Trade Options, 26200-26210 [2015-11020]

Download as PDF mstockstill on DSK4VPTVN1PROD with PROPOSALS 26200 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules section, the meetings will be held at U.S. Department of Energy, Forrestal Building, 1000 Independence Avenue SW., Washington, DC 20585. Individuals will also have the opportunity to participate by webinar. To register for the webinar and receive call-in information, please register at https://www1.eere.energy.gov/buildings/ appliance_standards/ rulemaking.aspx?ruleid=59 . FOR FURTHER INFORMATION CONTACT: John Cymbalsky, ASRAC Designated Federal Officer, U.S. Department of Energy (DOE), Office of Energy Efficiency and Renewable Energy, 950 L’Enfant Plaza SW., Washington, DC, 20024. Email: asrac@ee.doe.gov. SUPPLEMENTARY INFORMATION: The meetings will be held: • May 11, 2015; • May 12, 2015 (Air-Conditioning, Heating, and Refrigeration Institute, 2111 Wilson Blvd., Suite 500, Arlington, VA 22201); • May 20, 2015; • May 21, 2015 (950 L‘Enfant Plaza SW., Washington, DC, Room 7140); • June 1–2, 2015; • June 9–10, 2015; and • June 15, 2015 (Webinar only) Members of the public are welcome to observe the business of the meeting and, if time allows, may make oral statements during the specified period for public comment. To attend the meeting and/or to make oral statements regarding any of the items on the agenda, email asrac@ee.doe.gov. In the email, please indicate your name, organization (if appropriate), citizenship, and contact information. Please note that foreign nationals participating in the public meeting are subject to advance security screening procedures which require advance notice prior to attendance at the public meeting. If a foreign national wishes to participate in the public meeting, please inform DOE as soon as possible by contacting Ms. Regina Washington at (202) 586–1214 or by email: Regina.Washington@ee.doe.gov so that the necessary procedures can be completed. Anyone attending the meeting will be required to present a government photo identification, such as a passport, driver’s license, or government identification. Due to the required security screening upon entry, individuals attending should arrive early to allow for the extra time needed. Due to the REAL ID Act implemented by the Department of Homeland Security (DHS) recent changes regarding ID requirements for individuals wishing to enter Federal buildings from specific states and U.S. territories. Driver’s VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 licenses from the following states or territory will not be accepted for building entry and one of the alternate forms of ID listed below will be required. DHS has determined that regular driver’s licenses (and ID cards) from the following jurisdictions are not acceptable for entry into DOE facilities: Alaska, Louisiana, New York, American Samoa, Maine, Oklahoma, Arizona, Massachusetts, Washington, and Minnesota. Acceptable alternate forms of PhotoID include: U.S. Passport or Passport Card; An Enhanced Driver’s License or Enhanced ID-Card issued by the states of Minnesota, New York or Washington (Enhanced licenses issued by these states are clearly marked Enhanced or Enhanced Driver’s License); A military ID or other Federal government issued Photo-ID card. Docket: The docket is available for review at www.regulations.gov, including Federal Register notices, public meeting attendee lists and transcripts, comments, and other supporting documents/materials. All documents in the docket are listed in the www.regulations.gov index. However, not all documents listed in the index may be publicly available, such as information that is exempt from public disclosure. Issued in Washington, DC, on May 1, 2015. Kathleen B. Hogan, Deputy Assistant Secretary for Energy Efficiency, Energy Efficiency and Renewable Energy. [FR Doc. 2015–11012 Filed 5–6–15; 8:45 am] BILLING CODE 6450–01–P COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 32 RIN 3038–AE26 Trade Options Commodity Futures Trading Commission. ACTION: Notice of proposed rulemaking. AGENCY: The Commodity Futures Trading Commission (the ‘‘Commission’’ or the ‘‘CFTC’’) is proposing to amend the trade option exemption in its regulations, as described herein, in the following subject areas: Reporting requirements for trade option counterparties that are not swap dealers or major swap participants; recordkeeping requirements for trade option counterparties that are not swap dealers SUMMARY: PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 or major swap participants; and certain non-substantive amendments. DATES: Comments must be received on or before June 8, 2015. ADDRESSES: You may submit comments, identified by RIN 3038–AE26, by any one of the following methods: • CFTC Web site: https:// comments.cftc.gov. Follow the instructions for submitting comments through the Comments Online process on the Web site. • Mail: Send to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. • Hand Delivery/Courier: Same as Mail, above. • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. Please submit your comments using only one of these methods. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to www.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act, a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the CFTC’s regulations, 17 CFR 145.9. The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of a submission from www.cftc.gov that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the Freedom of Information Act. FOR FURTHER INFORMATION CONTACT: David N. Pepper, Special Counsel, Division of Market Oversight, at (202) 418–5565 or dpepper@cftc.gov; or Elise Pallais, Counsel, Office of the General Counsel, at (202) 418–5577 or epallais@ cftc.gov; Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. SUPPLEMENTARY INFORMATION: I. Introduction In April 2012, pursuant to section 4c(b) of the Commodity Exchange Act E:\FR\FM\07MYP1.SGM 07MYP1 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS (the ‘‘CEA’’ or the ‘‘Act’’),1 the Commission issued a final rule to repeal and replace part 32 of its regulations concerning commodity options.2 The Commission undertook this effort to address section 721 of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (the ‘‘Dodd-Frank Act’’ or ‘‘Dodd-Frank’’),3 which, among other things, amended the CEA to define the term ‘‘swap’’ to include commodity options.4 Notably, § 32.2(a) provides the general rule that commodity option transactions must be conducted in compliance with any Commission rule, regulation, or order otherwise applicable to any other swap.5 In response to requests from commenters, the Commission added a limited exception to this general rule for physically delivered commodity options purchased by commercial users of the commodities underlying the options (the ‘‘trade option exemption’’).6 Adopted as an interim final rule, § 32.3 provides that qualifying commodity options are generally exempt from the swap requirements of the CEA and the Commission’s regulations, subject to certain specified conditions. To qualify for the trade option exemption, a commodity option transaction must 1 7 U.S.C. 6c(b) (providing that ‘‘[n]o person shall offer to enter into, enter into or confirm the execution of, any transaction involving any commodity regulated under this chapter which is of the character of, or is commonly known to the trade as an ‘option’ . . . contrary to any rule, regulation, or order of the Commission prohibiting any such transaction or allowing any such transaction under such terms and conditions as the Commission shall prescribe’’). 2 See Commodity Options, 77 FR 25320 (Apr. 27, 2012) (‘‘Commodity Options Release’’). The Commission also issued certain conforming amendments to parts 3 and 33 of its regulations. See id. The Commission’s regulations are set forth in Chapter I of Title 17 of the Code of Federal Regulations. 3 Public Law 111–203, 124 Stat. 1376 (2010). 4 See 7 U.S.C. 1a(47)(A)(i) (defining ‘‘swap’’ to include ‘‘[an] option of any kind that is for the purchase or sale, or based on the value, of 1 or more . . . commodities . . .’’); 7 U.S.C. 1a(47)(B)(i) (excluding options on futures from the definition of ‘‘swap’’); 7 U.S.C. 1a(36) (defining an ‘‘option’’ as ‘‘an agreement, contract, or transaction that is of the character of, or is commonly known to the trade as, an ‘option’ . . .’’). The Commission defines ‘‘commodity option’’ or ‘‘commodity option transaction’’ as ‘‘any transaction or agreement in interstate commerce which is or is held out to be of the character of, or is commonly known to the trade as, an ‘option,’ ‘privilege,’ ‘indemnity,’ ‘bid,’ ‘offer,’ ‘call,’ ‘put,’ ‘advance guaranty’ or ‘decline guaranty’ and which is subject to regulation under the Act and these regulations.’’ See 17 CFR 1.3(hh). 5 See 17 CFR 32.2. 6 See 77 FR at 25326–29. See also 17 CFR 32.2(b); 32.3. The interim final rule continued the Commission’s long history of providing special treatment to ‘‘trade options’’ dating back to the Commission’s original trade option exemption in 1976. See Regulation and Fraud in Connection with Commodity and Commodity Option Transactions, 41 FR 5108 (Nov. 18, 1976). VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 meet the following requirements: (1) The offeror is either an eligible contract participant (‘‘ECP’’) 7 or a producer, processor, commercial user of, or merchant handling the commodity that is the subject of the commodity option transaction, or the products or byproducts thereof (a ‘‘commercial party’’) that offers or enters into the commodity option transaction solely for purposes related to its business as such; (2) the offeree is, and the offeror reasonably believes the offeree to be, a commercial party that is offered or enters into the transaction solely for purposes related to its business as such; and (3) the option is intended to be physically settled so that, if exercised, the option would result in the sale of an exempt or agricultural commodity 8 for immediate or deferred shipment or delivery.9 Commodity option transactions that meet these requirements are generally exempt from the provisions of the Act and any Commission rule, regulation, or order promulgated or issued thereunder, otherwise applicable to any other swap, subject to the conditions enumerated in § 32.3(b)–(d).10 These conditions include: Recordkeeping and reporting requirements; 11 large trader reporting requirements in part 20; 12 position limits under part 151; 13 certain recordkeeping, reporting, and risk management duties applicable to swap dealers (‘‘SDs’’) and major swap participants (‘‘MSPs’’) in subparts F and J of part 23; 14 capital and margin 7 See 7 U.S.C. 1a(18) (defining ‘‘eligible contract participant’’); 17 CFR 1.3(m) (further defining ‘‘eligible contract participant’’). 8 See 7 U.S.C. 1a(20) (defining ‘‘exempt commodity’’ to mean a commodity that is not an agricultural commodity or an ‘‘excluded commodity,’’ as defined in 7 U.S.C. 1a(19)); 17 CFR 1.3(zz)(defining ‘‘agricultural commodity’’). Examples of exempt commodities include energy commodities and metals. 9 See 17 CFR 32.3(a). 10 See 17 CFR 32.3(a), (b)–(d). 11 See 17 CFR 32.3(b). 12 See 17 CFR 32.3(c)(1). Applying § 32.3(c)(1), reporting entities as defined in part 20—swap dealers and clearing members—must consider their counterparty’s trade option positions just as they would consider any other swap position for the purpose of determining whether a particular counterparty has a consolidated account with a reportable position. See 17 CFR 20.1. A trade option counterparty would not be responsible for filing large trader reports unless it qualifies as a ‘‘reporting entity,’’ as that term is defined in § 20.1. 13 See 17 CFR 32.3(c)(2). See also Int’l Swaps & Derivatives Ass’n v. U.S. Commodity Futures Trading Comm’n, 887 F. Supp. 2d 259, 270 (D.D.C. 2012), vacating the part 151 rulemaking, Position Limits for Futures and Swaps, 76 FR 71626 (Nov. 18, 2011). 14 See 17 CFR 32.3(c)(3)–(4). Note that § 32.3(c)(4) explicitly incorporates §§ 23.201 and 23.204, which require counterparties that are SD/MSPs to comply with part 45 recordkeeping and reporting requirements, respectively, in connection with all PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 26201 requirements for SDs and MSPs under CEA section 4s(e); 15 and any applicable antifraud and anti-manipulation provisions.16 In adopting § 32.3, the Commission stated that the trade option exemption is generally intended to permit parties to hedge or otherwise enter into commodity option transactions for commercial purposes without being subject to the full Dodd-Frank swaps regime.17 This limited exemption continued the Commission’s longstanding practice of providing commercial participants in trade options with relief from certain requirements that would otherwise apply to commodity options.18 The Commission further explained that the applicable conditions in § 32.3(b)–(d) were primarily intended to preserve a level of visibility into the market for trade options while still reducing the regulatory compliance burden for trade option participants.19 The Commission invited market participants to comment on the trade option exemption, and provided a list of specific questions for commenters’ consideration.20 In the year following the Commission’s adoption of the trade option exemption, the Commission’s Division of Market Oversight (‘‘DMO’’) issued a series of no-action letters granting relief from certain conditions their swaps activities (including all their trade option activities). See 17 CFR 23.201(c), 23.204(a). 15 See 17 CFR 32.3(c)(5). 16 See 17 CFR 32.3(d). Note that § 32.2 also preserves the continued application of § 32.4, which specifically prohibits fraud in connection with commodity option transactions, to commodity options subject to the trade option exemption. See 17 CFR 32.2, 32.4. 17 See 77 FR at 25326, n.39. For example, trade options do not factor into the determination of whether a market participant is an SD or MSP; trade options are exempt from the rules on mandatory clearing; and trade options are exempt from the rules related to real-time reporting of swaps transactions. The provisions identified in this list are not intended to constitute an exclusive or exhaustive list of the swaps requirements from which trade options are exempt. 18 See Regulation and Fraud in Connection with Commodity and Commodity Option Transactions, 41 FR 51808 (Nov. 24, 1976) (adopting an exemption from the general requirement that commodity options be traded on-exchange for commodity option transaction for certain transactions involving commercial parties); Suspension of the Offer and Sale of Commodity Options, 43 FR 16153, 16155 (Apr. 17, 1978) (adopting a rule suspending all trading in commodity options other than such exempt trade options); Trade Options on the Enumerated Agricultural Commodities, 63 FR 18821 (Apr. 16, 1998) (authorizing the off-exchange trading of trade options in agricultural commodities). 19 See 77 FR at 25326–27. 20 See 77 FR 25329–30. Comments were due on or before June 26, 2012. The comment file is available at https://comments.cftc.gov/ PublicComments/CommentList.aspx?id=1196. E:\FR\FM\07MYP1.SGM 07MYP1 26202 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS in the trade option exemption.21 CFTC No-Action Letter No. 13–08 (‘‘No-Action Letter 13–08’’), which remains in effect, provides that DMO will not recommend that the Commission commence an enforcement action against a market participant that is not an SD or an MSP (a ‘‘Non-SD/MSP’’) for failing to comply with the part 45 reporting requirements, as required by § 32.3(b)(1), provided that such Non-SD/MSP meets certain conditions, including reporting such exempt commodity option transactions via Form TO 22 and notifying DMO no later than 30 days after entering into trade options having an aggregate notional value in excess of $1 billion during any calendar year (the ‘‘$1 Billion Notice’’).23 Based on DMO’s experience with the trade option exemption following the issuance of No-Action Letter 13–08, and after a review of comments from market participants,24 the Commission is proposing several amendments to the trade option exemption in § 32.3. Generally, these proposed amendments are intended to facilitate use of trade options by commercial market 21 See CFTC No-Action Letter No. 12–06 (Aug. 14, 2012), available at https://www.cftc.gov/ucm/ groups/public/@lrlettergeneral/documents/letter/ 12-06.pdf; CFTC No-Action Letter No. 12–41 (Dec. 5, 2012), available at https://www.cftc.gov/ucm/ groups/public/@lrlettergeneral/documents/letter/ 12-41.pdf; CFTC No-Action Letter No. 13–08 (Apr. 5, 2013), available at https://www.cftc.gov/ucm/ groups/public/@lrlettergeneral/documents/letter/ 13-08.pdf. 22 See notes 28–29 and accompanying text, infra. 23 No-Action Letter 13–08, at 3–4. No-Action Letter 13–08 also grants relief from certain swap recordkeeping requirements in part 45 for a NonSD/MSP that complies with the recordkeeping requirements set forth in § 45.2, provided that if the counterparty to the trade option at issue is an SD or an MSP, the Non-SD/MSP obtains a legal entity identifier (‘‘LEI’’) pursuant to § 45.6. Id. at 4–5. Should the Commission adopt this proposal without significant revision, the relief provided in No-Action Letter 13–08 would be terminated. 24 In addition to seeking comment following adoption of the trade option exemption itself, see supra note 21, the Commission has sought comment relating to the trade option exemption in connection with other related Commission actions. See e.g., Further Definition of ‘‘Swap,’’ SecurityBased Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 77 FR 48207 (Aug. 13, 2012); Agency Information Collection Activities: Proposed Collection, Comment Request: Form TO, Annual Notice Filing for Counterparties to Unreported Trade Options, 77 FR 74647 (Dec. 17, 2012); Agency Information Collection Activities under OMB Review, 78 FR 11856 (Feb. 20, 2013); Forward Contracts With Embedded Volumetric Optionality, 79 FR 69073 (Nov. 20, 2014). CFTC staff also invited comment in connection with an April 2014 public roundtable regarding issues concerning end users and the Dodd-Frank Act. The Commission has reviewed these comment letters and taken into account any significant issues raised therein in issuing this proposal. The related comment files are available at https:// comments.cftc.gov/PublicComments/ ReleasesWithComments.aspx. VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 participants to hedge against commercial and physical risks. The Commission is proposing modifications to the recordkeeping and reporting requirements in § 32.3(b) that are applicable to trade option counterparties that are Non-SD/MSPs, as well as a non-substantive amendment to § 32.3(c) to eliminate the reference to the now-vacated part 151 position limits requirements. These proposed amendments are generally intended to relax reporting and recordkeeping requirements where two commercial parties enter into trade options with each other in connection with their respective businesses while maintaining regulatory insight into the market for unreported trade options. The Commission requests comment on all aspects of its proposal. II. Explanation of the Proposed Rules A. Reporting Requirements for Non-SD/ MSPs Pursuant to § 32.3(b)(1), the determination as to whether a trade option must be reported pursuant to part 45 is based on the status of the parties to the trade option and whether or not they have previously reported swaps to an appropriate swap data repository (‘‘SDR’’) pursuant to part 45.25 If a trade option involves at least one counterparty (whether as buyer or seller) that has (1) become obligated to comply with the reporting requirements of part 45, (2) as a reporting party, (3) during the twelve month period preceding the date on which the trade option is entered into, (4) in connection with any non-trade option swap trading activity, then such trade option must also be reported pursuant to the reporting requirements of part 45. If only one counterparty to a trade option has previously complied with the part 45 reporting provisions, as described above, then that counterparty shall be the part 45 reporting counterparty for the trade option. If both counterparties have previously complied with the part 45 reporting provisions, as described above, then the part 45 rules for determining the reporting counterparty will apply.26 To the extent that neither counterparty to a trade option has previously submitted reports to an SDR as a result of its swap trading activities as described above, then such trade 25 See 17 CFR 32.3(b)(1). 17 CFR 45.8. As discussed above, NoAction Letter 13–08 provides non-time-limited, conditional no-action relief for Non-SD/MSP counterparties to trade options from part 45 reporting requirements. See supra note 22 and accompanying text. 26 See PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 option is not required to be reported pursuant to part 45. Instead, § 32.3(b)(2) requires that each counterparty to an otherwise unreported trade option (i.e., a trade option that is not required to be reported to an SDR by either counterparty pursuant to § 32.3(b)(1) and part 45) complete and submit to the Commission an annual Form TO filing providing notice that the counterparty has entered into one or more unreported trade options during the prior calendar year.27 Form TO requires an unreported trade option counterparty to: (1) Provide its name and contact information; (2) identify the categories of commodities (agricultural, metals, energy, or other) underlying one or more unreported trade options which it entered into during the prior calendar year; and (3) for each commodity category, identify the approximate aggregate value of the underlying physical commodities that it either delivered or received in connection with the exercise of unreported trade options during the prior calendar year. Counterparties to otherwise unreported trade options must submit a Form TO filing by March 1 following the end of any calendar year during which they entered into one or more unreported trade options.28 In adopting § 32.3, the Commission stated that Form TO was intended to provide the Commission with a level of visibility into the market for unreported trade options that is ‘‘minimally intrusive,’’ thereby allowing it to identify market participants from whom it should collect additional information, or whom it should subject to additional reporting obligations in the future.29 Commenters have generally expressed the opinion that the reporting requirements in § 32.3(b) are overly burdensome for Non-SD/MSPs. Commenters have argued that these costs have discouraged commercial end users from entering into trade options to meet their commercial and risk management needs, thereby reducing liquidity and raising prices.30 27 Form TO is set out in appendix A to part 32 of the Commission’s regulations. 28 In 2014, approximately 330 Non-SD/MSPs submitted Form TO filings to the Commission, approximately 200 of which indicated delivering or receiving less than $10 million worth of physical commodities in connection with exercising unreported trade options in 2013. 29 See 77 FR at 25327–28. 30 See American Gas Association (‘‘AGA’’) (Dec. 22, 2013) at 3, 16–17 (observing that ‘‘widespread concern’’ regarding the regulatory risk posed by Form TO has led some counterparties to avoid entering into trade options, leading to a rise in the cost of contracting); American Public Power Association, National Rural Electric Cooperative Association, Edison Electric Institute, Electric Power Supply Association (‘‘APPA/NRECA/EEI/ EPSA’’) (Feb. 15, 2013) at 7–8 (stating that E:\FR\FM\07MYP1.SGM 07MYP1 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS With respect to the part 45 reporting requirements, commenters have noted that Non-SD/MSPs may be required to comply with part 45 solely on the basis of the ‘‘unusual circumstance’’ of having had to report a single historical or interaffiliate swap during the same twelvemonth period.31 Commenters have further noted that Non-SD/MSPs may not have the infrastructure in place to support part 45 reporting to an SDR and that instituting such infrastructure would impose a costly burden, particularly for small end users.32 With respect to Form TO reporting, commenters have argued that it is costly and burdensome for Non-SD/MSPs, particularly for small end users, to track, calculate and assemble the requisite data. Commenters have explained that the systems and processes used by many Non-SD/MSPs to create, store, and track their trade options are separate and distinct from their financial systems and are typically not designed to track the kind of information required by Form TO.33 Recent comments offer specific monetary estimates that suggest the costs involved with preparing the Form TO filing may be significant.34 § 32.3(b)’s application of the part 45 reporting requirement ‘‘imposes a regulatory burden on the non-SD/MSP and may discourage parties from entering into any ‘‘swaps’’ for which it is a reporting party, and from entering into nonfinancial commodity option hedging transactions with parties that are not SD/MSPs.’’). 31 See International Energy Credit Association (‘‘IECA’’) (Feb. 15, 2013) at 3; AGA (June 26, 2012) at 8; APPA/NRECA/EEI/EPSA (June 26, 2012) at 7– 8; Coalition of Physical Energy Companies (‘‘COPE’’) (June 25, 2012) at 9; Commercial Energy Working Group (‘‘CEWG’’) (Jun 26, 2012) at 4. 32 See, e.g., APPA/NRECA/EEI/EPSA (Feb. 15, 2013) at 2 (stating that only SDs and MSPs should be required to report trade options under part 45 out of concern that part 45 would impose an ‘‘increased regulatory burden, particularly for small entities’’); IECA (Feb. 15, 2013) at 2–3 (stating that, for Non-SD/MSPs, the burden of reporting trade options under part 45 would be ‘‘extremely onerous, if not a practical impossibility’’); AGA (June 26, 2012) at 9 (recommending that the part 45 reporting requirements not apply to Non-SD/MSPs with respect to their trade option transactions). 33 See, e.g., CEWG (Feb. 6, 2013) at 1 (‘‘Unlike systems designed to capture and report data for financial transactions, physical systems are primarily designed to manage logistics related to deliveries and inventory quantities at trade locations. Some physical systems of record do not contain market price information, execution venues, or other option characteristics, such as premiums and strike prices, which make reporting under Part 45 additionally challenging.’’). See also Coalition for Derivative End Users (‘‘Coalition’’) (Dec. 22, 2014) at 10; Commercial Energy Working Group and Commodity Markets Council (‘‘CEWG/ CMC’’) (Dec. 22, 2014) at 5; ICEA (Dec. 22, 2012) at 9; American Public Power Association, National Rural Electric Cooperative Association, Large Public Power Council (‘‘APPA/NRECA/LPPC’’) (Apr. 17, 2014) at 4; AGA (June 26, 2012) at 7. 34 See American Public Power Association, National Rural Electric Cooperative Association, Edison Electric Institute, Electric Power Supply VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 1. Proposed Action: Eliminate Part 45 Reporting for Non-SD/MSPs As discussed above, Commission regulation § 32.3(b)(1) requires that a Non-SD/MSP counterparty to a trade option that has become obligated to report a non-trade option swap within the past calendar year must comply with part 45 reporting requirements. The Commission proposes to amend § 32.3(b) such that a Non-SD/MSP will under no circumstances be subject to part 45 reporting requirements with respect to its trade option activities.35 This amendment is intended to reduce burdens for Non-SD/MSP trade option counterparties, many of whom, as commenters explained, face technical and logistical impediments that prevent timely compliance with part 45 reporting requirements. 2. Proposed Action: Eliminate the Form TO Notice Filing Requirement The Commission proposes to amend Commission regulation § 32.3(b) such that a Non-SD/MSP would not be required to report otherwise unreported trade options on Form TO. The Commission further proposes to delete Form TO from appendix A to part 32. These amendments are intended to reduce reporting burdens for Non-SD/ MSP trade option counterparties, which, commenters have explained, may face significant costs in preparing Form TO. The Commission preliminarily believes that there are surveillance benefits from Form TO data but recognizes that completing Form TO imposes costs and burdens on Non-SD/ MSPs, especially small end users. Association, Large Public Power Council (‘‘APPA/ NRECA/EEI/EPSA/LPPC’’) (Dec. 22, 2014) at 9 (stating that one of its members spent more than $100,000 in information technology costs to implement a mechanism to track exercises of nonfinancial commodity options); IECA (Dec. 22, 2014) at 8 (estimating, based on its survey of market participants, that completing Form TO and complying with No-Action Letter 13–08 requires 80 minutes per contract); Southern Company Services, Inc., acting on behalf of and as agent for Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Southern Power Company (‘‘Southern’’) at 8–9 (estimating that, for Southern, two full-time employees require 30 minutes to two hours per contract to complete Form TO, at an average cost of $200 per contract and a total annual cost of about $12,000); Transcript of Staff End-User Roundtable (James Allison, ConocoPhillips) at 161 (estimating the marginal cost of Form TO is ‘‘on the order of’’ one full-time employee and possibly higher for smaller entities with less in the way of compliance systems and procedures), transcript available at https://www.cftc.gov/ucm/groups/public/@ newsroom/documents/file/transcript040314.pdf. 35 Note that trade option counterparties that are SD/MSPs would continue to comply with the swap data reporting requirements of part 45, including where the counterparty is a Non-SD/MSP, as they would in connection with any other swap. See 17 CFR 32.3(b)(4). PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 26203 Moreover, Non-SD/MSPs would, under the proposal, remain subject, via § 32.3(b), to the recordkeeping requirements in § 45.2, which require market participants to maintain full and complete records and to open their records to inspection upon the Commission’s request.36 Consequently, the Commission would remain able to collect additional information concerning unreported trade options as necessary to fulfill its regulatory mission.37 3. Proposed Action: New $1 Billion Notice Provision for Non-SD/MSPs The Commission proposes to amend § 32.3(b) by adding a requirement that Non-SD/MSP trade option counterparties must provide notice by email to DMO within 30 days after entering into trade options, whether reported or unreported, that have an aggregate notional value in excess of $1 billion in any calendar year (the ‘‘1 Billion Notice’’).38 In the alternative, a Non-SD/MSP may provide notice by email to DMO that it reasonably expects to enter into trade options, whether reported or unreported, having an aggregate notional value in excess of $1 billion during any calendar year (the ‘‘Alternative Notice’’).39 For purposes of the proposed Notice Requirement, the aggregate notional value of trade options entered into, or expected to be entered into, should be calculated by multiplying (1) the maximum volume of the commodities that could be bought or sold pursuant to the trade options entered into by (2) the strike or exercise price per unit of the commodity. If the strike or exercise price is not a fixed number in the trade option agreement and, instead, is to be determined pursuant to a reference price source that is not determinable at the time the trade option is entered into, 36 See 17 CFR 45.2(b), 45.2(h). As discussed infra at notes 53–55 and accompanying text, the Commission proposes to maintain recordkeeping requirements in § 32.3(b)–(c) for trade option participants, subject to certain clarifying amendments. 37 See 17 CFR 1.31(a)(2), 45.2(h). 38 As discussed above, the no-action relief provided by No-Action Letter 13–08 to Non-SD/ MSP trade option counterparties from part 45 reporting requirements is also conditioned on the Non-SD/MSP providing DMO with a $1 Billion Notice. See supra note 24 and accompanying text. In 2013 and 2014, DMO received $1 Billion Notices from nine and sixteen Non-SD/MSPs, respectively. Most of these $1 Billion Notices were filed on behalf of large energy companies. 39 Non-SD/MSPs who provide the Alternative Notice would not be required to demonstrate that they actually entered into trade options with an aggregate notional value of $1 billion or more in the applicable calendar year. Collectively, the $1 Billion Notice and the Alternative Notice are referred to as the ‘‘Notice Requirement.’’ E:\FR\FM\07MYP1.SGM 07MYP1 26204 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules then the foregoing calculation should be based on a current market price of the reference commodity at the time the option is entered into. For example, if the trade option involves crude oil that is deliverable on, or similar to, crude oil that is deliverable on the New York Mercantile Exchange (‘‘NYMEX’’), then the price of the nearby NYMEX crude oil futures contract may be used as the market price of the commodity at the time the trade option is entered into.40 In light of the other proposed amendments that would generally remove reporting requirements for NonSD/MSP counterparties to trade options, the proposed Notice Requirement would provide the Commission insight into the size of the market for unreported trade options and the identities of the most significant market participants. Additionally, the proposed Notice Requirement would help guide the Commission’s efforts to collect additional information through its authority to obtain copies of books or records required to be kept pursuant to the CEA and the Commission’s regulations should market circumstances dictate.41 mstockstill on DSK4VPTVN1PROD with PROPOSALS B. Recordkeeping requirements for NonSD/MSPs Commission regulation § 32.3(b) provides that in connection with any commodity option transaction that is eligible for the trade option exemption, every counterparty shall comply with the swap data recordkeeping requirements of part 45, as otherwise applicable to any swap transaction.42 In discussing the trade option exemption conditions, however, the Commission noted in the preamble to the Commodity Options Release that ‘‘[t]hese conditions include a recordkeeping requirement for any trade option activity, i.e., the recordkeeping requirements of 17 CFR 45.2,’’ and did not reference or discuss any other provision of part 45 that contains recordkeeping requirements.43 Pursuant to Commission regulation § 45.2, records must be maintained by all trade option participants and made available to the Commission as specified therein.44 However, § 45.2 applies different recordkeeping requirements, depending on the nature of the counterparty. For example, if a trade 40 The forgoing guidance with regard to how to calculate the notional value of trade options is similar to that provided in No-Action Letter 13–08 but has been revised to clarify that the focus of the $1 Billion Notice is the value of the trade option at time of contract initiation, not at exercise. 41 See supra note 38 and accompanying text. 42 See 17 CFR 32.3(b). 43 See 77 FR at 25327. 44 17 CFR 32.3(b); 45.2(h). VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 option counterparty is an SD/MSP, it would be subject to the recordkeeping provisions of § 45.2(a). If a counterparty is a Non-SD/MSP, it would be subject to the less stringent recordkeeping requirements of § 45.2(b).45 In adopting § 32.3(b), the Commission stated that the recordkeeping condition was intended to ensure that trade option participants are able to provide pertinent information regarding their trade options activity to the Commission, if requested.46 Additional recordkeeping requirements in part 45, separate and apart from those specified in § 45.2 and which would apply to all trade option counterparties by operation of § 32.3(b) include: 47 • each swap must be identified in all recordkeeping by the use of a unique swap identifier (‘‘USI’’); 48 • each counterparty to any swap must be identified in all recordkeeping by means of a single LEI; 49 and • each swap must be identified in all recordkeeping by means of a unique product identifier (‘‘UPI’’) and product classification system.50 1. Proposed Action: Modify the Recordkeeping Requirements for NonSD/MSPs The Commission proposes to amend § 32.3(b) to clarify that trade option counterparties that are Non-SD/MSPs need not identify their trade options in all recordkeeping by means of either a USI or UPI, as required by §§ 45.5 and 45.7.51 Rather, with respect to part 45 recordkeeping requirements, trade option counterparties that are Non-SD/ 45 In the case of Non-SD/MSPs, the primary recordkeeping requirements are set out in § 45.2(b), which essentially requires keeping basic business records—i.e., ‘‘full, complete and systematic records, together with all pertinent data and memoranda, with respect to each swap in which they are a counterparty.’’ Non-SD/MSPs are also subject to the other general recordkeeping requirements of § 45.2, such as the requirement that records must be maintained for 5 years and must be retrievable within 5 days. See 17 CFR 45.2(b). 46 See 77 FR at 25327. 47 As discussed above, No-Action Letter 13–08 provides no-action relief from certain swap recordkeeping requirements in part 45 for a NonSD/MSP that complies with the recordkeeping requirements set forth in § 45.2, provided that if the counterparty to the trade option at issue is an SD or an MSP, the Non-SD/MSP obtains an LEI pursuant to § 45.6 and also provides DMO with a $1 Billion Notice. See supra note 24 and accompanying text. 48 17 CFR 45.5. 49 Each counterparty to any swap subject to the Commission’s jurisdiction must be identified in all recordkeeping and all swap data reporting pursuant to part 45 by means of a single LEI as specified in § 45.6. See 17 CFR 45.6. 50 17 CFR 45.7. 51 See supra notes 49 and 49 and accompanying text. PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 MSPs must only comply with the applicable recordkeeping provisions in § 45.2,52 with the following qualification: The Non-SD/MSP trade option counterparty must obtain an LEI pursuant to § 45.6 and provide such LEI to its counterparty if that counterparty is an SD/MSP.53 These amendments are intended to reduce recordkeeping burdens for NonSD/MSP trade option counterparties, while allowing a trade option counterparty that is an SD/MSP to comply with applicable part 45 reporting obligations by properly identifying its Non-SD/MSP trade option counterparty by that counterparty’s LEI in all recordkeeping as well as all swap data reporting, just as the SD/MSP would for any other swap.54 C. Non-substantive amendment to Commission regulation § 32.3(c) Commission regulation § 32.3(c)(2) subjects trade options to part 151 position limits, to the same extent that part 151 would apply in connection with any other swap.55 However, as stated above, part 151 has been vacated.56 Furthermore, trade options are not subject to position limits under the Commission’s current part 150 position limit regime.57 Therefore, since position limits do not currently apply to trade options, the Commission proposes to amend § 32.3(c) by deleting § 32.3(c)(2), including the reference to vacated part 151. This would not be a substantive change. Although commenters have requested assurance that position limits will not apply to trade options in the future,58 the Commission preliminarily believes that any future application of 52 Trade option counterparties that are SD/MSPs would continue to comply with the swap data recordkeeping requirements of part 45, as they would in connection with any other swap. See 17 CFR 32.3(b)(4). 53 For the avoidance of doubt, Non-SD/MSPs would not otherwise be required to comply with § 45.6. 54 An SD/MSP that otherwise would report the trade option at issue pursuant to § 32.3(b)(1) is required to identify its counterparty to the trade option by that counterparty’s LEI in all recordkeeping as well as all swap data reporting. See, e.g., 17 CFR 23.201, 23.204, and 45.6. See supra note 36 and 17 CFR 45.6. 55 See 17 CFR 32.3(c)(2). 56 See supra note 13 and accompanying text. 57 Under current § 150.2, position limits apply to agricultural futures in nine listed commodities and options on those futures. Since trade options are not options on futures, § 150.2 position limits do not currently apply to such transactions. See 17 CFR 150.2. 58 See, e.g., Coalition (Dec. 22, 2014) at 11; AGA (Apr. 17, 2014) at 4; IECA (Apr. 17. 2014) at 28; Intercontinental Exchange, Inc. (April 17, 2014) at 5; CEWG (Feb. 6, 2013) at 3; COPE (June 26, 2012) at 6. E:\FR\FM\07MYP1.SGM 07MYP1 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules position limits would be best addressed in the context of the pending position limits rulemaking, which remains in the proposed rulemaking stage.59 III. Related Matters A. Cost Benefit Analysis mstockstill on DSK4VPTVN1PROD with PROPOSALS 1. Background As discussed above, the Commission is proposing amendments to the trade option exemption in § 32.3 that would: (1) Eliminate the part 45 reporting requirement for Non-SD/MSPs; (2) eliminate the Form TO filing requirement; (3) require those Non-SD/ MSPs that have the most significant volume in trade options to provide DMO with either (i) the $1 Billion Notice or (ii) the Alternate Notice; and (4) clarify that Non-SD/MSPs are required to comply with the swap data recordkeeping requirements of § 45.2 only, as opposed to all part 45 recordkeeping requirements; (5) require Non-SD/MSPs that enter into exempt trade options with SD/MSPs to obtain an LEI pursuant to § 45.6 and provide it to their SD/MSP counterparties; (6) eliminate reference to the now-vacated part 151 position limits.60 In issuing this proposal, the Commission has reviewed all relevant comment letters and taken into account significant issues raised therein.61 The Commission believes that the baseline for this cost and benefit consideration is existing § 32.3. Although No-Action Letter 13–08, as discussed above, currently offers noaction relief that is substantially similar 59 On December 12, 2013, the Commission published in the Federal Register a notice of proposed rulemaking to establish speculative position limits for 28 exempt and agricultural commodity futures and options contracts and the physical commodity swaps that are economically equivalent to such contracts, including trade options. See Position Limits for Derivatives, Proposed Rules, 78 FR 75680 (Dec. 12, 2013) (‘‘Position Limits Proposal’’). Therein, the Commission proposed replacing the cross-reference to vacated part 151 in § 32.3(c)(2) with a crossreference to amended part 150 position limits. See 78 FR at 75711. As an alternative in the Position Limits Proposal, the Commission proposed to exclude trade options from speculative position limits and proposed an exemption for commodity derivative contracts that offset the risk of trade options. Also note that under the Position Limits Proposal, trade options based on commodities or delivery points other than those underlying the core referenced futures contracts specified in the Position Limits Proposal would not be subject to speculative position limits. The Commission recently extended the comment period for the Position Limits Proposal until March 28, 2015. See 80 FR 10022 (Feb. 25, 2015). 60 As stated above, Non-SD/MSPs would not otherwise be required to comply with § 45.6. 61 See supra note 24. See also note 59 (stating that the Commission has determined to address the application of position limits to trade options in the pending position limits rulemaking). VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 to the relief that the proposed amendments would grant certain market participants and end users, as a noaction letter, it only represents the position of the issuing Division or Office and cannot bind the Commission or other Commission staff.62 Consequently, the Commission believes that No-Action Letter 13–08 should not set or affect the baseline against which the Commission considers the costs and benefits of the proposal. 2. Costs The Commission believes that the proposal would, overall, reduce the regulatory burdens and associated costs imposed by the conditions for relief in § 32.3(b). Although the Commission understands that some Non-SD/MSPs may experience costs associated with tracking the aggregate notional value of their trade option transactions for purposes of the $1 Billion Notice,63 Non-SD/MSPs that reasonably expect to enter into trade options in excess of $1 billion could opt to avoid those tracking costs by instead submitting the Alternative Notice. The Commission also believes that many Non-SD/MSPs may avoid any costs associated with the $1 Billion Notice because they would fall significantly below the $1 billion threshold and thus would not need to track and calculate their aggregate trade option activity.64 Furthermore, the Commission believes that the proposal would otherwise significantly reduce the regulatory burdens imposed by § 32.3(b), particularly through the elimination of part 45 reporting requirements for trade option counterparties that are Non-SD/MSPs and the Form TO filing requirement, each of which commenters have described as burdensome.65 The Commission preliminarily believes that the proposal would not impose any additional costs on any other market participants, the markets themselves, or the general public. The Commission invites comment regarding the nature and extent of these and any other costs that could result from adoption of the proposal and, to the extent they can be 62 See 17 CFR 140.99(a)(2). See also No-Action Letter 13–08 at 5. 63 See Coalition for Derivatives End-Users (Dec. 22, 2014) at 10; American Public Power Association, Edison Electric Institute, Electric Power Supply Association, Large Public Power Council, National Rural Electric Cooperative Association (Dec. 22, 2014) at 9. 64 As stated in note 38, supra, of the 330 Non-SD/ MSPs who submitted Form TO filings in 2014, only sixteen also submitted a $1 Billion Notice to DMO. 65 See supra note 34 (citing recent comment letters offering costs estimates for compliance with the Form TO reporting requirement). PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 26205 quantified, monetary and other estimates thereof. 3. Benefits The Commission believes that the proposal would provide relief for NonSD/MSPs entering into trade options by eliminating the part 45 and Form TO reporting obligations. The Commission believes that the proposed Notice Requirement would also support the regulatory goals of ensuring market integrity and protecting the public by allowing the Commission insight into the size of the market for unreported trade options and the ability to identify significant market participants, who the Commission may wish to contact if concerns about the market for trade options arise. The Commission invites comment regarding the nature and extent of these and any other benefits that could result from adoption of the proposal—including benefits to other market participants, the market itself or the general public—and, to the extent they can be quantified, monetary and other estimates thereof. 4. Section 15(a) Factors Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA or issuing certain orders.66 Section 15(a) further specifies that the costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the section 15(a) factors. a. Protection of Market Participants and the Public The Commission recognizes that there may be trade-offs between reducing regulatory burdens and ensuring that the Commission has sufficient information to fulfill its regulatory mission. The proposed amendments to § 32.3 are intended to reduce some of the regulatory burdens on end users while still maintaining insight into the market for trade options to protect the public. 66 7 U.S.C. 19(a). E:\FR\FM\07MYP1.SGM 07MYP1 26206 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules b. Efficiency, Competitiveness, and Financial Integrity of Markets The Commission believes that the proposed amendments to § 32.3 could increase efficiency for participants in the market for trade options by reducing the reporting burdens on Non-SD/MSPs, allowing them to reallocate those resources to other more efficient purposes. The Commission also believes that the proposed Notice Requirement would promote market integrity by providing the Commission with information to use in its market oversight role, thereby fulfilling the purposes of the CEA.67 The Commission preliminarily believes that the proposed amendments to § 32.3 will not have any competitiveness impact. c. Price Discovery The Commission preliminarily believes that the proposed amendments to § 32.3 would likely not have a significant impact on price discovery. Given that trade options are not subject to the real-time reporting requirements applicable to other swaps, meaning that current prices of consummated trade options are likely not available to many market participants, the Commission preliminarily believes any effect on price discovery would be negligible. d. Sound Risk Management Practices The Commission preliminarily believes that the proposed amendments would not have a meaningful effect on the risk management practices of the affected market participants and end users. Although the proposal is intended, in part, to reduce some of the regulatory burdens on certain market participants and end users, affected Non-SD/MSPs would still be required to maintain complete and accurate records in a manner that is readily available for production to regulators. mstockstill on DSK4VPTVN1PROD with PROPOSALS e. Other Public Interest Considerations The Commission has not identified any other public interest considerations for this rulemaking. 5. Request for Comment The Commission invites comment on all aspects of its preliminary consideration of the costs and benefits associated with the proposal and the five factors the Commission is required to consider under CEA section 15(a). In addressing these areas and any other aspect of the Commissions preliminary cost-benefit considerations, the Commission encourages commenters to 67 See, e.g., CEA section 3(b), 7 U.S.C. 5 (stating that it is a purpose of the CEA to deter disruptions to market integrity). VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 submit any data or other information they may have quantifying and/or qualifying the costs and benefits of the proposal. B. Regulatory Flexibility Analysis The Regulatory Flexibility Act (the ‘‘RFA’’) 68 requires that Federal agencies consider whether the rules they propose will have a significant economic impact on a substantial number of ‘‘small entities’’ 69 and, if so, the agencies must provide a regulatory flexibility analysis reflecting the impact. Whenever an agency publishes a general notice of proposed rulemaking for any rule, pursuant to the notice-and-comment provisions of the Administrative Procedure Act,70 a regulatory flexibility analysis or certification typically is required.71 As discussed above, the proposed amendments would affect the recordkeeping and reporting requirements for Non-SD/MSP counterparties relying on the trade option exemption in § 32.3. Pursuant to the eligibility requirements in § 32.3(a), such a Non-SD/MSP may be an ECP and/or a commercial party (i.e., a producer, processor, or commercial user of, or a merchant handling the exempt or agricultural commodity that is the subject of the commodity option transaction, or the products or byproducts thereof) offering or entering into the trade option solely for purposes related to its business as such. Although the Commission has previously determined that ECPs are not small entities for RFA purposes,72 the Commission is not in a position to determine whether non-ECP commercial parties affected by the amendments would include a substantial number of small entities on which the rule would have a significant economic impact because § 32.3 does not subject such entities to a minimum net worth requirement, allowing commercial entities of any economic status to enter into exempt trade options. Therefore, pursuant to 5 U.S.C. 603, the Commission offers for public comment this initial regulatory flexibility analysis addressing the impact of the proposal on small entities: 68 5 U.S.C. 601 et seq. 5 U.S.C. 601(6) (defining ‘‘small entity’’ to include a ‘‘small business,’’ ‘‘small organization,’’ and ‘‘small governmental jurisdiction,’’ as those terms are defined in the RFA and by reference to the Small Business Act, 15 U.S.C. 632 et seq.). 70 5 U.S.C. 553. The Administrative Procedure Act is found at 5 U.S.C. 551 et seq. 71 See 5 U.S.C. 601(2), 603–605. 72 See Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 25, 2001). 69 See PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 1. A description of the reasons why action by the agency is being considered. The Commission is proposing to modify the trade option exemption in § 32.3 in response to comments from Non-SD/MSPs that the regulatory burdens currently imposed by § 32.3 are unnecessarily burdensome. 2. A succinct statement of the objectives of, and legal basis for, the proposal. The objective of the proposal is to reduce the recordkeeping and reporting obligations for Non-SD/MSPs while still providing the Commission insight into the size of the market for unreported trade options and the identities of the most significant participants in the market. As stated above, the legal basis for the proposed rule is the Commission’s plenary options authority in CEA section 4c(b). 3. A description of and, where feasible, an estimate of the number of small entities to which the proposed rule will apply. The small entities to which the proposed amendments may apply are those commercial parties that would not qualify as ECPs and/or that fall within the definition of a ‘‘small entity’’ under the RFA, including size standards established by the Small Business Administration.73 Although more than 300 Non-SD/MSPs have reported their use of trade options to the Commission through Form TO, the limited information provided by Form TO is not sufficient for the Commission to determine whether and how many of those Non-SD/MSPs qualify as small entities under the RFA. 4. A description of the projected reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities which will be subject to the requirement and the type of professional skills necessary for preparation of the report or record. The proposed amendments would relieve Non-SD/MSPs, which may include small entities, from certain recordkeeping and reporting requirements that would otherwise apply to them. While the proposal would impose a new requirement on certain Non-SD/MSPs to provide DMO by email with either the $1 Billion Notice or the Alternative Notice 73 See id. See also 5 U.S.C. 601(3) (defining ‘‘small business’’ to have the same meaning as the term ‘‘small business concern’’ in the Small Business Act); 15 U.S.C. 632(a)(1) (defining ‘‘small business concern’’ to include an agricultural enterprise with annual receipts not in excess of $750,000); 13 CFR 121.201 (establishing size standards for small business concerns). E:\FR\FM\07MYP1.SGM 07MYP1 mstockstill on DSK4VPTVN1PROD with PROPOSALS Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules annually, the Commission does not believe that this requirement would impact many small entities, if any at all. Given the significant volume of trade options required to trigger the proposed Notice Requirement, the Commission expects that it would apply to only a small number of entities and that such entities would likely not be small entities.74 The Commission’s view is supported by DMO’s experience with the $1 Billion Notice provision in NoAction Letter 13–08: As indicated above, DMO received a $1 Billion Notice from only sixteen of the more than 300 Non-SD/MSPs that filed a Form TO in 2014, and all such entities are generally well-known in their respective industries.75 Filing the $1 Billion Notice would require affected Non-SD/MSPs to track and aggregate the notional values of their trade options. The Commission expects that this general information should be readily compiled and aggregated using a spreadsheet or other existing software and would not require any professional skills beyond those typically held by any commercial party. Furthermore, Non-SD/MSPs that reasonably expect to enter into trade options with an aggregate notional value in excess of $1 billion during the calendar year may, in line with the Alternative Notice, simply send an email to DMO to that effect, thereby avoiding having to track the notional values of their trade options. 5. An identification, to the extent practicable, of all relevant Federal rules which may duplicate, overlap or conflict with the rule. The Commission is unaware of any Federal rules that could duplicate, overlap, or conflict with the proposal. 6. A description of any significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any significant economic impact of the proposed rule on small entities. These may include, for example, (1) the establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities. 74 See 15 U.S.C. 632(a) (defining a ‘‘small business concern’’ generally to include an enterprise that is ‘‘not dominant in its field of operation’’). 75 See supra note 37 and accompanying text. VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 A potential alternative to relieving Non-SD/MSPs, which may include small entities, from certain recordkeeping and reporting requirements would be to either (1) not amend the current rule, which would maintain recordkeeping and reporting requirements that Non-SD/MSPs have represented are onerous, or (2) create a rule with more specific reporting parameters for specific entities. While the proposal would impose the new annual Notice Requirement on certain Non-SD/MSPs, overall, the Commission believes that the proposed amendments would have a positive economic impact on Non-SD/MSPs that are small entities because they would generally relax reporting requirements across all trade option counterparties that are Non-SD/ MSPs. Although the proposal could expressly limit application of the Notice Requirement to entities that do not meet the RFA definition of a small entity, the Commission does not believe that is necessary because, as stated above, the Commission does not expect many small entities to be affected by that requirement, if any at all. Furthermore, even if a small entity were to enter into trade options with an aggregate notional value in excess of $1 billion during a calendar year, the Commission believes that such information would nevertheless be important to the Commission’s insight into the market for otherwise unreported trade options and may cause the Commission to adjust the threshold for notice reporting above $1 billion. C. Paperwork Reduction Act The purposes of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq. (‘‘PRA’’) are, among other things, to minimize the paperwork burden to the private sector, ensure that any collection of information by a government agency is put to the greatest possible uses, and minimize duplicative information collections across the government.76 The PRA applies to all information, ‘‘regardless of form or format,’’ whenever the government is ‘‘obtaining, causing to be obtained [or] soliciting’’ information, and includes required ‘‘disclosure to third parties or the public, of facts or opinions,’’ when the information collection calls for ‘‘answers to identical questions posed to, or identical reporting or recordkeeping requirements imposed on, ten or more persons.’’ 77 The PRA requirements have been determined to include not only mandatory but also voluntary information collections, and 76 See 77 See PO 00000 44 U.S.C. 3501. 44 U.S.C. 3502. Frm 00010 Fmt 4702 include both written and oral communications.78 Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number from the Office of Management and Budget (‘‘OMB’’). The Commission seeks to amend the OMB control number 3038–0106—Form TO, Annual Notice Filing for Counterparties to Unreported Trade Option. Therefore the Commission is submitting this proposal to OMB for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. With the exception of the proposed Notice Requirement, the Commission believes that these proposed rules will not impose any new information collection requirements that require approval of OMB under the PRA. As a general matter, the proposed rules would relax reporting and recordkeeping requirements for NonSD/MSPs entering into trade options with each other in connection with their respective businesses, including the withdrawal and removal of Form TO. As such, the proposed rules will not result in the creation of any new information collection subject to OMB review or approval under the PRA, except for the annual Notice Requirement. Therefore, these proposed rules do not, by themselves, impose any new information collection requirements other than those that already exist in connection with trade options pursuant to part 32 of the Commission’s regulations, except for the proposed Notice Requirement. As noted above, the Commission proposes to add the Notice Requirement for trade option counterparties that are Non-SD/MSPs, which requirement is considered to be a collection of information within the meaning of the PRA. Accordingly, the Commission is amending OMB control number 3038– 0106 and submitting to OMB an information collection request for review and approval. If approved, this new collection of information will be mandatory. The Commission anticipates that affected Non-SD/MSPs may incur certain costs in complying with the proposed $1 Billion Notice, including those related to calculating the aggregate notional value of trade options entered into, and to drafting the notice email and submitting it to DMO. There are no additional capital costs associated with this collection because all respondents are already required to create and store detailed records of their trade option transactions pursuant to § 32.3(b). The 78 See Sfmt 4702 26207 E:\FR\FM\07MYP1.SGM 5 CFR 1320.3(c)(1). 07MYP1 26208 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules Commission estimates that twenty respondents will file a total of one response each annually, and the estimated average number of hours per response would be two. Therefore, the Commission estimates the total burden hours associated with OMB control number 3038–0106 to be 40 hours. The Commission notes that the proposed amendments would relieve trade option counterparties that are Non-SD/MSPs from certain recordkeeping and reporting requirements under part 45. The Commission believes that these proposed amendments would not cause a material net reduction in the current part 45 PRA burden estimates (OMB control number 3038–0096) to the extent that such reduced recordkeeping and reporting burdens for trade option counterparties that are Non-SD/MSPs would be insubstantial when compared to the overall part 45 PRA burden estimate as it relates to Non-SD/MSPs. The Commission specifically invites public comment on the accuracy of its estimate that no additional information collection requirements or changes to existing collection requirements, other than the proposed Notice Requirement, would result from the proposal. List of Subjects in 17 CFR Part 32 Commodity futures, consumer protection, fraud, reporting and recordkeeping requirements. For the reasons stated in the preamble, the Commodity Futures Trading Commission proposes to amend 17 CFR part 32 as set forth below: PART 32—REGULATION OF COMMODITY OPTION TRANSACTIONS 1. The authority citation for part 32 continues to read as follows: ■ Authority: 7 U.S.C. 1a, 2, 6c, and 12a, unless otherwise noted. ■ 2. Revise § 32.3 to read as follows: mstockstill on DSK4VPTVN1PROD with PROPOSALS § 32.3 Trade options. (a) Subject to paragraphs (b), (c), and (d) of this section, the provisions of the Act, including any Commission rule, regulation, or order thereunder, otherwise applicable to any other swap shall not apply to, and any person or group of persons may offer to enter into, enter into, confirm the execution of, maintain a position in, or otherwise conduct activity related to, any transaction in interstate commerce that is a commodity option transaction, provided that: (1) Such commodity option transaction must be offered by a person that has a reasonable basis to believe that the transaction is offered to an VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 offeree as described in paragraph (a)(2) of this section. In addition, the offeror must be either: (i) An eligible contract participant, as defined in section 1a(18) of the Act, as further jointly defined or interpreted by the Commission and the Securities and Exchange Commission or expanded by the Commission pursuant to section 1a(18)(C) of the Act; or (ii) A producer, processor, or commercial user of, or a merchant handling the commodity that is the subject of the commodity option transaction, or the products or byproducts thereof, and such offeror is offering or entering into the commodity option transaction solely for purposes related to its business as such; (2) The offeree must be a producer, processor, or commercial user of, or a merchant handling the commodity that is the subject of the commodity option transaction, or the products or byproducts thereof, and such offeree is offered or entering into the commodity option transaction solely for purposes related to its business as such; and (3) The commodity option must be intended to be physically settled, so that, if exercised, the option would result in the sale of an exempt or agricultural commodity for immediate or deferred shipment or delivery. (b) In connection with any commodity option transaction entered into pursuant to paragraph (a) of this section, every counterparty that is not a swap dealer or major swap participant shall: (1) Comply with the swap data recordkeeping requirements of § 45.2 of this chapter, as otherwise applicable to any swap transaction; (2) Obtain a legal entity identifier pursuant to § 45.6 of this chapter if the counterparty to the transaction involved is a swap dealer or major swap participant, and provide such legal entity identifier to the swap dealer or major swap participant counterparty; and (3) Notify the Division of Market Oversight through an email to TOreportingrelief@cftc.gov: (i) No later than 30 days after entering into trade options, whether reported or unreported, having an aggregate notional value in excess of $1 billion during any calendar year, or (ii) Provide notice that the Non-SD/ MSP reasonably expects to enter into trade options, whether reported or unreported, having an aggregate notional value in excess of $1 billion during any calendar year. (c) In connection with any commodity option transaction entered into pursuant to paragraph (a) of this section, the following provisions shall apply to PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 every trade option counterparty to the same extent that such provisions would apply to such person in connection with any other swap: (1) Part 20 of this chapter (Swaps Large Trader Reporting); (2) Subpart J of part 23 of this chapter (Duties of Swap Dealers and Major Swap Participants); (3) Sections 23.200, 23.201, 23.203, and 23.204 of this chapter (Reporting and Recordkeeping Requirements for Swap Dealers and Major Swap Participants); and (4) Section 4s(e) of the Act (Capital and Margin Requirements for Swap Dealers and Major Swap Participants). (d) In addition, any person or group of persons offering to enter into, entering into, confirming the execution of, maintaining a position in, or otherwise conducting activity related to a commodity option transaction in interstate commerce pursuant to paragraph (a) of this section shall remain subject to part 180 of this chapter (Prohibition Against Manipulation) and § 23.410 of this chapter (Prohibition on Fraud, Manipulation, and other Abusive Practices) and the antifraud, antimanipulation, and enforcement provisions of sections 2, 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 13 of the Act. (e) The Commission may, by order, upon written request or upon its own motion, exempt any person, either unconditionally or on a temporary or other conditional basis, from any provisions of this part, and the provisions of the Act, including any Commission rule, regulation, or order thereunder, otherwise applicable to any other swap, other than § 32.4 of this chapter, part 180 of this chapter (Prohibition Against Manipulation), and § 23.410 of this chapter (Prohibition on Fraud, Manipulation, and other Abusive Practices), and the antifraud, antimanipulation, and enforcement provisions of sections 2, 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 13 of the Act, if it finds, in its discretion, that it would not be contrary to the public interest to grant such exemption. Issued in Washington, DC, on May 4, 2015, by the Commission. Christopher J. Kirkpatrick, Secretary of the Commission. Note: The following appendices will not appear in the Code of Federal Regulations. E:\FR\FM\07MYP1.SGM 07MYP1 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules Appendices to Trade Options— Commission Voting Summary, Chairman’s Statement, and Commissioners’ Statements Appendix 1—Commission Voting Summary On this matter, Chairman Massad and Commissioners Wetjen, Bowen, and Giancarlo voted in the affirmative. No Commissioner voted in the negative. mstockstill on DSK4VPTVN1PROD with PROPOSALS Appendix 2—Statement of Chairman Timothy G. Massad I am pleased to support the staff’s recommendation to issue a proposed rulemaking to revise the rules regarding trade options, which are a subset of commodity options. Specifically, the Commission is proposing to reduce reporting and recordkeeping requirements for end-users that transact in trade options in connection with their businesses, including by eliminating the requirement to file form TO. These products are commonly used by commercial participants, so this action should help those participants continue to do so cost-effectively. We will continue to look at ways that we can make sure commercial end-users can use these markets effectively and to make sure that the new regulatory framework for swaps does not impose unintended consequences or burdens for them. An important part of this effort has been, and shall continue to be, finetuning our rules so that commercial companies can continue to conduct their daily operations efficiently. This proposed rulemaking would relax reporting and recordkeeping requirements where two commercial parties enter into trade options with each other in connection with their respective businesses. These proposed amendments are generally intended to reduce burdens for end-users, many of whom, as commenters explained, face logistical impediments and significant costs in connection with reporting their trade options. This proposed rulemaking reduces and clarifies requirements for end-users that use trade options in connection with their businesses, and the proposed amendments would allow the Commission to maintain regulatory insight into the market for otherwise unreported trade options. Endusers would remain subject to the recordkeeping requirements in § 45.2, which require market participants to maintain full and complete records and to open their records to inspection upon the Commission’s request. Additionally, the proposed $1 billion notice requirement would provide the Commission insight into the size of the market for unreported trade options and the identities of the most significant market participants. I look forward to receiving public comment on this proposed rulemaking. Appendix 3—Concurring Statement of Commissioner Sharon Y. Bowen Today, we are approving a proposed rule that would implement changes to the Commission’s Trade Option exemption to VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 reduce the burden on commercial entities seeking to hedge risks associated with their physical businesses. I support these changes. However, based upon comments the Commission has received and meetings that I have had with members of the public, I believe the Commission should consider additional clarifications to better ensure legal certainty for the manufacturing, energy and agricultural industries’ ability to address their commercial risks. In the manufacturing, agriculture and energy sectors, a wide variety of physicallydelivered instruments are used to secure companies’ commercial needs for a physical commodity. These instruments, although they call for physical delivery, often contain some element of optionality that can lead to questions about their appropriate regulatory treatment. These contracts, particularly in the energy sector, are all commonly referred to as physical contracts, and they, according to what I have been told, often receive similar treatment from both a business operations and an accounting standpoint within the entities that use them. Further, these physical contracts are often handled and accounted for separately from other derivatives, such as futures contracts or cash-settled swaps, according to market participants. Treating some portion of these physical contracts as swaps simply because they may contain some characteristics of commodity options can lead to significant costs and difficulties. For instance, companies may have to reconfigure their business systems to parse transactions where there was, before Dodd Frank, no need to undertake such a reconfiguration. Many commenters and people I have met have expressed particular concerns regarding how instruments having elements of both forward contracts and some volumetric optionality should be regulated. In a separate release, the Commission plans to finalize guidance on how forward contracts with embedded volumetric optionality relate to the forward contract exclusion from the swap definition. While that release will help address the circumstances under which volumetric optionality embedded in a forward contract do not cause the forward contract to be a ‘‘swap’’, my understanding is that additional relief may still be helpful to commercial market participants seeking to hedge their physical needs with instruments that contain a forward contract with volumetric optionality. Market participants have also expressed concerns about the appropriate treatment of ‘‘peaking supply contracts’’ which are often used by companies to manage the risks attendant to their need for physical commodities that may be used to generate electricity, run an operating plant, or manufacture or supply other goods and services. For both types of instruments, I think, the Commission could benefit from getting comments on potential avenues for addressing concerns that have been raised about their appropriate treatment. Instruments Containing a Forward Contract With Volumetric Variability As noted in the proposal, the trade option exemption is intended to permit parties to PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 26209 hedge or otherwise enter into commodity option transactions for commercial purposes without being subject to the general DoddFrank swaps regime. The exemption continues the long Commission policy of exempting them from requirements of the Commodity Exchange Act that would otherwise apply to commodity options. It provides an exemption for contracts meeting the requirements of the trade option exemption from regulation as swaps to the extent they would otherwise be subject to regulation by virtue of being a ‘‘commodity option’’. Both forward contracts and trade options play an important role in managing the physical commodity risks attendant to commercial operations. According to industry participants, there can be difficulty in separating out, for regulatory purposes, the ‘‘option’’ component of an instrument containing both a forward contract and an element that might be considered a commodity option. My understanding is that these overall instruments are typically used to address a commercial entity’s physical requirements for a particular commodity as part of its ongoing commercial operation and that the commodity option component is often used to manage uncertainty in the commercial supply and demand factors that affect a commercial entities’ need for a particular physical commodity. Additionally, these instruments are often highly customized and the various components not always easy to separate and classify, according to industry participants. Given these concerns, I think it would be helpful to get comment upon whether the Commission should consider a new § 32.3(f) as part of the trade option exemption being proposed today. Such an exemption would exempt qualifying trade options from the swap reporting and recordkeeping requirements that would otherwise apply to them as trade options so long as they: (1) Are not severable nor separately marketable from the forward contract component of overall instrument, (2) are related to and entered into concurrently with the forward contract component of overall instrument, and (3) for which the physical commodity underlying the trade option component is the same as that underlying the forward contract component of the overall instrument. The text of such additional exemption would read as follows: ‘‘§ 32.3(f) Instruments Containing a Forward Contract with Volumetric Variability. In the case of an instrument containing a forward contract with volumetric variability that meets the definition of a trade option (as defined by paragraph (a)), the component of such instrument that is a trade option shall be subject to only the requirements of paragraph (d) provided: (1) The volumetric variability is not severable nor separately marketable from the forward contract component, (2) the volumetric variability is related to and entered into concurrently with the forward contract component, and (3) the physical commodity underlying the volumetric variability is the same as that underlying the forward contract component.’’ E:\FR\FM\07MYP1.SGM 07MYP1 26210 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules Supply Contracts for a Specified Portion of an Entity’s Physical Need for a Commodity (e.g., peaking supply contracts) As noted above, concerns have also been raised about the appropriate treatment of peaking supply contracts which are often used by companies to manage the risks attendant to their need for physical commodities that may be used to generate electricity, run an operating plant, or manufacture or supply other goods and services. Market participants have raised concerns about whether or not these contracts could be considered commodity options. In instances where these contracts represent a reservation of a portion of supplier’s capacity to provide a particular commodity and not a transaction for the commodity itself, it seems possible these contracts may not be commodity options. One test that has been proposed to determine whether or not such contracts are commodity options is whether: 1. The subject of the agreement, contract or transaction is a binding, sole-source, obligation of a supplier of a physical commodity to stand ready to meet a specified portion of a commercial consumer’s physical need for a commodity through providing for the physical delivery of that commodity to the specified commercial consumer or its designee in connection with the physical obligation, 2. The payment provided by the commercial consumer to the commercial supplier for such agreement, contract or transaction is in the nature of a reservation charge to provide the service of standing ready to meet the physical needs of the commercial consumer, 3. Payment for any commodity delivered under such agreement, contract or transaction is at the market price for that commodity at the time of delivery (i.e., the agreement, contract, or transaction is not used to hedge price risk), and 4. The agreement, contract or transaction is necessary to meet the commercial consumer’s projected physical needs or is required by regulation. I think the Commission would benefit from receiving comments on this proposed test and peaking supply contracts more generally as it appears to be one of the significant outstanding issues regarding instruments that may or may not be trade options. Together, these two additional items may help address outstanding concerns that have been expressed by commercial market participants, and I think the Commission would benefit by getting comment upon them. mstockstill on DSK4VPTVN1PROD with PROPOSALS Appendix 4—Statement of Commissioner J. Christopher Giancarlo I support the Commission’s proposed amendments to the interim final trade options rule. These are common sense reforms that will alleviate certain recordkeeping and reporting burdens that § 32.3 currently imposes on end-users that use trade options to manage commercial risk. The deletion of the reference in § 32.3(c)(2) to part 151 position limits is also appropriate in light of the fact that part 151 was vacated by the court in Int’l Swaps & Derivatives VerDate Sep<11>2014 17:16 May 06, 2015 Jkt 235001 Ass’n v. U.S. Commodity Futures Trading Comm’n, 887 F. Supp. 2d 259 (D.D.C. 2012). I strongly disagree, however, with the Commission’s statement that it preliminarily believes that any future application of position limits would be best addressed in the context of the pending position limits rulemaking. Simply put, position limits for trade options are not ‘‘necessary to diminish, eliminate, or prevent’’ excessive speculation. Section 4a(a)(1) of the Commodity Exchange Act (CEA). The final trade options rule should make clear that trade options are exempt from position limits. As the Commission recognized in promulgating the interim final rule establishing the trade options exemption, ‘‘position limits apply only to speculative positions. . . . Trade options, which are commonly used as hedging instruments or in connection with some commercial function, would normally qualify as hedges, exempt from the speculative position limit rules.’’ Commodity Options, 77 FR 25320, 25328 n.50 (Apr. 27, 2012). By definition, the offeree to a trade option ‘‘must be a producer, commercial user of, or a merchant handling the commodity that is the subject of the commodity option transaction, or the products or by-products thereof,’’ and must restrict the use of trade options ‘‘solely for purposes related to its business as such.’’ § 32.3(a)(2). Moreover, the ‘‘option must be intended to be physically settled, so that, if exercised, [it] would result in the sale of an exempt or agricultural commodity for immediate or deferred shipment or delivery.’’ § 32.3(a)(3). Given these parameters, the risk that trade options could be used to engage in speculation, much less excessive speculation, is so remote as to be virtually non-existent. Applying a position limits regime to trade options and requiring commercial end-users to seek bona fide hedge treatment for those transactions, which was floated as a possibility in the pending proposed position limits rule, would not be an acceptable outcome. See Position Limits for Derivatives, 78 FR 75680, 75711 (Dec. 12, 2013). As commenters to the proposed position limits rule have pointed out, there is no regulatory benefit to imposing position limits on instruments that inherently are not speculative in nature, and doing so ‘‘will distort commodity markets and impede economically efficient behavior’’ by discouraging the use of trade options. Natural Gas Supply Association Comment Letter dated Aug. 4, 2014 at 13. A comment letter filed by the Edison Electric Institute and the Electric Power Supply Association (Joint Associations) cites persuasive examples of how application of the proposed position limits rule would eliminate the ability of market participants to enter into multi-month and multi-year trade options. See Joint Associations Comment Letter dated Feb. 7, 2014 at 6–7; see also American Gas Association Comment Letter dated Feb. 10, 2014 at 5 (the lack of a contractual upper limit in the way that natural gas options are structured make position limit reporting impossible). The Commission has the authority in section 4a(a)(7) of the CEA to exempt ‘‘any PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 person or class of persons, any swap or class of swaps, any contract of sale of a commodity for future delivery or class of such contracts, any option or class of options, or any transaction or class of transactions from any requirement it may establish . . . with respect to position limits.’’ As long as the specter of position limits hangs over trade options, market participants that have used these instruments for decades as a cost effective means of ensuring a reliable supply of a physical commodity and to hedge commercial risk will be reluctant to use them. As I have said before, commercial end-users, including commercial end-users of everyday trade options, were not the cause of the financial crisis and the federal government should stop treating them like they were. I urge my fellow Commissioners to eliminate this regulatory uncertainty sooner, rather than later, by exercising our section 4a(a)(7) authority in connection with this trade options rulemaking. I encourage further public comment on the issue. [FR Doc. 2015–11020 Filed 5–6–15; 8:45 am] BILLING CODE 6351–01–P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA–HQ–OAR–2015–0071; FRL–9926–97– OAR] RIN 2060–AS57 Prevention of Significant Deterioration Permitting for Greenhouse Gases: Providing Option for Rescission of EPA-Issued Tailoring Rule Step 2 Prevention of Significant Deterioration Permits Environmental Protection Agency (EPA). ACTION: Proposed rule. AGENCY: The Environmental Protection Agency (EPA) is proposing to amend the federal Prevention of Significant Deterioration (PSD) program regulations to allow for rescission of certain PSD permits issued by the EPA and delegated reviewing authorities under Step 2 of the Prevention of Significant Deterioration and Title V Greenhouse Gas (GHG) Tailoring Rule (Tailoring Rule). We are proposing to take this action in order to provide a mechanism for the EPA and delegated reviewing authorities to rescind PSD permits that are no longer required in light of the United States (U.S.) Supreme Court’s decision in Utility Air Regulatory Group (UARG) v. EPA and the amended appeals court judgment in Coalition for Responsible Regulation (Coalition) v. EPA, vacating that rule. These decisions determined that Step 2 of the Tailoring SUMMARY: E:\FR\FM\07MYP1.SGM 07MYP1

Agencies

Commodity Futures Trading Commission

[Federal Register Volume 80, Number 88 (Thursday, May 7, 2015)]
[Proposed Rules]
[Pages 26200-26210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11020]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 32

RIN 3038-AE26

Trade Options

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (the ``Commission''
or the ``CFTC'') is proposing to amend the trade option exemption in
its regulations, as described herein, in the following subject areas:
Reporting requirements for trade option counterparties that are not
swap dealers or major swap participants; recordkeeping requirements for
trade option counterparties that are not swap dealers or major swap
participants; and certain non-substantive amendments.

DATES: Comments must be received on or before June 8, 2015.

ADDRESSES: You may submit comments, identified by RIN 3038-AE26, by any
one of the following methods:
CFTC Web site: https://comments.cftc.gov. Follow the
instructions for submitting comments through the Comments Online
process on the Web site.
Mail: Send to Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW., Washington, DC 20581.
Hand Delivery/Courier: Same as Mail, above.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Please submit your comments using only one of these methods.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
www.cftc.gov. You should submit only information that you wish to make
available publicly. If you wish the Commission to consider information
that you believe is exempt from disclosure under the Freedom of
Information Act, a petition for confidential treatment of the exempt
information may be submitted according to the procedures established in
Sec. 145.9 of the CFTC's regulations, 17 CFR 145.9.
The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of a
submission from www.cftc.gov that it may deem to be inappropriate for
publication, such as obscene language. All submissions that have been
redacted or removed that contain comments on the merits of the
rulemaking will be retained in the public comment file and will be
considered as required under the Administrative Procedure Act and other
applicable laws, and may be accessible under the Freedom of Information
Act.

FOR FURTHER INFORMATION CONTACT: David N. Pepper, Special Counsel,
Division of Market Oversight, at (202) 418-5565 or dpepper@cftc.gov; or
Elise Pallais, Counsel, Office of the General Counsel, at (202) 418-
5577 or epallais@cftc.gov; Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Introduction

In April 2012, pursuant to section 4c(b) of the Commodity Exchange
Act

[[Page 26201]]

(the ``CEA'' or the ``Act''),\1\ the Commission issued a final rule to
repeal and replace part 32 of its regulations concerning commodity
options.\2\ The Commission undertook this effort to address section 721
of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act
(the ``Dodd-Frank Act'' or ``Dodd-Frank''),\3\ which, among other
things, amended the CEA to define the term ``swap'' to include
commodity options.\4\ Notably, Sec. 32.2(a) provides the general rule
that commodity option transactions must be conducted in compliance with
any Commission rule, regulation, or order otherwise applicable to any
other swap.\5\
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\1\ 7 U.S.C. 6c(b) (providing that ``[n]o person shall offer to
enter into, enter into or confirm the execution of, any transaction
involving any commodity regulated under this chapter which is of the
character of, or is commonly known to the trade as an `option' . . .
contrary to any rule, regulation, or order of the Commission
prohibiting any such transaction or allowing any such transaction
under such terms and conditions as the Commission shall
prescribe'').
\2\ See Commodity Options, 77 FR 25320 (Apr. 27, 2012)
(``Commodity Options Release''). The Commission also issued certain
conforming amendments to parts 3 and 33 of its regulations. See id.
The Commission's regulations are set forth in Chapter I of Title 17
of the Code of Federal Regulations.
\3\ Public Law 111-203, 124 Stat. 1376 (2010).
\4\ See 7 U.S.C. 1a(47)(A)(i) (defining ``swap'' to include
``[an] option of any kind that is for the purchase or sale, or based
on the value, of 1 or more . . . commodities . . .''); 7 U.S.C.
1a(47)(B)(i) (excluding options on futures from the definition of
``swap''); 7 U.S.C. 1a(36) (defining an ``option'' as ``an
agreement, contract, or transaction that is of the character of, or
is commonly known to the trade as, an `option' . . .''). The
Commission defines ``commodity option'' or ``commodity option
transaction'' as ``any transaction or agreement in interstate
commerce which is or is held out to be of the character of, or is
commonly known to the trade as, an `option,' `privilege,'
`indemnity,' `bid,' `offer,' `call,' `put,' `advance guaranty' or
`decline guaranty' and which is subject to regulation under the Act
and these regulations.'' See 17 CFR 1.3(hh).
\5\ See 17 CFR 32.2.
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In response to requests from commenters, the Commission added a
limited exception to this general rule for physically delivered
commodity options purchased by commercial users of the commodities
underlying the options (the ``trade option exemption'').\6\ Adopted as
an interim final rule, Sec. 32.3 provides that qualifying commodity
options are generally exempt from the swap requirements of the CEA and
the Commission's regulations, subject to certain specified conditions.
To qualify for the trade option exemption, a commodity option
transaction must meet the following requirements: (1) The offeror is
either an eligible contract participant (``ECP'') \7\ or a producer,
processor, commercial user of, or merchant handling the commodity that
is the subject of the commodity option transaction, or the products or
byproducts thereof (a ``commercial party'') that offers or enters into
the commodity option transaction solely for purposes related to its
business as such; (2) the offeree is, and the offeror reasonably
believes the offeree to be, a commercial party that is offered or
enters into the transaction solely for purposes related to its business
as such; and (3) the option is intended to be physically settled so
that, if exercised, the option would result in the sale of an exempt or
agricultural commodity \8\ for immediate or deferred shipment or
delivery.\9\
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\6\ See 77 FR at 25326-29. See also 17 CFR 32.2(b); 32.3. The
interim final rule continued the Commission's long history of
providing special treatment to ``trade options'' dating back to the
Commission's original trade option exemption in 1976. See Regulation
and Fraud in Connection with Commodity and Commodity Option
Transactions, 41 FR 5108 (Nov. 18, 1976).
\7\ See 7 U.S.C. 1a(18) (defining ``eligible contract
participant''); 17 CFR 1.3(m) (further defining ``eligible contract
participant'').
\8\ See 7 U.S.C. 1a(20) (defining ``exempt commodity'' to mean a
commodity that is not an agricultural commodity or an ``excluded
commodity,'' as defined in 7 U.S.C. 1a(19)); 17 CFR 1.3(zz)(defining
``agricultural commodity''). Examples of exempt commodities include
energy commodities and metals.
\9\ See 17 CFR 32.3(a).
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Commodity option transactions that meet these requirements are
generally exempt from the provisions of the Act and any Commission
rule, regulation, or order promulgated or issued thereunder, otherwise
applicable to any other swap, subject to the conditions enumerated in
Sec. 32.3(b)-(d).\10\ These conditions include: Recordkeeping and
reporting requirements; \11\ large trader reporting requirements in
part 20; \12\ position limits under part 151; \13\ certain
recordkeeping, reporting, and risk management duties applicable to swap
dealers (``SDs'') and major swap participants (``MSPs'') in subparts F
and J of part 23; \14\ capital and margin requirements for SDs and MSPs
under CEA section 4s(e); \15\ and any applicable antifraud and anti-
manipulation provisions.\16\
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\10\ See 17 CFR 32.3(a), (b)-(d).
\11\ See 17 CFR 32.3(b).
\12\ See 17 CFR 32.3(c)(1). Applying Sec. 32.3(c)(1), reporting
entities as defined in part 20--swap dealers and clearing members--
must consider their counterparty's trade option positions just as
they would consider any other swap position for the purpose of
determining whether a particular counterparty has a consolidated
account with a reportable position. See 17 CFR 20.1. A trade option
counterparty would not be responsible for filing large trader
reports unless it qualifies as a ``reporting entity,'' as that term
is defined in Sec. 20.1.
\13\ See 17 CFR 32.3(c)(2). See also Int'l Swaps & Derivatives
Ass'n v. U.S. Commodity Futures Trading Comm'n, 887 F. Supp. 2d 259,
270 (D.D.C. 2012), vacating the part 151 rulemaking, Position Limits
for Futures and Swaps, 76 FR 71626 (Nov. 18, 2011).
\14\ See 17 CFR 32.3(c)(3)-(4). Note that Sec. 32.3(c)(4)
explicitly incorporates Sec. Sec. 23.201 and 23.204, which require
counterparties that are SD/MSPs to comply with part 45 recordkeeping
and reporting requirements, respectively, in connection with all
their swaps activities (including all their trade option
activities). See 17 CFR 23.201(c), 23.204(a).
\15\ See 17 CFR 32.3(c)(5).
\16\ See 17 CFR 32.3(d). Note that Sec. 32.2 also preserves the
continued application of Sec. 32.4, which specifically prohibits
fraud in connection with commodity option transactions, to commodity
options subject to the trade option exemption. See 17 CFR 32.2,
32.4.
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In adopting Sec. 32.3, the Commission stated that the trade option
exemption is generally intended to permit parties to hedge or otherwise
enter into commodity option transactions for commercial purposes
without being subject to the full Dodd-Frank swaps regime.\17\ This
limited exemption continued the Commission's longstanding practice of
providing commercial participants in trade options with relief from
certain requirements that would otherwise apply to commodity
options.\18\
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\17\ See 77 FR at 25326, n.39. For example, trade options do not
factor into the determination of whether a market participant is an
SD or MSP; trade options are exempt from the rules on mandatory
clearing; and trade options are exempt from the rules related to
real-time reporting of swaps transactions. The provisions identified
in this list are not intended to constitute an exclusive or
exhaustive list of the swaps requirements from which trade options
are exempt.
\18\ See Regulation and Fraud in Connection with Commodity and
Commodity Option Transactions, 41 FR 51808 (Nov. 24, 1976) (adopting
an exemption from the general requirement that commodity options be
traded on-exchange for commodity option transaction for certain
transactions involving commercial parties); Suspension of the Offer
and Sale of Commodity Options, 43 FR 16153, 16155 (Apr. 17, 1978)
(adopting a rule suspending all trading in commodity options other
than such exempt trade options); Trade Options on the Enumerated
Agricultural Commodities, 63 FR 18821 (Apr. 16, 1998) (authorizing
the off-exchange trading of trade options in agricultural
commodities).
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The Commission further explained that the applicable conditions in
Sec. 32.3(b)-(d) were primarily intended to preserve a level of
visibility into the market for trade options while still reducing the
regulatory compliance burden for trade option participants.\19\ The
Commission invited market participants to comment on the trade option
exemption, and provided a list of specific questions for commenters'
consideration.\20\
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\19\ See 77 FR at 25326-27.
\20\ See 77 FR 25329-30. Comments were due on or before June 26,
2012. The comment file is available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1196.
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In the year following the Commission's adoption of the trade option
exemption, the Commission's Division of Market Oversight (``DMO'')
issued a series of no-action letters granting relief from certain
conditions

[[Page 26202]]

in the trade option exemption.\21\ CFTC No-Action Letter No. 13-08
(``No-Action Letter 13-08''), which remains in effect, provides that
DMO will not recommend that the Commission commence an enforcement
action against a market participant that is not an SD or an MSP (a
``Non-SD/MSP'') for failing to comply with the part 45 reporting
requirements, as required by Sec. 32.3(b)(1), provided that such Non-
SD/MSP meets certain conditions, including reporting such exempt
commodity option transactions via Form TO \22\ and notifying DMO no
later than 30 days after entering into trade options having an
aggregate notional value in excess of $1 billion during any calendar
year (the ``$1 Billion Notice'').\23\
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\21\ See CFTC No-Action Letter No. 12-06 (Aug. 14, 2012),
available at https://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-06.pdf; CFTC No-Action Letter No. 12-41 (Dec. 5,
2012), available at https://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-41.pdf; CFTC No-Action Letter
No. 13-08 (Apr. 5, 2013), available at https://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/13-08.pdf.
\22\ See notes 28-29 and accompanying text, infra.
\23\ No-Action Letter 13-08, at 3-4. No-Action Letter 13-08 also
grants relief from certain swap recordkeeping requirements in part
45 for a Non-SD/MSP that complies with the recordkeeping
requirements set forth in Sec. 45.2, provided that if the
counterparty to the trade option at issue is an SD or an MSP, the
Non-SD/MSP obtains a legal entity identifier (``LEI'') pursuant to
Sec. 45.6. Id. at 4-5. Should the Commission adopt this proposal
without significant revision, the relief provided in No-Action
Letter 13-08 would be terminated.
---------------------------------------------------------------------------

Based on DMO's experience with the trade option exemption following
the issuance of No-Action Letter 13-08, and after a review of comments
from market participants,\24\ the Commission is proposing several
amendments to the trade option exemption in Sec. 32.3. Generally,
these proposed amendments are intended to facilitate use of trade
options by commercial market participants to hedge against commercial
and physical risks.
---------------------------------------------------------------------------

\24\ In addition to seeking comment following adoption of the
trade option exemption itself, see supra note 21, the Commission has
sought comment relating to the trade option exemption in connection
with other related Commission actions. See e.g., Further Definition
of ``Swap,'' Security-Based Swap,'' and ``Security-Based Swap
Agreement''; Mixed Swaps; Security-Based Swap Agreement
Recordkeeping, 77 FR 48207 (Aug. 13, 2012); Agency Information
Collection Activities: Proposed Collection, Comment Request: Form
TO, Annual Notice Filing for Counterparties to Unreported Trade
Options, 77 FR 74647 (Dec. 17, 2012); Agency Information Collection
Activities under OMB Review, 78 FR 11856 (Feb. 20, 2013); Forward
Contracts With Embedded Volumetric Optionality, 79 FR 69073 (Nov.
20, 2014). CFTC staff also invited comment in connection with an
April 2014 public roundtable regarding issues concerning end users
and the Dodd-Frank Act. The Commission has reviewed these comment
letters and taken into account any significant issues raised therein
in issuing this proposal. The related comment files are available at
https://comments.cftc.gov/PublicComments/ReleasesWithComments.aspx.
---------------------------------------------------------------------------

The Commission is proposing modifications to the recordkeeping and
reporting requirements in Sec. 32.3(b) that are applicable to trade
option counterparties that are Non-SD/MSPs, as well as a non-
substantive amendment to Sec. 32.3(c) to eliminate the reference to
the now-vacated part 151 position limits requirements. These proposed
amendments are generally intended to relax reporting and recordkeeping
requirements where two commercial parties enter into trade options with
each other in connection with their respective businesses while
maintaining regulatory insight into the market for unreported trade
options. The Commission requests comment on all aspects of its
proposal.

II. Explanation of the Proposed Rules

A. Reporting Requirements for Non-SD/MSPs

Pursuant to Sec. 32.3(b)(1), the determination as to whether a
trade option must be reported pursuant to part 45 is based on the
status of the parties to the trade option and whether or not they have
previously reported swaps to an appropriate swap data repository
(``SDR'') pursuant to part 45.\25\ If a trade option involves at least
one counterparty (whether as buyer or seller) that has (1) become
obligated to comply with the reporting requirements of part 45, (2) as
a reporting party, (3) during the twelve month period preceding the
date on which the trade option is entered into, (4) in connection with
any non-trade option swap trading activity, then such trade option must
also be reported pursuant to the reporting requirements of part 45. If
only one counterparty to a trade option has previously complied with
the part 45 reporting provisions, as described above, then that
counterparty shall be the part 45 reporting counterparty for the trade
option. If both counterparties have previously complied with the part
45 reporting provisions, as described above, then the part 45 rules for
determining the reporting counterparty will apply.\26\
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\25\ See 17 CFR 32.3(b)(1).
\26\ See 17 CFR 45.8. As discussed above, No-Action Letter 13-08
provides non-time-limited, conditional no-action relief for Non-SD/
MSP counterparties to trade options from part 45 reporting
requirements. See supra note 22 and accompanying text.
---------------------------------------------------------------------------

To the extent that neither counterparty to a trade option has
previously submitted reports to an SDR as a result of its swap trading
activities as described above, then such trade option is not required
to be reported pursuant to part 45. Instead, Sec. 32.3(b)(2) requires
that each counterparty to an otherwise unreported trade option (i.e., a
trade option that is not required to be reported to an SDR by either
counterparty pursuant to Sec. 32.3(b)(1) and part 45) complete and
submit to the Commission an annual Form TO filing providing notice that
the counterparty has entered into one or more unreported trade options
during the prior calendar year.\27\ Form TO requires an unreported
trade option counterparty to: (1) Provide its name and contact
information; (2) identify the categories of commodities (agricultural,
metals, energy, or other) underlying one or more unreported trade
options which it entered into during the prior calendar year; and (3)
for each commodity category, identify the approximate aggregate value
of the underlying physical commodities that it either delivered or
received in connection with the exercise of unreported trade options
during the prior calendar year. Counterparties to otherwise unreported
trade options must submit a Form TO filing by March 1 following the end
of any calendar year during which they entered into one or more
unreported trade options.\28\ In adopting Sec. 32.3, the Commission
stated that Form TO was intended to provide the Commission with a level
of visibility into the market for unreported trade options that is
``minimally intrusive,'' thereby allowing it to identify market
participants from whom it should collect additional information, or
whom it should subject to additional reporting obligations in the
future.\29\
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\27\ Form TO is set out in appendix A to part 32 of the
Commission's regulations.
\28\ In 2014, approximately 330 Non-SD/MSPs submitted Form TO
filings to the Commission, approximately 200 of which indicated
delivering or receiving less than $10 million worth of physical
commodities in connection with exercising unreported trade options
in 2013.
\29\ See 77 FR at 25327-28.
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Commenters have generally expressed the opinion that the reporting
requirements in Sec. 32.3(b) are overly burdensome for Non-SD/MSPs.
Commenters have argued that these costs have discouraged commercial end
users from entering into trade options to meet their commercial and
risk management needs, thereby reducing liquidity and raising
prices.\30\
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\30\ See American Gas Association (``AGA'') (Dec. 22, 2013) at
3, 16-17 (observing that ``widespread concern'' regarding the
regulatory risk posed by Form TO has led some counterparties to
avoid entering into trade options, leading to a rise in the cost of
contracting); American Public Power Association, National Rural
Electric Cooperative Association, Edison Electric Institute,
Electric Power Supply Association (``APPA/NRECA/EEI/EPSA'') (Feb.
15, 2013) at 7-8 (stating that Sec. 32.3(b)'s application of the
part 45 reporting requirement ``imposes a regulatory burden on the
non-SD/MSP and may discourage parties from entering into any
``swaps'' for which it is a reporting party, and from entering into
nonfinancial commodity option hedging transactions with parties that
are not SD/MSPs.'').

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[[Page 26203]]

With respect to the part 45 reporting requirements, commenters have
noted that Non-SD/MSPs may be required to comply with part 45 solely on
the basis of the ``unusual circumstance'' of having had to report a
single historical or inter-affiliate swap during the same twelve-month
period.\31\ Commenters have further noted that Non-SD/MSPs may not have
the infrastructure in place to support part 45 reporting to an SDR and
that instituting such infrastructure would impose a costly burden,
particularly for small end users.\32\
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\31\ See International Energy Credit Association (``IECA'')
(Feb. 15, 2013) at 3; AGA (June 26, 2012) at 8; APPA/NRECA/EEI/EPSA
(June 26, 2012) at 7-8; Coalition of Physical Energy Companies
(``COPE'') (June 25, 2012) at 9; Commercial Energy Working Group
(``CEWG'') (Jun 26, 2012) at 4.
\32\ See, e.g., APPA/NRECA/EEI/EPSA (Feb. 15, 2013) at 2
(stating that only SDs and MSPs should be required to report trade
options under part 45 out of concern that part 45 would impose an
``increased regulatory burden, particularly for small entities'');
IECA (Feb. 15, 2013) at 2-3 (stating that, for Non-SD/MSPs, the
burden of reporting trade options under part 45 would be ``extremely
onerous, if not a practical impossibility''); AGA (June 26, 2012) at
9 (recommending that the part 45 reporting requirements not apply to
Non-SD/MSPs with respect to their trade option transactions).
---------------------------------------------------------------------------

With respect to Form TO reporting, commenters have argued that it
is costly and burdensome for Non-SD/MSPs, particularly for small end
users, to track, calculate and assemble the requisite data. Commenters
have explained that the systems and processes used by many Non-SD/MSPs
to create, store, and track their trade options are separate and
distinct from their financial systems and are typically not designed to
track the kind of information required by Form TO.\33\ Recent comments
offer specific monetary estimates that suggest the costs involved with
preparing the Form TO filing may be significant.\34\
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\33\ See, e.g., CEWG (Feb. 6, 2013) at 1 (``Unlike systems
designed to capture and report data for financial transactions,
physical systems are primarily designed to manage logistics related
to deliveries and inventory quantities at trade locations. Some
physical systems of record do not contain market price information,
execution venues, or other option characteristics, such as premiums
and strike prices, which make reporting under Part 45 additionally
challenging.''). See also Coalition for Derivative End Users
(``Coalition'') (Dec. 22, 2014) at 10; Commercial Energy Working
Group and Commodity Markets Council (``CEWG/CMC'') (Dec. 22, 2014)
at 5; ICEA (Dec. 22, 2012) at 9; American Public Power Association,
National Rural Electric Cooperative Association, Large Public Power
Council (``APPA/NRECA/LPPC'') (Apr. 17, 2014) at 4; AGA (June 26,
2012) at 7.
\34\ See American Public Power Association, National Rural
Electric Cooperative Association, Edison Electric Institute,
Electric Power Supply Association, Large Public Power Council
(``APPA/NRECA/EEI/EPSA/LPPC'') (Dec. 22, 2014) at 9 (stating that
one of its members spent more than $100,000 in information
technology costs to implement a mechanism to track exercises of
nonfinancial commodity options); IECA (Dec. 22, 2014) at 8
(estimating, based on its survey of market participants, that
completing Form TO and complying with No-Action Letter 13-08
requires 80 minutes per contract); Southern Company Services, Inc.,
acting on behalf of and as agent for Alabama Power Company, Georgia
Power Company, Gulf Power Company, Mississippi Power Company, and
Southern Power Company (``Southern'') at 8-9 (estimating that, for
Southern, two full-time employees require 30 minutes to two hours
per contract to complete Form TO, at an average cost of $200 per
contract and a total annual cost of about $12,000); Transcript of
Staff End-User Roundtable (James Allison, ConocoPhillips) at 161
(estimating the marginal cost of Form TO is ``on the order of'' one
full-time employee and possibly higher for smaller entities with
less in the way of compliance systems and procedures), transcript
available at https://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/transcript040314.pdf.
---------------------------------------------------------------------------

1. Proposed Action: Eliminate Part 45 Reporting for Non-SD/MSPs
As discussed above, Commission regulation Sec. 32.3(b)(1) requires
that a Non-SD/MSP counterparty to a trade option that has become
obligated to report a non-trade option swap within the past calendar
year must comply with part 45 reporting requirements. The Commission
proposes to amend Sec. 32.3(b) such that a Non-SD/MSP will under no
circumstances be subject to part 45 reporting requirements with respect
to its trade option activities.\35\ This amendment is intended to
reduce burdens for Non-SD/MSP trade option counterparties, many of
whom, as commenters explained, face technical and logistical
impediments that prevent timely compliance with part 45 reporting
requirements.
---------------------------------------------------------------------------

\35\ Note that trade option counterparties that are SD/MSPs
would continue to comply with the swap data reporting requirements
of part 45, including where the counterparty is a Non-SD/MSP, as
they would in connection with any other swap. See 17 CFR 32.3(b)(4).
---------------------------------------------------------------------------

2. Proposed Action: Eliminate the Form TO Notice Filing Requirement
The Commission proposes to amend Commission regulation Sec.
32.3(b) such that a Non-SD/MSP would not be required to report
otherwise unreported trade options on Form TO. The Commission further
proposes to delete Form TO from appendix A to part 32. These amendments
are intended to reduce reporting burdens for Non-SD/MSP trade option
counterparties, which, commenters have explained, may face significant
costs in preparing Form TO.
The Commission preliminarily believes that there are surveillance
benefits from Form TO data but recognizes that completing Form TO
imposes costs and burdens on Non-SD/MSPs, especially small end users.
Moreover, Non-SD/MSPs would, under the proposal, remain subject, via
Sec. 32.3(b), to the recordkeeping requirements in Sec. 45.2, which
require market participants to maintain full and complete records and
to open their records to inspection upon the Commission's request.\36\
Consequently, the Commission would remain able to collect additional
information concerning unreported trade options as necessary to fulfill
its regulatory mission.\37\
---------------------------------------------------------------------------

\36\ See 17 CFR 45.2(b), 45.2(h). As discussed infra at notes
53-55 and accompanying text, the Commission proposes to maintain
recordkeeping requirements in Sec. 32.3(b)-(c) for trade option
participants, subject to certain clarifying amendments.
\37\ See 17 CFR 1.31(a)(2), 45.2(h).
---------------------------------------------------------------------------

3. Proposed Action: New $1 Billion Notice Provision for Non-SD/MSPs
The Commission proposes to amend Sec. 32.3(b) by adding a
requirement that Non-SD/MSP trade option counterparties must provide
notice by email to DMO within 30 days after entering into trade
options, whether reported or unreported, that have an aggregate
notional value in excess of $1 billion in any calendar year (the ``1
Billion Notice'').\38\ In the alternative, a Non-SD/MSP may provide
notice by email to DMO that it reasonably expects to enter into trade
options, whether reported or unreported, having an aggregate notional
value in excess of $1 billion during any calendar year (the
``Alternative Notice'').\39\
---------------------------------------------------------------------------

\38\ As discussed above, the no-action relief provided by No-
Action Letter 13-08 to Non-SD/MSP trade option counterparties from
part 45 reporting requirements is also conditioned on the Non-SD/MSP
providing DMO with a $1 Billion Notice. See supra note 24 and
accompanying text. In 2013 and 2014, DMO received $1 Billion Notices
from nine and sixteen Non-SD/MSPs, respectively. Most of these $1
Billion Notices were filed on behalf of large energy companies.
\39\ Non-SD/MSPs who provide the Alternative Notice would not be
required to demonstrate that they actually entered into trade
options with an aggregate notional value of $1 billion or more in
the applicable calendar year. Collectively, the $1 Billion Notice
and the Alternative Notice are referred to as the ``Notice
Requirement.''
---------------------------------------------------------------------------

For purposes of the proposed Notice Requirement, the aggregate
notional value of trade options entered into, or expected to be entered
into, should be calculated by multiplying (1) the maximum volume of the
commodities that could be bought or sold pursuant to the trade options
entered into by (2) the strike or exercise price per unit of the
commodity. If the strike or exercise price is not a fixed number in the
trade option agreement and, instead, is to be determined pursuant to a
reference price source that is not determinable at the time the trade
option is entered into,

[[Page 26204]]

then the foregoing calculation should be based on a current market
price of the reference commodity at the time the option is entered
into. For example, if the trade option involves crude oil that is
deliverable on, or similar to, crude oil that is deliverable on the New
York Mercantile Exchange (``NYMEX''), then the price of the nearby
NYMEX crude oil futures contract may be used as the market price of the
commodity at the time the trade option is entered into.\40\
---------------------------------------------------------------------------

\40\ The forgoing guidance with regard to how to calculate the
notional value of trade options is similar to that provided in No-
Action Letter 13-08 but has been revised to clarify that the focus
of the $1 Billion Notice is the value of the trade option at time of
contract initiation, not at exercise.
---------------------------------------------------------------------------

In light of the other proposed amendments that would generally
remove reporting requirements for Non-SD/MSP counterparties to trade
options, the proposed Notice Requirement would provide the Commission
insight into the size of the market for unreported trade options and
the identities of the most significant market participants.
Additionally, the proposed Notice Requirement would help guide the
Commission's efforts to collect additional information through its
authority to obtain copies of books or records required to be kept
pursuant to the CEA and the Commission's regulations should market
circumstances dictate.\41\
---------------------------------------------------------------------------

\41\ See supra note 38 and accompanying text.
---------------------------------------------------------------------------

B. Recordkeeping requirements for Non-SD/MSPs

Commission regulation Sec. 32.3(b) provides that in connection
with any commodity option transaction that is eligible for the trade
option exemption, every counterparty shall comply with the swap data
recordkeeping requirements of part 45, as otherwise applicable to any
swap transaction.\42\ In discussing the trade option exemption
conditions, however, the Commission noted in the preamble to the
Commodity Options Release that ``[t]hese conditions include a
recordkeeping requirement for any trade option activity, i.e., the
recordkeeping requirements of 17 CFR 45.2,'' and did not reference or
discuss any other provision of part 45 that contains recordkeeping
requirements.\43\
---------------------------------------------------------------------------

\42\ See 17 CFR 32.3(b).
\43\ See 77 FR at 25327.
---------------------------------------------------------------------------

Pursuant to Commission regulation Sec. 45.2, records must be
maintained by all trade option participants and made available to the
Commission as specified therein.\44\ However, Sec. 45.2 applies
different recordkeeping requirements, depending on the nature of the
counterparty. For example, if a trade option counterparty is an SD/MSP,
it would be subject to the recordkeeping provisions of Sec. 45.2(a).
If a counterparty is a Non-SD/MSP, it would be subject to the less
stringent recordkeeping requirements of Sec. 45.2(b).\45\ In adopting
Sec. 32.3(b), the Commission stated that the recordkeeping condition
was intended to ensure that trade option participants are able to
provide pertinent information regarding their trade options activity to
the Commission, if requested.\46\
---------------------------------------------------------------------------

\44\ 17 CFR 32.3(b); 45.2(h).
\45\ In the case of Non-SD/MSPs, the primary recordkeeping
requirements are set out in Sec. 45.2(b), which essentially
requires keeping basic business records--i.e., ``full, complete and
systematic records, together with all pertinent data and memoranda,
with respect to each swap in which they are a counterparty.'' Non-
SD/MSPs are also subject to the other general recordkeeping
requirements of Sec. 45.2, such as the requirement that records
must be maintained for 5 years and must be retrievable within 5
days. See 17 CFR 45.2(b).
\46\ See 77 FR at 25327.
---------------------------------------------------------------------------

Additional recordkeeping requirements in part 45, separate and
apart from those specified in Sec. 45.2 and which would apply to all
trade option counterparties by operation of Sec. 32.3(b) include: \47\
---------------------------------------------------------------------------

\47\ As discussed above, No-Action Letter 13-08 provides no-
action relief from certain swap recordkeeping requirements in part
45 for a Non-SD/MSP that complies with the recordkeeping
requirements set forth in Sec. 45.2, provided that if the
counterparty to the trade option at issue is an SD or an MSP, the
Non-SD/MSP obtains an LEI pursuant to Sec. 45.6 and also provides
DMO with a $1 Billion Notice. See supra note 24 and accompanying
text.
---------------------------------------------------------------------------

each swap must be identified in all recordkeeping by the
use of a unique swap identifier (``USI''); \48\
---------------------------------------------------------------------------

\48\ 17 CFR 45.5.
---------------------------------------------------------------------------

each counterparty to any swap must be identified in all
recordkeeping by means of a single LEI; \49\ and
---------------------------------------------------------------------------

\49\ Each counterparty to any swap subject to the Commission's
jurisdiction must be identified in all recordkeeping and all swap
data reporting pursuant to part 45 by means of a single LEI as
specified in Sec. 45.6. See 17 CFR 45.6.
---------------------------------------------------------------------------

each swap must be identified in all recordkeeping by means
of a unique product identifier (``UPI'') and product classification
system.\50\
---------------------------------------------------------------------------

\50\ 17 CFR 45.7.
---------------------------------------------------------------------------

1. Proposed Action: Modify the Recordkeeping Requirements for Non-SD/
MSPs
The Commission proposes to amend Sec. 32.3(b) to clarify that
trade option counterparties that are Non-SD/MSPs need not identify
their trade options in all recordkeeping by means of either a USI or
UPI, as required by Sec. Sec. 45.5 and 45.7.\51\ Rather, with respect
to part 45 recordkeeping requirements, trade option counterparties that
are Non-SD/MSPs must only comply with the applicable recordkeeping
provisions in Sec. 45.2,\52\ with the following qualification: The
Non-SD/MSP trade option counterparty must obtain an LEI pursuant to
Sec. 45.6 and provide such LEI to its counterparty if that
counterparty is an SD/MSP.\53\
---------------------------------------------------------------------------

\51\ See supra notes 49 and 49 and accompanying text.
\52\ Trade option counterparties that are SD/MSPs would continue
to comply with the swap data recordkeeping requirements of part 45,
as they would in connection with any other swap. See 17 CFR
32.3(b)(4).
\53\ For the avoidance of doubt, Non-SD/MSPs would not otherwise
be required to comply with Sec. 45.6.
---------------------------------------------------------------------------

These amendments are intended to reduce recordkeeping burdens for
Non-SD/MSP trade option counterparties, while allowing a trade option
counterparty that is an SD/MSP to comply with applicable part 45
reporting obligations by properly identifying its Non-SD/MSP trade
option counterparty by that counterparty's LEI in all recordkeeping as
well as all swap data reporting, just as the SD/MSP would for any other
swap.\54\
---------------------------------------------------------------------------

\54\ An SD/MSP that otherwise would report the trade option at
issue pursuant to Sec. 32.3(b)(1) is required to identify its
counterparty to the trade option by that counterparty's LEI in all
recordkeeping as well as all swap data reporting. See, e.g., 17 CFR
23.201, 23.204, and 45.6. See supra note 36 and 17 CFR 45.6.
---------------------------------------------------------------------------

C. Non-substantive amendment to Commission regulation Sec. 32.3(c)

Commission regulation Sec. 32.3(c)(2) subjects trade options to
part 151 position limits, to the same extent that part 151 would apply
in connection with any other swap.\55\ However, as stated above, part
151 has been vacated.\56\ Furthermore, trade options are not subject to
position limits under the Commission's current part 150 position limit
regime.\57\
---------------------------------------------------------------------------

\55\ See 17 CFR 32.3(c)(2).
\56\ See supra note 13 and accompanying text.
\57\ Under current Sec. 150.2, position limits apply to
agricultural futures in nine listed commodities and options on those
futures. Since trade options are not options on futures, Sec. 150.2
position limits do not currently apply to such transactions. See 17
CFR 150.2.
---------------------------------------------------------------------------

Therefore, since position limits do not currently apply to trade
options, the Commission proposes to amend Sec. 32.3(c) by deleting
Sec. 32.3(c)(2), including the reference to vacated part 151. This
would not be a substantive change. Although commenters have requested
assurance that position limits will not apply to trade options in the
future,\58\ the Commission preliminarily believes that any future
application of

[[Page 26205]]

position limits would be best addressed in the context of the pending
position limits rulemaking, which remains in the proposed rulemaking
stage.\59\
---------------------------------------------------------------------------

\58\ See, e.g., Coalition (Dec. 22, 2014) at 11; AGA (Apr. 17,
2014) at 4; IECA (Apr. 17. 2014) at 28; Intercontinental Exchange,
Inc. (April 17, 2014) at 5; CEWG (Feb. 6, 2013) at 3; COPE (June 26,
2012) at 6.
\59\ On December 12, 2013, the Commission published in the
Federal Register a notice of proposed rulemaking to establish
speculative position limits for 28 exempt and agricultural commodity
futures and options contracts and the physical commodity swaps that
are economically equivalent to such contracts, including trade
options. See Position Limits for Derivatives, Proposed Rules, 78 FR
75680 (Dec. 12, 2013) (``Position Limits Proposal''). Therein, the
Commission proposed replacing the cross-reference to vacated part
151 in Sec. 32.3(c)(2) with a cross-reference to amended part 150
position limits. See 78 FR at 75711. As an alternative in the
Position Limits Proposal, the Commission proposed to exclude trade
options from speculative position limits and proposed an exemption
for commodity derivative contracts that offset the risk of trade
options. Also note that under the Position Limits Proposal, trade
options based on commodities or delivery points other than those
underlying the core referenced futures contracts specified in the
Position Limits Proposal would not be subject to speculative
position limits. The Commission recently extended the comment period
for the Position Limits Proposal until March 28, 2015. See 80 FR
10022 (Feb. 25, 2015).
---------------------------------------------------------------------------

III. Related Matters

A. Cost Benefit Analysis

1. Background
As discussed above, the Commission is proposing amendments to the
trade option exemption in Sec. 32.3 that would: (1) Eliminate the part
45 reporting requirement for Non-SD/MSPs; (2) eliminate the Form TO
filing requirement; (3) require those Non-SD/MSPs that have the most
significant volume in trade options to provide DMO with either (i) the
$1 Billion Notice or (ii) the Alternate Notice; and (4) clarify that
Non-SD/MSPs are required to comply with the swap data recordkeeping
requirements of Sec. 45.2 only, as opposed to all part 45
recordkeeping requirements; (5) require Non-SD/MSPs that enter into
exempt trade options with SD/MSPs to obtain an LEI pursuant to Sec.
45.6 and provide it to their SD/MSP counterparties; (6) eliminate
reference to the now-vacated part 151 position limits.\60\ In issuing
this proposal, the Commission has reviewed all relevant comment letters
and taken into account significant issues raised therein.\61\
---------------------------------------------------------------------------

\60\ As stated above, Non-SD/MSPs would not otherwise be
required to comply with Sec. 45.6.
\61\ See supra note 24. See also note 59 (stating that the
Commission has determined to address the application of position
limits to trade options in the pending position limits rulemaking).
---------------------------------------------------------------------------

The Commission believes that the baseline for this cost and benefit
consideration is existing Sec. 32.3. Although No-Action Letter 13-08,
as discussed above, currently offers no-action relief that is
substantially similar to the relief that the proposed amendments would
grant certain market participants and end users, as a no-action letter,
it only represents the position of the issuing Division or Office and
cannot bind the Commission or other Commission staff.\62\ Consequently,
the Commission believes that No-Action Letter 13-08 should not set or
affect the baseline against which the Commission considers the costs
and benefits of the proposal.
---------------------------------------------------------------------------

\62\ See 17 CFR 140.99(a)(2). See also No-Action Letter 13-08 at
5.
---------------------------------------------------------------------------

2. Costs
The Commission believes that the proposal would, overall, reduce
the regulatory burdens and associated costs imposed by the conditions
for relief in Sec. 32.3(b). Although the Commission understands that
some Non-SD/MSPs may experience costs associated with tracking the
aggregate notional value of their trade option transactions for
purposes of the $1 Billion Notice,\63\ Non-SD/MSPs that reasonably
expect to enter into trade options in excess of $1 billion could opt to
avoid those tracking costs by instead submitting the Alternative
Notice. The Commission also believes that many Non-SD/MSPs may avoid
any costs associated with the $1 Billion Notice because they would fall
significantly below the $1 billion threshold and thus would not need to
track and calculate their aggregate trade option activity.\64\
Furthermore, the Commission believes that the proposal would otherwise
significantly reduce the regulatory burdens imposed by Sec. 32.3(b),
particularly through the elimination of part 45 reporting requirements
for trade option counterparties that are Non-SD/MSPs and the Form TO
filing requirement, each of which commenters have described as
burdensome.\65\ The Commission preliminarily believes that the proposal
would not impose any additional costs on any other market participants,
the markets themselves, or the general public. The Commission invites
comment regarding the nature and extent of these and any other costs
that could result from adoption of the proposal and, to the extent they
can be quantified, monetary and other estimates thereof.
---------------------------------------------------------------------------

\63\ See Coalition for Derivatives End-Users (Dec. 22, 2014) at
10; American Public Power Association, Edison Electric Institute,
Electric Power Supply Association, Large Public Power Council,
National Rural Electric Cooperative Association (Dec. 22, 2014) at
9.
\64\ As stated in note 38, supra, of the 330 Non-SD/MSPs who
submitted Form TO filings in 2014, only sixteen also submitted a $1
Billion Notice to DMO.
\65\ See supra note 34 (citing recent comment letters offering
costs estimates for compliance with the Form TO reporting
requirement).
---------------------------------------------------------------------------

3. Benefits
The Commission believes that the proposal would provide relief for
Non-SD/MSPs entering into trade options by eliminating the part 45 and
Form TO reporting obligations. The Commission believes that the
proposed Notice Requirement would also support the regulatory goals of
ensuring market integrity and protecting the public by allowing the
Commission insight into the size of the market for unreported trade
options and the ability to identify significant market participants,
who the Commission may wish to contact if concerns about the market for
trade options arise. The Commission invites comment regarding the
nature and extent of these and any other benefits that could result
from adoption of the proposal--including benefits to other market
participants, the market itself or the general public--and, to the
extent they can be quantified, monetary and other estimates thereof.
4. Section 15(a) Factors
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders.\66\ Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
five broad areas of market and public concern: (1) Protection of market
participants and the public; (2) efficiency, competitiveness, and
financial integrity of futures markets; (3) price discovery; (4) sound
risk management practices; and (5) other public interest
considerations. The Commission considers the costs and benefits
resulting from its discretionary determinations with respect to the
section 15(a) factors.
---------------------------------------------------------------------------

\66\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

a. Protection of Market Participants and the Public
The Commission recognizes that there may be trade-offs between
reducing regulatory burdens and ensuring that the Commission has
sufficient information to fulfill its regulatory mission. The proposed
amendments to Sec. 32.3 are intended to reduce some of the regulatory
burdens on end users while still maintaining insight into the market
for trade options to protect the public.

[[Page 26206]]

b. Efficiency, Competitiveness, and Financial Integrity of Markets
The Commission believes that the proposed amendments to Sec. 32.3
could increase efficiency for participants in the market for trade
options by reducing the reporting burdens on Non-SD/MSPs, allowing them
to reallocate those resources to other more efficient purposes. The
Commission also believes that the proposed Notice Requirement would
promote market integrity by providing the Commission with information
to use in its market oversight role, thereby fulfilling the purposes of
the CEA.\67\ The Commission preliminarily believes that the proposed
amendments to Sec. 32.3 will not have any competitiveness impact.
---------------------------------------------------------------------------

\67\ See, e.g., CEA section 3(b), 7 U.S.C. 5 (stating that it is
a purpose of the CEA to deter disruptions to market integrity).
---------------------------------------------------------------------------

c. Price Discovery
The Commission preliminarily believes that the proposed amendments
to Sec. 32.3 would likely not have a significant impact on price
discovery. Given that trade options are not subject to the real-time
reporting requirements applicable to other swaps, meaning that current
prices of consummated trade options are likely not available to many
market participants, the Commission preliminarily believes any effect
on price discovery would be negligible.
d. Sound Risk Management Practices
The Commission preliminarily believes that the proposed amendments
would not have a meaningful effect on the risk management practices of
the affected market participants and end users. Although the proposal
is intended, in part, to reduce some of the regulatory burdens on
certain market participants and end users, affected Non-SD/MSPs would
still be required to maintain complete and accurate records in a manner
that is readily available for production to regulators.
e. Other Public Interest Considerations
The Commission has not identified any other public interest
considerations for this rulemaking.
5. Request for Comment
The Commission invites comment on all aspects of its preliminary
consideration of the costs and benefits associated with the proposal
and the five factors the Commission is required to consider under CEA
section 15(a). In addressing these areas and any other aspect of the
Commissions preliminary cost-benefit considerations, the Commission
encourages commenters to submit any data or other information they may
have quantifying and/or qualifying the costs and benefits of the
proposal.

B. Regulatory Flexibility Analysis

The Regulatory Flexibility Act (the ``RFA'') \68\ requires that
Federal agencies consider whether the rules they propose will have a
significant economic impact on a substantial number of ``small
entities'' \69\ and, if so, the agencies must provide a regulatory
flexibility analysis reflecting the impact. Whenever an agency
publishes a general notice of proposed rulemaking for any rule,
pursuant to the notice-and-comment provisions of the Administrative
Procedure Act,\70\ a regulatory flexibility analysis or certification
typically is required.\71\
---------------------------------------------------------------------------

\68\ 5 U.S.C. 601 et seq.
\69\ See 5 U.S.C. 601(6) (defining ``small entity'' to include a
``small business,'' ``small organization,'' and ``small governmental
jurisdiction,'' as those terms are defined in the RFA and by
reference to the Small Business Act, 15 U.S.C. 632 et seq.).
\70\ 5 U.S.C. 553. The Administrative Procedure Act is found at
5 U.S.C. 551 et seq.
\71\ See 5 U.S.C. 601(2), 603-605.
---------------------------------------------------------------------------

As discussed above, the proposed amendments would affect the
recordkeeping and reporting requirements for Non-SD/MSP counterparties
relying on the trade option exemption in Sec. 32.3. Pursuant to the
eligibility requirements in Sec. 32.3(a), such a Non-SD/MSP may be an
ECP and/or a commercial party (i.e., a producer, processor, or
commercial user of, or a merchant handling the exempt or agricultural
commodity that is the subject of the commodity option transaction, or
the products or by-products thereof) offering or entering into the
trade option solely for purposes related to its business as such.
Although the Commission has previously determined that ECPs are not
small entities for RFA purposes,\72\ the Commission is not in a
position to determine whether non-ECP commercial parties affected by
the amendments would include a substantial number of small entities on
which the rule would have a significant economic impact because Sec.
32.3 does not subject such entities to a minimum net worth requirement,
allowing commercial entities of any economic status to enter into
exempt trade options. Therefore, pursuant to 5 U.S.C. 603, the
Commission offers for public comment this initial regulatory
flexibility analysis addressing the impact of the proposal on small
entities:
---------------------------------------------------------------------------

\72\ See Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 25,
2001).
---------------------------------------------------------------------------

1. A description of the reasons why action by the agency is being
considered.
The Commission is proposing to modify the trade option exemption in
Sec. 32.3 in response to comments from Non-SD/MSPs that the regulatory
burdens currently imposed by Sec. 32.3 are unnecessarily burdensome.
2. A succinct statement of the objectives of, and legal basis for,
the proposal.
The objective of the proposal is to reduce the recordkeeping and
reporting obligations for Non-SD/MSPs while still providing the
Commission insight into the size of the market for unreported trade
options and the identities of the most significant participants in the
market. As stated above, the legal basis for the proposed rule is the
Commission's plenary options authority in CEA section 4c(b).
3. A description of and, where feasible, an estimate of the number
of small entities to which the proposed rule will apply.
The small entities to which the proposed amendments may apply are
those commercial parties that would not qualify as ECPs and/or that
fall within the definition of a ``small entity'' under the RFA,
including size standards established by the Small Business
Administration.\73\ Although more than 300 Non-SD/MSPs have reported
their use of trade options to the Commission through Form TO, the
limited information provided by Form TO is not sufficient for the
Commission to determine whether and how many of those Non-SD/MSPs
qualify as small entities under the RFA.
---------------------------------------------------------------------------

\73\ See id. See also 5 U.S.C. 601(3) (defining ``small
business'' to have the same meaning as the term ``small business
concern'' in the Small Business Act); 15 U.S.C. 632(a)(1) (defining
``small business concern'' to include an agricultural enterprise
with annual receipts not in excess of $750,000); 13 CFR 121.201
(establishing size standards for small business concerns).
---------------------------------------------------------------------------

4. A description of the projected reporting, recordkeeping, and
other compliance requirements of the rule, including an estimate of the
classes of small entities which will be subject to the requirement and
the type of professional skills necessary for preparation of the report
or record.
The proposed amendments would relieve Non-SD/MSPs, which may
include small entities, from certain recordkeeping and reporting
requirements that would otherwise apply to them. While the proposal
would impose a new requirement on certain Non-SD/MSPs to provide DMO by
email with either the $1 Billion Notice or the Alternative Notice

[[Page 26207]]

annually, the Commission does not believe that this requirement would
impact many small entities, if any at all. Given the significant volume
of trade options required to trigger the proposed Notice Requirement,
the Commission expects that it would apply to only a small number of
entities and that such entities would likely not be small entities.\74\
The Commission's view is supported by DMO's experience with the $1
Billion Notice provision in No-Action Letter 13-08: As indicated above,
DMO received a $1 Billion Notice from only sixteen of the more than 300
Non-SD/MSPs that filed a Form TO in 2014, and all such entities are
generally well-known in their respective industries.\75\
---------------------------------------------------------------------------

\74\ See 15 U.S.C. 632(a) (defining a ``small business concern''
generally to include an enterprise that is ``not dominant in its
field of operation'').
\75\ See supra note 37 and accompanying text.
---------------------------------------------------------------------------

Filing the $1 Billion Notice would require affected Non-SD/MSPs to
track and aggregate the notional values of their trade options. The
Commission expects that this general information should be readily
compiled and aggregated using a spreadsheet or other existing software
and would not require any professional skills beyond those typically
held by any commercial party. Furthermore, Non-SD/MSPs that reasonably
expect to enter into trade options with an aggregate notional value in
excess of $1 billion during the calendar year may, in line with the
Alternative Notice, simply send an email to DMO to that effect, thereby
avoiding having to track the notional values of their trade options.
5. An identification, to the extent practicable, of all relevant
Federal rules which may duplicate, overlap or conflict with the rule.
The Commission is unaware of any Federal rules that could
duplicate, overlap, or conflict with the proposal.
6. A description of any significant alternatives to the proposed
rule which accomplish the stated objectives of applicable statutes and
which minimize any significant economic impact of the proposed rule on
small entities. These may include, for example, (1) the establishment
of differing compliance or reporting requirements or timetables that
take into account the resources available to small entities; (2) the
clarification, consolidation, or simplification of compliance and
reporting requirements under the rule for such small entities; (3) the
use of performance rather than design standards; and (4) an exemption
from coverage of the rule, or any part thereof, for such small
entities.
A potential alternative to relieving Non-SD/MSPs, which may include
small entities, from certain recordkeeping and reporting requirements
would be to either (1) not amend the current rule, which would maintain
recordkeeping and reporting requirements that Non-SD/MSPs have
represented are onerous, or (2) create a rule with more specific
reporting parameters for specific entities. While the proposal would
impose the new annual Notice Requirement on certain Non-SD/MSPs,
overall, the Commission believes that the proposed amendments would
have a positive economic impact on Non-SD/MSPs that are small entities
because they would generally relax reporting requirements across all
trade option counterparties that are Non-SD/MSPs. Although the proposal
could expressly limit application of the Notice Requirement to entities
that do not meet the RFA definition of a small entity, the Commission
does not believe that is necessary because, as stated above, the
Commission does not expect many small entities to be affected by that
requirement, if any at all. Furthermore, even if a small entity were to
enter into trade options with an aggregate notional value in excess of
$1 billion during a calendar year, the Commission believes that such
information would nevertheless be important to the Commission's insight
into the market for otherwise unreported trade options and may cause
the Commission to adjust the threshold for notice reporting above $1
billion.

C. Paperwork Reduction Act

The purposes of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501
et seq. (``PRA'') are, among other things, to minimize the paperwork
burden to the private sector, ensure that any collection of information
by a government agency is put to the greatest possible uses, and
minimize duplicative information collections across the government.\76\
The PRA applies to all information, ``regardless of form or format,''
whenever the government is ``obtaining, causing to be obtained [or]
soliciting'' information, and includes required ``disclosure to third
parties or the public, of facts or opinions,'' when the information
collection calls for ``answers to identical questions posed to, or
identical reporting or recordkeeping requirements imposed on, ten or
more persons.'' \77\ The PRA requirements have been determined to
include not only mandatory but also voluntary information collections,
and include both written and oral communications.\78\ Under the PRA, an
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid control number from the Office of Management and Budget
(``OMB''). The Commission seeks to amend the OMB control number 3038-
0106--Form TO, Annual Notice Filing for Counterparties to Unreported
Trade Option. Therefore the Commission is submitting this proposal to
OMB for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

\76\ See 44 U.S.C. 3501.
\77\ See 44 U.S.C. 3502.
\78\ See 5 CFR 1320.3(c)(1).
---------------------------------------------------------------------------

With the exception of the proposed Notice Requirement, the
Commission believes that these proposed rules will not impose any new
information collection requirements that require approval of OMB under
the PRA. As a general matter, the proposed rules would relax reporting
and recordkeeping requirements for Non-SD/MSPs entering into trade
options with each other in connection with their respective businesses,
including the withdrawal and removal of Form TO. As such, the proposed
rules will not result in the creation of any new information collection
subject to OMB review or approval under the PRA, except for the annual
Notice Requirement. Therefore, these proposed rules do not, by
themselves, impose any new information collection requirements other
than those that already exist in connection with trade options pursuant
to part 32 of the Commission's regulations, except for the proposed
Notice Requirement.
As noted above, the Commission proposes to add the Notice
Requirement for trade option counterparties that are Non-SD/MSPs, which
requirement is considered to be a collection of information within the
meaning of the PRA. Accordingly, the Commission is amending OMB control
number 3038-0106 and submitting to OMB an information collection
request for review and approval. If approved, this new collection of
information will be mandatory.
The Commission anticipates that affected Non-SD/MSPs may incur
certain costs in complying with the proposed $1 Billion Notice,
including those related to calculating the aggregate notional value of
trade options entered into, and to drafting the notice email and
submitting it to DMO. There are no additional capital costs associated
with this collection because all respondents are already required to
create and store detailed records of their trade option transactions
pursuant to Sec. 32.3(b). The

[[Page 26208]]

Commission estimates that twenty respondents will file a total of one
response each annually, and the estimated average number of hours per
response would be two. Therefore, the Commission estimates the total
burden hours associated with OMB control number 3038-0106 to be 40
hours.
The Commission notes that the proposed amendments would relieve
trade option counterparties that are Non-SD/MSPs from certain
recordkeeping and reporting requirements under part 45. The Commission
believes that these proposed amendments would not cause a material net
reduction in the current part 45 PRA burden estimates (OMB control
number 3038-0096) to the extent that such reduced recordkeeping and
reporting burdens for trade option counterparties that are Non-SD/MSPs
would be insubstantial when compared to the overall part 45 PRA burden
estimate as it relates to Non-SD/MSPs.
The Commission specifically invites public comment on the accuracy
of its estimate that no additional information collection requirements
or changes to existing collection requirements, other than the proposed
Notice Requirement, would result from the proposal.

List of Subjects in 17 CFR Part 32

Commodity futures, consumer protection, fraud, reporting and
recordkeeping requirements.

For the reasons stated in the preamble, the Commodity Futures
Trading Commission proposes to amend 17 CFR part 32 as set forth below:

PART 32--REGULATION OF COMMODITY OPTION TRANSACTIONS

0
1. The authority citation for part 32 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 6c, and 12a, unless otherwise noted.

0
2. Revise Sec. 32.3 to read as follows:

Sec. 32.3 Trade options.

(a) Subject to paragraphs (b), (c), and (d) of this section, the
provisions of the Act, including any Commission rule, regulation, or
order thereunder, otherwise applicable to any other swap shall not
apply to, and any person or group of persons may offer to enter into,
enter into, confirm the execution of, maintain a position in, or
otherwise conduct activity related to, any transaction in interstate
commerce that is a commodity option transaction, provided that:
(1) Such commodity option transaction must be offered by a person
that has a reasonable basis to believe that the transaction is offered
to an offeree as described in paragraph (a)(2) of this section. In
addition, the offeror must be either:
(i) An eligible contract participant, as defined in section 1a(18)
of the Act, as further jointly defined or interpreted by the Commission
and the Securities and Exchange Commission or expanded by the
Commission pursuant to section 1a(18)(C) of the Act; or
(ii) A producer, processor, or commercial user of, or a merchant
handling the commodity that is the subject of the commodity option
transaction, or the products or by-products thereof, and such offeror
is offering or entering into the commodity option transaction solely
for purposes related to its business as such;
(2) The offeree must be a producer, processor, or commercial user
of, or a merchant handling the commodity that is the subject of the
commodity option transaction, or the products or by-products thereof,
and such offeree is offered or entering into the commodity option
transaction solely for purposes related to its business as such; and
(3) The commodity option must be intended to be physically settled,
so that, if exercised, the option would result in the sale of an exempt
or agricultural commodity for immediate or deferred shipment or
delivery.
(b) In connection with any commodity option transaction entered
into pursuant to paragraph (a) of this section, every counterparty that
is not a swap dealer or major swap participant shall:
(1) Comply with the swap data recordkeeping requirements of Sec.
45.2 of this chapter, as otherwise applicable to any swap transaction;
(2) Obtain a legal entity identifier pursuant to Sec. 45.6 of this
chapter if the counterparty to the transaction involved is a swap
dealer or major swap participant, and provide such legal entity
identifier to the swap dealer or major swap participant counterparty;
and
(3) Notify the Division of Market Oversight through an email to
TOreportingrelief@cftc.gov:
(i) No later than 30 days after entering into trade options,
whether reported or unreported, having an aggregate notional value in
excess of $1 billion during any calendar year, or
(ii) Provide notice that the Non-SD/MSP reasonably expects to enter
into trade options, whether reported or unreported, having an aggregate
notional value in excess of $1 billion during any calendar year.
(c) In connection with any commodity option transaction entered
into pursuant to paragraph (a) of this section, the following
provisions shall apply to every trade option counterparty to the same
extent that such provisions would apply to such person in connection
with any other swap:
(1) Part 20 of this chapter (Swaps Large Trader Reporting);
(2) Subpart J of part 23 of this chapter (Duties of Swap Dealers
and Major Swap Participants);
(3) Sections 23.200, 23.201, 23.203, and 23.204 of this chapter
(Reporting and Recordkeeping Requirements for Swap Dealers and Major
Swap Participants); and
(4) Section 4s(e) of the Act (Capital and Margin Requirements for
Swap Dealers and Major Swap Participants).
(d) In addition, any person or group of persons offering to enter
into, entering into, confirming the execution of, maintaining a
position in, or otherwise conducting activity related to a commodity
option transaction in interstate commerce pursuant to paragraph (a) of
this section shall remain subject to part 180 of this chapter
(Prohibition Against Manipulation) and Sec. 23.410 of this chapter
(Prohibition on Fraud, Manipulation, and other Abusive Practices) and
the antifraud, anti-manipulation, and enforcement provisions of
sections 2, 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 13
of the Act.
(e) The Commission may, by order, upon written request or upon its
own motion, exempt any person, either unconditionally or on a temporary
or other conditional basis, from any provisions of this part, and the
provisions of the Act, including any Commission rule, regulation, or
order thereunder, otherwise applicable to any other swap, other than
Sec. 32.4 of this chapter, part 180 of this chapter (Prohibition
Against Manipulation), and Sec. 23.410 of this chapter (Prohibition on
Fraud, Manipulation, and other Abusive Practices), and the antifraud,
anti-manipulation, and enforcement provisions of sections 2, 4b, 4c,
4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 13 of the Act, if it
finds, in its discretion, that it would not be contrary to the public
interest to grant such exemption.

Issued in Washington, DC, on May 4, 2015, by the Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.

Note: The following appendices will not appear in the Code of
Federal Regulations.

[[Page 26209]]

Appendices to Trade Options--Commission Voting Summary, Chairman's
Statement, and Commissioners' Statements

Appendix 1--Commission Voting Summary

On this matter, Chairman Massad and Commissioners Wetjen, Bowen,
and Giancarlo voted in the affirmative. No Commissioner voted in the
negative.

Appendix 2--Statement of Chairman Timothy G. Massad

I am pleased to support the staff's recommendation to issue a
proposed rulemaking to revise the rules regarding trade options,
which are a subset of commodity options. Specifically, the
Commission is proposing to reduce reporting and recordkeeping
requirements for end-users that transact in trade options in
connection with their businesses, including by eliminating the
requirement to file form TO. These products are commonly used by
commercial participants, so this action should help those
participants continue to do so cost-effectively.
We will continue to look at ways that we can make sure
commercial end-users can use these markets effectively and to make
sure that the new regulatory framework for swaps does not impose
unintended consequences or burdens for them. An important part of
this effort has been, and shall continue to be, fine-tuning our
rules so that commercial companies can continue to conduct their
daily operations efficiently.
This proposed rulemaking would relax reporting and recordkeeping
requirements where two commercial parties enter into trade options
with each other in connection with their respective businesses.
These proposed amendments are generally intended to reduce burdens
for end-users, many of whom, as commenters explained, face
logistical impediments and significant costs in connection with
reporting their trade options.
This proposed rulemaking reduces and clarifies requirements for
end-users that use trade options in connection with their
businesses, and the proposed amendments would allow the Commission
to maintain regulatory insight into the market for otherwise
unreported trade options. End-users would remain subject to the
recordkeeping requirements in Sec. 45.2, which require market
participants to maintain full and complete records and to open their
records to inspection upon the Commission's request. Additionally,
the proposed $1 billion notice requirement would provide the
Commission insight into the size of the market for unreported trade
options and the identities of the most significant market
participants.
I look forward to receiving public comment on this proposed
rulemaking.

Appendix 3--Concurring Statement of Commissioner Sharon Y. Bowen

Today, we are approving a proposed rule that would implement
changes to the Commission's Trade Option exemption to reduce the
burden on commercial entities seeking to hedge risks associated with
their physical businesses. I support these changes. However, based
upon comments the Commission has received and meetings that I have
had with members of the public, I believe the Commission should
consider additional clarifications to better ensure legal certainty
for the manufacturing, energy and agricultural industries' ability
to address their commercial risks.
In the manufacturing, agriculture and energy sectors, a wide
variety of physically-delivered instruments are used to secure
companies' commercial needs for a physical commodity. These
instruments, although they call for physical delivery, often contain
some element of optionality that can lead to questions about their
appropriate regulatory treatment. These contracts, particularly in
the energy sector, are all commonly referred to as physical
contracts, and they, according to what I have been told, often
receive similar treatment from both a business operations and an
accounting standpoint within the entities that use them.
Further, these physical contracts are often handled and
accounted for separately from other derivatives, such as futures
contracts or cash-settled swaps, according to market participants.
Treating some portion of these physical contracts as swaps simply
because they may contain some characteristics of commodity options
can lead to significant costs and difficulties. For instance,
companies may have to reconfigure their business systems to parse
transactions where there was, before Dodd Frank, no need to
undertake such a reconfiguration.
Many commenters and people I have met have expressed particular
concerns regarding how instruments having elements of both forward
contracts and some volumetric optionality should be regulated. In a
separate release, the Commission plans to finalize guidance on how
forward contracts with embedded volumetric optionality relate to the
forward contract exclusion from the swap definition. While that
release will help address the circumstances under which volumetric
optionality embedded in a forward contract do not cause the forward
contract to be a ``swap'', my understanding is that additional
relief may still be helpful to commercial market participants
seeking to hedge their physical needs with instruments that contain
a forward contract with volumetric optionality.
Market participants have also expressed concerns about the
appropriate treatment of ``peaking supply contracts'' which are
often used by companies to manage the risks attendant to their need
for physical commodities that may be used to generate electricity,
run an operating plant, or manufacture or supply other goods and
services.
For both types of instruments, I think, the Commission could
benefit from getting comments on potential avenues for addressing
concerns that have been raised about their appropriate treatment.

Instruments Containing a Forward Contract With Volumetric
Variability

As noted in the proposal, the trade option exemption is intended
to permit parties to hedge or otherwise enter into commodity option
transactions for commercial purposes without being subject to the
general Dodd-Frank swaps regime. The exemption continues the long
Commission policy of exempting them from requirements of the
Commodity Exchange Act that would otherwise apply to commodity
options. It provides an exemption for contracts meeting the
requirements of the trade option exemption from regulation as swaps
to the extent they would otherwise be subject to regulation by
virtue of being a ``commodity option''.
Both forward contracts and trade options play an important role
in managing the physical commodity risks attendant to commercial
operations. According to industry participants, there can be
difficulty in separating out, for regulatory purposes, the
``option'' component of an instrument containing both a forward
contract and an element that might be considered a commodity option.
My understanding is that these overall instruments are typically
used to address a commercial entity's physical requirements for a
particular commodity as part of its ongoing commercial operation and
that the commodity option component is often used to manage
uncertainty in the commercial supply and demand factors that affect
a commercial entities' need for a particular physical commodity.
Additionally, these instruments are often highly customized and the
various components not always easy to separate and classify,
according to industry participants.
Given these concerns, I think it would be helpful to get comment
upon whether the Commission should consider a new Sec. 32.3(f) as
part of the trade option exemption being proposed today. Such an
exemption would exempt qualifying trade options from the swap
reporting and recordkeeping requirements that would otherwise apply
to them as trade options so long as they: (1) Are not severable nor
separately marketable from the forward contract component of overall
instrument, (2) are related to and entered into concurrently with
the forward contract component of overall instrument, and (3) for
which the physical commodity underlying the trade option component
is the same as that underlying the forward contract component of the
overall instrument.
The text of such additional exemption would read as follows:
``Sec. 32.3(f) Instruments Containing a Forward Contract with
Volumetric Variability. In the case of an instrument containing a
forward contract with volumetric variability that meets the
definition of a trade option (as defined by paragraph (a)), the
component of such instrument that is a trade option shall be subject
to only the requirements of paragraph (d) provided:
(1) The volumetric variability is not severable nor separately
marketable from the forward contract component,
(2) the volumetric variability is related to and entered into
concurrently with the forward contract component, and
(3) the physical commodity underlying the volumetric variability
is the same as that underlying the forward contract component.''

[[Page 26210]]

Supply Contracts for a Specified Portion of an Entity's Physical
Need for a Commodity (e.g., peaking supply contracts)

As noted above, concerns have also been raised about the
appropriate treatment of peaking supply contracts which are often
used by companies to manage the risks attendant to their need for
physical commodities that may be used to generate electricity, run
an operating plant, or manufacture or supply other goods and
services.
Market participants have raised concerns about whether or not
these contracts could be considered commodity options. In instances
where these contracts represent a reservation of a portion of
supplier's capacity to provide a particular commodity and not a
transaction for the commodity itself, it seems possible these
contracts may not be commodity options. One test that has been
proposed to determine whether or not such contracts are commodity
options is whether:
1. The subject of the agreement, contract or transaction is a
binding, sole-source, obligation of a supplier of a physical
commodity to stand ready to meet a specified portion of a commercial
consumer's physical need for a commodity through providing for the
physical delivery of that commodity to the specified commercial
consumer or its designee in connection with the physical obligation,
2. The payment provided by the commercial consumer to the
commercial supplier for such agreement, contract or transaction is
in the nature of a reservation charge to provide the service of
standing ready to meet the physical needs of the commercial
consumer,
3. Payment for any commodity delivered under such agreement,
contract or transaction is at the market price for that commodity at
the time of delivery (i.e., the agreement, contract, or transaction
is not used to hedge price risk), and
4. The agreement, contract or transaction is necessary to meet
the commercial consumer's projected physical needs or is required by
regulation.
I think the Commission would benefit from receiving comments on
this proposed test and peaking supply contracts more generally as it
appears to be one of the significant outstanding issues regarding
instruments that may or may not be trade options.
Together, these two additional items may help address
outstanding concerns that have been expressed by commercial market
participants, and I think the Commission would benefit by getting
comment upon them.

Appendix 4--Statement of Commissioner J. Christopher Giancarlo

I support the Commission's proposed amendments to the interim
final trade options rule. These are common sense reforms that will
alleviate certain recordkeeping and reporting burdens that Sec.
32.3 currently imposes on end-users that use trade options to manage
commercial risk. The deletion of the reference in Sec. 32.3(c)(2)
to part 151 position limits is also appropriate in light of the fact
that part 151 was vacated by the court in Int'l Swaps & Derivatives
Ass'n v. U.S. Commodity Futures Trading Comm'n, 887 F. Supp. 2d 259
(D.D.C. 2012).
I strongly disagree, however, with the Commission's statement
that it preliminarily believes that any future application of
position limits would be best addressed in the context of the
pending position limits rulemaking. Simply put, position limits for
trade options are not ``necessary to diminish, eliminate, or
prevent'' excessive speculation. Section 4a(a)(1) of the Commodity
Exchange Act (CEA). The final trade options rule should make clear
that trade options are exempt from position limits.
As the Commission recognized in promulgating the interim final
rule establishing the trade options exemption, ``position limits
apply only to speculative positions. . . . Trade options, which are
commonly used as hedging instruments or in connection with some
commercial function, would normally qualify as hedges, exempt from
the speculative position limit rules.'' Commodity Options, 77 FR
25320, 25328 n.50 (Apr. 27, 2012).
By definition, the offeree to a trade option ``must be a
producer, commercial user of, or a merchant handling the commodity
that is the subject of the commodity option transaction, or the
products or by-products thereof,'' and must restrict the use of
trade options ``solely for purposes related to its business as
such.'' Sec. 32.3(a)(2). Moreover, the ``option must be intended to
be physically settled, so that, if exercised, [it] would result in
the sale of an exempt or agricultural commodity for immediate or
deferred shipment or delivery.'' Sec. 32.3(a)(3). Given these
parameters, the risk that trade options could be used to engage in
speculation, much less excessive speculation, is so remote as to be
virtually non-existent.
Applying a position limits regime to trade options and requiring
commercial end-users to seek bona fide hedge treatment for those
transactions, which was floated as a possibility in the pending
proposed position limits rule, would not be an acceptable outcome.
See Position Limits for Derivatives, 78 FR 75680, 75711 (Dec. 12,
2013). As commenters to the proposed position limits rule have
pointed out, there is no regulatory benefit to imposing position
limits on instruments that inherently are not speculative in nature,
and doing so ``will distort commodity markets and impede
economically efficient behavior'' by discouraging the use of trade
options. Natural Gas Supply Association Comment Letter dated Aug. 4,
2014 at 13. A comment letter filed by the Edison Electric Institute
and the Electric Power Supply Association (Joint Associations) cites
persuasive examples of how application of the proposed position
limits rule would eliminate the ability of market participants to
enter into multi-month and multi-year trade options. See Joint
Associations Comment Letter dated Feb. 7, 2014 at 6-7; see also
American Gas Association Comment Letter dated Feb. 10, 2014 at 5
(the lack of a contractual upper limit in the way that natural gas
options are structured make position limit reporting impossible).
The Commission has the authority in section 4a(a)(7) of the CEA
to exempt ``any person or class of persons, any swap or class of
swaps, any contract of sale of a commodity for future delivery or
class of such contracts, any option or class of options, or any
transaction or class of transactions from any requirement it may
establish . . . with respect to position limits.''
As long as the specter of position limits hangs over trade
options, market participants that have used these instruments for
decades as a cost effective means of ensuring a reliable supply of a
physical commodity and to hedge commercial risk will be reluctant to
use them. As I have said before, commercial end-users, including
commercial end-users of everyday trade options, were not the cause
of the financial crisis and the federal government should stop
treating them like they were.
I urge my fellow Commissioners to eliminate this regulatory
uncertainty sooner, rather than later, by exercising our section
4a(a)(7) authority in connection with this trade options rulemaking.
I encourage further public comment on the issue.

[FR Doc. 2015-11020 Filed 5-6-15; 8:45 am]
BILLING CODE 6351-01-P

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