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these alternative controls on specific Registration’’ and RIN number 3038– SUPPLEMENTARY INFORMATION: types of spraying or fogging systems AE65, by any of the following methods: Table of Contents (including ‘‘parts,’’ ‘‘components,’’ • CFTC Comments Portal: https:// ‘‘accessories,’’ and ‘‘attachments’’ comments.cftc.gov. Select the ‘‘Submit I. Background therefor) that are currently being Comments’’ link for this rulemaking and A. Project KISS manufactured and/or sold or that are follow the instructions on the Public B. Statutory and Regulatory Framework for Swaps Execution and Clearing likely to be manufactured and/or sold in Comment Form. • C. Statutory and Regulatory Requirements the foreseeable future. Comments on Mail: Send to Christopher for Registration and Operation of DCOs option #4 (where the ECCN 2B352.i Kirkpatrick, Secretary of the II. Proposed Amendments to Part 39 control text would include the term Commission, Commodity Futures A. Regulation 39.1—Scope ‘‘specially designed’’) should not only Trading Commission, Three Lafayette B. Regulation 39.2—Definitions address this option with reference to the Centre, 1155 21st Street NW, C. Regulation 39.6—Exemption Provisions four criteria described above, but also Washington, DC 20581. D. Regulation 39.9—Scope identify any performance levels, • Hand Delivery/Courier: Follow the III. Proposed Amendments to Part 140— same instructions as for Mail, above. Delegations of Authority characteristics, or functions that clearly IV. Request for Comments distinguish commercial spraying or Please submit your comments using V. Consideration of Costs and Benefits fogging systems from those systems only one of these methods. To avoid A. Introduction having properties that are peculiarly possible delays with mail or in-person B. Proposed Regulation 39.6 responsible for achieving the deliveries, submissions through the C. Section 15(a) Factors dissemination or dispersion of CFTC Comments Portal are encouraged. VI. Related Matters chemicals controlled by ECCN 1C350 or All comments must be submitted in A. Regulatory Flexibility Act 1C355 or biological agents controlled by English, or if not, accompanied by an B. Paperwork Reduction Act ECCN 1C351 in a manner likely to cause English translation. Comments will be I. Background significant harm to humans or livestock posted as received to https:// or serious damage to crops. comments.cftc.gov. You should submit A. Project KISS Dated: August 6, 2018. only information that you wish to make The Commission is engaging in an available publicly. If you wish the agency-wide review of its rules, Richard E. Ashooh, Commission to consider information regulations, and practices to make them Assistant Secretary for Export that you believe is exempt from simpler, less burdensome, and less Administration. disclosure under the Freedom of costly, and to make progress on G–20 [FR Doc. 2018–17249 Filed 8–10–18; 8:45 am] Information Act (FOIA), a petition for regulatory reforms. This initiative is BILLING CODE 3510–33–P confidential treatment of the exempt called Project KISS, which stands for information may be submitted according ‘‘Keep It Simple, Stupid.’’ 2 The to the procedures established in § 145.9 Commission is proposing to adopt COMMODITY FUTURES TRADING of the Commission’s regulations.1 regulations that would codify the COMMISSION The Commission reserves the right, policies and procedures that the but shall have no obligation, to review, Commission is currently following with 17 CFR Parts 39 and 140 pre-screen, filter, redact, refuse or respect to granting exemptions from remove any or all of your submission DCO registration in order to make such RIN 3038–AE65 from https://comments.cftc.gov that it policies and procedures transparent to Exemption From Derivatives Clearing may deem to be inappropriate for all potential applicants. publication, such as obscene language. Organization Registration B. Statutory and Regulatory Framework All submissions that have been redacted for Swaps Execution and Clearing AGENCY: Commodity Futures Trading or removed that contain comments on Commission. the merits of the rulemaking will be The Commodity Exchange Act (CEA) 3 ACTION: Notice of proposed rulemaking. retained in the public comment file and provides that a clearing organization will be considered as required under the may not ‘‘perform the functions of a SUMMARY: The Commodity Futures Administrative Procedure Act and other [DCO]’’ 4 with respect to swaps unless Trading Commission (Commission) is applicable laws, and may be accessible proposing amendments to its under the FOIA. 2 See Remarks of Acting Chairman J. Christopher Giancarlo before the 42nd Annual International regulations to establish a regulatory FOR FURTHER INFORMATION CONTACT: Futures Industry Conference in Boca Raton, FL, framework within which the Eileen A. Donovan, Deputy Director, Mar. 15, 2017, available at https://www.cftc.gov/ Commission may exempt a clearing 202–418–5096, [email protected]; PressRoom/SpeechesTestimony/opagiancarlo-20. organization that is organized outside of On February 24, 2017, President Donald J. Trump Parisa Abadi, Associate Director, 202– issued Executive Order 13777: Enforcing the the United States (hereinafter referred to 418–6620, [email protected]; Eileen R. Regulatory Reform Agenda (E.O. 13777). E.O. 13777 as ‘‘non-U.S. clearing organization’’) Chotiner, Senior Compliance Analyst, directs federal agencies, among other things, to from registration as a derivatives 202–418–5467, [email protected]; designate a Regulatory Reform Officer and establish clearing organization (DCO) in a Regulatory Reform Task Force. Although the Abigail S. Knauff, Special Counsel, 202– CFTC, as an independent federal agency, is not connection with the clearing 418–5123, [email protected]; Division of bound by E.O. 13777, the Commission is organization’s clearing of swaps. In Clearing and Risk, Commodity Futures nevertheless engaging in an agency-wide review of addition, the Commission is proposing Trading Commission, Three Lafayette its rules, regulations, and practices to make them certain amendments to its delegation simpler, less burdensome, and less costly. See Centre, 1155 21st Street NW, Request for Information, 82 FR 23756 (May 24, provisions in its regulations. Washington, DC 20581. 2017). DATES: Comments must be received on 3 7 U.S.C. 1 et seq. or before October 12, 2018. 1 17 CFR 145.9. Commission regulations referred 4 The term ‘‘derivatives clearing organization’’ is ADDRESSES: to herein are found at 17 CFR chapter I (2018), and statutorily defined to mean a clearing organization You may submit comments, are accessible on the Commission’s website at in general. However, for purposes of the discussion identified by ‘‘Exemption from https://www.cftc.gov/LawRegulation/Commodity herein, the term ‘‘DCO’’ refers to a Commission- Derivatives Clearing Organization ExchangeAct/index.htm. Continued

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the clearing organization is registered that the home country’s supervisory and member of the CPMI–IOSCO task force with the Commission.5 However, the regulatory framework should be that monitors implementation of the CEA also permits the Commission to consistent with, and achieve the same PFMIs. The PFMIs are comparable to the conditionally or unconditionally outcome as, the statutory and regulatory DCO Core Principles and applicable exempt a clearing organization from requirements applicable to registered Commission regulations in purpose and registration for the clearing of swaps if DCOs. This outcomes-based approach scope. Both address major elements the Commission determines that the reflects the Commission’s recognition critical to the safe and efficient clearing organization is subject to that a foreign jurisdiction’s supervisory operations of clearing organizations, ‘‘comparable, comprehensive and regulatory scheme applicable to its such as risk management, adequacy of supervision and regulation’’ by clearing organizations may differ from financial resources, default appropriate government authorities in the Commission’s in certain respects, management, margin, settlement, and the clearing organization’s home but nevertheless may achieve the same participation requirements.13 In light of country.6 underlying goals. This approach also the foregoing, the Commission believes To date, the Commission has supports the Commission’s effort to that a supervisory and regulatory exempted four non-U.S. clearing strike an appropriate balance by framework that adheres to the organizations from DCO registration. focusing on the risk implications to the framework under the PFMIs achieves The Commission is proposing to adopt United States, while promoting global outcomes that are comparable to that of regulations that would codify the harmonization. the supervisory and regulatory policies and procedures that the Further, the Commission has deemed requirements applicable to registered Commission is currently following with a supervisory and regulatory framework DCOs. Accordingly, the Commission respect to granting exemptions from that conforms to the Principles for proposes to continue to use the PFMI DCO registration and would make such Financial Market Infrastructures framework as the benchmark for making policies and procedures transparent to (PFMIs) 9 to be comparable to, and as a comparability determination with all potential applicants. comprehensive as, the supervisory and respect to a foreign jurisdiction’s regulatory requirements applicable to C. Statutory and Regulatory supervisory and regulatory scheme. registered DCOs.10 Notably, the Requirements for Registration and Commission was a key contributor to II. Proposed Amendments to Part 39 Operation of DCOs the joint efforts of the Committee on A. Regulation 39.1—Scope As previously noted, the CEA requires Payments and Market Infrastructures The Commission is proposing to a clearing organization that clears swaps (CPMI) 11 and the Technical Committee to be registered with the Commission as amend Regulation 39.1 to state that the of the International Organization of provisions of subpart A of part 39 apply a DCO. However, in order to be Securities Commissions (IOSCO) to registered and maintain registration as a to any registered DCO or, as applicable, develop the PFMIs, which apply to any entity applying to be registered as DCO, a clearing organization must clearing organizations.12 In addition to comply with the core principles for a DCO or applying to be exempt from contributing to the development of the DCO registration. Regulation 39.3, DCOs set forth in the CEA (DCO Core PFMIs, the Commission serves as a Principles) 7 and all applicable which is contained in subpart A and is not proposed to be amended, sets forth Commission regulations.8 9 See CPMI–IOSCO, Principles for financial The Commission may conditionally or market infrastructures (Apr. 2012), available at procedures for DCO registration. unconditionally exempt a clearing http://www.iosco.org/library/pubdocs/pdf/ Proposed Regulation 39.6, which also organization from registration for the IOSCOPD377-PFMI.pdf. The PFMIs define a would be contained in subpart A, would ‘‘financial market infrastructure’’ as a ‘‘multilateral set forth the requirements for an clearing of swaps if the Commission system among participating institutions, including determines that the clearing the operator of the system, used for the purposes exemption from DCO registration, as organization is subject to ‘‘comparable, of clearing, settling, or recording payments, discussed below. comprehensive supervision and securities, derivatives, or other financial transactions.’’ See PFMIs, paragraph 1.8. B. Regulation 39.2—Definitions regulation’’ by the clearing Additionally, the PFMIs are ‘‘broadly designed to In connection with the proposed organization’s home country apply to all systemically important [financial regulator(s). The Commission has market infrastructures].’’ See PFMIs, paragraph exemption regulations, the Commission construed ‘‘comparable, comprehensive 1.20. is proposing to add five definitions to 10 supervision and regulation’’ to mean This conclusion is consistent with previous Regulation 39.2, for purposes of part 39 Commission determinations. See, e.g., Regulation only. 50.52(b)(4)(i)(E), 17 CFR 50.52(b)(4)(i)(E) The Commission proposes to define registered DCO, the term ‘‘exempt DCO’’ refers to (permitting eligible affiliate counterparties that are a derivatives clearing organization that is exempt located in certain jurisdictions to satisfy a condition the term ‘‘exempt derivatives clearing from registration, and the term ‘‘clearing to electing the exemption by clearing the swap organization’’ to mean a derivatives organization’’ refers to a clearing organization that: through a DCO or a clearing organization that is clearing organization that the (a) Is neither registered nor exempt from registration subject to supervision by appropriate government Commission has exempted from with the Commission as a DCO; and (b) falls within authorities in the clearing organization’s home the definition of ‘‘derivatives clearing organization’’ country and that has been assessed to be in registration under section 5b(a) of the under section 1a(15) of the CEA, 7 U.S.C. 1a(15), compliance with the PFMIs). CEA, pursuant to section 5b(h) of the and ‘‘clearing organization or derivatives clearing 11 CPMI was formerly the Committee on Payment CEA and Regulation 39.6. organization’’ under Regulation 1.3, 17 CFR 1.3. and Settlement Systems; it was renamed effective The Commission proposes to define 5 Section 5b(a) of the CEA, 7 U.S.C. 7a–1(a). September 1, 2014. See http://www.bis.org/press/ the term ‘‘good regulatory standing’’ to 6 Section 5b(h) of the CEA, 7 U.S.C. 7a–1(h). p140901.htm. Section 5b(h) also permits the Commission to 12 In order to promote effective and consistent mean, with respect to a non-U.S. exempt from DCO registration a securities clearing global regulation of swaps, section 752 of the Dodd- clearing organization that is authorized agency registered with the Securities and Exchange Frank Wall Street Reform and Consumer Protection to act as a clearing organization in its Commission; however, the Commission is not Act (Dodd-Frank Act) directs the Commission to home country, that either there has been proposing to exempt securities clearing agencies at consult and coordinate with foreign regulatory this time. authorities on the establishment of consistent no finding by the home country 7 7 U.S.C. 7a–1(c)(2)(A). international standards with respect to the 8 See 17 CFR parts 1—190 including, in regulation of swaps, among other things. Section 13 See, e.g., Derivatives Clearing Organizations particular, part 39, which implements the DCO Core 752 of the Dodd-Frank Act, Public Law 111–203, and International Standards, 78 FR 72476 (Dec. 2, Principles. 124 Stat. 1376 (2010), codified at 15 U.S.C. 8325. 2013) (adopting final rules).

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regulator of material non-observance of C. Regulation 39.6—Exemption respect to granting exemptions from the PFMIs or other relevant home Provisions DCO registration and would make such country legal requirements, or there has Proposed Regulation 39.6 would policies and procedures transparent to been such a finding by the home implement section 5b(h) of the CEA by all potential applicants for an country regulator, but it has been or is setting forth the regulatory framework exemption. being resolved to the satisfaction of the within which the Commission may 1. Eligibility for Exemption home country regulator by means of exempt a clearing organization from Proposed Regulation 39.6(a) would corrective action taken by the clearing DCO registration in connection with the provide that the Commission may clearing of swaps. After section 5b(h) organization. The Commission believes exempt, conditionally or was enacted in 2010, clearing that this is a workable definition from unconditionally, a non-U.S. clearing organizations outside the United States the standpoint of both the Commission organization from registration as a DCO began inquiring as to how they could go and the home country regulator in that for the clearing of swaps for certain U.S. about obtaining an exemption. Because it establishes a basis for providing the persons,17 and thereby exempt such the Commission had not yet developed Commission with a high degree of clearing organization from compliance a framework for granting exemptions, assurance as to the clearing with the provisions of the CEA and organization’s observance of the PFMIs, the Commission’s Division of Clearing and Risk (DCR) began granting time- Commission regulations applicable to while only seeking from the home limited no-action relief to these clearing DCOs, if the Commission determines country regulator a representation that it organizations which permit them to that all of the eligibility requirements can reasonably make. engage in swap clearing activity that listed in proposed Regulation 39.6(a)(1) The Commission proposes to define would otherwise require registration as and (a)(2) are met, and the clearing the term ‘‘home country’’ to mean, with a DCO.15 After careful consideration of organization satisfies the conditions set 18 respect to a non-U.S. clearing the issues involved, DCR staff presented forth in Regulation 39.6(b). Each of organization, the jurisdiction in which initial thoughts on granting exemptions these requirements is described below. at a May 2014 meeting of the Proposed Regulation 39.6(a)(1) would the clearing organization is organized. codify the statutory requirement that the The Commission proposes to define Commission’s Global Markets Advisory Committee. Finally, in November 2014, Commission may only exempt a clearing the term ‘‘home country regulator,’’ with DCR sent a letter to those clearing organization from DCO registration for respect to a non-U.S. clearing organizations that had received no- the clearing of swaps if the Commission organization, as an appropriate action relief, advising them on how to determines that the clearing government authority which licenses, petition the Commission for an organization is subject to comparable, regulates, supervises, or oversees the exemption. In response to petitions comprehensive supervision and clearing organization’s clearing submitted in accordance with the terms regulation. Proposed Regulation activities in the home country. The of the letter, the Commission issued 39.6(a)(1)(i) would require that, in order proposed definition is consistent with orders of exemption from DCO to be eligible for an exemption from section 5b(h) of the CEA, which registration to ASX Clear (Futures) Pty DCO registration, a clearing organization provides, in relevant part, that the Limited (ASX), Korea Exchange, Inc. must be organized in a jurisdiction in Commission may exempt a clearing (KRX), Japan Securities Clearing which a home country regulator applies organization from registration for the Corporation (JSCC), and OTC Clearing to the clearing organization, on an clearing of swaps if the Commission Hong Kong Limited (OTC Clear).16 ongoing basis, statutes, rules, determines that the clearing Proposed Regulation 39.6 would codify regulations, policies, or a combination thereof that, taken together, are organization is subject to comparable, the policies and procedures that the consistent with the PFMIs.19 Under comprehensive supervision and Commission is currently following with proposed Regulation 39.6(a)(1)(ii) and regulation by the appropriate government authorities in the home 15 See, e.g., CFTC Letter No. 16–56 (May 31, 2016) (granting no-action relief to Shanghai Clearing 17 The Commission proposes to use the definition country of the clearing organization. Use House); CFTC Letter No. 14–107 (Aug. 18, 2014) of ‘‘U.S. person’’ as set forth in the Commission’s of the term ‘‘an appropriate government (granting no-action relief to Clearing Corporation of Interpretive Guidance and Policy Statement authority’’ rather than ‘‘the appropriate India Ltd.); CFTC Letter No. 14–87 (June 26, 2014) Regarding Compliance With Certain Swap (granting no-action relief to Korea Exchange, Inc.); Regulations, 78 FR 45292, 45316–45317 (July 26, government authority’’ is intended to CFTC Letter No. 14–68 (May 7, 2014) (granting no- 2013), as such definition may be amended or recognize that in some foreign action relief to OTC Clearing Hong Kong Limited superseded by a definition of the term ‘‘U.S. jurisdictions there may be more than and certain of its clearing members); CFTC Letter person’’ that is adopted by the Commission and No. 14–07 (Feb. 6, 2014) (granting no-action relief applicable to this proposed regulation. one government authority that to ASX Clear (Futures) Pty Limited); and CFTC 18 The eligibility requirements listed in proposed supervises and regulates a clearing Letter No. 12–56 (Dec. 17, 2012) (granting no-action Regulation 39.6(a)(1) and (a)(2) and the conditions organization. relief to Japan Securities Clearing Corporation and set forth in proposed Regulation 39.6(b) would be certain of its clearing participants). pre-conditions to the Commission’s issuance of any The Commission proposes to define 16 See ASX Amended Order of Exemption from order exempting a clearing organization from the the term ‘‘Principles for Financial Registration (Jan. 28, 2016), available at http:// DCO registration requirements of the CEA and Market Infrastructures’’ as the PFMIs www.cftc.gov/idc/groups/public/@otherif/ Commission regulations. Additional conditions that documents/ifdocs/ are unique to the facts and circumstances specific published by CPMI–IOSCO in April asxclearamdorderdcoexemption.pdf; KRX Order of to a particular clearing organization could be 2012, as updated, revised, or otherwise Exemption from Registration (Oct. 26, 2015), imposed upon that clearing organization in the amended.14 available at http://www.cftc.gov/idc/groups/public/ Commission’s order of exemption, as permitted by @otherif/documents/ifdocs/krxdcoexemptorder10- section 5b(h) of the CEA. 26-15.pdf; JSCC Order of Exemption from 19 The Commission notes that the regulatory 14 The Commission proposes to include this Registration (Oct. 26, 2015), available at http:// framework of a particular jurisdiction may consist language to recognize that CPMI–IOSCO could offer www.cftc.gov/idc/groups/public/@otherif/ of one or multiple sources of authority. In further interpretation of or guidance on the PFMIs. documents/ifdocs/jsccdcoexemptorder10-26-15.pdf; particular, the inclusion of ‘‘policies’’ is intended See, e.g., CPMI–IOSCO, Resilience of central OTC Clear Order of Exemption from Registration to accommodate a jurisdiction in which a policy counterparties: Further guidance on the PFMI (July (Dec. 21, 2015), available at http://www.cftc.gov/ has the force of law, and a set of policies may, on 2017), available at https://www.bis.org/cpmi/publ/ idc/groups/public/@otherif/documents/ifdocs/ its own, represent the jurisdiction’s regulatory d163.pdf. otccleardcoexemptorder12-21-15.pdf. framework that is consistent with the PFMIs.

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(iii), a clearing organization would be occurrence of certain events, but the The effect of proposed Regulation required to observe the PFMIs in all Commission would not expect to 39.6(b)(1) is to prohibit the clearing of material respects and be in good conduct routine site visits to exempt FCM customer positions at an exempt regulatory standing in its home country. DCOs. DCO. Section 4d(f)(1) of the CEA makes As previously noted, the Commission it unlawful for any person to accept 2. Conditions of Exemption believes that operating within a money, securities, or property (i.e., regulatory framework consistent with Proposed Regulation 39.6(b) sets forth funds) from a swaps customer to margin the PFMIs would meet the CEA’s conditions to which an exempt DCO a swap cleared through a DCO unless requirement in section 5b(h) that, in would be subject. These conditions are the person is registered as an FCM.22 order to qualify for an exemption, a consistent with the conditions that the Any swaps customer funds held by a clearing organization must be subject to Commission has imposed on each of the DCO are also subject to the segregation comparable, comprehensive supervision clearing organizations to which it has requirements of section 4d(f)(2) of the and regulation by the appropriate previously issued orders of exemption. CEA, and in order for a swaps customer government authorities in its home Under proposed Regulation to receive protection under this regime, country.20 39.6(b)(1)(i), a U.S. person that is a particularly in an insolvency context, its Proposed Regulation 39.6(a)(2) would clearing member of an exempt DCO funds must be carried by an FCM and provide that, in order for a clearing would be permitted to clear swaps for deposited with a registered DCO.23 organization to be eligible for an itself and those persons identified in the Absent that chain of registration, the exemption from DCO registration, a definition of ‘‘proprietary account’’ set swaps customer’s funds may not be memorandum of understanding (MOU) forth in Regulation 1.3. This provision treated as customer property under the or similar arrangement satisfactory to is intended to permit a U.S. clearing U.S. Bankruptcy Code 24 and the the Commission must be in effect member to clear for affiliates (including Commission’s regulations. Because of between the Commission and the a parent or subsidiary) that are either this, it has been the Commission’s clearing organization’s home country U.S. or non-U.S. persons. The policy to allow exempt DCOs to clear 21 regulator, pursuant to which, among Commission recognizes that in some only proprietary positions of U.S. other things, the home country regulator foreign jurisdictions, affiliates are persons and FCMs. The proposed agrees to provide to the Commission any considered to be ‘‘customers’’ and their regulations would codify this approach. information that the Commission deems positions are held in customer accounts. Proposed Regulation 39.6(b)(2) would necessary to evaluate the clearing Clearing for affiliates under these codify the ‘‘open access’’ requirements organization’s initial and continued circumstances would be permissible of section 2(h)(1)(B) of the CEA with eligibility for exemption or to review even if the affiliate positions are not respect to swaps cleared by an exempt compliance with any conditions of such held in an account that is an analogue DCO to which one or more of the exemption. The Commission has to a proprietary account under the counterparties is a U.S. person.25 customarily entered into MOUs or Commission’s regulations. Paragraph (b)(2)(i) would require an similar arrangements in connection with Similarly, proposed Regulation exempt DCO to maintain rules the supervision of non-U.S. clearing 39.6(b)(1)(ii) would provide that a non- providing that all such swaps with the organizations that are registered as same terms and conditions (as defined DCOs. In the context of exempt DCOs, U.S. person that is a clearing member of an exempt DCO may clear swaps for any by product specifications established satisfactory MOUs or similar under the exempt DCO’s rules) arrangements with the home country affiliated U.S. person identified in the submitted to the exempt DCO for regulator would include provisions for definition of ‘‘proprietary account’’ in clearing are economically equivalent information sharing and cooperation, as Regulation 1.3. This complements the and may be offset with each other, to the well as for notification upon the standard in paragraph (b)(1)(i) by clarifying that an exempt DCO may clear extent that offsetting is permitted by the exempt DCO’s rules. Paragraph (b)(2)(ii) 20 In addition to the principles applicable to for affiliated entities when one or more central counterparties and other FMIs, the PFMIs of those entities is a U.S. person, even would require an exempt DCO to provide that central banks, market regulators, and if the clearing member itself is not a maintain rules providing for non- other relevant authorities should observe five U.S. person. discriminatory clearing of such a swap responsibilities. Consistent with this, the Commission expects that, in order to meet the Proposed Regulation 39.6(b)(1)(iii) executed either bilaterally or on or standard of being subject to comparable, would provide that a futures subject to the rules of an unaffiliated comprehensive supervision and regulation, a commission merchant (FCM) may be a electronic matching platform or trade clearing organization’s home country regulator will execution facility, e.g., a swap execution observe these responsibilities. In particular, clearing member of an exempt DCO, or Responsibility D Explanatory Note 4.4.1 provides maintain an account with an affiliated facility. that the home country regulator should adopt the broker that is a clearing member, for the Proposed Regulation 39.6(b)(3) would PFMIs, and, ‘‘[w]hile the precise means through purpose of clearing swaps for the FCM provide that an exempt DCO must which the principles are applied may vary from jurisdiction to jurisdiction, all [CPMI] and IOSCO itself and those persons identified in the 22 7 U.S.C. 6d(f)(1). This provision establishes a members are expected to apply the principles to the definition of ‘‘proprietary account’’ in relevant FMIs in their jurisdictions to the fullest customer protection regime for swaps customers Regulation 1.3. Again, this provision is that is broadly similar to the regime for futures extent allowed by the legal framework in their intended to permit what would be jurisdiction.’’ PFMIs, paragraph 4.4.1. Therefore, customers and options on futures customers under the Commission would not find a home country considered clearing of ‘‘proprietary’’ sections 4d(a) and (b) of the CEA. 7 U.S.C. 6d(a) and regulator’s statement that it requires a clearing positions under the Commission’s (b). 23 organization to observe the PFMIs to be sufficient regulations, even if the positions would See Section 761(2) of the Bankruptcy Code, 11 to meet the above standard for exemption, if the U.S.C. 761(2) (defining a ‘‘clearing organization’’ as home country regulator has not itself adopted a qualify as ‘‘customer’’ positions under a derivatives clearing organization registered under regulatory framework that is consistent with the the laws and regulations of an exempt the CEA), and Regulation 190.01(f), 17 CFR PFMIs. DCO’s home country. This provision 190.01(f) (stating that for purposes of the part 190 21 In foreign jurisdictions where more than one bankruptcy rules, ‘‘clearing organization’’ has the would clarify that an exempt DCO may same meaning as that set forth in section 761(2) of regulator supervises and regulates a clearing clear positions for FCMs if the positions organization, the Commission would expect to enter the Bankruptcy Code). into an MOU or similar arrangement with more are not ‘‘customer’’ positions under the 24 11 U.S.C. 761–767. than one regulator. Commission’s regulations. 25 7 U.S.C. 2(h)(1)(B).

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consent to jurisdiction in the United exemption as well as the conditions of time on the following business day, States and designate an agent in the its exemption.27 containing with respect to swaps: (A) United States, for notice or service of Proposed Regulation 39.6(b)(6) would Initial margin requirements and initial process, pleadings, or other documents require that the exempt DCO provide an margin on deposit for each U.S. person; issued by or on behalf of the annual certification that it continues to and (B) daily variation margin, Commission or the U.S. Department of observe the PFMIs in all material separately listing the mark-to-market Justice in connection with any actions respects, within 60 days following the amount collected from or paid to each or proceedings against, or any end of its fiscal year. Proposed U.S. person. However, if a clearing investigations relating to, the exempt Regulation 39.6(b)(7) would require that member margins on a portfolio basis its DCO or any U.S. person or FCM that is the Commission receive an annual own positions and the positions of its a clearing member or that clears swaps written representation from a home affiliates, and either the clearing through an affiliated clearing member. country regulator that the exempt DCO member or any of its affiliates is a U.S. The name of the designated agent would is in good regulatory standing, within 60 person, the exempt DCO would be be submitted as part of the clearing days following the end of the exempt required to report initial margin organization’s application for DCO’s fiscal year. These requirements requirements and initial margin on exemption. If an exempt DCO appoints would help the Commission to assess an deposit for all such positions on a another agent to accept such notice or exempt DCO’s continued eligibility for combined basis for each such clearing service of process, the exempt DCO an exemption. member and to separately list the mark- would be required to promptly inform 3. Reporting Requirements to-market amount collected from or paid to each such clearing member, on a the Commission of this change. This is Proposed Regulation 39.6(c) and (d) consistent with requirements currently combined basis. These requirements are would require an exempt DCO to meet similar to certain reporting requirements imposed in the registration orders of certain reporting requirements, which DCOs that are organized outside of the in Regulation 39.19(c)(1) that apply to are consistent with the reporting registered DCOs.29 These reports would United States as well as in each of the requirements exempt DCOs currently provide the Commission with orders of exemption that the meet. information regarding the cash flows Commission has issued. a. General Reporting Requirements associated with U.S. persons clearing Proposed Regulation 39.6(b)(4) is a swaps through exempt DCOs in order to general provision that would require an Proposed Regulation 39.6(c)(1) sets analyze the risks presented by such U.S. exempt DCO to comply, and forth general reporting requirements persons and to assess the extent to demonstrate compliance as requested by pursuant to which an exempt DCO must which U.S. business is being cleared by the Commission, with any condition of provide certain information directly to each exempt DCO. the exempt DCO’s order of exemption. the Commission: (1) On a periodic basis Proposed Regulation 39.6(c)(2)(ii) (daily or quarterly); and (2) after the would require an exempt DCO to Proposed Regulation 39.6(b)(5) would occurrence of a specified event, each in require an exempt DCO to make all compile a report as of the last day of accordance with the submission each fiscal quarter, and submit the documents, books, records, reports, and requirements of Regulation 39.19(b).28 other information related to its report to the Commission no later than Such information may be used by the 17 business days after the end of the operation as an exempt DCO (books and Commission, among other things, for the records) open to inspection and copying fiscal quarter, containing: (A) The purposes of the Commission evaluating aggregate clearing volume of U.S. by any Commission representative, and the continued eligibility of the exempt to promptly make its books and records persons during the fiscal quarter, and DCO for exemption, reviewing the (B) the average open interest of U.S. available and provide them directly to exempt DCO’s compliance with any Commission representatives, upon the persons during the fiscal quarter. If a conditions of its exemption, or clearing member is a U.S. person, this request of a Commission representative. conducting oversight of U.S. persons This condition of exemption is data would include the transactions and and their affiliates, and the swaps that positions of the clearing member and all consistent with section 5b(h) of the they clear through the exempt DCO. CEA, which provides that the affiliates for which the clearing member Proposed Regulation 39.6(c)(2)(i) clears; if a clearing member is not a U.S. Commission may exempt a DCO from would require an exempt DCO to registration with conditions that may person, the data would only have to compile a report as of the end of each include the transactions and positions include requiring that the DCO be trading day, and submit it to the of affiliates that are U.S. persons. available for inspection by the Commission by 10:00 a.m. U.S. Central Paragraph (C) of proposed Regulation Commission and make available all 39.6(c)(2)(ii) would require that an information requested by the 27 Although an MOU or similar arrangement exempt DCO’s quarterly report to the Commission.26 The Commission notes would provide for information sharing whereby the Commission contain a list of U.S. that it does not anticipate conducting home country regulator agrees to provide to the Commission any information that the Commission routine site visits to exempt DCOs. deems necessary to evaluate the clearing 29 Specifically, Regulation 39.19(c)(1) requires However, the Commission may request organization’s initial and continued eligibility for registered DCOs to submit daily reports to the an exempt DCO to provide books and exemption or to review compliance with any Commission, by 10:00 a.m. on the following records related to its operation as an conditions of such exemption, the Commission business day, which contain, among other things, would retain the authority to access books and initial margin requirements, initial margin on exempt DCO in order for the records directly from an exempt DCO. deposit, and daily variation margin for each Commission to ensure that, among other 28 Regulation 39.19(b), 17 CFR 39.19(b), requires clearing member. See Regulation 39.19(c)(1)(i)(A) things, the exempt DCO continues to that a DCO submit reports electronically and in a and (c)(1)(i)(B), 17 CFR 39.19(c)(1)(i)(A) and meet the eligibility requirements for an format and manner specified by the Commission, (c)(1)(i)(B). These provisions require such defines the term ‘‘business day,’’ and establishes the information to be provided for each clearing relevant time zone for any stated time, unless member by house origin and by each customer 26 See also Regulation 1.31, 17 CFR 1.31 otherwise specified by the Commission. The origin. This distinction would not apply to an (requiring, among other things, that books and Commission has specified that U.S. Central time exempt DCO, which will only be permitted to clear records of DCOs and other registered entities be will apply with respect to the daily reports that transactions that the Commission would treat as made available for inspection by Commission must be filed by exempt DCOs pursuant to ‘‘proprietary.’’ See discussion of proprietary and representatives). proposed Regulation 39.6(c)(2)(i). customer clearing supra section II.C.2.

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persons and FCMs 30 that are either extent that it is available to the exempt regarding the two swaps resulting from clearing members or affiliates of any DCO, any assessment of the exempt the novation of the original swap that clearing member, with respect to the DCO’s observance (or the home country had been submitted to the exempt DCO clearing of swaps, as of the last day of regulator’s observance) of any of the for clearing. In addition, an exempt DCO the fiscal quarter. This information PFMIs by a home country regulator or would be required to report the would enable the Commission, in other national authority, or an termination of the original swap conducting risk surveillance of U.S. international financial institution or accepted for clearing by the exempt persons and swaps markets more international organization.31 Proposed DCO to the SDR to which the original broadly, to better understand and Regulation 39.6(c)(2)(v) would require swap was reported. Further, in order to evaluate the nature and extent of the an exempt DCO to provide to the avoid duplicative reporting for such cleared swaps activity of U.S. persons. Commission, to the extent that it is transactions, an exempt DCO would be Paragraphs (c)(2)(iii) through available to the exempt DCO, any required to have rules that prohibit the (c)(2)(viii) of proposed Regulation 39.6 examination report, examination part 45 reporting of the two new swaps each would require an exempt DCO to findings, or notification of the by the counterparties to the original provide information to the Commission commencement of any enforcement or swap.32 upon the occurrence of certain specified disciplinary action by a home country 4. Application Procedures events. Several of the proposed required regulator. Proposed Regulation notifications are intended to provide the 39.6(c)(2)(vi) would require an exempt Proposed Regulation 39.6(e) would Commission with information relevant DCO to provide immediate notice to the describe the relevant application to the exempt DCO’s continued Commission of any change with respect procedures for a clearing organization eligibility for an exemption or its to its licensure, registration, or other that seeks to be exempt from DCO compliance with the conditions of its authorization to act as a clearing registration, which are consistent with exemption. Proposed Regulation organization in its home country. the application procedures the 39.6(c)(2)(iii) would require an exempt Two of the event-specific required Commission has been using to evaluate DCO to provide prompt notice to the notifications would assist the petitions for exemption. Specifically, Commission regarding any change in its Commission in its oversight of U.S. under proposed Regulation 39.6(e)(1), a home country regulatory regime that is persons and FCMs clearing swaps. clearing organization would be required material to the exempt DCO’s Proposed Regulation 39.6(c)(2)(vii) to file an application for exemption with continuing observance of the PFMIs, would require an exempt DCO to the Secretary of the Commission in the any requirements set forth in proposed provide immediate notice to the format and manner specified by the Regulation 39.6, or the order of Commission in the event of a default (as Commission. After reviewing the exemption issued by the Commission. defined by the exempt DCO in its rules) application, the Commission could: (1) In this regard, the Commission requests by a U.S. person or FCM clearing swaps, Grant the exemption without comment on whether an exempt DCO including the name of the U.S. person conditions; (2) grant the exemption with should make the determination of or FCM, a list of the positions held by conditions; or (3) deny the application 33 whether a change to the home country the U.S. person or FCM, and the amount for exemption. This provision mirrors regulatory regime constitutes a of the U.S. person’s or FCM’s financial language in Regulation 39.3(a)(1), which ‘‘material’’ change to the exempt DCO’s obligation. Proposed Regulation addresses the application procedures for continuing observance of the PFMIs, 39.6(c)(2)(viii) would require an exempt registration as a DCO. Proposed Regulation 39.6(e)(2) would any requirements set forth in proposed DCO to provide notice of any action that require an applicant to submit a Regulation 39.6, or the Commission’s it has taken against a U.S. person or complete application, including all order of exemption. Alternatively, the FCM, no later than two business days applicable information and Commission requests comment on after the exempt DCO takes such action documentation as detailed in proposed whether the Commission should require against a U.S. person or FCM. In Regulation 39.6(e)(2) and discussed an exempt DCO to provide prompt particular, these provisions would below. It would provide that the notice of any change in its home require such reporting with respect to a Commission will not commence country regulatory regime thereby default of, or an action taken against, an processing an application unless the allowing the Commission to determine FCM, which may or may not be a U.S. application is complete. Proposed whether a change is ‘‘material’’ to the person, in furtherance of the Regulation 39.6(e)(2) would further exempt DCO’s continuing observance of Commission’s supervisory provide that an applicant may file with the PFMIs, any requirements set forth in responsibilities with respect to its completed application additional proposed Regulation 39.6, or the registered FCMs. Proposed paragraphs information that may be necessary or Commission’s order of exemption. (c)(2)(vii) and (c)(2)(viii) of Regulation helpful to the Commission in processing Proposed Regulation 39.6(c)(2)(iv) 39.6 are similar to paragraphs (c)(4)(vii) the application. This provision is would require an exempt DCO to and (c)(4)(xi) of Regulation 39.19, which similar to certain provisions of provide to the Commission, to the apply to registered DCOs, respectively. Regulation 39.3(a)(2), which sets forth requirements with respect to 30 b. Swap Data Reporting Requirements Such FCMs may or may not be U.S. persons. applications for registration as a DCO. The Commission is not proposing to require that Proposed Regulation 39.6(d) would exempt DCOs provide daily information regarding require that if a clearing member clears initial margin requirements, initial margin on 32 While the Commission recognizes that the deposit, and daily variation margin, or quarterly through an exempt DCO a swap that has counterparties to the original swap would otherwise aggregate clearing volume or average open interest, been reported to a registered swap data be required to report the two new swaps under part with respect to swaps, for FCMs that are not U.S. repository (SDR) pursuant to part 45 of 45 of the Commission’s regulations, because an persons (unless reporting would otherwise be the Commission’s regulations, the exempt DCO would be required to implement rules required because such FCMs are affiliates of U.S. to the contrary at the direction of the Commission, persons). However, the Commission has a exempt DCO must report to an SDR data such counterparties would be expected to comply supervisory interest in receiving information with the rules of the exempt DCO in this case. regarding which of its registered FCMs are clearing 31 Such an international organization may include 33 As noted above, proposed Regulation 39.6(b) members or affiliates of clearing members, with the International Monetary Fund or World Bank. sets forth the pre-conditions that would apply to respect to the clearing of swaps on an exempt DCO. See PFMIs, paragraph 1.33. any exemption from registration as a DCO.

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Under proposed Regulation Proposed Regulation 39.6(e)(3) would order of exemption, either at the request 39.6(e)(2)(i), an applicant would be provide that, at any time during the of the exempt DCO or on the required to submit a cover letter Commission’s review of an application Commission’s own initiative, based on providing general information for exemption from registration as a changes to or omissions in material facts identifying the applicant, its regulatory DCO, the Commission may request that or circumstances pursuant to which the licenses or registrations, and relevant the applicant submit supplemental order of exemption was issued, or for contact information. Proposed information in order for the Commission any reason in the Commission’s Regulation 39.6(e)(2)(ii)–(viii) would to process the application, and would discretion. This is a further expression require an applicant for exemption to require that the applicant file such of the Commission’s discretionary submit documents that would establish supplemental information in the format authority under section 5b(h) of the CEA the applicant’s eligibility for exemption and manner specified by the to exempt a clearing organization from under proposed Regulation 39.6(a), and Commission. A similar provision is registration ‘‘conditionally or would contain representations that the contained in Regulation 39.3(a)(3), unconditionally,’’ and it reflects the applicant would comply with the which applies to applications for DCO Commission’s authority to act with conditions of exemption, the general registration. flexibility in responding to changed reporting requirements, and the swap Proposed Regulation 39.6(e)(4) would circumstances affecting an exempt DCO. data reporting requirements set forth in state that an applicant for exemption 6. Termination of Exemption Upon proposed Regulation 39.6(b), (c), and from registration as a DCO must Request by an Exempt DCO (d), respectively, and the terms and promptly amend its application if it conditions of its order of exemption as discovers a material omission or error, Proposed Regulation 39.6(g) would set issued by the Commission. or if there is a material change in the forth the framework under which an Additionally, proposed Regulation information provided to the exempt DCO may petition the 39.6(e)(2)(v) would require an applicant Commission in the application or other Commission to terminate its exemption to submit to the Commission copies of information provided in connection and the applicable procedures. its most recent disclosures necessary to with the application. This provision is Specifically, pursuant to proposed observe the PFMIs, including the virtually identical to Regulation Regulation 39.6(g)(1), an exempt DCO financial market infrastructure (FMI) 39.3(a)(4), which addresses amendments may request that the Commission disclosure template set forth in Annex to applications for DCO registration. terminate its exemption if the exempt A to the Disclosure Framework and Proposed Regulation 39.6(e)(5) would DCO: (i) No longer qualifies for an Assessment Methodology (Disclosure identify those sections of an application exemption as a result of changed Framework) for the PFMIs.34 The FMI for exemption from registration that will circumstances; (ii) intends to cease disclosure template requires a clearing be made public, including the cover clearing swaps for U.S. persons; or (iii) organization to provide a general letter required in proposed Regulation submits a completed Form DCO in order description of itself and the markets it 39.6(e)(2)(i); documents demonstrating to become a registered DCO in serves, a description of its general that the applicant is organized in a conjunction with its petition. Proposed organization, an overview of the jurisdiction in which its home country Regulation 39.6(g)(2) would provide that relevant legal and regulatory framework, regulator applies to the applicant the petition for termination must a description of how it processes a statutes, rules, regulations, and/or include an explanation for the request transaction, and a summary narrative policies that are consistent with the and describe the exempt DCO’s plans detailing its approach to observing each PFMIs; disclosures necessary to observe for liquidation or transfer of the of the PFMIs. The Commission expects the PFMIs; 37 rules that meet the positions and related collateral of U.S. that the FMI disclosure template requirements of proposed Regulation persons, if applicable. Pursuant to provided to the Commission would 39.6(b)(2) and (d), as applicable; and proposed Regulation 39.6(g)(3), the have been reviewed and updated within any other part of the application not Commission would issue an order of the previous two years.35 The FMI covered by a request for confidential termination within a reasonable time disclosure template is generally treatment, subject to Regulation 145.9. appropriate to the circumstances or in required by home country regulators This provision is similar to Regulation conjunction with the issuance of an that enforce the PFMIs and is necessary 39.3(a)(5), which identifies those order of registration, if applicable. to achieve status as a qualified central portions of an application for counterparty (QCCP).36 registration as a DCO that are made D. Regulation 39.9—Scope public. The Commission is proposing to 34 See CPMI–IOSCO, Principles for financial 5. Modification of an Exemption revise Regulation 39.9 to make it clear market infrastructures: Disclosure framework and that the provisions of subpart B apply to Assessment methodology (Dec. 2012), at 82 et seq., Proposed Regulation 39.6(f) would available at http://www.iosco.org/library/pubdocs/ any DCO, as defined under section pdf/IOSCOPD396.pdf. provide that the Commission may 1a(15) of the CEA and Regulation 1.3, 35 PFMI Explanatory Note 3.23.7 provides that the modify the terms and conditions of an that is registered with the Commission Principle 23, Key Consideration 5 standard that as a DCO pursuant to section 5b of the responses to the Disclosure Framework should be certain financial incentives for banks, including CEA, but do not apply to any exempt completed ‘‘regularly’’ means that an FMI should their subsidiaries and affiliates, to clear financial review its responses ‘‘[a]t a minimum . . . every derivatives through QCCPs. See Basel Committee on DCO. This revision would clarify that two years to ensure continued accuracy and Banking Supervision, Capital Requirements for the subpart B regulations that address usefulness.’’ PFMIs, paragraph 3.23.7. Bank Exposures to Central Counterparties (Apr. 10, compliance with the DCO Core 36 A QCCP is defined as an entity that (i) is 2014), available at https://www.bis.org/publ/ Principles applicable to registered DCOs licensed to operate as a central counterparty (CCP) bcbs282.htm. and is permitted by the appropriate regulator to 37 The Disclosure Framework contemplates that do not impose any obligations upon operate as such, and (ii) is prudentially supervised central counterparties will make public disclosures exempt DCOs. in a jurisdiction where the relevant regulator has pursuant to the Disclosure Framework. See CPMI– established and publicly indicated that it applies to IOSCO, Principles for financial market III. Proposed Amendments to Part the CCP, on an ongoing basis, domestic rules and infrastructures: Disclosure framework and 140—Delegations of Authority regulations that are consistent with the PFMIs. The Assessment methodology (Dec. 2012), at 1, available failure of a CCP to achieve QCCP status could result at http://www.iosco.org/library/pubdocs/pdf/ The proposed amendments to in significant costs to its bank customers due to IOSCOPD396.pdf. Regulation 140.94(c)(4) would delegate

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to the Director of DCR all functions B. Proposed Regulation 39.6 positions for U.S. persons without reserved to the Commission under having to prepare and submit an 1. Summary proposed Regulation 39.6 except for the application for DCO registration, which following: (i) Granting an exemption Section 5b(a) of the CEA requires a involves the submission of extensive under paragraph (a); (ii) prescribing any clearing organization that clears swaps documentation to the Commission. conditions to an exemption under to be registered with the Commission as Similarly, an exempt DCO is not paragraph (b); (iii) modifying an a DCO. Section 5b(h) of the CEA, required to comply with Commission exemption under paragraph (f); and (iv) however, permits the Commission to regulations applicable to registered terminating an exemption under exempt a clearing organization from DCOs, except as required under paragraph (g)(3). Such delegation would DCO registration for the clearing of Regulation 39.6 or the exempt DCO’s expedite consideration of exemption swaps to the extent that the Commission order of exemption. Thus, the requests by permitting DCR to more determines that such clearing significantly reduced application and efficiently carry out tasks associated organization is subject to comparable, ongoing compliance requirements for with the processing of an exemption comprehensive supervision by exempt DCOs may encourage clearing application. Certain technical appropriate government authorities in organizations to seek an exemption from amendments have also been proposed to the clearing organization’s home registration. This mitigation of Regulation 140.94 in order to adjust the country. Pursuant to this authority, the registration-related requirements may paragraph numbering to accommodate Commission has exempted four non- also benefit market participants and the the proposed amendments to Regulation U.S. clearing organizations from DCO public more generally. That is, non-U.S. 140.94(c)(4). registration to clear proprietary swap clearing organizations that are exempt positions of U.S. persons and FCMs. from registration may incur lower IV. Request for Comments The proposed regulation would codify compliance costs, which may, in turn, the policies and procedures that the result in lower costs to their clearing The Commission generally requests Commission is currently following with comments on all aspects of the proposed members. In addition, U.S. persons (as respect to granting exemptions from clearing members or affiliates of clearing rules. Additionally, the Commission DCO registration. Accordingly, the requests comments on the following members) would likely have access to baseline for this consideration of costs more clearing organizations in order to specific issues: and benefits is the current status, where • clear their proprietary swaps. Access to Exempt DCOs are permitted to clear the Commission has implemented a set more clearing organizations may also of conditions and procedures for only proprietary positions of U.S. encourage voluntary clearing of swaps granting exemptions from DCO persons and FCMs. The proposed that are not required to be cleared, as registration, but has not codified those regulations would codify this approach. certain swaps may not be cleared by any conditions and procedures under Should the Commission consider registered DCOs. This may, in turn, Commission regulations. permitting an exempt DCO to clear serve to diversify the potential risk of swaps for FCM customers? Specifically, the proposed regulation would set forth the process by which a cleared swaps, because any such risk • Should the Commission impose any non-U.S. clearing organization could would become less concentrated if a additional conditions on an exempt obtain an exemption from DCO larger number of registered and exempt DCO or modify any of the existing registration for the clearing of swaps DCOs were clearing swaps for U.S. conditions? provided that it meets the specified persons, and the volume of those swaps • Should any of the conditions eligibility standards and can meet the could become more evenly distributed imposed on an exempt DCO lead to an conditions of an exemption. The among those registered and exempt automatic termination of the exemption eligibility standards require, among DCOs. if the condition is not met? other things, that a clearing organization Finally, the proposed regulation may also promote competition among V. Consideration of Costs and Benefits applying for exemption must be organized in a jurisdiction in which a registered and exempt DCOs by A. Introduction home country regulator applies to the encouraging more clearing organizations clearing organization, on an ongoing to seek an exemption, and it would Section 15(a) of the CEA requires the basis, statutes, rules, regulations, permit exempt DCOs to clear the same Commission to consider the costs and policies, or a combination thereof that, types of swap transactions for the benefits of its actions before taken together, are consistent with the proprietary accounts of U.S. persons promulgating a regulation under the PFMIs, and the clearing organization that may be cleared by registered DCOs. 38 CEA or issuing certain orders. Section must observe the PFMIs in all material The Commission requests comment 15(a) further specifies that the costs and respects. The conditions of exemption on the potential benefits of proposed benefits shall be evaluated in light of describe, among other things, the Regulation 39.6, including, where five broad areas of market and public circumstances in which an exempt DCO possible, quantitative data. More concern: (1) Protection of market would be permitted to clear swaps for specifically, the Commission requests participants and the public; (2) U.S. persons. An exempt DCO is and comment on the potential benefits to efficiency, competitiveness, and would be permitted to clear only clearing organizations that are eligible to financial integrity of futures markets; (3) ‘‘proprietary’’ positions as defined in become exempt DCOs and thereby clear price discovery; (4) sound risk Regulation 1.3, and it is not and would swaps for U.S. persons and their management practices; and (5) other not be permitted to clear ‘‘customer’’ affiliates, and the potential benefits to public interest considerations. The positions subject to section 4d(f) of the other market participants or the Commission considers the costs and CEA. financial system as a whole. The benefits resulting from its discretionary Commission further requests comment determinations with respect to the 2. Benefits on any alternative proposals that might Section 15(a) factors. Proposed Regulation 39.6 would achieve the objectives of the proposed provide several benefits. First, an regulation, and the benefits associated 38 7 U.S.C. 19(a). exempt DCO may clear proprietary swap with any such alternatives.

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3. Costs exempt a DCO from registration with may be costs common to both. A clearing organization seeking an conditions that may include requiring Furthermore, the Commission lacks exemption incurs some costs in that the DCO be available for inspection reliable data upon which to base many preparing an application for exemption. by the Commission and make available of these cost estimates, which it If a clearing organization were not able all information requested by the acknowledges could vary greatly among to seek an exemption, however, it would Commission. In addition, this clearing organizations. Thus, the be required to register with the requirement is imposed on registered Commission seeks comment about such Commission and to submit a Form DCOs; as a result, an exempt DCO costs. would be held to this requirement even DCO.39 While the Form DCO and the C. Section 15(a) Factors FMI disclosure template set forth in if it were to choose to register as a DCO. Annex A to the Disclosure Framework The Commission notes that there would 1. Protection of Market Participants and require certain similar types of be no costs imposed on an exempt DCO the Public information to be provided to the in connection with this condition unless The proposed amendments to Part 39 Commission, the Form DCO would and until the Commission requests to would protect market participants and require the clearing organization to inspect its books and records. the public by requiring, among other provide additional documentation that Furthermore, an exempt DCO’s home things, that an exempt DCO: (i) May is not required pursuant to the country regulator is and would be only clear swaps for U.S. persons for Disclosure Framework. Moreover, a required to provide to the Commission their proprietary accounts, and not for an annual written representation that clearing organization is likely to have ‘‘swaps customers’’ within the meaning the exempt DCO is in good regulatory already prepared the FMI disclosure of the CEA and Commission regulations; standing. The Commission believes that template in order to comply with the (ii) must be organized in a jurisdiction the costs associated with this requirements of its home country in which it is subject to supervision and requirement are minimal, as home regulator, which must be consistent regulation by a government authority country regulators typically provide a with the PFMIs, and to achieve QCCP that applies to the clearing organization standard letter and are required to status.40 Therefore, the costs involved in statutes, rules, regulations, policies, or a applying for an exemption are less than provide it only once a year. Lastly, exempt DCOs would be held to combination thereof that, taken together, the costs involved in applying for are consistent with the PFMIs; (iii) must registration, and the proposed certain reporting requirements, the costs of which are limited to providing them submit to the Commission the FMI regulation would not change this. Based disclosure template set forth in Annex on the Commission’s Paperwork to the Commission on either a regular or event-specific basis. The Commission A to the Disclosure Framework required Reduction Act estimates, the cost to observe the PFMIs establishing that it burden to submit Form DCO is has previously considered the costs of regular and event-specific reporting does observe the PFMIs, and must approximately $100,000 per entity,41 provide information to the Commission, while that for submitting an application requirements when adopting Regulation 39.19(c) for registered DCOs.43 The upon request, that the Commission for exemption is approximately $10,500 deems necessary to evaluate its per entity.42 Thus, there is an estimated reporting requirements for exempt DCOs are substantially less extensive than continued eligibility for exemption or to cost savings associated with submitting review its compliance with any an application for exemption rather than those specified in Regulation 39.19(c). The Commission believes the costs of conditions of exemption; and (iv) must Form DCO of approximately $89,500 per be licensed, registered, or otherwise entity, and the proposed regulation the exempt DCO reporting requirements are not significant but welcomes authorized to act as a clearing would codify the procedures for organization in its home country, and its submitting an application for comment on such costs, particularly from existing exempt DCOs. home country regulator must not have exemption. The Commission seeks made any findings of material non- comment about whether these cost An exempt DCO may incur costs related to establishing and maintaining observance of the PFMIs or other estimates are reasonable. relevant home country legal Other potential administrative costs connections to an SDR in order to report requirements that have not resulted in associated with maintaining an the swap data that would be required by corrective action. Furthermore, the exemption from DCO registration are proposed Regulation 39.6(d). In proposed amendments to part 39 would minimal. For example, an exempt DCO connection with the analysis required provide additional market safeguards would be required to make its books and by the Paperwork Reduction Act, the through requiring an MOU or other records relating to its operation as an Commission has estimated an initial similar arrangement with the home exempt DCO available for inspection by cost of $85,478 per exempt DCO to country regulator that would enable the Commission staff upon request. This establish an SDR connection, and an Commission to obtain any information condition of exemption is consistent annual cost of $93,750 to maintain this with section 5b(h) of the CEA, which connection. that the Commission deems necessary to provides that the Commission may As discussed in section VI.B below, evaluate the initial and continued an exempt DCO would likely realize eligibility of the DCO for exemption 39 For purposes of this analysis, it is assumed that some administrative cost savings with from registration or to review its any clearing organization that is not granted an respect to its ongoing compliance compliance with any conditions of such exemption will be required to register as a DCO if obligations with the Commission. The exemption. it clears swaps for any U.S. person. This These requirements would protect assumption, however, is not intended to be a legal Commission acknowledges that it is conclusion that, with respect to the particular facts difficult to differentiate the ongoing market participants and the public by and circumstances of any particular clearing costs of complying with a home ensuring that U.S. ‘‘swaps customers’’ organization, the CEA would require registration country’s regulatory requirements from would remain subject to the customer with the Commission as a DCO. those of complying with the CEA and protection regime established in the 40 See supra section II.C.4 for more detail. CEA and Commission regulations, and 41 See Derivatives Clearing Organization General Commission regulations given that there Provisions and Core Principles, 76 FR 69334, 69410 that exempt DCOs would be subject to (Nov. 8, 2011). 43 Derivatives Clearing Organization General the internationally recognized PFMI 42 See infra section VI.B for more detail. Provisions and Core Principles, 76 FR at 69426. standards.

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2. Efficiency, Competitiveness, and swaps among a greater number of entities in accordance with the RFA.45 Financial Integrity registered and exempt DCOs. The Commission has previously determined that clearing organizations Proposed Regulation 39.6 would 3. Price Discovery promote efficiency in the design of an are not small entities for the purpose of Price discovery is the process by 46 exempt DCO’s settlement and clearing the RFA. Accordingly, the Chairman, which prices for underlying instruments on behalf of the Commission, hereby arrangements, operating structure and may be determined by, or inferred from, procedures, scope of products cleared, certifies pursuant to 5 U.S.C. 605(b) that prices of derivative contracts. The the proposed regulations will not have and use of technology because it would Commission has not identified any permit an exempt DCO to clear a significant economic impact on a impact that proposed Regulation 39.6 substantial number of small entities. proprietary transactions for U.S. persons would have on price discovery. through observance of the PFMIs, B. Paperwork Reduction Act 4. Sound Risk Management Practices subject to supervision and regulation by The Paperwork Reduction Act a home country regulator. Moreover, the Proposed Regulation 39.6 would (PRA) 47 provides that Federal agencies, use of a single set of standards to contribute to the sound risk including the Commission, may not determine eligibility, namely the management practices of clearing conduct or sponsor, and a person is not internationally recognized PFMIs, organizations that provide clearing required to respond to, a collection of would promote operational efficiency services to U.S. persons for their information unless it displays a valid because it would (i) permit a non-U.S. proprietary transactions because exempt control number from the Office of clearing organization to obtain an DCOs would be subject to the risk Management and Budget (OMB). This exemption from registration that would management standards that are included proposed rulemaking contains reporting mitigate duplicative compliance in the PFMIs. Although the risk requirements that are collections of requirements and (ii) facilitate management requirements of the CEA information within the meaning of the uniformity in supervision and and the Commission regulations PRA. Although the Commission regulation of both registered and exempt applicable to registered DCOs would not anticipates that fewer than ten persons DCOs. be binding upon exempt DCOs, the risk will be subject to these requirements, Proposed Regulation 39.6 may also management standards in the PFMIs are which is below the ‘‘ten or more promote competition among registered substantially similar. persons’’ threshold for PRA compliance, and exempt DCOs because it would the PRA applies to any recordkeeping, permit exempt DCOs to clear the same 5. Other Public Interest Considerations reporting, or disclosure requirement types of swap transactions for the The Commission notes the public contained in a rule of general proprietary accounts of U.S. persons interest in access to clearing applicability.48 The Commission is that may be cleared by registered DCOs. organizations outside the United States proposing to revise Information Unlike their foreign counterparts, U.S.- in light of the international nature of Collection 3038–0076, which contains based DCOs would still be required to many swap transactions. The proposed the requirements for applications for register with the Commission in order to amendments to part 39 would codify the registration as a DCO, and Information clear proprietary swap positions for U.S. exemption process for non-U.S. clearing Collection 3038–0096, which contains persons and would not be eligible for an organizations that would permit them to swap data reporting requirements, to exemption under the proposed clear proprietary swap transactions for include the collection of information in regulation (or under section 5b(h) of the certain U.S. persons, when such proposed Regulation 39.6. The CEA). Potentially, this different clearing organizations meet the responses to the collection of treatment may create a competitive eligibility requirements and conditions information would be necessary to disadvantage for U.S.-based DCOs, of the proposed rule. Having a more obtain the requested exemption from which would be subject to the open and transparent process for DCO registration. requirements of the CEA and obtaining an exemption from Commission regulations. However, registration may encourage more non- 1. Application for Exemption and exempt DCOs would be subject to a U.S. clearing organizations to seek an Ongoing Reporting Obligations Under foreign supervisory and regulatory exemption, providing greater Proposed Regulation 39.6 framework that is consistent with the harmonization of the U.S. and global financial markets. The number of potential respondents internationally recognized standards set was estimated based on the number of forth in the PFMIs. VI. Related Matters non-U.S. clearing organizations that Proposed Regulation 39.6 would be A. Regulatory Flexibility Act have already applied for, or been expected to maintain the financial granted, an exemption from DCO integrity of clearing organizations that The Regulatory Flexibility Act (RFA) registration by the Commission. Based clear proprietary transactions for U.S. requires that agencies consider whether on its experience in addressing petitions persons because exempt clearing the regulations they propose will have for exemption, the Commission organizations would be subject to a significant economic impact on a anticipates receiving one or two supervision and regulation by a home substantial number of small entities applications for exemption per year. country regulator within a legal and, if so, provide a regulatory Burden hours and costs were estimated 44 framework that is consistent with the flexibility analysis on the impact. The based on existing information PFMIs. Such supervision and regulation regulations proposed by the collections for DCO registration and is comparable to that applicable to Commission will affect only clearing reporting, adjusted to reflect the DCOs under the CEA and Commission organizations. The Commission has significantly lower burden of the regulations, and is sufficiently previously established certain proposed regulations. The number of comprehensive. In addition, the definitions of ‘‘small entities’’ to be used proposed regulation may contribute to by the Commission in evaluating the 45 47 FR 18618 (Apr. 30, 1982). the financial integrity of the broader impact of its regulations on small 46 See 66 FR 45604, 45609 (Aug. 29, 2001). financial system by spreading the 47 44 U.S.C. 3501 et seq. potential risk of particular cleared 44 5 U.S.C. 601 et seq. 48 5 CFR 1320.3(c)(4)(i).

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respondents for the daily and quarterly Estimated number of reports per For the reasons stated in the reporting and annual certification respondent: 1 preamble, the Commodity Futures requirements is conservatively Average number of hours per report: Trading Commission proposes to amend estimated at a maximum of seven, based 2 17 CFR chapter I as follows: on the number of existing exempt DCOs Estimated gross annual reporting and the number of pending petitions. burden: 2 PART 39—DERIVATIVES CLEARING Reporting of specific events and Notice to clearing members of ORGANIZATIONS termination of an exemption are termination of exemption ■ 1. The authority citation for part 39 expected to occur infrequently. The Estimated number of respondents: 1 continues to read as follows: burden is estimated conservatively at Estimated number of reports per two per year for event-specific reporting respondent: 22 Authority: 7 U.S.C. 2, 7a–1, and 12a; 12 and at one per year for reporting of an Average number of hours per report: U.S.C. 5464; 15 U.S.C. 8325. exemption termination. The 0.1 ■ 2. Revise § 39.1 to read as follows: Commission has estimated the burden Estimated gross annual reporting hours for this proposed collection of burden: 2.2 § 39.1 Scope. The provisions of this subpart A information as follows: 2. Reporting by Exempt DCOs in apply to any derivatives clearing Application for exemption Accordance With Part 45 Estimated number of respondents: 2 organization, as defined under section Proposed Regulation 39.6(d) would Estimated number of reports per 1a(15) of the Act and § 1.3 of this require an exempt DCO to report data respondent: 1 chapter, that is registered or is required regarding the two swaps resulting from Average number of hours per report: to register with the Commission as a the novation of an original swap to a 32 derivatives clearing organization registered SDR, if the original swap had Estimated gross annual reporting pursuant to section 5b(a) of the Act, or been reported to a registered SDR burden: 64 that is applying for an exemption from pursuant to part 45 of the Commission’s Information requested by the registration pursuant to section 5b(h) of regulations. The Commission is Commission the Act. proposing to revise the information ■ 3. In § 39.2, add the following Estimated number of respondents: 2 collection for part 45 to add exempt definitions in alphabetical order to read Estimated number of reports per DCOs as an additional category of as follows: respondent: 1 reporting entity. The burden for exempt Average number of hours per report: DCOs reporting in accordance with part § 39.2 Definitions. 3 45 is estimated to be approximately one- * * * * * Estimated gross annual reporting quarter of the burden for registered Exempt derivatives clearing burden: 6 DCOs with respect to both non-recurring organization means a derivatives Daily reporting and recurring costs because exempt clearing organization that the Estimated number of respondents: 7 DCOs will not be required to report all Commission has exempted from Estimated number of reports per swaps, only those that result from the registration under section 5b(a) of the respondent: 250 novation of original swaps that have Act, pursuant to section 5b(h) of the Act Average number of hours per report: been reported to an SDR.49 and § 39.6. 0.1 Consequently, the burden hours for the Good regulatory standing means, with Estimated gross annual reporting proposed collection of information in respect to a derivatives clearing burden: 175 this rulemaking have been estimated as organization that is organized outside of Quarterly reporting follows: the United States, and is licensed, Estimated number of respondents: 7 registered, or otherwise authorized to Reporting in accordance with part 45 Estimated number of reports per act as a clearing organization in its Estimated number of respondents: 7 respondent: 4 home country, that either: Estimated number of reports per Average number of hours per report: (1) There has been no finding by the respondent: 1,987 2 home country regulator of material non- Average number of hours per report: Estimated gross annual reporting observance of the Principles for 0.1 burden: 56 Financial Market Infrastructures or Estimated gross annual reporting Event-specific reporting other relevant home country legal burden: 1,393 Estimated number of respondents: 2 requirements, or Estimated number of reports per List of Subjects (2) There has been a finding by the respondent: 1 home country regulator of material non- 17 CFR Part 39 Average number of hours per report: observance of the Principles for 0.5 Commodity futures, Default rules and Financial Market Infrastructures or Estimated gross annual reporting procedures, Exemption, Risk other relevant home country legal burden: 1 management, Settlement procedures, requirements but any such finding has Annual certification System safeguards. been or is being resolved to the Estimated number of respondents: 7 17 CFR Part 140 satisfaction of the home country Estimated number of reports per regulator by means of corrective action respondent: 1 Authority delegations (Government taken by the derivatives clearing Average number of hours per report: agencies), Organization and functions organization. 1.5 (Government agencies). Home country means, with respect to Estimated gross annual reporting a derivatives clearing organization that burden: 21 49 Details of the estimated burden related to non- is organized outside of the United recurring and recurring costs under part 45 are Termination of exemption by request of discussed in the part 45 adopting release. See Swap States, the jurisdiction in which the clearing organization Data Recordkeeping and Reporting Requirements, derivatives clearing organization is Estimated number of respondents: 1 77 FR at 2171–2176. organized.

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Home country regulator means, with clearing organization for exemption process. The exempt derivatives respect to a derivatives clearing from registration or to review its clearing organization shall: organization that is organized outside of compliance with any conditions of such (i) Consent to jurisdiction in the the United States, an appropriate exemption. United States; government authority which licenses, (b) Conditions of exemption. An (ii) Designate, authorize, and identify regulates, supervises, or oversees the exemption from registration as a to the Commission, an agent in the derivatives clearing organization’s derivatives clearing organization shall United States who shall accept any clearing activities in the home country. be subject to any conditions the notice or service of process, pleadings, * * * * * Commission may prescribe including, or other documents, including any Principles for Financial Market but not limited to: summons, complaint, order, subpoena, Infrastructures means the Principles for (1) Clearing by or for U.S. persons and request for information, or any other Financial Market Infrastructures jointly futures commission merchants. The written or electronic documentation or published by the Committee on exempt derivatives clearing organization correspondence issued by or on behalf Payments and Market Infrastructures shall maintain rules that limit swaps of the Commission or the United States and the Technical Committee of the clearing services for U.S. persons and Department of Justice to the exempt International Organization of Securities futures commission merchants to the derivatives clearing organization, in Commissions in April 2012, as updated, following circumstances: connection with any actions or revised, or otherwise amended. (i) A U.S. person that is a clearing proceedings brought against, or investigations relating to, the exempt * * * * * member of the exempt derivatives ■ 4. Add § 39.6 to read as follows: clearing organization may clear swaps derivatives clearing organization or any for itself and those persons identified in U.S. person or futures commission § 39.6 Exemption from derivatives clearing merchant that is a clearing member, or organization registration. the definition of ‘‘proprietary account’’ set forth in § 1.3 of this chapter; that clears swaps through an affiliated (a) Eligibility for exemption. The clearing member, of the exempt (ii) A non-U.S. person that is a Commission may exempt, conditionally derivatives clearing organization; and clearing member of the exempt or unconditionally, a derivatives (iii) Promptly inform the Commission derivatives clearing organization may clearing organization that is organized of any change in its designated and clear swaps for any affiliated U.S. outside of the United States, from authorized agent. person identified in the definition of registration as a derivatives clearing (4) Compliance. The exempt ‘‘proprietary account’’ set forth in § 1.3 organization for the clearing of swaps derivatives clearing organization shall of this chapter; and for U.S. persons, and thereby exempt comply, and shall demonstrate (iii) An entity that is registered with such derivatives clearing organization compliance as requested by the the Commission as a futures from compliance with provisions of the Commission, with any condition of its commission merchant may be a clearing Act and Commission regulations exemption. member of the exempt derivatives applicable to derivatives clearing (5) Inspection of books and records. clearing organization, or otherwise organizations, if: The exempt derivatives clearing (1) The derivatives clearing maintain an account with an affiliated organization shall make all documents, organization is subject to comparable, broker that is a clearing member, for the books, records, reports, and other comprehensive supervision and purpose of clearing swaps for itself and information related to its operation as regulation by a home country regulator those persons identified in the an exempt derivatives clearing as demonstrated by the following: definition of ‘‘proprietary account’’ set organization open to inspection and (i) The derivatives clearing forth in § 1.3 of this chapter. copying by any representative of the organization is organized in a (2) Open access. The exempt Commission; and in response to a jurisdiction in which a home country derivatives clearing organization shall request by any representative of the regulator applies to the derivatives maintain rules with respect to swaps to Commission, the exempt derivatives clearing organization, on an ongoing which one or more of the counterparties clearing organization shall, promptly basis, statutes, rules, regulations, is a U.S. person. Such rules shall: and in the form specified, make the policies, or a combination thereof that, (i) Provide that all swaps with the requested books and records available taken together, are consistent with the same terms and conditions, as defined and provide them directly to Principles for Financial Market by product specifications established Commission representatives. Infrastructures; under the exempt derivatives clearing (6) Observance of the Principles for (ii) The derivatives clearing organization’s rules, submitted to the Financial Market Infrastructures. On an organization observes the Principles for exempt derivatives clearing organization annual basis, within 60 days following Financial Market Infrastructures in all for clearing are economically equivalent the end of its fiscal year, the exempt material respects; and within the exempt derivatives clearing derivatives clearing organization shall (iii) The derivatives clearing organization and may be offset with provide to the Commission a organization is in good regulatory each other within the exempt certification that it continues to observe standing in its home country; and derivatives clearing organization, to the the Principles for Financial Market (2) A memorandum of understanding extent offsetting is permitted by the Infrastructures in all material respects. or similar arrangement satisfactory to exempt derivatives clearing (7) Representation of good regulatory the Commission is in effect between the organization’s rules; and standing. On an annual basis, within 60 Commission and the derivatives (ii) Provide that there shall be non- days following the end of its fiscal year, clearing organization’s home country discriminatory clearing of a swap the Commission shall receive from a regulator, pursuant to which, among executed bilaterally or on or subject to home country regulator, at the request of other things, the home country regulator the rules of an unaffiliated electronic the exempt derivatives clearing agrees to provide to the Commission any matching platform or trade execution organization, a written representation information that the Commission deems facility. that the exempt derivatives clearing necessary to evaluate the initial and (3) Consent to jurisdiction; organization is in good regulatory continued eligibility of the derivatives designation of agent for service of standing.

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(c) General reporting requirements. (1) figure shall include the transactions of (viii) Notice of action taken against a An exempt derivatives clearing the clearing member and all affiliates. If U.S. person or futures commission organization shall provide to the a clearing member is not a U.S. person, merchant by an exempt derivatives Commission the information specified the volume figure shall include only clearing organization, no later than two in this paragraph and any other transactions of affiliates that are U.S. business days after the exempt information that the Commission deems persons. derivatives clearing organization takes necessary, including, but not limited to, (B) The average open interest of U.S. such action against a U.S. person or information for the purpose of the persons during the fiscal quarter, with futures commission merchant. Commission evaluating the continued respect to swaps. If a clearing member (d) Swap data reporting requirements. eligibility of the exempt derivatives is a U.S. person, the open interest figure If a clearing member clears through an clearing organization for exemption shall include the positions of the exempt derivatives clearing organization from registration, reviewing compliance clearing member and all affiliates. If a a swap that has been reported to a by the exempt derivatives clearing clearing member is not a U.S. person, registered swap data repository organization with any conditions of the the open interest figure shall include pursuant to part 45 of this chapter, the exemption, or conducting oversight of only positions of affiliates that are U.S. exempt derivatives clearing organization U.S. persons and their affiliates, and the persons. shall report to a registered swap data swaps that are cleared by such persons (C) A list of U.S. persons and futures repository data regarding the two swaps through the exempt derivatives clearing commission merchants that are either resulting from the novation of the organization. Information provided to clearing members or affiliates of any original swap that had been submitted the Commission under this paragraph clearing member, with respect to the to the exempt derivatives clearing shall be submitted in accordance with clearing of swaps, as of the last day of organization for clearing. The exempt § 39.19(b). the fiscal quarter. derivatives clearing organization shall (2) Each exempt derivatives clearing (iii) Prompt notice regarding any also report the termination of the organization shall provide to the change in the home country regulatory original swap accepted for clearing by Commission the following information: regime that is material to the exempt the exempt derivatives clearing (i) A report compiled as of the end of derivatives clearing organization’s organization, to the swap data each trading day and submitted to the continuing observance of the Principles repository to which the original swap Commission by 10:00 a.m. U.S. Central for Financial Market Infrastructures or was reported. In order to avoid time on the following business day, with any of the requirements set forth in duplicative reporting for such containing: (A) Initial margin requirements and this section or in the order of exemption transactions, the exempt derivatives initial margin on deposit for each U.S. issued by the Commission; clearing organization shall have rules person, with respect to swaps; provided, (iv) As available to the exempt that prohibit the reporting, pursuant to however, if a clearing member margins derivatives clearing organization, any part 45 of this chapter, of the two new on a portfolio basis its own positions assessment of the exempt derivatives swaps by the original counterparties to and the positions of its affiliates, and clearing organization’s or the home the original swap. either the clearing member or any of its country regulator’s observance of the (e) Application procedures. (1) An affiliates is a U.S. person, the exempt Principles for Financial Market entity seeking to be exempt from derivatives clearing organization shall Infrastructures, or any portion thereof, registration as a derivatives clearing report initial margin requirements and by a home country regulator or other organization shall file an application for initial margin on deposit for all such national authority, or an international exemption with the Secretary of the positions on a combined basis for each financial institution or international Commission in the format and manner such clearing member; and organization; specified by the Commission. The (B) Daily variation margin, separately (v) As available to the exempt Commission will review the application listing the mark-to-market amount derivatives clearing organization, any for exemption and may approve or deny collected from or paid to each U.S. examination report, examination the application or, if deemed person, with respect to swaps; provided, findings, or notification of the appropriate, exempt the applicant from however, if a clearing member margins commencement of any enforcement or registration as a derivatives clearing on a portfolio basis its own positions disciplinary action by a home country organization subject to conditions in and the positions of its affiliates, and regulator; addition to those set forth in paragraph either the clearing member or any of its (vi) Immediate notice of any change (b) of this section. affiliates is a U.S. person, the exempt with respect to the exempt derivatives (2) Application. An applicant for derivatives clearing organization shall clearing organization’s licensure, exemption from registration as a separately list the mark-to-market registration, or other authorization to act derivatives clearing organization shall amount collected from or paid to each as a derivatives clearing organization in submit to the Commission the such clearing member, on a combined its home country; information and documentation basis. (vii) In the event of a default by a U.S. described in this section. Such (ii) A report compiled as of the last person or futures commission merchant information and documentation shall be day of each fiscal quarter of the exempt clearing swaps, with such event of clearly labeled as outlined in this derivatives clearing organization and default determined in accordance with section. The Commission will not submitted to the Commission no later the rules of the exempt derivatives commence processing an application than 17 business days after the end of clearing organization, immediate notice unless the applicant has filed a the exempt derivatives clearing of the default including the name of the complete application. Upon its own organization’s fiscal quarter, containing U.S. person or futures commission initiative, an applicant may file with its the following information: merchant, a list of the positions held by completed application for exemption (A) The aggregate clearing volume of the U.S. person or futures commission additional information that may be U.S. persons during the fiscal quarter, merchant, and the amount of the U.S. necessary or helpful to the Commission with respect to swaps. If a clearing person’s or futures commission in processing the application. The member is a U.S. person, the volume merchant’s financial obligation; and application shall include:

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(i) A cover letter containing the (vi) A representation that the petition the Commission to terminate its following information: applicant will comply with each of the exemption if: (A) Exact name of applicant as requirements and conditions of (i) Changed circumstances result in specified in its charter, and the name exemption set forth in paragraphs (b), the exempt derivatives clearing under which business will be conducted (c), and (d) of this section, and the terms organization no longer qualifying for an (including acronyms); and conditions of its order of exemption exemption; (B) Address of applicant’s principal as issued by the Commission; office; (vii) A copy of the applicant’s rules (ii) The exempt derivatives clearing (C) List of principal office(s) and that meet the requirements of organization intends to cease clearing address(es) where clearing activities are/ paragraphs (b)(2) and (d) of this section, swaps for U.S. persons; or will be conducted; as applicable; and (iii) In conjunction with the petition, (D) A list of all regulatory licenses or (viii) The applicant’s consent to the exempt derivatives clearing registrations of the applicant (or jurisdiction in the United States, and organization submits a completed Form exemptions from any licensing the name and address of the applicant’s DCO to become a registered derivatives requirement) and the regulator granting designated agent in the United States, clearing organization pursuant to such license or registration; pursuant to paragraph (b)(3) of this section 5b(a) of the Act. (E) Date of the applicant’s fiscal year section. (2) The petition for termination of end; (3) Submission of supplemental exemption shall include a detailed (F) Contact information for the person information. At any time during its explanation of the facts and review of the application for exemption or persons to whom the Commission circumstances supporting the request from registration as a derivatives should address questions and and the exempt derivatives clearing correspondence regarding the clearing organization, the Commission organization’s plans for, as may be application; and may request that the applicant submit applicable, the liquidation or transfer of (G) A signature and date by a duly supplemental information in order for the swaps positions and related authorized representative of the the Commission to process the collateral of U.S. persons. applicant. application, and the applicant shall file (ii) A description of the applicant’s such supplemental information in the (3) The Commission shall issue an business plan for providing clearing format and manner specified by the order of termination within a reasonable services as an exempt derivatives Commission. time appropriate to the circumstances clearing organization, including (4) Amendments to pending or, as applicable, in conjunction with information as to the classes of swaps application. An applicant for exemption the issuance of an order of registration. that will be cleared and whether the from registration as a derivatives (h) Notice to clearing members of swaps are subject to a clearing clearing organization shall promptly termination of exemption. Following the requirement issued by the Commission amend its application if it discovers a Commission’s issuance of an order of or the applicant’s home country material omission or error, or if there is termination (unless issued in regulator; a material change in the information conjunction with the issuance of an (iii) Documents that demonstrate that provided to the Commission in the order of registration), the exempt applicant is organized in a jurisdiction application or other information derivatives clearing organization shall in which its home country regulator provided in connection with the provide immediate notice of such applies to the applicant, on an ongoing application. termination to its clearing members. basis, statutes, rules, regulations, (5) Public information. The following Such notice shall include: policies, or a combination thereof that, sections of an application for exemption taken together, are consistent with the from registration as a derivatives (1) A copy of the Commission’s order Principles for Financial Market clearing organization will be public: The of termination; Infrastructures; cover letter set forth in paragraph (2) A description of the procedures for (iv) A written representation from the (e)(2)(i) of this section; the orderly disposition of any open swaps applicant’s home country regulator that documentation required in paragraphs positions that were cleared for U.S. the applicant is in good regulatory (e)(2)(iii) and (e)(2)(v) of this section; persons; and standing; rules that meet the requirements of (3) An instruction to clearing (v) Copies of the applicant’s most paragraphs (b)(2) and (d) of this section, members, requiring that they provide recent disclosures that are necessary to as applicable; and any other part of the the exempt derivatives clearing observe the Principles for Financial application not covered by a request for organization’s notice of such Market Infrastructures, including the confidential treatment, subject to § 145.9 termination to all U.S. persons clearing financial market infrastructure of this chapter. swaps through such clearing members. disclosure template set forth in Annex (f) Modification of an exemption. The A to the Disclosure Framework and Commission may, either at the request ■ 5. Revise § 39.9 to read as follows: Assessment Methodology for the of the exempt derivatives clearing § 39.9 Scope. Principles for Financial Market organization or on its own initiative, Infrastructures, any other such modify the terms and conditions of an The provisions of this subpart B apply disclosure framework issued under the order of exemption, based on changes to to any derivatives clearing organization, authority of the International or omissions in material facts or as defined under section 1a(15) of the Organization of Securities Commissions circumstances pursuant to which the Act and § 1.3 of this chapter, that is that is required for observance of the order of exemption was issued, or for registered with the Commission as a Principles for Financial Market any reason in its discretion. derivatives clearing organization Infrastructures, and the URL to the (g) Termination of exemption upon pursuant to section 5b of the Act. The specific page(s) on the applicant’s request by an exempt derivatives provisions of this subpart B do not website where such disclosures may be clearing organization. (1) An exempt apply to any exempt derivatives clearing found; derivatives clearing organization may organization, as defined under § 39.2.

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PART 140—ORGANIZATION, what has been an internal process public and DEPARTMENT OF HOMELAND FUNCTIONS, AND PROCEDURES OF transparent. Under the Commodity Exchange SECURITY THE COMMISSION Act (CEA), the Commission may conditionally or unconditionally exempt a Coast Guard ■ 6. The authority citation for part 140 derivatives clearing organization (DCO) from continues to read as follows: registration for the clearing of swaps if the 33 CFR Part 165 Commission determines that the clearing Authority: 7 U.S.C. 2(a)(12), 12a, 13(c), [Docket Number USCG–2018–0723] 13(d), 13(e), and 16(b). organization is subject to ‘‘comparable, comprehensive supervision and regulation’’ RIN 1625–AA00 ■ 7. Amend § 140.94 as follows: by appropriate government authorities in the ■ a. Revise the introductory text of clearing organization’s home country. Safety Zone; Delaware River; Penn’s paragraph (c); Pursuant to this authority, the Commission Landing; Philadelphia, PA; Fireworks ■ b. Redesignate paragraphs (c)(4) has exempted four non-U.S. clearing Display through (c)(13) as paragraphs (c)(5) organizations from DCO registration. AGENCY: Coast Guard, DHS. through (c)(14); and The Commission is proposing to adopt ■ c. Add new paragraph (c)(4). regulations that would codify the policies ACTION: Notice of proposed rulemaking. The revisions and additions read as and procedures that the Commission is SUMMARY: follows: The Coast Guard proposes to currently following with respect to granting establish a temporary safety zone on a § 140.94 Delegation of authority to the exemptions from DCO registration. The portion of the Delaware River in Director of the Division of Swap Dealer and proposed regulations are consistent with the Philadelphia, PA. This action is Intermediary Oversight and the Director of policies and procedures that the Commission necessary to protect the surrounding the Division of Clearing and Risk. is currently following, and with the terms public and vessels on these navigable * * * * * and conditions that the Commission has waters adjacent to Penn’s Landing, (c) The Commission hereby delegates, imposed on each of the clearing Philadelphia, PA, during a fireworks until such time as the Commission organizations to which it has previously display on September 16, 2018. This orders otherwise, the following issued orders of exemption. proposed rulemaking would prohibit The exempt DCO process applies a functions to the Director of the Division persons and vessels from entering, comparable, outcomes-based approach to of Clearing and Risk and to such transiting, or remaining within the reflect the Commission’s recognition that a members of the Commission’s staff safety zone unless authorized by the foreign jurisdiction may have different acting under his or her direction as he Captain of the Port Delaware Bay or a regulations for its central counterparties or she may designate from time to time: (CCP) but share the same regulatory goals. designated representative. We invite * * * * * Under the proposal, for CCPs in foreign your comments on this proposed (4) All functions reserved to the jurisdictions, a framework that conforms to rulemaking. Commission in § 39.6 of this chapter, the Committee on Payments and Market DATES: Comments and related material except for the authority to: Infrastructures (CPMI) and the International must be received by the Coast Guard on (i) Grant an exemption under § 39.6(a) Organization of Securities Commissions or before August 28, 2018. of this chapter; (IOSCO) Principles for Financial Market ADDRESSES: You may submit comments (ii) Prescribe conditions to an Infrastructures (PFMI) would be deemed identified by docket number USCG– exemption under § 39.6(b) of this comparable to the CFTC’s requirements for 2018–0723 using the Federal chapter; domestic CCPs. eRulemaking Portal at http:// (iii) Modify an exemption under The proposal is part of the Commission’s www.regulations.gov. See the ‘‘Public § 39.6(f) of this chapter; and continued efforts to foster cross-border Participation and Request for (iv) Terminate an exemption under cooperation and show deference to home Comments’’ portion of the § 39.6(g)(3) of this chapter. country regulation that is deemed SUPPLEMENTARY INFORMATION section for * * * * * comparable to the Commission’s regulations. further instructions on submitting As our regulatory counterparts continue to Issued in Washington, DC, on August 8, comments. implement swaps reforms in their markets, it 2018, by the Commission. is critical that the Commission endeavor to FOR FURTHER INFORMATION CONTACT: If Christopher Kirkpatrick, ensure that its rules do not unnecessarily you have questions about this proposed Secretary of the Commission. conflict and fragment the global marketplace. rulemaking, call or email Petty Officer Thomas Welker, U.S. Coast Guard, Note: The following appendices will not For this reason, the Commission should appear in the Code of Federal Regulations. operate on the basis of comity, not Sector Delaware Bay, Waterways uniformity, with non-U.S. regulators. This Management Division; telephone 215– Appendices to Exemption From avoids the untenable state of overlapping and 271–4814, email Thomas.j.welker@ Derivatives Clearing Organization duplicative regulations. The current proposal uscg.mil. Registration—Commission Voting reflects this vision. SUPPLEMENTARY INFORMATION: Summary and Chairman’s Statement I support this proposed rule from the Division of Clearing and Risk (DCR). I look I. Table of Abbreviations Appendix 1—Commission Voting forward to hearing comments on the Summary CFR Code of Federal Regulations proposal. DHS Department of Homeland Security On this matter, Chairman Giancarlo and [FR Doc. 2018–17335 Filed 8–10–18; 8:45 am] FR Federal Register Commissioners Quintenz and Behnam voted NPRM Notice of proposed rulemaking in the affirmative. No Commissioner voted in BILLING CODE 6351–01–P § Section the negative. U.S.C. United States Code Appendix 2—Statement of Chairman J. II. Background, Purpose, and Legal Christopher Giancarlo Basis This proposal is part of Project KISS’s On July 18, 2018, the Mexican simple and straightforward efforts to make Cultural Society notified the Coast

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