days of its
filing if it appears to the Commission
that such action is necessary or
appropriate in the public interest, for
the protection of investors, or otherwise
in furtherance of the purposes of the
Exchange Act.13 If the Commission takes
9 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(3)(A).
11 15 U.S.C. 78s(b)(3)(B).
12 See Securities Exchange Act Release Nos.
11461 (June 11, 1975); 11554 (July 28, 1975); 11555
(July 28, 1975); and 11556 (July 28, 1975). See also
17 CFR 249.819.
13 15 U.S.C. 78s(b)(3)(C).
10 15
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such action, it is then required to
institute proceedings to determine
whether the proposed rule change
should be approved or disapproved.14
In addition to the matters expressly
set forth in the statute, Section
19(b)(3)(A) also provides the
Commission with the authority, by rule
and when consistent with the public
interest, to designate other types of
proposed rule changes that may be
effective upon filing with the
Commission.15 The Commission has
previously used this authority to
designate, under Rule 19b–4 of the
Exchange Act, certain rule changes that
qualify for effectiveness upon filing
under Section 19(b)(3)(A).16 On July 7,
2011, the Commission adopted an
interim final rule (‘‘Interim Final Rule’’)
to amend Rule 19b–4 to include in the
list of categories that qualify for
effectiveness upon filing under Section
19(b)(3)(A) of the Exchange Act any
matter effecting a change in an existing
service of a Registered Clearing Agency
that (i) primarily affects the futures
clearing operations of the clearing
agency with respect to futures that are
not security futures and (ii) does not
significantly affect any securities 17
14 Id. Temporary suspension of a proposed rule
change and any subsequent action to approve or
disapprove such change shall not affect the validity
or force of the rule change during the period it was
in effect and shall not be reviewable under Section
25 of the Exchange Act, nor shall it be deemed to
be ‘‘final agency action’’ for purposes of 5 U.S.C.
704. Id.
15 15 U.S.C. 78s(b)(3)(A).
16 For example, Rule 19b–4(f) under the Exchange
Act currently permits SROs to declare rule changes
to be immediately effective pursuant to Section
19(b)(3)(A) if properly designated by the SRO as: (i)
Effecting a change in an existing service of a
Registered Clearing Agency that: (A) does not
adversely affect the safeguarding of securities or
funds in the custody or control of the clearing
agency or for which it is responsible; and (B) does
not significantly affect the respective rights or
obligations of the clearing agency or persons using
the service; (ii) effecting a change in an existing
order-entry or trading system of an SRO that: (A)
does not significantly affect the protection of
investors or the public interest; (B) does not impose
any significant burden on competition; and (C) does
not have the effect of limiting the access to or
availability of the system; or (iii) effecting a change
that: (A) does not significantly affect the protection
of investors or the public interest; (B) does not
impose any significant burden on competition; and
(C) by its terms, does not become operative for 30
days after the date of the filing, or such shorter time
as the Commission may designate if consistent with
the protection of investors and the public interest;
provided that the SRO has given the Commission
written notice of its intent to file the proposed rule
change, along with a brief description and text of
the proposed rule change, at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. See 17 CFR 240.19b–4(f).
17 Section 3(a)(10) of the Exchange Act defines
‘‘security’’ to include ‘‘any note, stock, treasury
stock, security future, bond, debenture, certificate of
interest or participation in any profit-sharing
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21047
clearing operations of the clearing
agency or any related rights or
obligations of the clearing agency or
persons using such service.18 The
Interim Final Rule also made
corresponding technical modifications
to the General Instructions for Form
19b–4. These actions were intended to
provide a streamlined process for
making effective, subject to certain
conditions, proposed rule changes that
primarily concern the futures clearing
operations of a Registered Clearing
Agency and are not linked to securities
clearing operations.
B. Clearing Agencies Deemed Registered
Under the Dodd-Frank Act
Section 763(b) of the Dodd-Frank
Act 19 provides that (i) a depository
institution registered with the
Commodities Futures Trading
Commission (‘‘CFTC’’) that cleared
swaps as a multilateral clearing
organization prior to the date of
enactment of the Dodd-Frank Act and
(ii) a derivatives clearing organization
(‘‘DCO’’) registered with the CFTC that
cleared swaps pursuant to an exemption
from registration as a clearing agency
prior to the date of enactment of the
Dodd-Frank Act will be deemed
registered with the Commission as a
clearing agency solely for the purpose of
clearing security-based swaps (‘‘Deemed
Registered Provision’’).20 On July 16,
2011, the Deemed Registered Provision,
along with other general provisions
agreement or in any oil, gas, or other mineral
royalty or lease, any collateral-trust certificate,
preorganization certificate or substitution,
transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, any
put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of
securities (including any interest therein or based
on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national
securities exchange relating to foreign currency, or,
in general, any instrument commonly known as a
‘security’; or any certificate of interest or
participation in, temporary or interim certificate for,
receipt for, or warrant or right to subscribe to or
purchase, any of the foregoing * * *.’’ 15 U.S.C.
78c(a)(10).
18 See Amendment to Rule Filing Requirements
for Dually-Registered Clearing Agencies, Securities
Exchange Act Release No. 34–64832 (July 7, 2011),
76 FR 41056 (July 13, 2011).
19 The Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203, 124
Stat. 1376 (2010).
20 See Section 763(b) of the Dodd-Frank Act
(adding new Section 17A(l) to the Exchange Act, 15
U.S.C. 78q–1(1)). Under this Deemed Registered
Provision, each of the Chicago Mercantile Exchange
Inc. (‘‘CME’’), ICE Clear Europe Limited (‘‘ICE Clear
Europe’’) and ICE Clear Credit LLC (‘‘ICC’’), as the
successor entity of ICE Trust US LLC, became
Registered Clearing Agencies solely for the purpose
of clearing security-based swaps. Registered
Clearing Agencies that currently conduct a swaps
or a futures business are The Options Clearing
Corporation (‘‘OCC’’), CME, ICE Clear Europe and
ICC.
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Federal Register / Vol. 78, No. 68 / Tuesday, April 9, 2013 / Rules and Regulations
under Title VII of the Dodd-Frank Act,
became effective,21 thereby requiring
each affected clearing agency to comply
with all requirements of the Exchange
Act and the rules and regulations
thereunder applicable to Registered
Clearing Agencies including, for
example, the obligation to file proposed
rule changes under Section 19(b) of the
Exchange Act. The clearing of swaps,22
futures, options on futures, and
forwards is generally regulated by the
CFTC in connection with its oversight
and supervision of DCOs. DCOs are
generally permitted to implement rule
changes by self-certifying that the new
rule complies with the CEA and the
CFTC’s regulations.23 The changes
effected by the Interim Final Rule were
intended to eliminate unnecessary
delays that could arise due to the
differences between the Commission’s
rule filing process and the CFTC’s selfcertification process, which generally
allows rule changes to become effective
either before or within ten days after
filing.24
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C. The Interim Final Rule
The Interim Final Rule amended Rule
19b–4 to expand the list of categories
that qualify for effectiveness
immediately upon filing pursuant to
Section 19(b)(3)(A) of the Exchange Act
to include proposed rule changes made
by Registered Clearing Agencies with
respect to certain futures clearing
operations.25 Specifically, the Interim
Final Rule amended Rule 19b–4(f)(4)(ii)
to allow a proposed rule change
concerning futures clearing operations
21 Section 774 of the Dodd-Frank Act states,
‘‘[u]nless otherwise provided, the provisions of this
subtitle shall take effect on the later of 360 days
after the date of the enactment of this subtitle or,
to the extent a provision of this subtitle requires a
rulemaking, not less than 60 days after publication
of the final rule or regulation implementing such
provision of this subtitle.’’
22 Section 721 of the Dodd-Frank Act amended
Section 1a of the Commodity Exchange Act (‘‘CEA’’)
to define the term ‘‘swap.’’ Among other things, the
definition of ‘‘swap’’ specifically excludes any
security-based swap other than a mixed swap. 7
U.S.C. 1a(47)(B)(x). See also Further Definition of
‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘SecurityBased Swap Agreement’’; Mixed Swaps; SecurityBased Swap Agreement Recordkeeping, 77 FR
48207 (August 13, 2012) (‘‘Adopting Release’’); 76
FR 29818 (May 23, 2011) (‘‘Proposing Release’’).
23 See 7 U.S.C. 7a–2(c) and 17 CFR 40.6.
24 See 7 U.S.C. 7a–2(c) and 17 CFR 40.6.
25 When an SRO designates a proposed rule
change as becoming effective upon filing with the
Commission pursuant to Section 19(b)(3)(A) of the
Exchange Act, the Commission has the power
summarily to temporarily suspend the change
within sixty days of its filing if it appears to the
Commission that such action is necessary or
appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the
purposes of the Exchange Act. See 15 U.S.C.
78s(b)(3)(A). See also supra note 14 and
accompanying text.
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filed by a Registered Clearing Agency to
take effect upon filing with the
Commission pursuant to Section
19(b)(3)(A) so long as it is properly
designated by the Registered Clearing
Agency as effecting a change in a service
of the Registered Clearing Agency that
meets two conditions.26 The first
condition, set forth in Interim Final
Rule 19b–4(f)(4)(ii)(A), is that the
proposed rule change must primarily
affect the futures clearing operations of
the clearing agency with respect to
futures that are not security futures.27
For purposes of this requirement, a
Registered Clearing Agency’s ‘‘futures
clearing operations’’ includes any
activity that would require the
Registered Clearing Agency to register
with the CFTC as a DCO in accordance
with the CEA.28 In addition, to
‘‘primarily affect’’ such futures clearing
operations means that the proposed rule
change is targeted to affect matters
related to the clearing of futures
specifically, and that any effect on other
clearing operations would be incidental
in nature and not significant in extent.
Because a security futures product is a
security for purposes of the Exchange
Act,29 a Registered Clearing Agency may
not invoke Rule 19b–4(f)(4)(ii) to
designate proposed rule changes
concerning the agency’s security futures
operations as taking effect upon filing
with the Commission pursuant to
Section 19(b)(3)(A). Instead, the
Commission reviews such proposed rule
changes in accordance with Section
19(b)(2), unless there is another basis for
26 17 CFR 240.19b–4(f)(4)(ii) (as amended by the
Interim Final Rule).
27 17 CFR 240.19b–4(f)(4)(ii)(A) (as amended by
the Interim Final Rule). For example, rules of
general applicability that apply equally to securities
clearing operations, including security-based
swaps, would not be considered to primarily affect
such futures clearing operations. In addition,
changes to general provisions in the constitution,
articles, or bylaws of the Registered Clearing
Agency that address the operations of the entire
clearing agency would not be considered to
primarily affect such futures clearing operations.
See Interim Final Rule, Securities Exchange Act
Release No. 64832 (July 7, 2011), 76 FR 41056,
41058 (July 13, 2011).
28 See 7 U.S.C. 7a–1 (providing that it shall be
unlawful for a DCO, unless registered with the
CFTC, directly or indirectly to make use of the
mails or any means or instrumentality of interstate
commerce to perform the functions of a DCO (as
described in 7 U.S.C. 1a(9)) with respect to a
contract of sale of a commodity for future delivery
(or option on such a contract) or option on a
commodity, in each case unless the contract or
option is (i) otherwise excluded from registration in
accordance with certain sections of the CEA or (ii)
a security futures product cleared by a Registered
Clearing Agency); see also Interim Final Rule,
Securities Exchange Act Release No. 64832 (July 7,
2012), 76 FR 41056, 41058 (July 13, 2011).
29 15 U.S.C. 78c(a)(10).
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the change to be filed under Section
19(b)(3)(A).
The second condition, contained in
Interim Final Rule 19b–4(f)(4)(ii)(B), is
that the proposed rule change must not
significantly affect any securities
clearing operations of the clearing
agency or any related rights or
obligations of the clearing agency or
persons using such service.30 The
phrase ‘‘significantly affect’’ is used
elsewhere in Rule 19b–4 in the context
of defining other categories of proposed
rule changes that qualify for
effectiveness upon filing under Section
19(b)(3)(A) of the Exchange Act.31
Accordingly, ‘‘significantly affect’’ has
the same meaning and interpretation as
that phrase has in Rules 19b–4(f)(4)(i)
(as amended by the Interim Final Rule),
19b–4(f)(5), and 19b–4(f)(6). The
Commission believes that a Registered
Clearing Agency’s ‘‘securities clearing
operations * * * or any related rights or
obligations of the clearing agency or
persons using such service’’ would
include activity that would require the
Registered Clearing Agency to register as
a clearing agency in accordance with the
Exchange Act.
II. Final Rule
A. Comments Received on the Interim
Final Rule
The Commission received three
comment letters on the Interim Final
Rule.32 Two commenters urged the
Commission to modify the Interim Final
Rule to broaden the list of rule changes
that qualify for effectiveness upon filing
pursuant to Section 19(b)(3)(A) to
include changes related to all products
that are regulated by the CFTC.33
In their comment letters, both CME
and ICE Clear Europe urged the
Commission to expand Rule 19b–
4(f)(4)(ii) to include proposed rule
changes related to the swaps clearing
30 17 CFR 240.19b–4(f)(4)(ii)(B) (as amended by
the Interim Final Rule).
31 See, e.g., 17 CFR 240.19b–4(f)(4)(i) (as amended
by the Interim Final Rule) (in respect of a proposed
rule change in an existing service of a Registered
Clearing Agency that: (1) Does not adversely affect
the safeguarding of securities or funds in the
custody or control of the clearing agency or for
which it is responsible and (2) does not
significantly affect the respective rights or
obligations of the clearing agency or persons using
the service); see also Interim Final Rule, Securities
Exchange Act Release No. 64832 (July 7, 2012), 76
FR 41056, 41059 (July 13, 2011).
32 Copies of comments received on the proposal
are available on the Commission’s Web site at:
https://www.sec.gov/comments/s7-29-11/
s72911.shtml.
33 See, e.g., comment letter of Craig Donohue,
Chief Executive Office, CME Group, Inc. (Sep. 15,
2011) (‘‘CME Letter’’) and comment letter of
Shearman & Sterling LLP, on behalf of ICE Clear
Europe Limited (Sept. 15, 2011) (‘‘ICE Clear Europe
Letter’’).
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operations of a Registered Clearing
Agency.34 In particular, CME noted that
its current business involves the
clearing of both futures and swaps,
including agricultural swaps, interest
rate swaps, certain over-the-counter
(‘‘OTC’’) commodity products
(including gold forwards and freight
forwards) and, potentially, energy and
foreign exchange swaps.35 CME raised
concerns that, by omitting swaps and
certain other OTC products from the
types of products covered by Rule 19b–
4(f)(4)(ii), it is ‘‘now subject to
substantial potential delays’’ when
implementing rule changes that deal
with products over which the
Commission is not its primary
regulator.36 ICE Clear Europe raised
similar concerns with respect to its nonsecurity-based swaps business,
particularly its longstanding energy
derivatives clearing business.37
Specifically, ICE Clear Europe requested
that Rule 19b–4(f)(4)(ii) be expanded to
include proposed rule changes that
relate solely to swaps, and are not
related to security-based swaps.38
CME also requested that the
Commission revise Rule 19b–4(f)(4)(ii)
generally such that only proposed rule
changes that relate directly to
security-based swap clearing activities
would be subject to the Commission’s
review in accordance with Section
19(b)(2).39 CME further requested that
Rule 19b–4(f)(4)(ii) permit proposed
rule change filings to be made pursuant
to Section 19(b)(3)(A) with respect to
‘‘rules of general applicability for
product categories, such as [credit
default swaps], where clearing is offered
for both swaps and security-based
swaps’’ and that a Section 19(b)(2) filing
not be required for any other swap or
‘‘OTC product categories with no direct
or significant impact on security-based
swaps,’’ and should also not be required
for ‘‘broad rules of general applicability
as to clearing operations that will not
have any particular or significant impact
on security-based swaps clearing.’’ 40
34 See
35 See
CME Letter and ICE Clear Europe Letter.
CME Letter.
36 Id.
37 See
ICE Clear Europe Letter.
38 Id.
39 See
CME Letter.
In its comment letter, CME noted that
Executive Order 13563, which the President signed
on January 18, 2011, requires, among other things,
that all executive branch agencies identify and
consider regulatory approaches that reduce burdens
and maintain flexibility and freedom of choice for
the public, in each case where relevant, feasible,
and consistent with regulatory objectives, and to the
extent permitted by law. While this order does not
apply to independent agencies, the President
separately signed Executive Order 13579 on July 11,
2011, which requires each independent agency to
develop and release a public plan to periodically
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40 Id.
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CME stated that, at present, its entire
business, including the clearing of
credit default swaps on broad-based
indices, falls under the exclusive
jurisdiction of the CFTC, and that the
effect of the Interim Final Rule has been
to replace the rule filing regime of the
CEA with the pre-approval rule filing
regime of the Exchange Act. CME stated
that it believes the Deemed Registered
Provision was intended to allow
clearing agencies already authorized to
clear and engaged in the clearing of
credit default swaps and other products
under the authority of the CFTC to
continue to do so without undue
disruption to its service offerings, and
that Congress did not intend to change
this fundamental division of
responsibilities.
B. Amendments to the Interim Final
Rule
The Commission hereby affirms the
amendments effected by the Interim
Final Rule. As set forth herein, and after
giving consideration to the comments
received concerning the Interim Final
Rule, the Commission is hereby
modifying Rule 19b–4(f)(4)(ii) in two
further respects.
1. Inclusion of Other Products That Are
Not Securities, Including Certain Swaps
and Forwards 41
First, the Commission is revising Rule
19b–4(f)(4)(ii) to add certain rule
changes primarily affecting a Registered
Clearing Agency’s clearing operations
for other non-securities products to the
review its existing significant regulations ‘‘to
determine whether any such regulations should be
modified, streamlined, expanded, or repealed so as
to make the agency’s regulatory program more
effective or less burdensome in achieving the
regulatory objectives.’’ The Commission notes that
the purpose of Rule 19b–4(f)(4)(ii) is to reduce
burdens that would otherwise apply to Registered
Clearing Agencies by virtue of certain statutory
provisions contained in the Exchange Act, as
amended by the Dodd-Frank Act. Specifically, the
Final Rule permits Registered Clearing Agencies to
submit to the Commission for effectiveness upon
filing proposed rule changes that effect changes in
their existing services that primarily affect their
clearing of products that are not securities,
including futures that are not security futures,
swaps that are not securities-based swaps or mixed
swaps, and forwards that are not security forwards,
and that and do not significantly affect the clearing
agency’s securities clearing operations or the rights
or obligations of the clearing agency with respect
to securities clearing or persons using such
securities clearing services.
41 Section 721 of the Dodd-Frank Act defines the
term ‘‘swap’’ broadly to encompass a variety of
derivatives products. The definition includes, for
example, interest rate swaps, commodity swaps,
currency swaps, equity swaps, and credit default
swaps. It also extends to certain types of forward
contracts, as well as certain types of options, but
excludes, among other things, options on any
security or group or index of securities, including
any interest therein or based on the value thereof.
See 7 U.S.C. 1a(47).
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list of changes that qualify for
effectiveness upon filing pursuant to
Section 19(b)(3)(A). In particular, in
response to commenters,42 the
Commission is broadening Rule 19b–
4(f)(4)(ii)(A) to encompass proposed
rule changes that primarily affect not
only a Registered Clearing Agency’s
clearing of futures that are not security
futures, but also other products that are
not securities, including swaps that are
not security-based swaps 43 or mixed
swaps,44 and forwards that are not
security forwards.45 The Commission
believes that also including proposed
rule changes that primarily affect a
Registered Clearing Agency’s clearing
operations with respect to these nonsecurities products in the list of changes
that would qualify for effectiveness
upon filing under Section 19(b)(3)(A) is
consistent with the Commission’s
purposes for initially amending Rule
19b–4 pursuant to the Interim Final
Rule. Specifically, this approach should
help limit potential delays to the
effectiveness of rule changes that
primarily concern a Registered Clearing
Agency’s clearing operations with
respect to products that are not
securities, including futures that are not
security futures, swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards, subject to the limitations
contained in Rule 19b–4(f)(4)(ii)(B).46
For purposes of Rule 19b–
4(f)(4)(ii)(A), a Registered Clearing
Agency’s clearing operations with
42 See
CME Letter and ICE Clear Europe Letter.
15 U.S.C. 78(c)(68).
44 See 15 U.S.C. 78(c)(68)(D).
45 The Commission notes that it would not regard
a clearing agency’s filing of proposed rule changes
relating to a product the legal status of which may
not be clear pursuant to Section 19(b)(2) or Section
19(b)(3)(B) of the Act as a determination or
presumption by the clearing agency that such
proposed rule changes involve products that are
securities. Similarly, the Commission’s acceptance
of proposed rule changes for filing under paragraph
(f)(4)(ii) would not constitute a presumption or
determination by the Commission that the products
involved are not securities. The Commission also
notes that Section 718 of the Dodd-Frank Act
(‘‘Section 718’’) established a process through
which the Commission and the CFTC could work
together to determine the status of ‘‘novel derivative
products’’ that may have elements of both securities
and contracts of sale of a commodity for future
delivery (or options on such contracts or options on
commodities). In this regard, the Commission notes
that the filing of a proposed rule change pursuant
to Section 19(b)(2) or Section 19(b)(3)(B) of the Act,
or paragraph (f)(4)(ii), would not be considered a
notice under Section 718 to the Commission.
46 17 CFR 240.19b–4(f)(ii)(B) (providing, as the
second condition for satisfying Rule 19b–4(f)(ii),
that the proposed rule change ‘‘[d]oes not
significantly affect any securities clearing
operations of the clearing agency or any rights or
obligations of the clearing agency with respect to
securities clearing or persons using such securitiesclearing service.’’).
43 See
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respect to products that are not
securities, including futures that are not
security futures, swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards, would include an activity that
would require the Registered Clearing
Agency to register with the CFTC as a
DCO in accordance with the CEA.47 In
addition, a proposed rule change
‘‘[p]rimarily affects’’ a clearing agency’s
clearing operations with respect to
products that are not securities when it
is targeted to matters related only to the
clearing of those products.48 For
example, rules of general applicability
that would apply equally to securities
clearing operations, including securitybased swaps, would not be considered
to primarily affect a Registered Clearing
Agency’s non-securities clearing
operations. While CME requested that
rules of general applicability be eligible
for effectiveness upon filing, the
Commission believes rules that would
have equal applicability to securities
clearing operations must be filed for
Commission review in accordance with
Section 19(b)(2), which will enable the
Commission to fulfill its statutory
obligations under the Exchange Act. If
rules that have a significant impact on
securities operations were permitted to
become immediately effective, the
Commission would not have the ability
to review the impact of the rules against
Exchange Act standards before their
effectiveness, which would undercut
the scope of the Commission’s oversight
of registered clearing agencies. In
addition, changes to general provisions
in the constitution, articles, or bylaws of
the Registered Clearing Agency that
47 See 7 U.S.C. 7a–1 (providing that it shall be
unlawful for a DCO, unless registered with the
CFTC, directly or indirectly to make use of the
mails or any means or instrumentality of interstate
commerce to perform the functions of a DCO (as
described in 7 U.S.C. 1a(9)) with respect to a
contract of sale of a commodity for future delivery
(or option on such a contract) or option on a
commodity, in each case unless the contract or
option is (i) otherwise excluded from registration in
accordance with certain sections of the CEA or (ii)
a security futures product cleared by a Registered
Clearing Agency).
48 If a proposed rule change filed pursuant to
Section 19(b)(3)(A) has an incidental but significant
effect on clearing operations with respect to
products that are not securities and does not qualify
under new Rule 19b–4(f)(4)(ii)(B)(II), the
Commission summarily may, within 60 days after
the proposed rule change becomes effective under
Section 19(b)(3)(A), temporarily suspend the rule
change and institute proceedings to determine
whether to approve or disapprove the rule change
pursuant to the provisions of Section 19(b)(2).
Alternatively, as with other filings that do not meet
the requirements of Section 19(b)(3)(A) and Rule
19b–4(f), the Commission may reject the filing as
technically deficient within seven business days,
pursuant to Section 19(b)(10)(B). 15 U.S.C.
78s(b)(10)(B).
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address the operations of the entire
clearing agency also would not be
considered to primarily affect such
Registered Clearing Agency’s clearing
operations with respect to products that
are not securities.
Further, because security futures,
security-based swaps, mixed swaps,
security forwards, and options on
securities are considered securities for
purposes of the Exchange Act,49 a
Registered Clearing Agency would not
be permitted to file proposed rule
changes related to these lines of
business pursuant to Section 19(b)(3)(A)
of the Exchange Act in reliance on Rule
19b–4(f)(4)(ii). Instead, such clearing
agency would continue to be required to
file proposed rule changes related to its
clearing of security futures, securitybased swaps, mixed swaps, security
forwards, options on securities, or other
securities products for Commission
review in accordance with Section
19(b)(2) of the Exchange Act, unless
there is another basis for the proposed
rule change to be filed under Section
19(b)(3)(A).
The Commission generally believes
that it is appropriate to review proposed
rule changes in accordance with the
process set forth in Section 19(b)(2) of
the Exchange Act whenever the changes
‘‘significantly affect’’ any securities
clearing operations of the clearing
agency (unless there is another basis for
the proposed rule change to be filed
under Section 19(b)(3)(A)), even in
circumstances when such effects may be
indirect.50
The Commission is charged with
determining whether the rules of a
Registered Clearing Agency are
designed, among other things, ‘‘to assure
the safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
responsible * * * and, to protect
investors and the public interest.’’ 51
The Commission’s oversight
responsibility over Registered Clearing
Agencies extends to the clearing agency
as a whole and is entity-based, rather
than product-based.52 If Registered
49 15 U.S.C. 78c(a)(10). As previously noted,
however, the definition of ‘‘swap’’ specifically
excludes any security-based swap other than a
mixed swap. See supra note 22.
50 For example, in instances where the swap and
security-based swap business of a clearing agency
are intertwined, such as when a clearing agency has
established one clearing fund or pool of financial
resources for both products, changes applicable to
such swaps are unlikely to meet the requirement
that the change not significantly affect any
securities clearing operations of the clearing agency
or any related rights or obligations of the clearing
agency or persons using such service.
51 15 U.S.C. 78q–1(b)(3)(F).
52 See S. Rep. No. 94–75, at 34 (1975), reprinted
in 1975 U.S.C.C.A.N. 179, 212 (‘‘The Commission
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Clearing Agencies did not file proposed
rule changes with the Commission that
relate to their clearing operations, as
required under Section 19(b) of the
Exchange Act, the Commission would
not be able to meet its statutory
oversight responsibilities.
2. Addition of the ‘‘Fair and Orderly
Markets’’ Provision
In light of the issues identified by the
commenters in connection with the
Interim Final Rule, the Commission has
determined to further revise Rule 19b–
4(f)(4)(ii)(B) by adding a second clause
that will permit clearing agencies to file
a proposed rule change under Section
19(b)(3)(A) when the rule change
primarily affects the clearing operations
of the clearing agency with respect to
products that are not securities,
including futures that are not security
futures, swaps that are not securitybased swaps or mixed swaps, and
forwards that are not security forwards,
even when the proposed rule
‘‘significantly affects’’ any securities
clearing operations of the clearing
agency or any rights or obligations of the
clearing agency with respect to
securities clearing or persons using such
securities-clearing service, if the
clearing agency can demonstrate that
the rule change is ‘‘necessary to
maintain fair and orderly markets for
products that are not securities,
including futures that are not security
futures, swaps that are not securitybased swaps or mixed swaps, and
forwards that are not security forwards.’’
A proposed rule change filed by a
clearing agency relying on this ‘‘fair and
orderly markets’’ provision must, in
addition to being filed for approval
pursuant to Section 19(b)(3)(A), be
separately filed for approval pursuant to
Section 19(b)(2), and this second filing
must be made within fifteen calendar
days after the proposed rule change was
filed for approval under Section
19(b)(3)(A). Accordingly, in most cases,
a rule that is effective upon filing under
Section 19(b)(3)(A) that relies upon the
‘‘fair and orderly markets’’ provision of
Rule 19b–4(f)(4)(ii)(B) shall be effective
until such time as the Commission
enters an order, pursuant to Section
19(b)(2)(A) of the Exchange Act, to
approve such proposed rule change or,
depending on the circumstances, until
such time as the Commission summarily
temporarily suspends the rule change
has oversight responsibility with respect to the selfregulatory organizations to insure that they exercise
their delegated governmental power effectively to
meet regulatory needs in the public interest and
that they do not exercise that delegated power in
a manner inimical to the public interest or unfair
to private interests.’’).
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pursuant to Section 19(b)(3)(C) or,
alternatively, until such time as the
Commission, at the conclusion of
proceedings to determine whether to
approve or disapprove the proposed
rule change, enters an order, pursuant to
Section 19(b)(2)(B), approving or
disapproving such proposed rule
change.53
To demonstrate that a proposed rule
change is ‘‘necessary to maintain fair
and orderly markets,’’ a clearing agency
must include in both of its filings with
the Commission a detailed explanation
of the following: (i) Why the proposed
rule change is necessary to maintain fair
and orderly markets for products that
are not securities, including futures that
are not security futures, swaps that are
not security-based swaps or mixed
swaps, and forwards that are not
security forwards; (ii) why the proposed
rule change cannot achieve this goal
unless it takes effect immediately; (iii)
how, and to what extent, markets would
be adversely affected if the proposed
rule change were not implemented
immediately; (iv) whether the proposed
rule change is temporary or permanent;
(v) how the proposed rule change
significantly affects any securities
clearing operations of the clearing
agency or the rights or obligations of the
clearing agency with respect to
securities clearing or persons using such
securities-clearing service; and (vi) why
the proposed rule change would have
no adverse effect on maintaining fair
and orderly markets for securities.
The Commission believes that the
new ‘‘fair and orderly markets’’
provision directly addresses the specific
53 Because proposed rule changes filed pursuant
to Rule 19b–4(f)(4)(ii)(B)(II) are submitted in
accordance with the Commission’s statutory
authority set forth in Section 19(b)(3)(A), the
Commission would retain the power to summarily
temporarily suspend the rule change within 60 days
of its filing if it appears to the Commission that
such action is necessary or appropriate in the
public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the
Exchange Act. See 15 U.S.C. 78s(b)(3)(C). The
Commission would then be required to institute
proceedings to determine whether the rule should
be approved or disapproved. Id. As a practical
matter, however, the Commission expects that
proposed rule changes filed under the ‘‘fair and
orderly markets’’ provision would remain in effect
while they are reviewed in accordance with Section
19(b)(2) which, among other things, requires the
Commission to approve, disapprove, or institute
proceedings to determine whether to disapprove a
proposed rule change within 45 days of its date of
publication in the Federal Register, subject in
certain circumstances to an extension of up to an
additional 45 days. The Commission would
nonetheless retain the ability, within 60 days after
a proposed rule change becomes effective under
19(b)(3)(A), to summarily temporarily suspend the
rule change and institute proceedings or, after the
60-day summary suspension deadline, to
disapprove the rule change pursuant to the
provisions of Section 19(b)(2).
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concerns raised by commenters, while
preserving the core features of the
Commission’s existing notice and
comment rule filing process. In
particular, this provision is intended to
respond to commenters’ observations
that the pre-effective notice and
comment requirement of the
Commission’s Section 19(b)(2) rule
filing process may unnecessarily burden
existing non-securities markets. The
new rule provision in Rule 19b–
4(f)(4)(ii)(B)(II) allows Registered
Clearing Agencies that are also DCOs to
have rules that are necessary to
maintain fair and orderly markets and
that have a significant effect on
securities operations of the Registered
Clearing Agencies to take effect
immediately upon filing, while the
traditional notice and comment period
under the Exchange Act proceeds
thereafter.
The Commission believes the limited
period of effectiveness while the notice
and comment period proceeds is
justified in the specific circumstances
contemplated by the Final Rule given
the nature of the issues raised by
commenters and the substantial
protections that will continue to exist
under the Final Rule. In particular, the
Dodd-Frank Act represents a significant
reform of the national market system for
securities and the national system for
the clearance and settlement of
securities transactions in which
cooperation between the Commission
and the CFTC is explicitly
contemplated. Moreover, the clearly
established time periods and procedures
associated with the Commission’s notice
and comment process should lead to a
greater level of assurance that rules
enacted in this manner that will have
significant direct or indirect effects on
the securities clearing activities of the
clearing agency either immediately or in
the future will be given due
consideration by the Commission with
the benefit of views from outside
parties.
The Commission does not intend or
expect the new ‘‘fair and orderly
markets’’ provision to become, in
practice, a common method for
Registered Clearing Agencies to submit
proposed rule changes that affect their
clearing operations with respect to
products that are not securities,
including futures that are not securities
futures, swaps that are not securitiesbased swaps or mixed swaps, and
forwards that are not security forwards,
but which also affect their securities
clearing operations.54 The ‘‘necessary to
54 One court that interpreted a ‘‘fair and orderly
markets’’ standard appearing in another area of the
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21051
maintain fair and orderly markets’’
language central to the new provision is
intended to be narrowly circumscribed,
and will permit clearing agencies to use
the new provision for rule filings that
may be necessary to respond promptly
to major market emergencies and other
situations of significant importance to
the functioning of markets for products
that are not securities. In instances
when securities clearing operations are
significantly affected, but the proposed
rule change is not necessary to maintain
fair and orderly markets for products
that are not securities, including futures
that are not security futures, swaps that
are not security-based swaps or mixed
swaps, and forwards that are not
security forwards, a Registered Clearing
Agency must file the proposed rule
change pursuant to Section 19(b)(1) of
the Exchange Act for approval under
Section 19(b)(2) without reliance on
Rule 19b–4(f)(4)(ii)(B)(II).
Finally, the Commission notes that
Section 19(b)(2) of the Exchange Act
permits the Commission to approve a
proposed rule change on an accelerated
basis if it finds good cause to do so and
publishes its reasons for so finding.55
The application of this provision will be
determined by the Commission on a
case-by-case basis depending on the
facts and circumstances pertaining to
the proposed rule change.
3. Conclusion
The Commission believes that
permitting clearing agencies to submit
proposed rule changes that meet the two
conditions in Rule 19b–4(f)(4)(ii) for
immediate effectiveness upon filing
pursuant to Section 19(b)(3)(A) of the
Exchange Act is consistent with the
public interest and the purposes of the
Exchange Act. In particular, this
approach should help limit the potential
for delays by providing a streamlined
filing process for rule changes that
primarily affect the clearing agency’s
clearing operations with respect to
products that are not securities,
including futures that are not securities
futures, swaps that are not securitiesExchange Act found the phrase to be an indication
that relevant Commission actions are to be
evaluated primarily by reference to the
Congressional purposes of the Securities Act
Amendments of 1975 involving the establishment
of a national market system for securities and a
national system for the clearance and settlement of
securities transactions. See Ludlow Corp. v. SEC,
604 F.2d 704 (D.C. Cir. 1979) (discussing origins
and purposes of ‘‘fair and orderly markets’’
provision in Section 12(f)(2) of the Exchange Act).
55 See 15 U.S.C. 78s(b)(2)(C)(iii) (‘‘[t]he
Commission may not approve a proposed rule
change earlier than 30 days after the date of
publication under paragraph (1), unless the
Commission finds good cause for so doing and
publishes the reason for the finding.’’).
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based swaps or mixed swaps, and
forwards that are not security forwards
which, unless such clearing operations
were linked to securities clearing
operations, would not be subject to
regulation by the Commission. In
addition, the information provided to
the Commission by a Registered
Clearing Agency in a filing submitted
for review in accordance with Section
19(b)(2) of the Exchange Act is virtually
identical to the information required to
be included in a filing made pursuant to
Section 19(b)(3)(A). At the same time,
the Final Rule will specifically require
clearing agencies relying on the new
‘‘fair and orderly markets’’ provision to
continue to submit to the Section
19(b)(2) approval process while the rule
change is in effect, and the Commission
will retain the power to temporarily
suspend the Registered Clearing
Agency’s rule change on a summary
basis within sixty days after the rule is
filed under Section 19(b)(3)(A) if it
appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Exchange Act.56
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B. Amendment to the General
Instructions for Form 19b–4
To accommodate the amendment to
Rule 19b–4 being adopted today, the
Commission also is making a
corresponding technical modification to
the General Instructions for Form 19b–
4 under the Exchange Act. Specifically,
the Commission is amending Item 7(b)
of the General Instructions for Form
19b–4 (Information to be Included in the
Completed Form), which requires the
respondent SRO to cite the statutory
basis for filing a proposed rule change
pursuant to Section 19(b)(3)(A) in
accordance with the existing provisions
of Rule 19b–4(f). This amendment
revises Item 7(b)(iv) to include the
option to file the form in accordance
with Rule 19b–4(f)(4)(ii), which
provides for situations when a
Registered Clearing Agency is effecting
a change in an existing service that (i)
primarily affects the clearing operations
of the clearing agency with respect to
products that are not securities,
including futures that are not security
futures, swaps that are not securitybased swaps or mixed swaps, and
forwards that are not security forwards
and (ii) either (a) does not significantly
affect any securities clearing operations
of the clearing agency or any rights or
56 15 U.S.C. 78s(b)(3)(C). If the Commission takes
such action, it is then required to institute
proceedings to determine whether the proposed
rule change should be approved or disapproved.
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obligations of the clearing agency with
respect to securities clearing or persons
using such securities-clearing service, or
(b) does significantly affect any
securities clearing operations of the
clearing agency or any rights or
obligations of the clearing agency with
respect to securities clearing or persons
using such securities-clearing service,
but is necessary to maintain fair and
orderly markets for products that are not
securities, including futures that are not
security futures, swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards. Additional language is also
being added to specify that clearing
agencies using the ‘‘fair and orderly
markets’’ provision will also be subject
to the provisions of Section 19(b)(2) of
the Exchange Act, in a manner
equivalent to the process now used by
the Commission for filings that are
summarily approved by the Commission
under Section 19(b)(3)(B) of the
Exchange Act, and to specify the
information clearing agencies must
include in order to demonstrate that a
proposed rule change is ‘‘necessary to
maintain fair and orderly markets for
products that are not securities,
including futures that are not security
futures, swaps that are not securitybased swaps or mixed swaps, and
forwards that are not security forwards.’’
III. Paperwork Reduction Act
The Commission does not believe that
the Final Rule contains any ‘‘collection
of information’’ requirements as defined
by the Paperwork Reduction Act of
1995, as amended (‘‘PRA’’).57 The Final
Rule affirms and further modifies recent
amendments to Rule 19b–4 under the
Exchange Act, such that the list of
categories that qualify for effectiveness
upon filing under Section 19(b)(3)(A) of
the Exchange Act include any matter
effecting a change in an existing service
of a Registered Clearing Agency that: (i)
primarily affects the clearing operations
of the clearing agency with respect to
products that are not securities,
including futures that are not security
futures, swaps that are not securitiesbased swaps or mixed swaps, and
forwards that are not security forwards;
and (ii) either (a) does not significantly
affect any securities clearing operations
of the clearing agency or any rights or
obligations of the clearing agency with
respect to securities clearing or persons
using such securities-clearing service, or
(b) does significantly affect any
securities clearing operations of the
clearing agency or any rights or
obligations of the clearing agency with
57 44
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respect to securities clearing or persons
using such securities-clearing service,
but is necessary to maintain fair and
orderly markets for products that are not
securities, including futures that are not
security futures, swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards. In addition, a proposed rule
change filed by a Registered Clearing
Agency relying on the ‘‘fair and orderly
markets’’ provision set forth in new
Rule 19b–4(f)(4)(ii)(B)(II) would also be
filed for approval pursuant to Section
19(b)(2) of the Exchange Act.58 Lastly,
the Final Rule also makes a
corresponding technical modification to
the General Instructions for Form 19b–
4 under the Exchange Act.
The Commission does not believe that
these amendments would require any
new or additional collection of
information, as such term is defined in
the PRA. The PRA defines a ‘‘collection
of information’’ as ‘‘the obtaining,
causing to be obtained, soliciting or
requiring the disclosure to third parties
or the public, of facts or opinions by or
for an agency, regardless of form or
format, calling for * * * answers to
identical questions posed to, or
identical reporting or recordkeeping
requirements imposed on, ten or more
persons * * *.’’ 59 The Commission
does not believe that the reporting and
recordkeeping provisions in this Final
Rule contain ‘‘collection of information
requirements’’ within the meaning of
the PRA because fewer than ten persons
are expected to rely on Rule 19b–
4(f)(4)(ii). At present, only four
Registered Clearing Agencies maintain a
futures or swaps clearing business
regulated by the CFTC.
IV. Economic Analysis
A. Introduction
The Commission is sensitive to the
economic effects of the amendments to
Rule 19b–4, including their costs and
benefits. Section 23(a) 60 of the
Exchange Act requires the Commission,
when making rules and regulations
58 Accordingly, in most cases, a rule that is
effective upon filing under Section 19(b)(3)(A) that
relies upon the ‘‘fair and orderly markets’’ provision
of Rule 19b–4(f)(4)(ii)(B)(II) shall be effective only
until such time as the Commission enters an order,
pursuant to Section 19(b)(2)(A) of the Exchange Act,
to approve such proposed rule change or,
depending on the circumstances, until such time as
the Commission summarily temporarily suspends
the rule change pursuant to Section 19(b)(3)(C) or,
alternatively, until such time as the Commission, at
the conclusion of proceedings to determine whether
to approve or disapprove the proposed rule change,
enters an order, pursuant to Section 19(b)(2)(B),
approving or disapproving such proposed rule
change.
59 44 U.S.C. 3502(3)(A).
60 15 U.S.C. 78w(a).
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under the Exchange Act, to consider the
impact a new rule would have on
competition. Section 23(a)(2) of the
Exchange Act prohibits the Commission
from adopting any rule that would
impose a burden on competition not
necessary or appropriate in furtherance
of the purposes of the Exchange Act.
Section 3(f) of the Exchange Act 61
requires the Commission, when
engaging in rulemaking that requires it
to consider whether an action is
necessary or appropriate in the public
interest, to consider, in addition to the
protection of investors, whether the
action would promote efficiency,
competition, and capital formation. We
have considered and discussed below
the effects of the rules we are adopting
today on efficiency, competition, and
capital formation, as well as the benefits
and costs associated with the
rulemaking.
As noted above, the Deemed
Registered Provision, along with other
general provisions under Title VII of the
Dodd-Frank Act, became effective on
July 16, 2011. Accordingly, the four
Registered Clearing Agencies that
currently maintain a futures, swaps, or
forwards clearing business regulated by
the CFTC are generally required to file
proposed rule changes with the
Commission under Section 19(b) of the
Exchange Act, and to comply separately
with the CFTC’s process for selfcertification or direct approval of rules
or rule amendments.62 The Commission
is sensitive to the increased burdens
these obligations will impose, and
agrees that it is in the public interest to
eliminate any potential inefficiencies
and undue delays that could result from
the requirement that the Commission
review changes to rules primarily
affecting clearing operations with
respect to products that are not
securities, including futures that are not
securities futures, swaps that are not
securities swaps or mixed swaps, and
forwards that are not security forwards
before these changes may be considered
effective.
In connection with the Interim Final
Rule, the Commission identified certain
costs and benefits of the amendments to
Rule 19b–4 and Form 19b–4, and
requested commenters to provide views
and supporting information regarding
the costs and benefits associated with
the proposals, including estimates of
these costs and benefits, as well as any
costs and benefits not already identified.
Although the Commission did not
receive any comments on the specific
61 15
U.S.C. 78c(f).
include OCC, CME, ICC, and ICE Clear
Europe.
62 These
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cost-benefit analysis conducted in
connection with the Interim Final Rule,
one commenter expressed a general
view questioning whether the
Commission’s rulemaking in this area
adequately respects the jurisdictional
boundaries established by Congress
when it passed the Dodd-Frank Act,
noting that the requirement to file with
the Commission for review in
accordance with Section 19(b)(2)
proposed rule changes that primarily
affect the futures and swaps operations
of a clearing agency registered with the
Commission and the CFTC (‘‘DuallyRegistered Clearing Agency’’) is an
unreasonable outcome under a costsbenefits analysis.63 Specifically, this
commenter argued that the Commission
should not impose a rule that subjects
a proposed rule change to a ‘‘lengthy
public comment review process’’ in
cases when the change relates to a
matter that falls within the ‘‘exclusive or
primary jurisdiction’’ of another agency
(i.e., the CFTC).64 The commenter
argued that duplicative regulatory
oversight is inherently unreasonable
and imposes ‘‘tremendous’’ costs, but
did not adduce any empirical evidence
to support its assertion.
The Commission disagrees with the
commenter’s assertion that the rule will
result in unnecessarily duplicative
regulatory oversight. The Exchange Act
imposes upon the Commission an
independent statutory responsibility to
oversee the operations of Registered
Clearing Agencies as a whole, and not
solely in regard to specific products.65
The Commission’s role in reviewing
rule filings ensures that the Commission
has complete information regarding the
overall scope of operations and financial
condition of the clearing agency, so that
the Registered Clearing Agency’s ability
to continue to provide clearing services
for security futures, security-based
swaps, mixed swaps, security forwards,
options on securities, and other
securities products in a manner
consistent with the Exchange Act can be
fully understood and placed in proper
context. Accordingly, the Commission
believes that its continued review of
63 See
CME Letter.
In its letter, CME also noted that it currently
does not clear any security-based swaps and is
registered with the Commission solely by operation
of the Deemed Registered Provision (although it
does have plans to offer clearing services for credit
default swaps that are security-based swaps in the
near future). See also ICE Clear Europe Letter
(expressing the view that ‘‘rulemaking in
furtherance of the purposes of the Dodd-Frank Act
should, as much as possible, (i) respect the
jurisdictional boundaries delegated to the CFTC and
the Commission under that Act, and (ii) pursue
efficiency and reduce the costs of rulemaking
wherever possible’’).
65 See 15 U.S.C. 78q–1(b); see also supra note 52.
64 Id.
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rule filings that primarily affect a
Dually-Registered Clearing Agency’s
operations involving futures that are not
securities futures, swaps that are not
securities swaps or mixed swaps,
forwards that are not security forwards,
and other non-securities products is a
necessary and appropriate part of the
Commission’s statutory mandate.
With respect to the commenter’s
assertion concerning unnecessary
additional costs, the Commission
observes that the Final Rule is not
imposing an additional requirement to
submit a proposed rule change to the
Commission. As previously noted,
Section 19(b)(1) of the Exchange Act
requires each SRO, including all
Registered Clearing Agencies, to file
with the Commission copies of ‘‘any
proposed rule or any proposed change
in, addition to, or deletion from the
rules of such SRO’’ (emphasis added).66
On its face, this provision applies to all
proposed rule changes without regard to
the extent to which the affected product
is subject to the jurisdiction of another
agency. The changes made to Rule 19b–
4 pursuant to the Interim Final Rule
were intended to utilize the
Commission’s statutory authority in
Section 19(b)(3)(A) of the Exchange Act
to provide relief to Dually-Registered
Clearing Agencies and to avoid undue
delays that could result from the
requirement that the Commission
review proposed rule changes primarily
concerning a clearing agency’s nonsecurity futures clearing operations
before they may be considered effective.
This Final Rule is intended to affirm
and expand this relief to changes to
rules primarily concerning a clearing
agency’s clearing operations with
respect to swaps that are not securitiesbased swaps or mixed swaps, forwards
that are not security forwards, and other
non-securities products. The underlying
obligation to file proposed rule changes
arises entirely from Section 19(b)(1) of
the Exchange Act and not from any
action taken by the Commission
pursuant to the Interim Final Rule or
this Final Rule.
Accordingly, and for the reasons
discussed below, the Commission
believes that its analysis of the benefits
and costs of the amendments to Rule
19b–4 and the General Instructions for
Form 19b–4, as set forth in the Interim
Final Rule and described herein, are
appropriate. Further, the Commission
believes that any impact on competition
would be neutral, as all Registered
Clearing Agencies may avail themselves
of the Final Rule if the circumstances
meet the requirements of the Final Rule.
66 See
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Also, this rule does not increase barriers
for new clearing agencies to enter the
clearing markets, and implementation of
the Final Rule will not favor larger
entities over smaller ones, and hence
the impact on competition is negligible.
Finally, the Commission does not
believe that the Final Rule contributes
towards the promotion of capital
formation of Registered Clearing
Agencies in any appreciable manner.
The Commission discusses below a
number of the costs and benefits that
will attend the Final Rule. Many of
these costs and benefits are difficult to
quantify with any degree of certainty,
particularly as it is difficult to predict
the number of rule filings that will
qualify for approval pursuant to Section
19(b)(3)(A) under the Final Rule. Thus,
while much of the discussion is
qualitative in nature, the Commission
attempts to quantify certain burdens,
when possible. The Commission
believes that the changes brought about
by the Final Rule—which will require
Registered Clearing Agencies to file
under Section 19(b)(1) both for Section
19(b)(2) approval and for Section
19(b)(3)(A) approval only in the rare
situations in which the ‘‘fair and orderly
markets’’ provision is invoked—will
lead to only a negligible increase in the
costs associated with filing proposed
rule changes. The Commission further
believes that these additional costs are
justified by the efficiency gains that will
result from the Final Rule’s broadening
of the types of rule changes that may
become effective upon filing.
tkelley on DSK3SPTVN1PROD with RULES
B. Justification for the Final Rule
The Final Rule is intended to improve
regulatory processes. Allowing
proposed rule changes that (i) primarily
affect the clearing of products that are
not securities, including futures that are
not security futures, swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards; and (ii) do not significantly
affect any securities clearing operations
of the clearing agency or any rights or
obligations of the clearing agency with
respect to securities clearing or persons
using such securities-clearing service, to
be filed under Section 19(b)(3)(A) would
further streamline rule filing procedures
and reduce the potential for duplicative
or inconsistent regulation affecting
Registered Clearing Agencies. With
regard to the addition of the ‘‘fair and
orderly markets’’ provision and its
attendant rule filing requirements,
clearing agencies and the markets
potentially benefit from the expedited
effectiveness of the rule change, while a
meaningful notice and comment process
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is preserved without the disruption of a
summary suspension of the rule.
C. Affected Parties
As indicated in the PRA section
above, the Final Rule will affect four
Registered Clearing Agencies.
D. Baseline
The Interim Final Rule serves as the
appropriate baseline for purposes of this
analysis. Under the Interim Final Rule,
the four Dually-Registered Clearing
Agencies may file a proposed rule
change and request that it become
effective immediately upon filing if the
rule change (i) primarily affects the
futures clearing operations of the
clearing agency with respect to futures
that are not security futures and (ii) does
not significantly affect any securities
clearing operations of the clearing
agency or any rights or obligations of the
clearing agency with respect to
securities clearing or persons using such
securities-clearing service. Registered
Clearing Agencies seeking approval for
proposed rule changes involving the
clearing of other products that are not
securities, including swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards, providing the changes are not
eligible for immediate effectiveness
under Section 19(b)(3)(A) pursuant to
one of the other eligibility categories,
must do so pursuant to Section 19(b)(2),
which requires a pre-effective notice
and comment period, as well as formal
Commission approval. Thus, in the
ordinary case, Dually-Registered
Clearing Agencies currently may not
implement proposed rule changes with
respect to certain products that are not
securities, including swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards until the Commission: (i)
Issues a notice of the proposed rule
change for a period of time within
which the public can comment; (ii)
reviews and considers comments
received regarding the proposed rule
change, if any; and (iii) issues an order
approving the proposed rule change.
This review process ordinarily takes
anywhere from forty-five to sixty
calendar days after the Commission
receives the proposed rule change from
the clearing agency.67
67 The Commission has fifteen calendar days from
the date of receipt of the proposed rule change to
deliver notice of the proposed rule change for
publication in the Federal Register, providing the
clearing agency posted the notice of the proposed
rule change, together with the substantive terms of
the proposed change, that it delivered to the
Commission on its Web site within two days of
sending it to the Commission. 15 U.S.C.
78s(b)(2)(E). The Commission may not approve a
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Since the Interim Final Rule took
effect on July 15, 2011,68 DuallyRegistered Clearing Agencies have
utilized it on nine occasions to obtain
immediate effectiveness for proposed
rule changes that would not otherwise
have been eligible to become effective
upon filing.69 An examination of
proposed rule filings made during the
2012 calendar year, however, indicates
the number of proposed rule changes
eligible for immediate effectiveness
under Section 19(b)(3)(A) would have
more than doubled had the changes
contemplated by the Final Rule been in
place. Specifically, between January 1
and October 1, 2012, the Commission
received 75 rule filings from DuallyRegistered Clearing Agencies, 52 of
which were not already eligible for
immediate effectiveness under Section
19(b)(3)(A). Of these 52, the
Commission believes that 23 additional
filings, or approximately 44%, likely
would have been eligible for filing
under Rule 19b–4(f)(4)(ii) had the Final
Rule been in effect.70
The Commission believes that
requiring the Dually-Registered Clearing
Agencies to seek approval under Section
19(b)(2) for the 23 proposed rule
changes described above created
inefficiencies and unnecessary delay
because the Interim Final Rule did not
permit these proposed rule changes—
which primarily affected the DuallyRegistered Clearing Agencies’ handling
of non-security products, and had no
significant effect on securities clearing
operations or any related rights or
obligations—to be filed for immediate
effectiveness. As noted, the Section
proposed rule change until the thirtieth day after
publication of the notice in the Federal Register
and is required to approve, disapprove, or institute
proceedings to determine whether to approve or
disapprove a proposed rule change within forty-five
days after publication of the notice in the Federal
Register. See 15 U.S.C. 78s(b)(2)(C)(iii), (b)(2)(A).
68 See Exchange Act Release No. 64832 (July 7,
2011), 76 FR 41056 (July 13, 2011).
69 The Chicago Mercantile Exchange, Inc. filed
seven of these proposed rule changes, while The
Options Clearing Corporation and ICE Clear Credit
LLC each filed one. All of these rule filings were
made pursuant to Rule 19b–4(f)(4)(ii), which allows
a proposed rule change to take effect upon filing if
it primarily affects the clearing agency’s futures
clearing operations with respect to futures that are
not securities futures and does not have a
significant effect upon the clearing agency’s
securities clearing operations.
70 See, e.g., Notice of Filing and Order Granting
Accelerated Approval of Proposed Rule Change to
Amend Certain Aspects of the Performance Bond
Regime Applicable to Cleared Only OTC FX Swaps,
Exchange Act Release No. 66354 (Feb. 8, 2012), 77
FR 8318 (Feb. 14, 2012) (SR–CME–2012–03); Notice
of Filing and Order Granting Accelerated Approval
of Proposed Rule Change Regarding Acceptance of
Additional Interest Rate Swaps and Related
Interbank Rates for Clearing, Exchange Act Release
No. 66786 (Apr. 11, 2012), 77 FR 22825 (Apr. 17,
2012) (SR–CME–2012–10).
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19(b)(2) process requires the
Commission to solicit public comments,
review them, and issue an order
approving or denying the rule change, a
process that can take between 45 and 60
days, and possibly longer. This
engenders a substantial degree of timing
uncertainty for clearing agencies, as
they must await the Commission’s
approval order before they can
implement the proposed changes. This
uncertainty, in turn, raises the
transaction costs associated with
implementing rule changes. The
Commission believes this delay and the
associated increase in transactional
costs to be unnecessary because these
rule changes are similar to the futuresrelated rule changes that presently
qualify for immediate effectiveness
under the Interim Final Rule.
tkelley on DSK3SPTVN1PROD with RULES
E. Benefits and Costs and Consideration
of the Final Rule’s Effects on Efficiency,
Competition, and Capital Formation
1. Benefits
Rule 19b–4(f)(4)(ii), as amended by
this Final Rule, will streamline the rule
filing process by permitting Registered
Clearing Agencies to utilize Section
19(b)(3)(A) for proposed rule changes
that primarily affect the clearing
operations of the clearing agency with
respect to products that are not
securities, including futures that are not
security futures, swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards, and either do not significantly
affect any securities clearing operations
of the clearing agency or any rights or
obligations of the clearing agency with
respect to securities clearing or persons
using such securities-clearing service, or
do significantly affect any securities
clearing operations of the clearing
agency or any rights or obligations of the
clearing agency with respect to
securities clearing or persons using such
securities-clearing service, but are
necessary to maintain fair and orderly
markets for products that are not
securities, including futures that are not
security futures, swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards. As such rule changes will
become effective upon filing, the Final
Rule should eliminate any potential
inefficiencies and undue delays that
could result from the requirement that
the Commission review these proposed
rule changes before they take effect. At
the same time, the Commission retains
the power to temporarily suspend these
rule changes summarily within sixty
days of their filing if it appears to the
Commission that taking such action is
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necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Exchange Act.71
As a result, the Commission is
providing Registered Clearing Agencies
with the ability to make these proposed
rule changes effective upon filing,
thereby limiting potential delays in
implementing changes to the clearing
agencies’ clearing operations with
respect to products that are not
securities that may be beneficial to both
the clearing agencies and market
participants. As the figures cited in the
preceding section indicate, the number
of proposed rule changes that could
become effective upon filing may
increase under the Final Rule. This, in
turn, should enhance the efficiency of
the filing process for affected clearing
agencies, without impairing the
Commission’s ability to review the
filings and to determine whether it
would be necessary or appropriate in
the public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Exchange Act, to
conduct a more thorough analysis of any
issues the filings may present. As noted,
these amendments to Rule 19b–4 and
the General Instructions for Form 19b–
4 by the Commission are intended to
streamline the rule filing process in
areas involving certain activities
concerning products that are not
securities that may be subject to
duplicative or inconsistent regulation as
a result of, in part, certain provisions
under Section 763(b) of the Dodd-Frank
Act. The Commission recognizes the
importance of the proper allocation of
regulatory resources and will monitor
and evaluate the implementation and
effects of these rule changes.
2. Costs
As noted above, the Final Rule will
expand the list of categories that qualify
for effectiveness upon filing under
Section 19(b)(3)(A) of the Exchange Act.
These amendments will not materially
increase or decrease the costs of
complying with Rule 19b–4, nor will
they modify an SRO’s obligation to
submit a proposed rule change to the
Commission. Rather, the amendments
will change the statutory basis under
which a rule change is filed. This is
because the costs associated with the
19(b)(3)(A) filing would approximately
be the same as the 19(b)(2) filing, and,
because of the nature of the occasion in
which such a filing would be
71 15 U.S.C. 78s(b)(3)(C). If the Commission takes
such action, it is then required to institute
proceedings to determine whether the proposed
rule change should be approved or disapproved.
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21055
applicable, only under rare
circumstances would a clearing agency
file under the ‘‘fair and orderly markets’’
provision.
A proposed rule change filed by a
Registered Clearing Agency relying on
the ‘‘fair and orderly markets’’ provision
set forth in Rule 19b–4(f)(4)(ii)(B)(II)
would be subject to the procedures of
both Section 19(b)(2) and Section
19(b)(3)(A) of the Exchange Act.
Accordingly, in most cases, the
proposed rule change shall be effective
until such time as the Commission
enters an order, pursuant to Section
19(b)(2)(A) of the Exchange Act, to
approve such proposed rule change or,
depending on the circumstances, until
such time as the Commission summarily
temporarily suspends the rule change
pursuant to Section 19(b)(3)(C) or,
alternatively, until such time as the
Commission, at the conclusion of
proceedings to determine whether to
approve or disapprove the proposed
rule change, enters an order, pursuant to
Section 19(b)(2)(B), approving or
disapproving such proposed rule
change.
This new requirement applicable to
Rule 19b–4(f)(4)(ii)(B)(II), which is in
addition to the requirements that the
Commission considered in connection
with the cost-benefit analysis contained
in the Interim Final Rule, would impose
only a minimal additional burden on
Registered Clearing Agencies that rely
on the ‘‘fair and orderly markets’’
provision. Although a clearing agency
seeking to use this provision would be
required to make a separate filing under
Section 19(b)(3)(A) in addition to the
Section 19(b)(2) filing that is currently
required, the information contained in
both filings is virtually identical.
Moreover, the Commission believes that
clearing agencies will use the ‘‘fair and
orderly markets’’ provision only on rare
occasions, and thus the additional costs
of making a Section 19(b)(3)(A) filing
will seldom be incurred. The
Commission concludes that the
incremental costs associated with the
Final Rule are negligible.72
72 The time required to complete a filing varies
significantly and is difficult to separate from the
time an SRO spends internally developing the
proposed rule change. Accordingly, it is difficult to
assess the impact of the Final Rule in terms of the
additional amount of time SROs will have to devote
to filing proposed rule changes. The Commission
believes, however, that the Final Rule would have
only a negligible effect in this regard. The
Commission has estimated that 34 hours is the
amount of time that would be required to complete
an average proposed rule change filing, and 129
hours is the amount of time required to complete
a novel or complex proposed rule change filing.
Since the information contained in a Section
19(b)(2) filing is virtually identical to the
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The Commission believes that the
changes embodied in the Final Rule will
not impair its ability to protect
investors. Although the Final Rule will
expand the types of proposed rule
changes eligible to become effective
upon filing, such rule changes remain
subject to public comment after they
take effect. Furthermore, the
Commission summarily may
temporarily suspend such rule changes
within sixty days of filing if it appears
to the Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Exchange Act.73 Given
these safeguards, the Commission
perceives only minimal, if any, new
risks to investors stemming from the
Final Rule.
tkelley on DSK3SPTVN1PROD with RULES
3. Effects on Competition
The Commission has also considered
whether the Final Rule will have an
`
appreciable effect on competition vis-avis the Interim Final Rule. Currently,
the market for clearing services is
segmented by financial instrument, and
clearing agencies often specialize in
particular instruments. As such, some
market segments may tend to sustain
natural monopolies, despite the
existence of competitors that could
potentially enter those segments.74 For
example, following a period of
consolidation facilitated by Section
17(A) of the Exchange Act, only one
clearing agency processes equities listed
in the United States, and only one
clearing agency handles exchange
traded options. At the same time, there
are three clearing agencies that clear
swaps and security-based swaps.
Although two of these clearing agencies
are affiliated, they do not compete with
each other; one serves the market in the
United States, and the other serves the
European market. Further, the affiliate
serving the market in the United States
has a dominant market share, though
information required if the same filing were made
under Section 19(b)(3)(A), the Commission believes
that the 34 hour figure remains an appropriate
estimate of the time it would take an SRO to
prepare a proposed rule change for filing pursuant
to the broadened scope of Section 19(b)(3)(A).
Moreover, as the information contained in the
Section 19(b)(2) filing that will be required under
the ‘‘fair and orderly markets’’ provision is also
virtually identical to the information contained in
the Section 19(b)(3)(A) filing that is currently
required, the Commission believes that the time
estimates for a rule filing of average complexity and
one involving novel issues remain unchanged at 34
and 129 hours, respectively, under all scenarios of
the Final Rule.
73 15 U.S.C. 78s(b)(3)(C).
74 A natural monopoly exists when a single
provider is more efficient than multiple providers
because economies of scale allow the single
provider to have lower average costs.
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the Commission believes this may be
subject to change as a result of
competition from other clearing
agencies.
The Commission believes that the
impact of the Final Rule on competition
would be neutral, as the Final Rule
would apply equally to similarlysituated Registered Clearing Agencies.
As noted in the PRA section of this
Release, the Final Rule will affect only
the four Dually-Registered Clearing
Agencies. Every Dually-Registered
Clearing Agency that clears any of the
products described in the Final Rule
may avail itself of the Final Rule’s
benefits if the circumstances warrant,
and may avail itself of the ‘‘fair and
orderly markets’’ provision if the
proposed rule change also meets those
qualifications, namely that the proposed
rule change is necessary to maintain fair
and orderly markets for futures that are
not security futures, swaps that are not
security-based swaps or mixed swaps,
or forward contracts that are not
security forwards. Further, the Final
Rule does not increase barriers for
clearing agencies to enter this market,
and its implementation will not favor
larger entities over smaller ones. The
Final Rule’s impact on competition is
therefore negligible.
F. Alternatives Considered
The Commission considered CME’s
proposal that the Commission require
only proposed rule changes relating
directly to security-based swap clearing
activities to be subject to the
Commission’s review in accordance
with Section 19(b)(2). Specifically, CME
posited that (i) the Commission should
defer to the CFTC’s rule filing processes
with respect to proposed changes
involving broad rules of general
applicability as to clearing operations
that would have only a peripheral
impact on security-based swap clearing,
and (ii) the Commission would still
have the authority to abrogate rule
changes by a clearing agency that do not
meet the requirements of the Exchange
Act.75 The Commission believes that,
while this approach would increase
efficiency for some Registered Clearing
Agencies, it would undermine the
Commission’s ability to carry out its
statutory obligations under Section
19(b) and the Exchange Act, as
discussed in Section IV.A., above. For
example, in June 2012, CME
implemented a rule change that altered
the amount of CME’s capital
contribution to its financial safeguards
package in connection with losses
arising from products other than credit
75 See
PO 00000
CME Letter.
Frm 00042
Fmt 4700
Sfmt 4700
default swaps and interest rate swaps.76
This amount would be applied to such
losses before any amounts are applied
from CME’s Base Guaranty Fund.
Although not directly applicable to
products under the Commission’s
jurisdiction, the proposed rule change
affects the operations and financial
stability of the clearing agency. In
another example, ICE Clear Credit LLC
implemented a rule change in 2012 that
permitted its participants to use US
Treasuries to satisfy the initial marginrelated liquidity requirements for all
client-related positions cleared in a
clearing participant’s customer
account,77 representing a rule of general
applicability that, pursuant to CME’s
alternative approach, may not have been
subject to Commission review. As the
Commission is tasked with ensuring
that a clearing agency’s rules are
designed, among other things, to assure
the safeguarding of securities and funds,
the Interim Final Rule required, and the
Final Rule continues to require, that
proposed rule changes of general
applicability be subject to the
Commission’s pre-effective notice and
comment process or, if such proposed
rule change is filed pursuant to the fair
and orderly markets provision in Rule
19b–4(f)(4)(ii)(B), notice and comment
after the change is temporarily effective
under Section 19(b)(3)(A).
V. Regulatory Flexibility Certification
The Regulatory Flexibility Act
(‘‘RFA’’) 78 requires the Commission, in
promulgating rules, to consider the
impact of those rules on small entities.
The Commission certified in the Interim
Final Rule release, pursuant to Section
605(b) of the RFA,79 that the rule would
not have a significant impact on a
substantial number of small entities.
The Commission received no comments
on this certification.
For the purposes of Commission
rulemaking in connection with the RFA,
a small entity includes a clearing agency
that: (i) Compared, cleared, and settled
less than $500 million in securities
transactions during the preceding fiscal
year; (ii) had less than $200 million of
funds and securities in its custody or
control at all times during the preceding
fiscal year (or at any time that it has
been in business, if shorter) and (iii) is
not affiliated with any person (other
than a natural person) that is not a small
76 Securities Exchange Act Rel. No. 67232 (June
21, 2012), 77 FR 38350 (June 27, 2012) (SR–CME–
2012–24).
77 Securities Exchange Act Rel. No. 66825 (Apr.
18, 2012), 77 FR 24546 (Apr. 24, 2012) (SR–ICC–
2012–01).
78 5 U.S.C. 601 et seq.
79 See 5 U.S.C. 605(b).
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09APR1
Federal Register / Vol. 78, No. 68 / Tuesday, April 9, 2013 / Rules and Regulations
business or small organization.80 Under
the standards adopted by the Small
Business Administration, small entities
in the finance industry include the
following: (i) for entities engaged in
investment banking, securities dealing
and securities brokerage activities,
entities with $6.5 million or less in
annual receipts; (ii) for entities engaged
in trust, fiduciary and custody activities,
entities with $6.5 million or less in
annual receipts; and (iii) funds, trusts
and other financial vehicles with $6.5
million or less in annual receipts.81
The amendments to Rule 19b–4 and
to the General Instructions for Form
19b–4 apply to all Registered Clearing
Agencies. There are currently seven
clearing agencies with active operations
registered with the Commission. Of the
seven Registered Clearing Agencies with
active operations, four currently
maintain a futures or swaps clearing
business. Based on the Commission’s
existing information about these four
Registered Clearing Agencies, as well as
on the entities likely to register with the
Commission in the future, the
Commission believes that such entities
will not be small entities, but rather part
of large business entities that exceed the
thresholds defining ‘‘small entities’’ set
out above.
For the reasons stated above, the
Commission certifies that the
amendments to Rule 19b–4 and to the
General Instructions for Form 19b–4
would not have a significant economic
impact on a substantial number of small
entities for the purposes of the RFA.
VI. Statutory Basis and Text of
Amendments
Pursuant to the Exchange Act, and
particularly Section 19(b) thereof, 15
U.S.C. 78s(b), the Commission amends
Rule 19b–4 as set forth below.
List of Subjects in 17 CFR Parts 240 and
249
Brokers, Reporting and recordkeeping
requirements, Securities.
Text of Rule
In accordance with the foregoing,
Title 17, chapter II of the Code of
Federal Regulations is amended as
follows:
tkelley on DSK3SPTVN1PROD with RULES
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
1. The general authority citation for
part 240 continues to read as follows:
■
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
80 17
81 13
CFR 240.0–10(d).
CFR 121.201, Sector 52.
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16:04 Apr 08, 2013
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77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f,
78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m,
78n, 78n–1, 78o, 78o–4, 78p, 78q, 78q–1, 78s,
78u–5, 78w, 78x, 78ll, 78mm, 80a–20, 80a–
23, 80a–29, 80a–37, 80b–3, 80b–4, 80b–11,
and 7201 et seq.; 12 U.S.C. 5221(e)(3), 15
U.S.C. 8302, and 18 U.S.C. 1350,, unless
otherwise noted.
Note: The following Appendix A will not
appear in the Code of Federal Regulations.
*
*
*
*
*
■ 2. Revise § 240.19b–4(f)(4)(ii) to read
as follows:
Information to be Included in the Completed
Form (‘‘Form 19b–4 Information’’)
§ 240.19b–4 Filings with respect to
proposed rule changes by self-regulatory
organizations.
7. Basis for Summary Effectiveness Pursuant
to Section 19(b)(3) or for Accelerated
Effectiveness Pursuant to Section 19(b)(2) or
Section 19(b)(7)(D)
*
*
*
*
*
(f) * * *
(4) * * *
(ii)(A) Primarily affects the clearing
operations of the clearing agency with
respect to products that are not
securities, including futures that are not
security futures, swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards; and
(B) Either
(1) Does not significantly affect any
securities clearing operations of the
clearing agency or any rights or
obligations of the clearing agency with
respect to securities clearing or persons
using such securities-clearing service, or
(2) Does significantly affect any
securities clearing operations of the
clearing agency or the rights or
obligations of the clearing agency with
respect to securities clearing or persons
using such securities-clearing service,
but is necessary to maintain fair and
orderly markets for products that are not
securities, including futures that are not
security futures, swaps that are not
security-based swaps or mixed swaps,
and forwards that are not security
forwards. Proposed rule changes filed
pursuant to this subparagraph II must
also be filed in accordance with the
procedures of Section 19(b)(1) for
approval pursuant to Section 19(b)(2)
and the regulations thereunder within
fifteen days of being filed under Section
19(b)(3)(A).
*
*
*
*
*
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
3. The general authority citation for
part 249 continues to read in part as
follows:
■
Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
*
*
*
*
*
4. Form 19b–4 (referenced in
§ 249.819) is amended by revising Item
7(b)(iv) of the General Instructions for
Form 19b–4 as set forth in the attached
Appendix A.
■
PO 00000
Frm 00043
Fmt 4700
Sfmt 4700
Appendix A
GENERAL INSTRUCTIONS FOR FORM
19b–4
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
(b) * * *
(iv) Effects a change in an existing service
of a registered clearing agency that either
(A)(1) does not adversely affect the
safeguarding of securities or funds in the
custody or control of the clearing agency or
for which it is responsible and (2) does not
significantly affect the respective rights or
obligations of the clearing agency or persons
using the service or (B)(1) primarily affects
the clearing operations of the clearing agency
with respect to products that are not
securities, including futures that are not
security futures, swaps that are not securitybased swaps or mixed swaps, and forwards
that are not security forwards and (2) either
(a) does not significantly affect any securities
clearing operations of the clearing agency or
any rights or obligations of the clearing
agency with respect to securities clearing or
persons using such securities-clearing
service, or (b) does significantly affect any
securities clearing operations of the clearing
agency or the rights or obligations of the
clearing agency with respect to securities
clearing or persons using such securitiesclearing service, but is necessary to maintain
fair and orderly markets for products that are
not securities, including futures that are not
security futures, swaps that are not
securities-based swaps or mixed swaps, and
forwards that are not security forwards, and
set forth the basis on which such designation
is made, including, in the case of the fair and
orderly markets provision, the following: (i)
Why the proposed rule change is necessary
to maintain fair and orderly markets for
products that are not securities, including
futures that are not security futures, swaps
that are not security-based swaps or mixed
swaps, and forwards that are not security
forwards; (ii) why the proposed rule change
cannot achieve this goal unless it takes effect
immediately; (iii) the nature and the extent
of the effect upon the relevant markets if the
proposed rule change were not implemented
immediately; (iv) whether the proposed rule
change is temporary or permanent; (v) how
the proposed rule change significantly affects
any securities clearing operations of the
clearing agency or any rights or obligations
of the clearing agency with respect to
securities clearing or persons using such
securities-clearing service; and (vi) why the
proposed rule change would have no adverse
effect on maintaining fair and orderly
markets for securities.
(c) * * *
E:\FR\FM\09APR1.SGM
09APR1
21058
Federal Register / Vol. 78, No. 68 / Tuesday, April 9, 2013 / Rules and Regulations
Note. The Commission has the power
under Section 19(b)(3)(C) of the Act
summarily to temporarily suspend within
sixty days of its filing any proposed rule
change which has taken effect upon filing
pursuant to Section 19(b)(3)(A) of the Act or
was put into effect summarily by the
Commission pursuant to Section 19(b)(3)(B)
of the Act. In exercising its summary power
under Section 19(b)(3)(B), the Commission is
required to make one of the findings
described above but may not have a full
opportunity to make a determination that the
proposed rule change otherwise is consistent
with the requirements of the Act and the
rules and regulations thereunder. The
Commission will generally exercise its
summary power under Section 19(b)(3)(B) on
condition that the proposed rule change to be
declared effective summarily shall also be
subject to the filing procedures of Section
19(b)(1) of the Act, for approval pursuant to
Section 19(b)(2). Accordingly, in most cases,
a summary order under Section 19(b)(3)(B)
shall be effective until such time as the
Commission enters an order, pursuant to
Section 19(b)(2)(A) of the Exchange Act, to
approve such proposed rule change or,
depending on the circumstances, until such
time as the Commission summarily
temporarily suspends the rule change
pursuant to Section 19(b)(3)(C) or,
alternatively, until such time as the
Commission, at the conclusion of
proceedings to determine whether to approve
or disapprove the proposed rule change,
enters an order, pursuant to Section
19(b)(2)(B), approving or disapproving such
proposed rule change. Similarly, the
Commission requires that any proposed rule
change which has taken effect upon filing
pursuant to paragraph (B)(II) of Rule 19b–
4(f)(4)(ii) shall also be subject to the filing
procedures of Section 19(b)(1) of the Act, for
approval pursuant to Section 19(b)(2) of the
Act. Accordingly, such rule change shall be
effective until such time as the Commission
enters an order, pursuant to Section
19(b)(2)(A) of the Exchange Act, to approve
such proposed rule change or, depending on
the circumstances, until such time as the
Commission summarily temporarily
suspends the rule change pursuant to Section
19(b)(3)(C) or, alternatively, until such time
as the Commission, at the conclusion of
proceedings to determine whether to approve
or disapprove the proposed rule change,
enters an order, pursuant to Section
19(b)(2)(B), approving or disapproving such
proposed rule change.
By the Commission.
Dated: April 3, 2013.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013–08141 Filed 4–8–13; 8:45 am]
BILLING CODE 8011–01–P
ACTION:
Final rule.
SUMMARY: The Food and Drug
Administration (FDA) is amending the
animal drug regulations to reflect a
change of sponsor for 43 approved new
animal drug applications (NADAs) and
3 approved abbreviated new animal
drug applications (ANADAs) from
Boehringer Ingelheim Vetmedica, Inc. to
Strategic Veterinary Pharmaceuticals,
Inc.
DATES:
This rule is effective April 9,
2013.
FOR FURTHER INFORMATION CONTACT:
Steven D. Vaughn, Center for Veterinary
Medicine (HFV–100), Food and Drug
Administration, 7520 Standish Pl.,
Rockville, MD 20855, 240–276–8300,
email: steven.vaughn@fda.hhs.gov.
SUPPLEMENTARY INFORMATION:
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Parts 510, 520, 522, 524, 526,
529, and 558
[Docket No. FDA–2013–N–0002]
Boehringer Ingelheim Vetmedica, Inc.,
2621 North Belt Highway, St. Joseph,
MO 64506–2002 has informed FDA that
it has transferred ownership of, and all
rights and interest in, the following 43
approved NADAs and 3 approved
ANADAs to Strategic Veterinary
Pharmaceuticals, Inc., 100 NW. Airport
Rd., St. Joseph, MO 64503:
New Animal Drugs; Change of Sponsor
AGENCY:
Food and Drug Administration,
HHS.
TABLE 1.—APPLICATIONS TRANSFERRED
tkelley on DSK3SPTVN1PROD with RULES
Application No.
11–531 .......................
11–674 .......................
12–469 .......................
31–512 .......................
33–803 .......................
35–918 .......................
38–200 .......................
39–483 .......................
40–848 .......................
43–606 .......................
45–143 .......................
47–278 .......................
47–712 .......................
48–010 .......................
48–237 .......................
48–271 .......................
49–032 .......................
55–097 .......................
65–178 .......................
65–461 .......................
65–481 .......................
65–486 .......................
65–491 .......................
65–496 .......................
92–837 .......................
93–516 .......................
97–452 .......................
98–569 .......................
99–618 .......................
108–963 .....................
VerDate Mar<15>2010
Trade name
DIZAN (dithiazanine iodide) Tablets.
DIZAN (dithiazanine iodide) Powder.
DIZAN Suspension With Piperazine.
ATGARD (dichlovos) Swine Wormer Type A Medicated Article.
TASK (dichlovos) Dog Anthelmintic.
EQUIGARD (dichlovos).
MEDAMYCIN (oxytetracycline hydrochloride) Soluble Antibiotic.
BIO-TAL (thiamylal sodium) Injectable Solution.
ATGARD C (dichlovos) Swine Wormer Type A Medicated Article.
ATGARD V (dichlovos) Swine Wormer Type A Medicated Article.
OXYJECT (oxytetracycline hydrochloride) Injectable Solution.
OXY-TET 50 (oxytetracycline hydrochloride) Injectable Solution.
BIZOLIN-100 (phenylbutazone) Tablets.
ANAPLEX (dichlorophene and toluene) Capsules.
EQUIGEL (dichlovos) Oral Gel.
TASK (dichlovos) Tablets.
ATGARD C (dichlovos) 9.6% Type A Medicated Article.
DRY-MAST (penicillin G procaine/dihydrostreptomycin sulfate) Intramammary Infusion.
FERMYCIN (chlortetracycline hydrochloride or chlortetracycline bisulfate) Soluble Powder.
ANACETIN (chloramphenicol) Tablets.
Chlortetracycline Pneumonia/Calf Scour Boluses.
Chlortetracycline Bisulfate Soluble Powder.
MEDICHOL (chloramphenicol) Tablets.
Tetracycline Soluble Powder.
NEMACIDE (diethylcarbamazine citrate) Oral Syrup.
BIZOLIN (phenylbutazone) Injection 20%.
OXYJECT 100 (oxytetracycline hydrochloride) Injectable Solution.
MEDACIDE-SDM (sulfadimethoxine) Injection 10%.
BIZOLIN (phenylbutazone) 1–G Tablets.
MEDAMYCIN (oxytetracycline hydrochloride) Injectable Solution.
16:04 Apr 08, 2013
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Fmt 4700
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E:\FR\FM\09APR1.SGM
09APR1
]]>Agencies
[Federal Register Volume 78, Number 68 (Tuesday, April 9, 2013)]
[Rules and Regulations]
[Pages 21046-21058]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08141]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 249
[Release No. 34-69284; File No. S7-29-11]
RIN 3235-AL18
Amendment to Rule Filing Requirements for Dually-Registered
Clearing Agencies
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``SEC'' or
``Commission'') is affirming recent amendments to Rule 19b-4 under the
Securities Exchange Act of 1934 (``Exchange Act'') in connection with
filings of proposed rule changes by certain registered clearing
agencies and is expanding on those amendments in response to comments
received (collectively, ``Final Rule''). The Commission also is making
corresponding technical modifications to the General Instructions for
Form 19b-4 under the Exchange Act. The amendments to Rule 19b-4 and the
instructions to Form 19b-4 are intended to streamline the rule filing
process in areas involving certain activities concerning non-security
products that may be subject to duplicative or inconsistent regulation
as a result of, in part, certain provisions under Section 763(b) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(``Dodd-Frank Act'').
DATES: Effective June 10, 2013.
FOR FURTHER INFORMATION CONTACT: Joseph P. Kamnik, Assistant Director;
Gena Lai, Senior Special Counsel; and Neil Lombardo, Attorney, Office
of Clearance and Settlement, Division of Trading and Markets,
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549-7010 at (202) 551-5710.
SUPPLEMENTARY INFORMATION: The Commission is adopting a Final Rule that
affirms and expands upon recent amendments to Rule 19b-4 under the
Exchange Act concerning categories of proposed rule changes that
qualify for effectiveness upon filing under Section 19(b)(3)(A) of the
Exchange Act. The Commission also is making a corresponding technical
modification to the General Instructions for Form 19b-4 under the
Exchange Act.
I. Introduction
A. Background on the Commission's Process for Proposed Rule Changes
Section 19(b)(1) of the Exchange Act \1\ requires each self-
regulatory organization (``SRO''), including any Registered Clearing
Agency,\2\ to file with the Commission copies of any proposed rule or
any proposed change in, addition to, or deletion from the rules of such
SRO (collectively, ``proposed rule change''),\3\ which must be
submitted on Form 19b-4 \4\ in accordance with the General Instructions
thereto. Once a proposed rule change has been filed, the Commission is
required to publish it in the Federal Register to provide an
opportunity for public comment.\5\ A proposed rule change generally may
not take effect unless the Commission approves it,\6\ or it otherwise
becomes effective under Section 19(b).\7\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ See Section 3(a)(26) of the Exchange Act, 15 U.S.C.
78c(a)(26) (defining the term ``self-regulatory organization'' to
mean any national securities exchange, registered securities
association, registered clearing agency, and, for purposes of
Section 19(b) and other limited purposes, the Municipal Securities
Rulemaking Board) (emphasis added).
\3\ 15 U.S.C. 78s(b)(1). Section 3(a)(27) of the Exchange Act
defines ``rules'' to include ``the constitution, articles of
incorporation, bylaws, and rules, or instruments corresponding to
the foregoing * * * and such of the stated policies, practices, and
interpretations of such exchange, association, or clearing agency as
the Commission, by rule, may determine to be necessary or
appropriate in the public interest or for the protection of
investors to be deemed to be rules of such exchange, association, or
clearing agency.'' 15 U.S.C. 78c(a)(27). Rule 19b-4(b) under the
Exchange Act defines ``stated policy, practice, or interpretation''
to mean, in part, ``[a]ny material aspect of the operation of the
facilities of the self-regulatory organization'' or ``[a]ny
statement made generally available'' that ``establishes or changes
any standard, limit, or guideline'' with respect to the ``rights,
obligations, or privileges'' of persons or the ``meaning,
administration, or enforcement of an existing rule.'' 17 CFR
240.19b-4(b).
\4\ See 17 CFR 249.819.
\5\ See 15 U.S.C. 78s(b)(1). The SRO is required to prepare the
notice of its proposed rule change on Exhibit 1 of Form 19b-4 that
the Commission then publishes in the Federal Register.
\6\ See 15 U.S.C. 78s(b)(2). However, as provided in Section
19(b)(2)(D) of the Exchange Act, 15 U.S.C. 78s(b)(2)(D), a proposed
rule change shall be ``deemed to have been approved by the
Commission'' if the Commission does not take action on a proposal
that is subject to Commission approval within the statutory time
frames specified in Section 19(b)(2).
\7\ See, e.g., 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------
Section 19(b)(2) of the Exchange Act sets forth the standards and
time periods for Commission action either to approve, disapprove, or
institute proceedings to determine whether the proposed rule change
should be disapproved.\8\ The Commission must approve a proposed rule
change if it
[[Page 21047]]
finds that the underlying rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to the SRO proposing the rule change.\9\
---------------------------------------------------------------------------
\8\ See 15 U.S.C. 78s(b)(2).
\9\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
At the same time, Section 19(b)(3)(A) of the Exchange Act provides
that a proposed rule change may become effective upon filing with the
Commission, without pre-effective notice and opportunity for comment,
if it is appropriately designated by the SRO as: (i) Constituting a
stated policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule of the SRO; (ii)
establishing or changing a due, fee, or other charge imposed by the SRO
on any person, whether or not the person is a member of the SRO; or
(iii) relating solely to the administration of the SRO.\10\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------
Section 19(b)(3)(B) of the Exchange Act also separately provides
that a proposed rule change may be put into effect summarily if it
appears to the Commission that such action is necessary for the
protection of investors, the maintenance of fair and orderly markets,
or the safeguarding of securities or funds, and provides that any
proposed rule change so put into effect shall be filed promptly
thereafter with the Commission under Section 19(b)(1) of the Exchange
Act.\11\ Accordingly, a proposed rule change put into effect summarily
under Section 19(b)(3)(B) of the Exchange Act is also subject to the
procedures of Section 19(b)(2) of the Exchange Act--in other words,
that it is summarily effective only until such time as the Commission:
(i) enters an order, pursuant to Section 19(b)(2)(A) of the Act, to
approve or disapprove such proposed rule change; or (ii) institutes
proceedings to determine whether the proposed rule change should be
disapproved.\12\
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(3)(B).
\12\ See Securities Exchange Act Release Nos. 11461 (June 11,
1975); 11554 (July 28, 1975); 11555 (July 28, 1975); and 11556 (July
28, 1975). See also 17 CFR 249.819.
---------------------------------------------------------------------------
Under Section 19(b)(3)(C) of the Exchange Act, the Commission
summarily may temporarily suspend a proposed rule change of an SRO that
has taken effect pursuant to either Section 19(b)(3)(A) or 19(b)(3)(B)
of the Exchange Act within sixty days of its filing if it appears to
the Commission that such action is necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Exchange Act.\13\ If the Commission
takes such action, it is then required to institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.\14\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(C).
\14\ Id. Temporary suspension of a proposed rule change and any
subsequent action to approve or disapprove such change shall not
affect the validity or force of the rule change during the period it
was in effect and shall not be reviewable under Section 25 of the
Exchange Act, nor shall it be deemed to be ``final agency action''
for purposes of 5 U.S.C. 704. Id.
---------------------------------------------------------------------------
In addition to the matters expressly set forth in the statute,
Section 19(b)(3)(A) also provides the Commission with the authority, by
rule and when consistent with the public interest, to designate other
types of proposed rule changes that may be effective upon filing with
the Commission.\15\ The Commission has previously used this authority
to designate, under Rule 19b-4 of the Exchange Act, certain rule
changes that qualify for effectiveness upon filing under Section
19(b)(3)(A).\16\ On July 7, 2011, the Commission adopted an interim
final rule (``Interim Final Rule'') to amend Rule 19b-4 to include in
the list of categories that qualify for effectiveness upon filing under
Section 19(b)(3)(A) of the Exchange Act any matter effecting a change
in an existing service of a Registered Clearing Agency that (i)
primarily affects the futures clearing operations of the clearing
agency with respect to futures that are not security futures and (ii)
does not significantly affect any securities \17\ clearing operations
of the clearing agency or any related rights or obligations of the
clearing agency or persons using such service.\18\ The Interim Final
Rule also made corresponding technical modifications to the General
Instructions for Form 19b-4. These actions were intended to provide a
streamlined process for making effective, subject to certain
conditions, proposed rule changes that primarily concern the futures
clearing operations of a Registered Clearing Agency and are not linked
to securities clearing operations.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ For example, Rule 19b-4(f) under the Exchange Act currently
permits SROs to declare rule changes to be immediately effective
pursuant to Section 19(b)(3)(A) if properly designated by the SRO
as: (i) Effecting a change in an existing service of a Registered
Clearing Agency that: (A) does not adversely affect the safeguarding
of securities or funds in the custody or control of the clearing
agency or for which it is responsible; and (B) does not
significantly affect the respective rights or obligations of the
clearing agency or persons using the service; (ii) effecting a
change in an existing order-entry or trading system of an SRO that:
(A) does not significantly affect the protection of investors or the
public interest; (B) does not impose any significant burden on
competition; and (C) does not have the effect of limiting the access
to or availability of the system; or (iii) effecting a change that:
(A) does not significantly affect the protection of investors or the
public interest; (B) does not impose any significant burden on
competition; and (C) by its terms, does not become operative for 30
days after the date of the filing, or such shorter time as the
Commission may designate if consistent with the protection of
investors and the public interest; provided that the SRO has given
the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change, at least five business days prior to the date of filing
of the proposed rule change, or such shorter time as designated by
the Commission. See 17 CFR 240.19b-4(f).
\17\ Section 3(a)(10) of the Exchange Act defines ``security''
to include ``any note, stock, treasury stock, security future, bond,
debenture, certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or other mineral royalty or
lease, any collateral-trust certificate, preorganization certificate
or substitution, transferable share, investment contract, voting-
trust certificate, certificate of deposit for a security, any put,
call, straddle, option, or privilege on any security, certificate of
deposit, or group or index of securities (including any interest
therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange
relating to foreign currency, or, in general, any instrument
commonly known as a `security'; or any certificate of interest or
participation in, temporary or interim certificate for, receipt for,
or warrant or right to subscribe to or purchase, any of the
foregoing * * *.'' 15 U.S.C. 78c(a)(10).
\18\ See Amendment to Rule Filing Requirements for Dually-
Registered Clearing Agencies, Securities Exchange Act Release No.
34-64832 (July 7, 2011), 76 FR 41056 (July 13, 2011).
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B. Clearing Agencies Deemed Registered Under the Dodd-Frank Act
Section 763(b) of the Dodd-Frank Act \19\ provides that (i) a
depository institution registered with the Commodities Futures Trading
Commission (``CFTC'') that cleared swaps as a multilateral clearing
organization prior to the date of enactment of the Dodd-Frank Act and
(ii) a derivatives clearing organization (``DCO'') registered with the
CFTC that cleared swaps pursuant to an exemption from registration as a
clearing agency prior to the date of enactment of the Dodd-Frank Act
will be deemed registered with the Commission as a clearing agency
solely for the purpose of clearing security-based swaps (``Deemed
Registered Provision'').\20\ On July 16, 2011, the Deemed Registered
Provision, along with other general provisions
[[Page 21048]]
under Title VII of the Dodd-Frank Act, became effective,\21\ thereby
requiring each affected clearing agency to comply with all requirements
of the Exchange Act and the rules and regulations thereunder applicable
to Registered Clearing Agencies including, for example, the obligation
to file proposed rule changes under Section 19(b) of the Exchange Act.
The clearing of swaps,\22\ futures, options on futures, and forwards is
generally regulated by the CFTC in connection with its oversight and
supervision of DCOs. DCOs are generally permitted to implement rule
changes by self-certifying that the new rule complies with the CEA and
the CFTC's regulations.\23\ The changes effected by the Interim Final
Rule were intended to eliminate unnecessary delays that could arise due
to the differences between the Commission's rule filing process and the
CFTC's self-certification process, which generally allows rule changes
to become effective either before or within ten days after filing.\24\
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\19\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\20\ See Section 763(b) of the Dodd-Frank Act (adding new
Section 17A(l) to the Exchange Act, 15 U.S.C. 78q-1(1)). Under this
Deemed Registered Provision, each of the Chicago Mercantile Exchange
Inc. (``CME''), ICE Clear Europe Limited (``ICE Clear Europe'') and
ICE Clear Credit LLC (``ICC''), as the successor entity of ICE Trust
US LLC, became Registered Clearing Agencies solely for the purpose
of clearing security-based swaps. Registered Clearing Agencies that
currently conduct a swaps or a futures business are The Options
Clearing Corporation (``OCC''), CME, ICE Clear Europe and ICC.
\21\ Section 774 of the Dodd-Frank Act states, ``[u]nless
otherwise provided, the provisions of this subtitle shall take
effect on the later of 360 days after the date of the enactment of
this subtitle or, to the extent a provision of this subtitle
requires a rulemaking, not less than 60 days after publication of
the final rule or regulation implementing such provision of this
subtitle.''
\22\ Section 721 of the Dodd-Frank Act amended Section 1a of the
Commodity Exchange Act (``CEA'') to define the term ``swap.'' Among
other things, the definition of ``swap'' specifically excludes any
security-based swap other than a mixed swap. 7 U.S.C. 1a(47)(B)(x).
See also Further Definition of ``Swap,'' ``Security-Based Swap,''
and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based
Swap Agreement Recordkeeping, 77 FR 48207 (August 13, 2012)
(``Adopting Release''); 76 FR 29818 (May 23, 2011) (``Proposing
Release'').
\23\ See 7 U.S.C. 7a-2(c) and 17 CFR 40.6.
\24\ See 7 U.S.C. 7a-2(c) and 17 CFR 40.6.
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C. The Interim Final Rule
The Interim Final Rule amended Rule 19b-4 to expand the list of
categories that qualify for effectiveness immediately upon filing
pursuant to Section 19(b)(3)(A) of the Exchange Act to include proposed
rule changes made by Registered Clearing Agencies with respect to
certain futures clearing operations.\25\ Specifically, the Interim
Final Rule amended Rule 19b-4(f)(4)(ii) to allow a proposed rule change
concerning futures clearing operations filed by a Registered Clearing
Agency to take effect upon filing with the Commission pursuant to
Section 19(b)(3)(A) so long as it is properly designated by the
Registered Clearing Agency as effecting a change in a service of the
Registered Clearing Agency that meets two conditions.\26\ The first
condition, set forth in Interim Final Rule 19b-4(f)(4)(ii)(A), is that
the proposed rule change must primarily affect the futures clearing
operations of the clearing agency with respect to futures that are not
security futures.\27\ For purposes of this requirement, a Registered
Clearing Agency's ``futures clearing operations'' includes any activity
that would require the Registered Clearing Agency to register with the
CFTC as a DCO in accordance with the CEA.\28\ In addition, to
``primarily affect'' such futures clearing operations means that the
proposed rule change is targeted to affect matters related to the
clearing of futures specifically, and that any effect on other clearing
operations would be incidental in nature and not significant in extent.
Because a security futures product is a security for purposes of the
Exchange Act,\29\ a Registered Clearing Agency may not invoke Rule 19b-
4(f)(4)(ii) to designate proposed rule changes concerning the agency's
security futures operations as taking effect upon filing with the
Commission pursuant to Section 19(b)(3)(A). Instead, the Commission
reviews such proposed rule changes in accordance with Section 19(b)(2),
unless there is another basis for the change to be filed under Section
19(b)(3)(A).
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\25\ When an SRO designates a proposed rule change as becoming
effective upon filing with the Commission pursuant to Section
19(b)(3)(A) of the Exchange Act, the Commission has the power
summarily to temporarily suspend the change within sixty days of its
filing if it appears to the Commission that such action is necessary
or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the
Exchange Act. See 15 U.S.C. 78s(b)(3)(A). See also supra note 14 and
accompanying text.
\26\ 17 CFR 240.19b-4(f)(4)(ii) (as amended by the Interim Final
Rule).
\27\ 17 CFR 240.19b-4(f)(4)(ii)(A) (as amended by the Interim
Final Rule). For example, rules of general applicability that apply
equally to securities clearing operations, including security-based
swaps, would not be considered to primarily affect such futures
clearing operations. In addition, changes to general provisions in
the constitution, articles, or bylaws of the Registered Clearing
Agency that address the operations of the entire clearing agency
would not be considered to primarily affect such futures clearing
operations. See Interim Final Rule, Securities Exchange Act Release
No. 64832 (July 7, 2011), 76 FR 41056, 41058 (July 13, 2011).
\28\ See 7 U.S.C. 7a-1 (providing that it shall be unlawful for
a DCO, unless registered with the CFTC, directly or indirectly to
make use of the mails or any means or instrumentality of interstate
commerce to perform the functions of a DCO (as described in 7 U.S.C.
1a(9)) with respect to a contract of sale of a commodity for future
delivery (or option on such a contract) or option on a commodity, in
each case unless the contract or option is (i) otherwise excluded
from registration in accordance with certain sections of the CEA or
(ii) a security futures product cleared by a Registered Clearing
Agency); see also Interim Final Rule, Securities Exchange Act
Release No. 64832 (July 7, 2012), 76 FR 41056, 41058 (July 13,
2011).
\29\ 15 U.S.C. 78c(a)(10).
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The second condition, contained in Interim Final Rule 19b-
4(f)(4)(ii)(B), is that the proposed rule change must not significantly
affect any securities clearing operations of the clearing agency or any
related rights or obligations of the clearing agency or persons using
such service.\30\ The phrase ``significantly affect'' is used elsewhere
in Rule 19b-4 in the context of defining other categories of proposed
rule changes that qualify for effectiveness upon filing under Section
19(b)(3)(A) of the Exchange Act.\31\ Accordingly, ``significantly
affect'' has the same meaning and interpretation as that phrase has in
Rules 19b-4(f)(4)(i) (as amended by the Interim Final Rule), 19b-
4(f)(5), and 19b-4(f)(6). The Commission believes that a Registered
Clearing Agency's ``securities clearing operations * * * or any related
rights or obligations of the clearing agency or persons using such
service'' would include activity that would require the Registered
Clearing Agency to register as a clearing agency in accordance with the
Exchange Act.
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\30\ 17 CFR 240.19b-4(f)(4)(ii)(B) (as amended by the Interim
Final Rule).
\31\ See, e.g., 17 CFR 240.19b-4(f)(4)(i) (as amended by the
Interim Final Rule) (in respect of a proposed rule change in an
existing service of a Registered Clearing Agency that: (1) Does not
adversely affect the safeguarding of securities or funds in the
custody or control of the clearing agency or for which it is
responsible and (2) does not significantly affect the respective
rights or obligations of the clearing agency or persons using the
service); see also Interim Final Rule, Securities Exchange Act
Release No. 64832 (July 7, 2012), 76 FR 41056, 41059 (July 13,
2011).
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II. Final Rule
A. Comments Received on the Interim Final Rule
The Commission received three comment letters on the Interim Final
Rule.\32\ Two commenters urged the Commission to modify the Interim
Final Rule to broaden the list of rule changes that qualify for
effectiveness upon filing pursuant to Section 19(b)(3)(A) to include
changes related to all products that are regulated by the CFTC.\33\
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\32\ Copies of comments received on the proposal are available
on the Commission's Web site at: https://www.sec.gov/comments/s7-29-11/s72911.shtml.
\33\ See, e.g., comment letter of Craig Donohue, Chief Executive
Office, CME Group, Inc. (Sep. 15, 2011) (``CME Letter'') and comment
letter of Shearman & Sterling LLP, on behalf of ICE Clear Europe
Limited (Sept. 15, 2011) (``ICE Clear Europe Letter'').
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In their comment letters, both CME and ICE Clear Europe urged the
Commission to expand Rule 19b-4(f)(4)(ii) to include proposed rule
changes related to the swaps clearing
[[Page 21049]]
operations of a Registered Clearing Agency.\34\ In particular, CME
noted that its current business involves the clearing of both futures
and swaps, including agricultural swaps, interest rate swaps, certain
over-the-counter (``OTC'') commodity products (including gold forwards
and freight forwards) and, potentially, energy and foreign exchange
swaps.\35\ CME raised concerns that, by omitting swaps and certain
other OTC products from the types of products covered by Rule 19b-
4(f)(4)(ii), it is ``now subject to substantial potential delays'' when
implementing rule changes that deal with products over which the
Commission is not its primary regulator.\36\ ICE Clear Europe raised
similar concerns with respect to its non-security-based swaps business,
particularly its longstanding energy derivatives clearing business.\37\
Specifically, ICE Clear Europe requested that Rule 19b-4(f)(4)(ii) be
expanded to include proposed rule changes that relate solely to swaps,
and are not related to security-based swaps.\38\
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\34\ See CME Letter and ICE Clear Europe Letter.
\35\ See CME Letter.
\36\ Id.
\37\ See ICE Clear Europe Letter.
\38\ Id.
---------------------------------------------------------------------------
CME also requested that the Commission revise Rule 19b-4(f)(4)(ii)
generally such that only proposed rule changes that relate directly to
security[hyphen]based swap clearing activities would be subject to the
Commission's review in accordance with Section 19(b)(2).\39\ CME
further requested that Rule 19b-4(f)(4)(ii) permit proposed rule change
filings to be made pursuant to Section 19(b)(3)(A) with respect to
``rules of general applicability for product categories, such as
[credit default swaps], where clearing is offered for both swaps and
security[hyphen]based swaps'' and that a Section 19(b)(2) filing not be
required for any other swap or ``OTC product categories with no direct
or significant impact on security[hyphen]based swaps,'' and should also
not be required for ``broad rules of general applicability as to
clearing operations that will not have any particular or significant
impact on security[hyphen]based swaps clearing.'' \40\ CME stated that,
at present, its entire business, including the clearing of credit
default swaps on broad-based indices, falls under the exclusive
jurisdiction of the CFTC, and that the effect of the Interim Final Rule
has been to replace the rule filing regime of the CEA with the pre-
approval rule filing regime of the Exchange Act. CME stated that it
believes the Deemed Registered Provision was intended to allow clearing
agencies already authorized to clear and engaged in the clearing of
credit default swaps and other products under the authority of the CFTC
to continue to do so without undue disruption to its service offerings,
and that Congress did not intend to change this fundamental division of
responsibilities.
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\39\ See CME Letter.
\40\ Id. In its comment letter, CME noted that Executive Order
13563, which the President signed on January 18, 2011, requires,
among other things, that all executive branch agencies identify and
consider regulatory approaches that reduce burdens and maintain
flexibility and freedom of choice for the public, in each case where
relevant, feasible, and consistent with regulatory objectives, and
to the extent permitted by law. While this order does not apply to
independent agencies, the President separately signed Executive
Order 13579 on July 11, 2011, which requires each independent agency
to develop and release a public plan to periodically review its
existing significant regulations ``to determine whether any such
regulations should be modified, streamlined, expanded, or repealed
so as to make the agency's regulatory program more effective or less
burdensome in achieving the regulatory objectives.'' The Commission
notes that the purpose of Rule 19b-4(f)(4)(ii) is to reduce burdens
that would otherwise apply to Registered Clearing Agencies by virtue
of certain statutory provisions contained in the Exchange Act, as
amended by the Dodd-Frank Act. Specifically, the Final Rule permits
Registered Clearing Agencies to submit to the Commission for
effectiveness upon filing proposed rule changes that effect changes
in their existing services that primarily affect their clearing of
products that are not securities, including futures that are not
security futures, swaps that are not securities-based swaps or mixed
swaps, and forwards that are not security forwards, and that and do
not significantly affect the clearing agency's securities clearing
operations or the rights or obligations of the clearing agency with
respect to securities clearing or persons using such securities
clearing services.
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B. Amendments to the Interim Final Rule
The Commission hereby affirms the amendments effected by the
Interim Final Rule. As set forth herein, and after giving consideration
to the comments received concerning the Interim Final Rule, the
Commission is hereby modifying Rule 19b-4(f)(4)(ii) in two further
respects.
1. Inclusion of Other Products That Are Not Securities, Including
Certain Swaps and Forwards \41\
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\41\ Section 721 of the Dodd-Frank Act defines the term ``swap''
broadly to encompass a variety of derivatives products. The
definition includes, for example, interest rate swaps, commodity
swaps, currency swaps, equity swaps, and credit default swaps. It
also extends to certain types of forward contracts, as well as
certain types of options, but excludes, among other things, options
on any security or group or index of securities, including any
interest therein or based on the value thereof. See 7 U.S.C. 1a(47).
---------------------------------------------------------------------------
First, the Commission is revising Rule 19b-4(f)(4)(ii) to add
certain rule changes primarily affecting a Registered Clearing Agency's
clearing operations for other non-securities products to the list of
changes that qualify for effectiveness upon filing pursuant to Section
19(b)(3)(A). In particular, in response to commenters,\42\ the
Commission is broadening Rule 19b-4(f)(4)(ii)(A) to encompass proposed
rule changes that primarily affect not only a Registered Clearing
Agency's clearing of futures that are not security futures, but also
other products that are not securities, including swaps that are not
security-based swaps \43\ or mixed swaps,\44\ and forwards that are not
security forwards.\45\ The Commission believes that also including
proposed rule changes that primarily affect a Registered Clearing
Agency's clearing operations with respect to these non-securities
products in the list of changes that would qualify for effectiveness
upon filing under Section 19(b)(3)(A) is consistent with the
Commission's purposes for initially amending Rule 19b-4 pursuant to the
Interim Final Rule. Specifically, this approach should help limit
potential delays to the effectiveness of rule changes that primarily
concern a Registered Clearing Agency's clearing operations with respect
to products that are not securities, including futures that are not
security futures, swaps that are not security-based swaps or mixed
swaps, and forwards that are not security forwards, subject to the
limitations contained in Rule 19b-4(f)(4)(ii)(B).\46\
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\42\ See CME Letter and ICE Clear Europe Letter.
\43\ See 15 U.S.C. 78(c)(68).
\44\ See 15 U.S.C. 78(c)(68)(D).
\45\ The Commission notes that it would not regard a clearing
agency's filing of proposed rule changes relating to a product the
legal status of which may not be clear pursuant to Section 19(b)(2)
or Section 19(b)(3)(B) of the Act as a determination or presumption
by the clearing agency that such proposed rule changes involve
products that are securities. Similarly, the Commission's acceptance
of proposed rule changes for filing under paragraph (f)(4)(ii) would
not constitute a presumption or determination by the Commission that
the products involved are not securities. The Commission also notes
that Section 718 of the Dodd-Frank Act (``Section 718'') established
a process through which the Commission and the CFTC could work
together to determine the status of ``novel derivative products''
that may have elements of both securities and contracts of sale of a
commodity for future delivery (or options on such contracts or
options on commodities). In this regard, the Commission notes that
the filing of a proposed rule change pursuant to Section 19(b)(2) or
Section 19(b)(3)(B) of the Act, or paragraph (f)(4)(ii), would not
be considered a notice under Section 718 to the Commission.
\46\ 17 CFR 240.19b-4(f)(ii)(B) (providing, as the second
condition for satisfying Rule 19b-4(f)(ii), that the proposed rule
change ``[d]oes not significantly affect any securities clearing
operations of the clearing agency or any rights or obligations of
the clearing agency with respect to securities clearing or persons
using such securities-clearing service.'').
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For purposes of Rule 19b-4(f)(4)(ii)(A), a Registered Clearing
Agency's clearing operations with
[[Page 21050]]
respect to products that are not securities, including futures that are
not security futures, swaps that are not security-based swaps or mixed
swaps, and forwards that are not security forwards, would include an
activity that would require the Registered Clearing Agency to register
with the CFTC as a DCO in accordance with the CEA.\47\ In addition, a
proposed rule change ``[p]rimarily affects'' a clearing agency's
clearing operations with respect to products that are not securities
when it is targeted to matters related only to the clearing of those
products.\48\ For example, rules of general applicability that would
apply equally to securities clearing operations, including security-
based swaps, would not be considered to primarily affect a Registered
Clearing Agency's non-securities clearing operations. While CME
requested that rules of general applicability be eligible for
effectiveness upon filing, the Commission believes rules that would
have equal applicability to securities clearing operations must be
filed for Commission review in accordance with Section 19(b)(2), which
will enable the Commission to fulfill its statutory obligations under
the Exchange Act. If rules that have a significant impact on securities
operations were permitted to become immediately effective, the
Commission would not have the ability to review the impact of the rules
against Exchange Act standards before their effectiveness, which would
undercut the scope of the Commission's oversight of registered clearing
agencies. In addition, changes to general provisions in the
constitution, articles, or bylaws of the Registered Clearing Agency
that address the operations of the entire clearing agency also would
not be considered to primarily affect such Registered Clearing Agency's
clearing operations with respect to products that are not securities.
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\47\ See 7 U.S.C. 7a-1 (providing that it shall be unlawful for
a DCO, unless registered with the CFTC, directly or indirectly to
make use of the mails or any means or instrumentality of interstate
commerce to perform the functions of a DCO (as described in 7 U.S.C.
1a(9)) with respect to a contract of sale of a commodity for future
delivery (or option on such a contract) or option on a commodity, in
each case unless the contract or option is (i) otherwise excluded
from registration in accordance with certain sections of the CEA or
(ii) a security futures product cleared by a Registered Clearing
Agency).
\48\ If a proposed rule change filed pursuant to Section
19(b)(3)(A) has an incidental but significant effect on clearing
operations with respect to products that are not securities and does
not qualify under new Rule 19b-4(f)(4)(ii)(B)(II), the Commission
summarily may, within 60 days after the proposed rule change becomes
effective under Section 19(b)(3)(A), temporarily suspend the rule
change and institute proceedings to determine whether to approve or
disapprove the rule change pursuant to the provisions of Section
19(b)(2). Alternatively, as with other filings that do not meet the
requirements of Section 19(b)(3)(A) and Rule 19b-4(f), the
Commission may reject the filing as technically deficient within
seven business days, pursuant to Section 19(b)(10)(B). 15 U.S.C.
78s(b)(10)(B).
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Further, because security futures, security-based swaps, mixed
swaps, security forwards, and options on securities are considered
securities for purposes of the Exchange Act,\49\ a Registered Clearing
Agency would not be permitted to file proposed rule changes related to
these lines of business pursuant to Section 19(b)(3)(A) of the Exchange
Act in reliance on Rule 19b-4(f)(4)(ii). Instead, such clearing agency
would continue to be required to file proposed rule changes related to
its clearing of security futures, security-based swaps, mixed swaps,
security forwards, options on securities, or other securities products
for Commission review in accordance with Section 19(b)(2) of the
Exchange Act, unless there is another basis for the proposed rule
change to be filed under Section 19(b)(3)(A).
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\49\ 15 U.S.C. 78c(a)(10). As previously noted, however, the
definition of ``swap'' specifically excludes any security-based swap
other than a mixed swap. See supra note 22.
---------------------------------------------------------------------------
The Commission generally believes that it is appropriate to review
proposed rule changes in accordance with the process set forth in
Section 19(b)(2) of the Exchange Act whenever the changes
``significantly affect'' any securities clearing operations of the
clearing agency (unless there is another basis for the proposed rule
change to be filed under Section 19(b)(3)(A)), even in circumstances
when such effects may be indirect.\50\
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\50\ For example, in instances where the swap and security-based
swap business of a clearing agency are intertwined, such as when a
clearing agency has established one clearing fund or pool of
financial resources for both products, changes applicable to such
swaps are unlikely to meet the requirement that the change not
significantly affect any securities clearing operations of the
clearing agency or any related rights or obligations of the clearing
agency or persons using such service.
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The Commission is charged with determining whether the rules of a
Registered Clearing Agency are designed, among other things, ``to
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible * * * and, to protect investors and the public interest.''
\51\ The Commission's oversight responsibility over Registered Clearing
Agencies extends to the clearing agency as a whole and is entity-based,
rather than product-based.\52\ If Registered Clearing Agencies did not
file proposed rule changes with the Commission that relate to their
clearing operations, as required under Section 19(b) of the Exchange
Act, the Commission would not be able to meet its statutory oversight
responsibilities.
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\51\ 15 U.S.C. 78q-1(b)(3)(F).
\52\ See S. Rep. No. 94-75, at 34 (1975), reprinted in 1975
U.S.C.C.A.N. 179, 212 (``The Commission has oversight responsibility
with respect to the self-regulatory organizations to insure that
they exercise their delegated governmental power effectively to meet
regulatory needs in the public interest and that they do not
exercise that delegated power in a manner inimical to the public
interest or unfair to private interests.'').
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2. Addition of the ``Fair and Orderly Markets'' Provision
In light of the issues identified by the commenters in connection
with the Interim Final Rule, the Commission has determined to further
revise Rule 19b-4(f)(4)(ii)(B) by adding a second clause that will
permit clearing agencies to file a proposed rule change under Section
19(b)(3)(A) when the rule change primarily affects the clearing
operations of the clearing agency with respect to products that are not
securities, including futures that are not security futures, swaps that
are not security-based swaps or mixed swaps, and forwards that are not
security forwards, even when the proposed rule ``significantly
affects'' any securities clearing operations of the clearing agency or
any rights or obligations of the clearing agency with respect to
securities clearing or persons using such securities-clearing service,
if the clearing agency can demonstrate that the rule change is
``necessary to maintain fair and orderly markets for products that are
not securities, including futures that are not security futures, swaps
that are not security-based swaps or mixed swaps, and forwards that are
not security forwards.''
A proposed rule change filed by a clearing agency relying on this
``fair and orderly markets'' provision must, in addition to being filed
for approval pursuant to Section 19(b)(3)(A), be separately filed for
approval pursuant to Section 19(b)(2), and this second filing must be
made within fifteen calendar days after the proposed rule change was
filed for approval under Section 19(b)(3)(A). Accordingly, in most
cases, a rule that is effective upon filing under Section 19(b)(3)(A)
that relies upon the ``fair and orderly markets'' provision of Rule
19b-4(f)(4)(ii)(B) shall be effective until such time as the Commission
enters an order, pursuant to Section 19(b)(2)(A) of the Exchange Act,
to approve such proposed rule change or, depending on the
circumstances, until such time as the Commission summarily temporarily
suspends the rule change
[[Page 21051]]
pursuant to Section 19(b)(3)(C) or, alternatively, until such time as
the Commission, at the conclusion of proceedings to determine whether
to approve or disapprove the proposed rule change, enters an order,
pursuant to Section 19(b)(2)(B), approving or disapproving such
proposed rule change.\53\
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\53\ Because proposed rule changes filed pursuant to Rule 19b-
4(f)(4)(ii)(B)(II) are submitted in accordance with the Commission's
statutory authority set forth in Section 19(b)(3)(A), the Commission
would retain the power to summarily temporarily suspend the rule
change within 60 days of its filing if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Exchange Act. See 15 U.S.C. 78s(b)(3)(C). The
Commission would then be required to institute proceedings to
determine whether the rule should be approved or disapproved. Id. As
a practical matter, however, the Commission expects that proposed
rule changes filed under the ``fair and orderly markets'' provision
would remain in effect while they are reviewed in accordance with
Section 19(b)(2) which, among other things, requires the Commission
to approve, disapprove, or institute proceedings to determine
whether to disapprove a proposed rule change within 45 days of its
date of publication in the Federal Register, subject in certain
circumstances to an extension of up to an additional 45 days. The
Commission would nonetheless retain the ability, within 60 days
after a proposed rule change becomes effective under 19(b)(3)(A), to
summarily temporarily suspend the rule change and institute
proceedings or, after the 60-day summary suspension deadline, to
disapprove the rule change pursuant to the provisions of Section
19(b)(2).
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To demonstrate that a proposed rule change is ``necessary to
maintain fair and orderly markets,'' a clearing agency must include in
both of its filings with the Commission a detailed explanation of the
following: (i) Why the proposed rule change is necessary to maintain
fair and orderly markets for products that are not securities,
including futures that are not security futures, swaps that are not
security-based swaps or mixed swaps, and forwards that are not security
forwards; (ii) why the proposed rule change cannot achieve this goal
unless it takes effect immediately; (iii) how, and to what extent,
markets would be adversely affected if the proposed rule change were
not implemented immediately; (iv) whether the proposed rule change is
temporary or permanent; (v) how the proposed rule change significantly
affects any securities clearing operations of the clearing agency or
the rights or obligations of the clearing agency with respect to
securities clearing or persons using such securities-clearing service;
and (vi) why the proposed rule change would have no adverse effect on
maintaining fair and orderly markets for securities.
The Commission believes that the new ``fair and orderly markets''
provision directly addresses the specific concerns raised by
commenters, while preserving the core features of the Commission's
existing notice and comment rule filing process. In particular, this
provision is intended to respond to commenters' observations that the
pre-effective notice and comment requirement of the Commission's
Section 19(b)(2) rule filing process may unnecessarily burden existing
non-securities markets. The new rule provision in Rule 19b-
4(f)(4)(ii)(B)(II) allows Registered Clearing Agencies that are also
DCOs to have rules that are necessary to maintain fair and orderly
markets and that have a significant effect on securities operations of
the Registered Clearing Agencies to take effect immediately upon
filing, while the traditional notice and comment period under the
Exchange Act proceeds thereafter.
The Commission believes the limited period of effectiveness while
the notice and comment period proceeds is justified in the specific
circumstances contemplated by the Final Rule given the nature of the
issues raised by commenters and the substantial protections that will
continue to exist under the Final Rule. In particular, the Dodd-Frank
Act represents a significant reform of the national market system for
securities and the national system for the clearance and settlement of
securities transactions in which cooperation between the Commission and
the CFTC is explicitly contemplated. Moreover, the clearly established
time periods and procedures associated with the Commission's notice and
comment process should lead to a greater level of assurance that rules
enacted in this manner that will have significant direct or indirect
effects on the securities clearing activities of the clearing agency
either immediately or in the future will be given due consideration by
the Commission with the benefit of views from outside parties.
The Commission does not intend or expect the new ``fair and orderly
markets'' provision to become, in practice, a common method for
Registered Clearing Agencies to submit proposed rule changes that
affect their clearing operations with respect to products that are not
securities, including futures that are not securities futures, swaps
that are not securities-based swaps or mixed swaps, and forwards that
are not security forwards, but which also affect their securities
clearing operations.\54\ The ``necessary to maintain fair and orderly
markets'' language central to the new provision is intended to be
narrowly circumscribed, and will permit clearing agencies to use the
new provision for rule filings that may be necessary to respond
promptly to major market emergencies and other situations of
significant importance to the functioning of markets for products that
are not securities. In instances when securities clearing operations
are significantly affected, but the proposed rule change is not
necessary to maintain fair and orderly markets for products that are
not securities, including futures that are not security futures, swaps
that are not security-based swaps or mixed swaps, and forwards that are
not security forwards, a Registered Clearing Agency must file the
proposed rule change pursuant to Section 19(b)(1) of the Exchange Act
for approval under Section 19(b)(2) without reliance on Rule 19b-
4(f)(4)(ii)(B)(II).
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\54\ One court that interpreted a ``fair and orderly markets''
standard appearing in another area of the Exchange Act found the
phrase to be an indication that relevant Commission actions are to
be evaluated primarily by reference to the Congressional purposes of
the Securities Act Amendments of 1975 involving the establishment of
a national market system for securities and a national system for
the clearance and settlement of securities transactions. See Ludlow
Corp. v. SEC, 604 F.2d 704 (D.C. Cir. 1979) (discussing origins and
purposes of ``fair and orderly markets'' provision in Section
12(f)(2) of the Exchange Act).
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Finally, the Commission notes that Section 19(b)(2) of the Exchange
Act permits the Commission to approve a proposed rule change on an
accelerated basis if it finds good cause to do so and publishes its
reasons for so finding.\55\ The application of this provision will be
determined by the Commission on a case-by-case basis depending on the
facts and circumstances pertaining to the proposed rule change.
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\55\ See 15 U.S.C. 78s(b)(2)(C)(iii) (``[t]he Commission may not
approve a proposed rule change earlier than 30 days after the date
of publication under paragraph (1), unless the Commission finds good
cause for so doing and publishes the reason for the finding.'').
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3. Conclusion
The Commission believes that permitting clearing agencies to submit
proposed rule changes that meet the two conditions in Rule 19b-
4(f)(4)(ii) for immediate effectiveness upon filing pursuant to Section
19(b)(3)(A) of the Exchange Act is consistent with the public interest
and the purposes of the Exchange Act. In particular, this approach
should help limit the potential for delays by providing a streamlined
filing process for rule changes that primarily affect the clearing
agency's clearing operations with respect to products that are not
securities, including futures that are not securities futures, swaps
that are not securities-
[[Page 21052]]
based swaps or mixed swaps, and forwards that are not security forwards
which, unless such clearing operations were linked to securities
clearing operations, would not be subject to regulation by the
Commission. In addition, the information provided to the Commission by
a Registered Clearing Agency in a filing submitted for review in
accordance with Section 19(b)(2) of the Exchange Act is virtually
identical to the information required to be included in a filing made
pursuant to Section 19(b)(3)(A). At the same time, the Final Rule will
specifically require clearing agencies relying on the new ``fair and
orderly markets'' provision to continue to submit to the Section
19(b)(2) approval process while the rule change is in effect, and the
Commission will retain the power to temporarily suspend the Registered
Clearing Agency's rule change on a summary basis within sixty days
after the rule is filed under Section 19(b)(3)(A) if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Exchange Act.\56\
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\56\ 15 U.S.C. 78s(b)(3)(C). If the Commission takes such
action, it is then required to institute proceedings to determine
whether the proposed rule change should be approved or disapproved.
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B. Amendment to the General Instructions for Form 19b-4
To accommodate the amendment to Rule 19b-4 being adopted today, the
Commission also is making a corresponding technical modification to the
General Instructions for Form 19b-4 under the Exchange Act.
Specifically, the Commission is amending Item 7(b) of the General
Instructions for Form 19b-4 (Information to be Included in the
Completed Form), which requires the respondent SRO to cite the
statutory basis for filing a proposed rule change pursuant to Section
19(b)(3)(A) in accordance with the existing provisions of Rule 19b-
4(f). This amendment revises Item 7(b)(iv) to include the option to
file the form in accordance with Rule 19b-4(f)(4)(ii), which provides
for situations when a Registered Clearing Agency is effecting a change
in an existing service that (i) primarily affects the clearing
operations of the clearing agency with respect to products that are not
securities, including futures that are not security futures, swaps that
are not security-based swaps or mixed swaps, and forwards that are not
security forwards and (ii) either (a) does not significantly affect any
securities clearing operations of the clearing agency or any rights or
obligations of the clearing agency with respect to securities clearing
or persons using such securities-clearing service, or (b) does
significantly affect any securities clearing operations of the clearing
agency or any rights or obligations of the clearing agency with respect
to securities clearing or persons using such securities-clearing
service, but is necessary to maintain fair and orderly markets for
products that are not securities, including futures that are not
security futures, swaps that are not security-based swaps or mixed
swaps, and forwards that are not security forwards. Additional language
is also being added to specify that clearing agencies using the ``fair
and orderly markets'' provision will also be subject to the provisions
of Section 19(b)(2) of the Exchange Act, in a manner equivalent to the
process now used by the Commission for filings that are summarily
approved by the Commission under Section 19(b)(3)(B) of the Exchange
Act, and to specify the information clearing agencies must include in
order to demonstrate that a proposed rule change is ``necessary to
maintain fair and orderly markets for products that are not securities,
including futures that are not security futures, swaps that are not
security-based swaps or mixed swaps, and forwards that are not security
forwards.''
III. Paperwork Reduction Act
The Commission does not believe that the Final Rule contains any
``collection of information'' requirements as defined by the Paperwork
Reduction Act of 1995, as amended (``PRA'').\57\ The Final Rule affirms
and further modifies recent amendments to Rule 19b-4 under the Exchange
Act, such that the list of categories that qualify for effectiveness
upon filing under Section 19(b)(3)(A) of the Exchange Act include any
matter effecting a change in an existing service of a Registered
Clearing Agency that: (i) primarily affects the clearing operations of
the clearing agency with respect to products that are not securities,
including futures that are not security futures, swaps that are not
securities-based swaps or mixed swaps, and forwards that are not
security forwards; and (ii) either (a) does not significantly affect
any securities clearing operations of the clearing agency or any rights
or obligations of the clearing agency with respect to securities
clearing or persons using such securities-clearing service, or (b) does
significantly affect any securities clearing operations of the clearing
agency or any rights or obligations of the clearing agency with respect
to securities clearing or persons using such securities-clearing
service, but is necessary to maintain fair and orderly markets for
products that are not securities, including futures that are not
security futures, swaps that are not security-based swaps or mixed
swaps, and forwards that are not security forwards. In addition, a
proposed rule change filed by a Registered Clearing Agency relying on
the ``fair and orderly markets'' provision set forth in new Rule 19b-
4(f)(4)(ii)(B)(II) would also be filed for approval pursuant to Section
19(b)(2) of the Exchange Act.\58\ Lastly, the Final Rule also makes a
corresponding technical modification to the General Instructions for
Form 19b-4 under the Exchange Act.
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\57\ 44 U.S.C. 3501, et seq.
\58\ Accordingly, in most cases, a rule that is effective upon
filing under Section 19(b)(3)(A) that relies upon the ``fair and
orderly markets'' provision of Rule 19b-4(f)(4)(ii)(B)(II) shall be
effective only until such time as the Commission enters an order,
pursuant to Section 19(b)(2)(A) of the Exchange Act, to approve such
proposed rule change or, depending on the circumstances, until such
time as the Commission summarily temporarily suspends the rule
change pursuant to Section 19(b)(3)(C) or, alternatively, until such
time as the Commission, at the conclusion of proceedings to
determine whether to approve or disapprove the proposed rule change,
enters an order, pursuant to Section 19(b)(2)(B), approving or
disapproving such proposed rule change.
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The Commission does not believe that these amendments would require
any new or additional collection of information, as such term is
defined in the PRA. The PRA defines a ``collection of information'' as
``the obtaining, causing to be obtained, soliciting or requiring the
disclosure to third parties or the public, of facts or opinions by or
for an agency, regardless of form or format, calling for * * * answers
to identical questions posed to, or identical reporting or
recordkeeping requirements imposed on, ten or more persons * * *.''
\59\ The Commission does not believe that the reporting and
recordkeeping provisions in this Final Rule contain ``collection of
information requirements'' within the meaning of the PRA because fewer
than ten persons are expected to rely on Rule 19b-4(f)(4)(ii). At
present, only four Registered Clearing Agencies maintain a futures or
swaps clearing business regulated by the CFTC.
---------------------------------------------------------------------------
\59\ 44 U.S.C. 3502(3)(A).
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IV. Economic Analysis
A. Introduction
The Commission is sensitive to the economic effects of the
amendments to Rule 19b-4, including their costs and benefits. Section
23(a) \60\ of the Exchange Act requires the Commission, when making
rules and regulations
[[Page 21053]]
under the Exchange Act, to consider the impact a new rule would have on
competition. Section 23(a)(2) of the Exchange Act prohibits the
Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act. Section 3(f) of the Exchange Act \61\ requires the
Commission, when engaging in rulemaking that requires it to consider
whether an action is necessary or appropriate in the public interest,
to consider, in addition to the protection of investors, whether the
action would promote efficiency, competition, and capital formation. We
have considered and discussed below the effects of the rules we are
adopting today on efficiency, competition, and capital formation, as
well as the benefits and costs associated with the rulemaking.
---------------------------------------------------------------------------
\60\ 15 U.S.C. 78w(a).
\61\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
As noted above, the Deemed Registered Provision, along with other
general provisions under Title VII of the Dodd-Frank Act, became
effective on July 16, 2011. Accordingly, the four Registered Clearing
Agencies that currently maintain a futures, swaps, or forwards clearing
business regulated by the CFTC are generally required to file proposed
rule changes with the Commission under Section 19(b) of the Exchange
Act, and to comply separately with the CFTC's process for self-
certification or direct approval of rules or rule amendments.\62\ The
Commission is sensitive to the increased burdens these obligations will
impose, and agrees that it is in the public interest to eliminate any
potential inefficiencies and undue delays that could result from the
requirement that the Commission review changes to rules primarily
affecting clearing operations with respect to products that are not
securities, including futures that are not securities futures, swaps
that are not securities swaps or mixed swaps, and forwards that are not
security forwards before these changes may be considered effective.
---------------------------------------------------------------------------
\62\ These include OCC, CME, ICC, and ICE Clear Europe.
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In connection with the Interim Final Rule, the Commission
identified certain costs and benefits of the amendments to Rule 19b-4
and Form 19b-4, and requested commenters to provide views and
supporting information regarding the costs and benefits associated with
the proposals, including estimates of these costs and benefits, as well
as any costs and benefits not already identified. Although the
Commission did not receive any comments on the specific cost-benefit
analysis conducted in connection with the Interim Final Rule, one
commenter expressed a general view questioning whether the Commission's
rulemaking in this area adequately respects the jurisdictional
boundaries established by Congress when it passed the Dodd-Frank Act,
noting that the requirement to file with the Commission for review in
accordance with Section 19(b)(2) proposed rule changes that primarily
affect the futures and swaps operations of a clearing agency registered
with the Commission and the CFTC (``Dually-Registered Clearing
Agency'') is an unreasonable outcome under a costs-benefits
analysis.\63\ Specifically, this commenter argued that the Commission
should not impose a rule that subjects a proposed rule change to a
``lengthy public comment review process'' in cases when the change
relates to a matter that falls within the ``exclusive or primary
jurisdiction'' of another agency (i.e., the CFTC).\64\ The commenter
argued that duplicative regulatory oversight is inherently unreasonable
and imposes ``tremendous'' costs, but did not adduce any empirical
evidence to support its assertion.
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\63\ See CME Letter.
\64\ Id. In its letter, CME also noted that it currently does
not clear any security-based swaps and is registered with the
Commission solely by operation of the Deemed Registered Provision
(although it does have plans to offer clearing services for credit
default swaps that are security-based swaps in the near future). See
also ICE Clear Europe Letter (expressing the view that ``rulemaking
in furtherance of the purposes of the Dodd-Frank Act should, as much
as possible, (i) respect the jurisdictional boundaries delegated to
the CFTC and the Commission under that Act, and (ii) pursue
efficiency and reduce the costs of rulemaking wherever possible'').
---------------------------------------------------------------------------
The Commission disagrees with the commenter's assertion that the
rule will result in unnecessarily duplicative regulatory oversight. The
Exchange Act imposes upon the Commission an independent statutory
responsibility to oversee the operations of Registered Clearing
Agencies as a whole, and not solely in regard to specific products.\65\
The Commission's role in reviewing rule filings ensures that the
Commission has complete information regarding the overall scope of
operations and financial condition of the clearing agency, so that the
Registered Clearing Agency's ability to continue to provide clearing
services for security futures, security-based swaps, mixed swaps,
security forwards, options on securities, and other securities products
in a manner consistent with the Exchange Act can be fully understood
and placed in proper context. Accordingly, the Commission believes that
its continued review of rule filings that primarily affect a Dually-
Registered Clearing Agency's operations involving futures that are not
securities futures, swaps that are not securities swaps or mixed swaps,
forwards that are not security forwards, and other non-securities
products is a necessary and appropriate part of the Commission's
statutory mandate.
---------------------------------------------------------------------------
\65\ See 15 U.S.C. 78q-1(b); see also supra note 52.
---------------------------------------------------------------------------
With respect to the commenter's assertion concerning unnecessary
additional costs, the Commission observes that the Final Rule is not
imposing an additional requirement to submit a proposed rule change to
the Commission. As previously noted, Section 19(b)(1) of the Exchange
Act requires each SRO, including all Registered Clearing Agencies, to
file with the Commission copies of ``any proposed rule or any proposed
change in, addition to, or deletion from the rules of such SRO''
(emphasis added).\66\ On its face, this provision applies to all
proposed rule changes without regard to the extent to which the
affected product is subject to the jurisdiction of another agency. The
changes made to Rule 19b-4 pursuant to the Interim Final Rule were
intended to utilize the Commission's statutory authority in Section
19(b)(3)(A) of the Exchange Act to provide relief to Dually-Registered
Clearing Agencies and to avoid undue delays that could result from the
requirement that the Commission review proposed rule changes primarily
concerning a clearing agency's non-security futures clearing operations
before they may be considered effective. This Final Rule is intended to
affirm and expand this relief to changes to rules primarily concerning
a clearing agency's clearing operations with respect to swaps that are
not securities-based swaps or mixed swaps, forwards that are not
security forwards, and other non-securities products. The underlying
obligation to file proposed rule changes arises entirely from Section
19(b)(1) of the Exchange Act and not from any action taken by the
Commission pursuant to the Interim Final Rule or this Final Rule.
---------------------------------------------------------------------------
\66\ See supra note 3.
---------------------------------------------------------------------------
Accordingly, and for the reasons discussed below, the Commission
believes that its analysis of the benefits and costs of the amendments
to Rule 19b-4 and the General Instructions for Form 19b-4, as set forth
in the Interim Final Rule and described herein, are appropriate.
Further, the Commission believes that any impact on competition would
be neutral, as all Registered Clearing Agencies may avail themselves of
the Final Rule if the circumstances meet the requirements of the Final
Rule.
[[Page 21054]]
Also, this rule does not increase barriers for new clearing agencies to
enter the clearing markets, and implementation of the Final Rule will
not favor larger entities over smaller ones, and hence the impact on
competition is negligible. Finally, the Commission does not believe
that the Final Rule contributes towards the promotion of capital
formation of Registered Clearing Agencies in any appreciable manner.
The Commission discusses below a number of the costs and benefits
that will attend the Final Rule. Many of these costs and benefits are
difficult to quantify with any degree of certainty, particularly as it
is difficult to predict the number of rule filings that will qualify
for approval pursuant to Section 19(b)(3)(A) under the Final Rule.
Thus, while much of the discussion is qualitative in nature, the
Commission attempts to quantify certain burdens, when possible. The
Commission believes that the changes brought about by the Final Rule--
which will require Registered Clearing Agencies to file under Section
19(b)(1) both for Section 19(b)(2) approval and for Section 19(b)(3)(A)
approval only in the rare situations in which the ``fair and orderly
markets'' provision is invoked--will lead to only a negligible increase
in the costs associated with filing proposed rule changes. The
Commission further believes that these additional costs are justified
by the efficiency gains that will result from the Final Rule's
broadening of the types of rule changes that may become effective upon
filing.
B. Justification for the Final Rule
The Final Rule is intended to improve regulatory processes.
Allowing proposed rule changes that (i) primarily affect the clearing
of products that are not securities, including futures that are not
security futures, swaps that are not security-based swaps or mixed
swaps, and forwards that are not security forwards; and (ii) do not
significantly affect any securities clearing operations of the clearing
agency or any rights or obligations of the clearing agency with respect
to securities clearing or persons using such securities-clearing
service, to be filed under Section 19(b)(3)(A) would further streamline
rule filing procedures and reduce the potential for duplicative or
inconsistent regulation affecting Registered Clearing Agencies. With
regard to the addition of the ``fair and orderly markets'' provision
and its attendant rule filing requirements, clearing agencies and the
markets potentially benefit from the expedited effectiveness of the
rule change, while a meaningful notice and comment process is preserved
without the disruption of a summary suspension of the rule.
C. Affected Parties
As indicated in the PRA section above, the Final Rule will affect
four Registered Clearing Agencies.
D. Baseline
The Interim Final Rule serves as the appropriate baseline for
purposes of this analysis. Under the Interim Final Rule, the four
Dually-Registered Clearing Agencies may file a proposed rule change and
request that it become effective immediately upon filing if the rule
change (i) primarily affects the futures clearing operations of the
clearing agency with respect to futures that are not security futures
and (ii) does not significantly affect any securities clearing
operations of the clearing agency or any rights or obligations of the
clearing agency with respect to securities clearing or persons using
such securities-clearing service. Registered Clearing Agencies seeking
approval for proposed rule changes involving the clearing of other
products that are not securities, including swaps that are not
security-based swaps or mixed swaps, and forwards that are not security
forwards, providing the changes are not eligible for immediate
effectiveness under Section 19(b)(3)(A) pursuant to one of the other
eligibility categories, must do so pursuant to Section 19(b)(2), which
requires a pre-effective notice and comment period, as well as formal
Commission approval. Thus, in the ordinary case, Dually-Registered
Clearing Agencies currently may not implement proposed rule changes
with respect to certain products that are not securities, including
swaps that are not security-based swaps or mixed swaps, and forwards
that are not security forwards until the Commission: (i) Issues a
notice of the proposed rule change for a period of time within which
the public can comment; (ii) reviews and considers comments received
regarding the proposed rule change, if any; and (iii) issues an order
approving the proposed rule change. This review process ordinarily
takes anywhere from forty-five to sixty calendar days after the
Commission receives the proposed rule change from the clearing
agency.\67\
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\67\ The Commission has fifteen calendar days from the date of
receipt of the proposed rule change to deliver notice of the
proposed rule change for publication in the Federal Register,
providing the clearing agency posted the notice of the proposed rule
change, together with the substantive terms of the proposed change,
that it delivered to the Commission on its Web site within two days
of sending it to the Commission. 15 U.S.C. 78s(b)(2)(E). The
Commission may not approve a proposed rule change until the
thirtieth day after publication of the notice in the Federal
Register and is required to approve, disapprove, or institute
proceedings to determine whether to approve or disapprove a proposed
rule change within forty-five days after publication of the notice
in the Federal Register. See 15 U.S.C. 78s(b)(2)(C)(iii), (b)(2)(A).
---------------------------------------------------------------------------
Since the Interim Final Rule took effect on July 15, 2011,\68\
Dually-Registered Clearing Agencies have utilized it on nine occasions
to obtain immediate effectiveness for proposed rule changes that would
not otherwise have been eligible to become effective upon filing.\69\
An examination of proposed rule filings made during the 2012 calendar
year, however, indicates the number of proposed rule changes eligible
for immediate effectiveness under Section 19(b)(3)(A) would have more
than doubled had the changes contemplated by the Final Rule been in
place. Specifically, between January 1 and October 1, 2012, the
Commission received 75 rule filings from Dually-Registered Clearing
Agencies, 52 of which were not already eligible for immediate
effectiveness under Section 19(b)(3)(A). Of these 52, the Commission
believes that 23 additional filings, or approximately 44%, likely would
have been eligible for filing under Rule 19b-4(f)(4)(ii) had the Final
Rule been in effect.\70\
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\68\ See Exchange Act Release No. 64832 (July 7, 2011), 76 FR
41056 (July 13, 2011).
\69\ The Chicago Mercantile Exchange, Inc. filed seven of these
proposed rule changes, while The Options Clearing Corporation and
ICE Clear Credit LLC each filed one. All of these rule filings were
made pursuant to Rule 19b-4(f)(4)(ii), which allows a proposed rule
change to take effect upon filing if it primarily affects the
clearing agency's futures clearing operations with respect to
futures that are not securities futures and does not have a
significant effect upon the clearing agency's securities clearing
operations.
\70\ See, e.g., Notice of Filing and Order Granting Accelerated
Approval of Proposed Rule Change to Amend Certain Aspects of the
Performance Bond Regime Applicable to Cleared Only OTC FX Swaps,
Exchange Act Release No. 66354 (Feb. 8, 2012), 77 FR 8318 (Feb. 14,
2012) (SR-CME-2012-03); Notice of Filing and Order Granting
Accelerated Approval of Proposed Rule Change Regarding Acceptance of
Additional Interest Rate Swaps and Related Interbank Rates for
Clearing, Exchange Act Release No. 66786 (Apr. 11, 2012), 77 FR
22825 (Apr. 17, 2012) (SR-CME-2012-10).
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The Commission believes that requiring the Dually-Registered
Clearing Agencies to seek approval under Section 19(b)(2) for the 23
proposed rule changes described above created inefficiencies and
unnecessary delay because the Interim Final Rule did not permit these
proposed rule changes--which primarily affected the Dually-Registered
Clearing Agencies' handling of non-security products, and had no
significant effect on securities clearing operations or any related
rights or obligations--to be filed for immediate effectiveness. As
noted, the Section
[[Page 21055]]
19(b)(2) process requires the Commission to solicit public comments,
review them, and issue an order approving or denying the rule change, a
process that can take between 45 and 60 days, and possibly longer. This
engenders a substantial degree of timing uncertainty for clearing
agencies, as they must await the Commission's approval order before
they can implement the proposed changes. This uncertainty, in turn,
raises the transaction costs associated with implementing rule changes.
The Commission believes this delay and the associated increase in
transactional costs to be unnecessary because these rule changes are
similar to the futures-related rule changes that presently qualify for
immediate effectiveness under the Interim Final Rule.
E. Benefits and Costs and Consideration of the Final Rule's Effects on
Efficiency, Competition, and Capital Formation
1. Benefits
Rule 19b-4(f)(4)(ii), as amended by this Final Rule, will
streamline the rule filing process by permitting Registered Clearing
Agencies to utilize Section 19(b)(3)(A) for proposed rule changes that
primarily affect the clearing operations of the clearing agency with
respect to products that are not securities, including futures that are
not security futures, swaps that are not security-based swaps or mixed
swaps, and forwards that are not security forwards, and either do not
significantly affect any securities clearing operations of the clearing
agency or any rights or obligations of the clearing agency with respect
to securities clearing or persons using such securities-clearing
service, or do significantly affect any securities clearing operations
of the clearing agency or any rights or obligations of the clearing
agency with respect to securities clearing or persons using such
securities-clearing service, but are necessary to maintain fair and
orderly markets for products that are not securities, including futures
that are not security futures, swaps that are not security-based swaps
or mixed swaps, and forwards that are not security forwards. As such
rule changes will become effective upon filing, the Final Rule should
eliminate any potential inefficiencies and undue delays that could
result from the requirement that the Commission review these proposed
rule changes before they take effect. At the same time, the Commission
retains the power to temporarily suspend these rule changes summarily
within sixty days of their filing if it appears to the Commission that
taking such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Exchange Act.\71\
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\71\ 15 U.S.C. 78s(b)(3)(C). If the Commission takes such
action, it is then required to institute proceedings to determine
whether the proposed rule change should be approved or disapproved.
---------------------------------------------------------------------------
As a result, the Commission is providing Registered Clearing
Agencies with the ability to make these proposed rule changes effective
upon filing, thereby limiting potential delays in implementing changes
to the clearing agencies' clearing operations with respect to products
that are not securities that may be beneficial to both the clearing
agencies and market participants. As the figures cited in the preceding
section indicate, the number of proposed rule changes that could become
effective upon filing may increase under the Final Rule. This, in turn,
should enhance the efficiency of the filing process for affected
clearing agencies, without impairing the Commission's ability to review
the filings and to determine whether it would be necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Exchange Act, to
conduct a more thorough analysis of any issues the filings may present.
As noted, these amendments to Rule 19b-4 and the General Instructions
for Form 19b-4 by the Commission are intended to streamline the rule
filing process in areas involving certain activities concerning
products that are not securities that may be subject to duplicative or
inconsistent regulation as a result of, in part, certain provisions
under Section 763(b) of the Dodd-Frank Act. The Commission recognizes
the importance of the proper allocation of regulatory resources and
will monitor and evaluate the implementation and effects of these rule
changes.
2. Costs
As noted above, the Final Rule will expand the list of categories
that qualify for effectiveness upon filing under Section 19(b)(3)(A) of
the Exchange Act. These amendments will not materially increase or
decrease the costs of complying with Rule 19b-4, nor will they modify
an SRO's obligation to submit a proposed rule change to the Commission.
Rather, the amendments will change the statutory basis under which a
rule change is filed. This is because the costs associated with the
19(b)(3)(A) filing would approximately be the same as the 19(b)(2)
filing, and, because of the nature of the occasion in which such a
filing would be applicable, only under rare circumstances would a
clearing agency file under the ``fair and orderly markets'' provision.
A proposed rule change filed by a Registered Clearing Agency
relying on the ``fair and orderly markets'' provision set forth in Rule
19b-4(f)(4)(ii)(B)(II) would be subject to the procedures of both
Section 19(b)(2) and Section 19(b)(3)(A) of the Exchange Act.
Accordingly, in most cases, the proposed rule change shall be effective
until such time as the Commission enters an order, pursuant to Section
19(b)(2)(A) of the Exchange Act, to approve such proposed rule change
or, depending on the circumstances, until such time as the Commission
summarily temporarily suspends the rule change pursuant to Section
19(b)(3)(C) or, alternatively, until such time as the Commission, at
the conclusion of proceedings to determine whether to approve or
disapprove the proposed rule change, enters an order, pursuant to
Section 19(b)(2)(B), approving or disapproving such proposed rule
change.
This new requirement applicable to Rule 19b-4(f)(4)(ii)(B)(II),
which is in addition to the requirements that the Commission considered
in connection with the cost-benefit analysis contained in the Interim
Final Rule, would impose only a minimal additional burden on Registered
Clearing Agencies that rely on the ``fair and orderly markets''
provision. Although a clearing agency seeking to use this provision
would be required to make a separate filing under Section 19(b)(3)(A)
in addition to the Section 19(b)(2) filing that is currently required,
the information contained in both filings is virtually identical.
Moreover, the Commission believes that clearing agencies will use the
``fair and orderly markets'' provision only on rare occasions, and thus
the additional costs of making a Section 19(b)(3)(A) filing will seldom
be incurred. The Commission concludes that the incremental costs
associated with the Final Rule are negligible.\72\
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\72\ The time required to complete a filing varies significantly
and is difficult to separate from the time an SRO spends internally
developing the proposed rule change. Accordingly, it is difficult to
assess the impact of the Final Rule in terms of the additional
amount of time SROs will have to devote to filing proposed rule
changes. The Commission believes, however, that the Final Rule would
have only a negligible effect in this regard. The Commission has
estimated that 34 hours is the amount of time that would be required
to complete an average proposed rule change filing, and 129 hours is
the amount of time required to complete a novel or complex proposed
rule change filing. Since the information contained in a Section
19(b)(2) filing is virtually identical to the information required
if the same filing were made under Section 19(b)(3)(A), the
Commission believes that the 34 hour figure remains an appropriate
estimate of the time it would take an SRO to prepare a proposed rule
change for filing pursuant to the broadened scope of Section
19(b)(3)(A). Moreover, as the information contained in the Section
19(b)(2) filing that will be required under the ``fair and orderly
markets'' provision is also virtually identical to the information
contained in the Section 19(b)(3)(A) filing that is currently
required, the Commission believes that the time estimates for a rule
filing of average complexity and one involving novel issues remain
unchanged at 34 and 129 hours, respectively, under all scenarios of
the Final Rule.
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[[Page 21056]]
The Commission believes that the changes embodied in the Final Rule
will not impair its ability to protect investors. Although the Final
Rule will expand the types of proposed rule changes eligible to become
effective upon filing, such rule changes remain subject to public
comment after they take effect. Furthermore, the Commission summarily
may temporarily suspend such rule changes within sixty days of filing
if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Exchange Act.\73\ Given
these safeguards, the Commission perceives only minimal, if any, new
risks to investors stemming from the Final Rule.
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\73\ 15 U.S.C. 78s(b)(3)(C).
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3. Effects on Competition
The Commission has also considered whether the Final Rule will have
an appreciable effect on competition vis-[agrave]-vis the Interim Final
Rule. Currently, the market for clearing services is segmented by
financial instrument, and clearing agencies often specialize in
particular instruments. As such, some market segments may tend to
sustain natural monopolies, despite the existence of competitors that
could potentially enter those segments.\74\ For example, following a
period of consolidation facilitated by Section 17(A) of the Exchange
Act, only one clearing agency processes equities listed in the United
States, and only one clearing agency handles exchange traded options.
At the same time, there are three clearing agencies that clear swaps
and security-based swaps. Although two of these clearing agencies are
affiliated, they do not compete with each other; one serves the market
in the United States, and the other serves the European market.
Further, the affiliate serving the market in the United States has a
dominant market share, though the Commission believes this may be
subject to change as a result of competition from other clearing
agencies.
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\74\ A natural monopoly exists when a single provider is more
efficient than multiple providers because economies of scale allow
the single provider to have lower average costs.
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The Commission believes that the impact of the Final Rule on
competition would be neutral, as the Final Rule would apply equally to
similarly-situated Registered Clearing Agencies. As noted in the PRA
section of this Release, the Final Rule will affect only the four
Dually-Registered Clearing Agencies. Every Dually-Registered Clearing
Agency that clears any of the products described in the Final Rule may
avail itself of the Final Rule's benefits if the circumstances warrant,
and may avail itself of the ``fair and orderly markets'' provision if
the proposed rule change also meets those qualifications, namely that
the proposed rule change is necessary to maintain fair and orderly
markets for futures that are not security futures, swaps that are not
security-based swaps or mixed swaps, or forward contracts that are not
security forwards. Further, the Final Rule does not increase barriers
for clearing agencies to enter this market, and its implementation will
not favor larger entities over smaller ones. The Final Rule's impact on
competition is therefore negligible.
F. Alternatives Considered
The Commission considered CME's proposal that the Commission
require only proposed rule changes relating directly to security-based
swap clearing activities to be subject to the Commission's review in
accordance with Section 19(b)(2). Specifically, CME posited that (i)
the Commission should defer to the CFTC's rule filing processes with
respect to proposed changes involving broad rules of general
applicability as to clearing operations that would have only a
peripheral impact on security-based swap clearing, and (ii) the
Commission would still have the authority to abrogate rule changes by a
clearing agency that do not meet the requirements of the Exchange
Act.\75\ The Commission believes that, while this approach would
increase efficiency for some Registered Clearing Agencies, it would
undermine the Commission's ability to carry out its statutory
obligations under Section 19(b) and the Exchange Act, as discussed in
Section IV.A., above. For example, in June 2012, CME implemented a rule
change that altered the amount of CME's capital contribution to its
financial safeguards package in connection with losses arising from
products other than credit default swaps and interest rate swaps.\76\
This amount would be applied to such losses before any amounts are
applied from CME's Base Guaranty Fund. Although not directly applicable
to products under the Commission's jurisdiction, the proposed rule
change affects the operations and financial stability of the clearing
agency. In another example, ICE Clear Credit LLC implemented a rule
change in 2012 that permitted its participants to use US Treasuries to
satisfy the initial margin-related liquidity requirements for all
client-related positions cleared in a clearing participant's customer
account,\77\ representing a rule of general applicability that,
pursuant to CME's alternative approach, may not have been subject to
Commission review. As the Commission is tasked with ensuring that a
clearing agency's rules are designed, among other things, to assure the
safeguarding of securities and funds, the Interim Final Rule required,
and the Final Rule continues to require, that proposed rule changes of
general applicability be subject to the Commission's pre-effective
notice and comment process or, if such proposed rule change is filed
pursuant to the fair and orderly markets provision in Rule 19b-
4(f)(4)(ii)(B), notice and comment after the change is temporarily
effective under Section 19(b)(3)(A).
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\75\ See CME Letter.
\76\ Securities Exchange Act Rel. No. 67232 (June 21, 2012), 77
FR 38350 (June 27, 2012) (SR-CME-2012-24).
\77\ Securities Exchange Act Rel. No. 66825 (Apr. 18, 2012), 77
FR 24546 (Apr. 24, 2012) (SR-ICC-2012-01).
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V. Regulatory Flexibility Certification
The Regulatory Flexibility Act (``RFA'') \78\ requires the
Commission, in promulgating rules, to consider the impact of those
rules on small entities. The Commission certified in the Interim Final
Rule release, pursuant to Section 605(b) of the RFA,\79\ that the rule
would not have a significant impact on a substantial number of small
entities. The Commission received no comments on this certification.
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\78\ 5 U.S.C. 601 et seq.
\79\ See 5 U.S.C. 605(b).
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For the purposes of Commission rulemaking in connection with the
RFA, a small entity includes a clearing agency that: (i) Compared,
cleared, and settled less than $500 million in securities transactions
during the preceding fiscal year; (ii) had less than $200 million of
funds and securities in its custody or control at all times during the
preceding fiscal year (or at any time that it has been in business, if
shorter) and (iii) is not affiliated with any person (other than a
natural person) that is not a small
[[Page 21057]]
business or small organization.\80\ Under the standards adopted by the
Small Business Administration, small entities in the finance industry
include the following: (i) for entities engaged in investment banking,
securities dealing and securities brokerage activities, entities with
$6.5 million or less in annual receipts; (ii) for entities engaged in
trust, fiduciary and custody activities, entities with $6.5 million or
less in annual receipts; and (iii) funds, trusts and other financial
vehicles with $6.5 million or less in annual receipts.\81\
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\80\ 17 CFR 240.0-10(d).
\81\ 13 CFR 121.201, Sector 52.
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The amendments to Rule 19b-4 and to the General Instructions for
Form 19b-4 apply to all Registered Clearing Agencies. There are
currently seven clearing agencies with active operations registered
with the Commission. Of the seven Registered Clearing Agencies with
active operations, four currently maintain a futures or swaps clearing
business. Based on the Commission's existing information about these
four Registered Clearing Agencies, as well as on the entities likely to
register with the Commission in the future, the Commission believes
that such entities will not be small entities, but rather part of large
business entities that exceed the thresholds defining ``small
entities'' set out above.
For the reasons stated above, the Commission certifies that the
amendments to Rule 19b-4 and to the General Instructions for Form 19b-4
would not have a significant economic impact on a substantial number of
small entities for the purposes of the RFA.
VI. Statutory Basis and Text of Amendments
Pursuant to the Exchange Act, and particularly Section 19(b)
thereof, 15 U.S.C. 78s(b), the Commission amends Rule 19b-4 as set
forth below.
List of Subjects in 17 CFR Parts 240 and 249
Brokers, Reporting and recordkeeping requirements, Securities.
Text of Rule
In accordance with the foregoing, Title 17, chapter II of the Code
of Federal Regulations is amended as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
1. The general authority citation for part 240 continues to read as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23,
80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq.; 12 U.S.C.
5221(e)(3), 15 U.S.C. 8302, and 18 U.S.C. 1350,, unless otherwise
noted.
* * * * *
0
2. Revise Sec. 240.19b-4(f)(4)(ii) to read as follows:
Sec. 240.19b-4 Filings with respect to proposed rule changes by self-
regulatory organizations.
* * * * *
(f) * * *
(4) * * *
(ii)(A) Primarily affects the clearing operations of the clearing
agency with respect to products that are not securities, including
futures that are not security futures, swaps that are not security-
based swaps or mixed swaps, and forwards that are not security
forwards; and
(B) Either
(1) Does not significantly affect any securities clearing
operations of the clearing agency or any rights or obligations of the
clearing agency with respect to securities clearing or persons using
such securities-clearing service, or
(2) Does significantly affect any securities clearing operations of
the clearing agency or the rights or obligations of the clearing agency
with respect to securities clearing or persons using such securities-
clearing service, but is necessary to maintain fair and orderly markets
for products that are not securities, including futures that are not
security futures, swaps that are not security-based swaps or mixed
swaps, and forwards that are not security forwards. Proposed rule
changes filed pursuant to this subparagraph II must also be filed in
accordance with the procedures of Section 19(b)(1) for approval
pursuant to Section 19(b)(2) and the regulations thereunder within
fifteen days of being filed under Section 19(b)(3)(A).
* * * * *
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
0
3. The general authority citation for part 249 continues to read in
part as follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18
U.S.C. 1350, unless otherwise noted.
* * * * *
0
4. Form 19b-4 (referenced in Sec. 249.819) is amended by revising Item
7(b)(iv) of the General Instructions for Form 19b-4 as set forth in the
attached Appendix A.
Note: The following Appendix A will not appear in the Code of
Federal Regulations.
Appendix A
GENERAL INSTRUCTIONS FOR FORM 19b-4
* * * * *
Information to be Included in the Completed Form (``Form 19b-4
Information'')
* * * * *
7. Basis for Summary Effectiveness Pursuant to Section 19(b)(3) or for
Accelerated Effectiveness Pursuant to Section 19(b)(2) or Section
19(b)(7)(D)
* * * * *
(b) * * *
(iv) Effects a change in an existing service of a registered
clearing agency that either (A)(1) does not adversely affect the
safeguarding of securities or funds in the custody or control of the
clearing agency or for which it is responsible and (2) does not
significantly affect the respective rights or obligations of the
clearing agency or persons using the service or (B)(1) primarily
affects the clearing operations of the clearing agency with respect
to products that are not securities, including futures that are not
security futures, swaps that are not security-based swaps or mixed
swaps, and forwards that are not security forwards and (2) either
(a) does not significantly affect any securities clearing operations
of the clearing agency or any rights or obligations of the clearing
agency with respect to securities clearing or persons using such
securities-clearing service, or (b) does significantly affect any
securities clearing operations of the clearing agency or the rights
or obligations of the clearing agency with respect to securities
clearing or persons using such securities-clearing service, but is
necessary to maintain fair and orderly markets for products that are
not securities, including futures that are not security futures,
swaps that are not securities-based swaps or mixed swaps, and
forwards that are not security forwards, and set forth the basis on
which such designation is made, including, in the case of the fair
and orderly markets provision, the following: (i) Why the proposed
rule change is necessary to maintain fair and orderly markets for
products that are not securities, including futures that are not
security futures, swaps that are not security-based swaps or mixed
swaps, and forwards that are not security forwards; (ii) why the
proposed rule change cannot achieve this goal unless it takes effect
immediately; (iii) the nature and the extent of the effect upon the
relevant markets if the proposed rule change were not implemented
immediately; (iv) whether the proposed rule change is temporary or
permanent; (v) how the proposed rule change significantly affects
any securities clearing operations of the clearing agency or any
rights or obligations of the clearing agency with respect to
securities clearing or persons using such securities-clearing
service; and (vi) why the proposed rule change would have no adverse
effect on maintaining fair and orderly markets for securities.
(c) * * *
[[Page 21058]]
Note. The Commission has the power under Section 19(b)(3)(C) of
the Act summarily to temporarily suspend within sixty days of its
filing any proposed rule change which has taken effect upon filing
pursuant to Section 19(b)(3)(A) of the Act or was put into effect
summarily by the Commission pursuant to Section 19(b)(3)(B) of the
Act. In exercising its summary power under Section 19(b)(3)(B), the
Commission is required to make one of the findings described above
but may not have a full opportunity to make a determination that the
proposed rule change otherwise is consistent with the requirements
of the Act and the rules and regulations thereunder. The Commission
will generally exercise its summary power under Section 19(b)(3)(B)
on condition that the proposed rule change to be declared effective
summarily shall also be subject to the filing procedures of Section
19(b)(1) of the Act, for approval pursuant to Section 19(b)(2).
Accordingly, in most cases, a summary order under Section
19(b)(3)(B) shall be effective until such time as the Commission
enters an order, pursuant to Section 19(b)(2)(A) of the Exchange
Act, to approve such proposed rule change or, depending on the
circumstances, until such time as the Commission summarily
temporarily suspends the rule change pursuant to Section 19(b)(3)(C)
or, alternatively, until such time as the Commission, at the
conclusion of proceedings to determine whether to approve or
disapprove the proposed rule change, enters an order, pursuant to
Section 19(b)(2)(B), approving or disapproving such proposed rule
change. Similarly, the Commission requires that any proposed rule
change which has taken effect upon filing pursuant to paragraph
(B)(II) of Rule 19b-4(f)(4)(ii) shall also be subject to the filing
procedures of Section 19(b)(1) of the Act, for approval pursuant to
Section 19(b)(2) of the Act. Accordingly, such rule change shall be
effective until such time as the Commission enters an order,
pursuant to Section 19(b)(2)(A) of the Exchange Act, to approve such
proposed rule change or, depending on the circumstances, until such
time as the Commission summarily temporarily suspends the rule
change pursuant to Section 19(b)(3)(C) or, alternatively, until such
time as the Commission, at the conclusion of proceedings to
determine whether to approve or disapprove the proposed rule change,
enters an order, pursuant to Section 19(b)(2)(B), approving or
disapproving such proposed rule change.
By the Commission.
Dated: April 3, 2013.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-08141 Filed 4-8-13; 8:45 am]
BILLING CODE 8011-01-P
