# Adaptation of Regulations to Incorporate Swaps > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2011-12270 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** June 7, 2011 - **Citation:** 76 FR 33066 ## Text COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 1, 5, 7, 8, 15, 18, 21, 36, 41, 140, 145, 155, and 166 RIN Number 3038-AD53 Adaptation of Regulations to Incorporate Swaps AGENCY: Commodity Futures Trading Commission. ACTION: Notice of proposed rulemaking. SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act” or “DFA”) established a comprehensive new statutory framework for swaps and security-based swaps. The Dodd-Frank Act repeals some sections of the Commodity Exchange Act (“CEA” or “Act”), amends others, and adds a number of new provisions. The DFA also requires the Commodity Futures Trading Commission (“CFTC” or “Commission”) to promulgate a number of rules to implement the new framework. The Commission has proposed numerous rules to satisfy its obligations under the DFA. Because the Dodd-Frank Act makes so many changes to the existing statutory and regulatory frameworks, the proposed rules would make a number of conforming changes to the CFTC's regulations to integrate them more fully with the new statutory and regulatory framework (“Proposal”). DATES: Comments must be received on or before August 8, 2011. ADDRESSES: You may submit comments, identified by RIN number 3038-AD53, by any of the following methods: • The agency's Web site, at: http://comments.cftc.gov. Follow the instructions for submitting comments through the Web site. • Mail: David A. Stawick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. • Hand Delivery/Courier: Same as mail above. • Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. Please submit your comments using only one method. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to http://www.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act, a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission's regulations. 1 1 17 CFR 145.9. Commission regulations referred to herein are found on the Commission's website. The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from http://www.cftc.gov that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the Freedom of Information Act. FOR FURTHER INFORMATION CONTACT: Peter A. Kals, Attorney-Advisor, 202-418-5466, pkals@cftc.gov, or Elizabeth Miller, Attorney-Advisor, 202-418-5450, emiller@cftc.gov, Division of Clearing and Intermediary Oversight; David E. Aron, Counsel, at 202-418-6621, daron@cftc.gov, Office of General Counsel; Nadia Zakir, Attorney-Advisor, 202-418-5720, nzakir@cftc.gov, Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st Street, NW., Washington, DC 20581. SUPPLEMENTARY INFORMATION: Table of Contents I. Background II. Proposed Regulations A. Part 1 1. Regulation 1.3: Definitions a. General Changes b. Amended and New Definitions c. Regulation 1.3(ll): Physical d. Regulation 1.3(yy): Commodity Interest 2. Regulation 1.4: Use of Electronic Signatures 3. Regulation 1.31: Books and Records; Keeping and Inspection 4. Regulation 1.33: Monthly and Confirmation Statements 5. Regulation 1.35: Records of Cash Commodity, Futures and Option Transactions 6. Regulation 1.37: Customer's or Option Customer's Name, Address, and Occupation Recorded; Record of Guarantor or Controller of Account 7. Regulation 1.39: Simultaneous Buying and Selling Orders of Different Principals; Execution of, for and Between Principals 8. Regulation 1.40: Crop, Market Information Letters, Reports; Copies Required 9. Regulation 1.59: Activities of Self-Regulatory Employees, Governing Board Members, Committee Members and Consultants 10. Regulation 1.63: Service on Self-Regulatory Organization Governing Boards or Committees by Persons With Disciplinary Histories 11. Regulation 1.67: Notification of Final Disciplinary Action Involving Financial Harm to a Customer 12. Regulation 1.68: Customer Election Not To Have Funds, Carried by a Futures Commission Merchant for Trading on a Registered Derivatives Trading Execution Facility, Separately Accounted for and Segregated 13. Regulations 1.44, 1.53, and 1.62—Deletion of Regulations Inapplicable to Designated Contract Markets 14. Appendix C to Part 1: Bunched Orders and Account Identification B. Part 7 C. Part 8 D. Parts 15, 18, 21, and 36 E. Parts 41, 140 and 145 F. Part 155 G. Other General Changes to CFTC Regulations 1. Removal of References to DTEFs 2. Other Conforming Changes III. Request for Comment IV. Administrative Compliance A. Paperwork Reduction Act B. Regulatory Flexibility Act C. Cost-Benefit Analysis I. Background On July 21, 2010, President Obama signed the Dodd-Frank Act into law. 2 Title VII of the Dodd-Frank Act 3 (“Title VII”) amended the CEA 4 to establish a comprehensive new regulatory framework for swaps and security-based swaps. The legislation was enacted, among other reasons, to reduce risk, increase transparency, and promote market integrity within the financial system, including by: (1) Providing for the registration and comprehensive regulation of swap dealers (“SDs”), security-based swap dealers, major swap participants (“MSPs”), and major security-based swap participants; (2) imposing clearing and trade execution requirements on swaps and security-based swaps, subject to certain exceptions; (3) creating rigorous recordkeeping and real-time reporting regimes; and (4) enhancing the rulemaking and enforcement authorities of the Commissions with respect to, among others, all registered entities and intermediaries subject to the Commission's oversight. 2 See Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the Dodd-Frank Act is available at http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm. 3 Pursuant to section 701 of the Dodd-Frank Act, Title VII may be cited as the “Wall Street Transparency and Accountability Act of 2010.” 4 7 U.S.C. 1 et seq. (2006). Title VII added to the CEA two new categories of Commission registrant ( i.e., SDs 5 and MSPs 6 ) and provided a definition for associated persons of the foregoing. 7 Title VII also added to the CEA compliance obligations for SDs and MSPs and revised the definitional scope of each existing intermediary registrant category, 8 with the exception of retail foreign exchange dealers (“RFEDs”), to include intermediation activity involving swaps. 5 DFA section 721(a)(21), adding CEA section 1a(49), codified at 7 U.S.C. 1a(49). 6 DFA section 721(a)(16), adding CEA section 1a(33), codified at 7 U.S.C. 1a(33). 7 DFA section 721(a)(15), adding CEA section 1a(4), codified at 7 U.S.C. 1a(4). 8 Existing intermediary registrant categories include futures commission merchants (“FCMs”), commodity pool operators (“CPOs”), commodity trading advisors (“CTAs”), introducing brokers (“IBs”), floor brokers (“FBs”) and floor traders (“FTs”). To apply its regulatory regime to the swap activity of intermediaries, the Commission must make a number of changes to its regulations to conform them to the Dodd-Frank Act. These changes primarily affect part 1 of the Commission's rules, but also affect parts 5, 7, 8, 15, 18, 21, 36, 41, 140, 145, 155, and 166. To the extent the DFA required the Commission to promulgate rules to address certain specific DFA sections, the Commission has proposed or is in the process of proposing such rules separately. Today's Proposal contains amendments of three different types: ministerial, accommodating, and substantive. Many of the proposed amendments are purely ministerial—for instance, several proposed changes would update definitions to conform them to the CEA as amended by the Dodd-Frank Act; add to the Commission's regulations new terms created by the Dodd-Frank Act; remove all regulations and references pertaining to derivatives transaction execution facilities (“DTEFs”), a category of exchange which was eliminated by the DFA; correct various statutory cross-references to the CEA in the regulations; and remove regulations in whole or in part that were rendered moot by the Commodity Futures Modernization Act of 2000 (“CFMA”). The proposed accommodating amendments are essential to the implementation of the DFA in that they propose to add swaps, swap markets, and swap entities to numerous definitions and regulations, but are more than ministerial because they require some judgment in drafting. Accommodating amendments would include, among other things, amending numerous definitions in regulation 1.3 to reference or include swaps; creating new definitions as necessary in regulation 1.3; amending recordkeeping requirements to include information on swap transactions; adding references to swaps, swap execution facilities (“SEFs”) and derivatives clearing organizations (“DCOs”) to various part 1 regulations; and amending parts 15, 18, 21, and 36 to implement the DFA's grandfathering and phase-out of exempt boards of trade and exempt commercial markets. The remaining proposed substantive amendments are changes that would align requirements or procedures across futures and swap markets. They consist of proposed amendments to regulations 1.31 and 1.35 that would harmonize current part 1 recordkeeping requirements with those applicable to SDs and MSPs under proposed part 23 regulations and harmonize certain procedures applicable to swaps with those applicable to futures. To aid the public in understanding the numerous changes to different parts of the CFTC's regulations explained in the Proposal, the Commission will also publish on its Web site a “redline” of the affected regulations which will clearly reflect the proposed amendments and deletions. 9 9 Furthermore, while there are many outstanding Notices of Proposed Rulemaking (“NPRMs”) published by the CFTC, today's Proposal does not reflect those separately proposed amendments, most of which are not yet final. For example, the Proposal amends regulation 1.3(z) (definition of “bona fide hedging transactions and positions”) to remove certain cross-references, but the Proposal does not also show other amendments to that definition proposed earlier this year in a separate release. See Position Limits for Derivatives, 76 FR 4752, Jan. 26, 2011. All NPRMs are available on the Commission's Web site for the public to review and provide comment. For a list of all rulemaking proposals related to the Dodd-Frank Act, please visit http://www.cftc.gov/LawRegulation/DoddFrankAct/Dodd-FrankProposedRules/index.htm. II. Proposed Regulations A. Part 1 1. Regulation 1.3: Definitions a. General Changes The Commission proposes to revise regulation 1.3 so that its definitions, which are used throughout the regulations, incorporate relevant provisions of the DFA. For instance, proposed regulation 1.3 updates current definitions to conform them to the Dodd-Frank Act's amendments of the same terms in the CEA's definitions section, 10 and also includes definitions specifically added by the Dodd-Frank Act to the CEA. This is the case for many of the definitions in proposed regulation 1.3, including “associated person of a swap dealer or major swap participant,” “commodity pool operator,” “commodity trading advisor,” “futures commission merchant,” “floor broker,” “floor trader,” “swap data repository,” and “swap execution facility.” 11 Additionally, the Commission is proposing to revise the definition of “self-regulatory organization” (“SRO”) to include SEFs, a new category of regulated markets under the DFA, and to make clear that DCOs are SROs. 12 10 CEA section 1a, 7 U.S.C. 1a. 11 The DFA amended the definition of “commodity pool operator” in CEA section 1a to add swaps to those contracts for which a CPO solicits investment. DFA section 721(a)(5). In addition to amending the definition of “commodity pool operator” in proposed regulation 1.3 to accommodate that revision, the Commission proposes to add equivalent language to the definition of “commodity trading advisor” in regulation 1.3. 12 Currently, some individual rules specifically include DCO in the definition of SRO, but they are not included in the general definition of SRO in regulation 1.3. b. Amended and New Definitions The Commission also proposes (1) to simplify or clarify certain existing regulation 1.3 definitions, and (2) to add several new definitions to regulation 1.3, pursuant to amendments to the CEA by the Dodd-Frank Act, existing regulations, and other amendments in the Proposal. 13 13 The Commission realizes that several earlier published releases have also proposed to add definitions to regulation 1.3, and that these amendments may overlap, e.g., more than one definition was proposed for regulation 1.3(zz). See Agricultural Commodity Definition, 75 FR 65586, Oct. 26, 2010; Requirements for Derivatives Clearing Organizations, Designated Contract Markets, and Swap Execution Facilities Regarding the Mitigation of Conflicts of Interest, 75 FR 63732, Oct. 18, 2010. However, as each rule proposal is published as a final rulemaking, the Commission will ensure that the lettering of paragraphs within regulation 1.3 for newly added definitions is correct. Therefore, the Commission requests that the public review the new definitions proposed today for their content only and ignore any inconsistencies in lettering between the Proposal and prior NPRMs. The term “contract market,” for instance, is not defined under the CEA, and is currently defined under regulation 1.3(h) as “a board of trade designated by the Commission as a contract market under the Commodity Exchange Act or in accordance with the provisions of part 33 of this chapter.” In certain provisions throughout the Commission's regulations, contract markets are also referred to as “designated contract markets.” Because both terms are used interchangeably within the regulations, the Commission is proposing to revise the definition to mean contract market and designated contract market (“DCM”). Proposed regulation 1.3(h) will contain one definition identified by the title “Contract market; designated contract market.” The current definition also erroneously cross-references part 33 as the DCM provisions of the Commission's regulations. The proposed definition would change that cross-reference to part 38 of the Commission's regulations. The Commission proposes a similar clarification regarding the definition of “customer.” The Proposal simplifies the definition of “customer” by combining two existing definitions, “Customer; commodity customer” in regulation 1.3(k) and “Option customer” in regulation 1.3(jj), and adding swaps. 14 Therefore, the “customer” definition proposed herein would include swap customers, commodity customers, and option customers, and refer to them all with the single term, “customer.” Furthermore, the Commission proposes to revise all references to “commodity customer” and “option customer” throughout the Commission's regulations, but particularly in part 1, to simply refer to “customer.” 15 These revisions have retained references to requirements specific to certain contracts. 16 14 The “General Regulations and Derivatives Clearing Organizations” Federal Register release proposed to amend regulation 1.3(k) by adding “swap customer,” but there is nothing unique about that term requiring it to be separately defined. General Regulations and Derivatives Clearing Organizations, 75 FR 77576, Dec. 13, 2010. 15 The Commission proposes to remove references to commodity customers and option customers, replacing them with references to simply “customer,” in the following regulations: 17 CFR 1.3, 1.20-1.24, 1.26, 1.27, 1.30, 1.32-1.34, 1.35-1.37, 1.46, 1.57, 1.59, 155.3, 155.4, and 166.5. 16 For example, proposed regulation 1.33 (Monthly and confirmation statements) requires an FCM to document a customer's positions in futures contracts differently from its option or swap positions. Proposed regulation 1.33 preserves these distinctions, even though it refers only to “customers” as opposed to “commodity customers,” “option customers,” and “swap customers.” The Commission proposes to define the term “confirmation” to reflect its differing use in various regulations depending on whether a transaction is executed by an FCM, IB or CTA on the one hand, or by a SD or MSP on the other hand. In the first case, the registrant is acting as an agent. In the second it is acting as a principal. 17 17 A single entity could be registered in more than one capacity, for example, as both a SD and a CTA. Which rules were applicable would depend on the capacity in which it was performing a particular function. The Commission also proposes to revise the “Member of a contract market” definition currently found at regulation 1.3(q) and to add to regulation 1.3 a definition of the term “Registered entity,” currently provided in CEA section 1a(40), as revised by the Dodd-Frank Act. The definition of “registered entity” proposed in regulation 1.3 is identical to its CEA counterpart and would include DCOs, DCMs, SEFs, swap data repositories (“SDRs”) and certain electronic trading facilities. To correspond with this new definition, the Commission also proposes to replace the current “Member of a contract market” definition with a new definition of “Member,” which would be nearly identical to the “Member of a registered entity” definition provided in CEA section 1a(34), also as revised by the Dodd-Frank Act. 18 Therefore, the proposed “Member” definition would be broadened to accommodate newly established SEFs, and it would include those “owning or holding membership in, or admitted to membership representation on, the registered entity; or having trading privileges on the registered entity.” 18 In accordance with the removal of DTEF references from many other Commission regulations, the proposed “Member” definition would not include DTEF references currently in the definition of “Member of a registered entity” found in CEA section 1a(34). See 7 U.S.C. 1a(34). The Commission proposes to add a definition of the term “order.” This term has not previously been defined, although it is used in several of the regulations, e.g., 1.35, 155.3, and 155.4. In light of this and with the addition of new categories of registrants (SDs and MSPs) who act as principals rather than agents, clarification of this term is appropriate. The definition would provide that an order is “an instruction or authorization provided by a customer to a futures commission merchant, introducing broker, or commodity trading advisor regarding trading in a commodity interest on behalf of the customer.” Because amendments to regulation 1.31 also proposed herein incorporate the term “prudential regulator,” as added to the CEA by the Dodd-Frank Act, the Commission proposes to add it to regulation 1.3. 19 Pursuant to proposed regulation 1.31, records of swap transactions must be presented, upon request, to “any applicable prudential regulator as that term is defined in section 1a(39) of the Act.” The proposed definition of “prudential regulator” in regulation 1.3 is coextensive with the definition in section 1a(39) of the Act and lists the various prudential regulators. Pursuant to the definition in section 1a(39) of the Act, determining the “applicable” prudential regulator depends upon what type of entity the SD or MSP is and which regulator oversees that SD or MSP. 20 For example, if a SD is a national bank, it is overseen by the Office of the Comptroller of the Currency, and that agency would be the “applicable prudential regulator” for the purposes of proposed regulation 1.31. 19 See infra Part II.A.3. 20 7 U.S.C. 1a(39), as amended by DFA section 721(a)(17). The Commission proposes to add the term “registrant” to regulation 1.3 so that certain regulations in part 1 can refer to various intermediaries ( e.g., FCMs, IBs, CPOs), their employees (associated persons), and other registrants (MSPs). As discussed above, the Commission also has proposed to add the definition of “registered entity” from CEA section 1a, which refers to DCOs, DCMs, SEFs, SDRs, and other entities, to regulation 1.3. Because the DFA created a definition of and several proposed part 1 regulations refer to “associated persons of swap dealers or major swap participants,” the Commission proposes to add that term to regulation 1.3 as well. The Commission also proposes adding the term “retail forex customer” to regulation 1.3 because it appears in several regulations in part 1 and currently is only defined in part 5. The proposed definition is identical in all material respects to the definition of this term as it currently appears in regulation 5.1(k). 21 21 17 CFR 5.1(k) currently defines “retail forex customer” as “a person, other than an eligible contract participant as defined in section 1a(12) of the Act, acting on its own behalf and trading in any account, agreement, contract or transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the Act.” The Proposal would amend this definition in part 5 only to reflect the renumbering of section 1a of the Act by the DFA, and add an identically amended definition to regulation 1.3. See infra Part II.G.2. Proposed regulation 1.3 also changes certain definitions so that the Commission's regulations properly refer to both futures and swaps. Additionally, for ease of reference, proposed regulation 1.3 would simply adopt several terms defined under the CEA, including “electronic trading facility,” “organized exchange,” and “trading facility.” c. Regulation 1.3(ll): Physical Regulation 1.3(ll) defines the term “physical” as “any good, article, service, right or interest upon which a commodity option may be traded in accordance with the Act and these regulations,” 22 which is similar to the “commodity” definition in regulation 1.3(e). 23 Regulation 1.3(e) defines the term “commodity,” in relevant part, as “all * * * goods and articles * * * and all services, rights and interests in which contracts for future delivery are presently or in the future dealt in.” 24 The word “physical” is used in 45 Commission regulations other than regulation 1.3(ll). 25 The introductory text of regulation 1.3 states that “[t]he following terms, as used in the Commodity Exchange Act, or in the rules and regulations in this chapter, shall have the meanings hereby assigned to them, unless the context otherwise requires.” 26 22 17 CFR 1.3(ll). 23 17 CFR 1.3(e). 24 Regulation 1.3(e) tracks 7 U.S.C. 1a(9), as renumbered and amended by Dodd-Frank Sections 721(a)(1) and (4), respectively. 25 See 17 CFR 1.3(z)(1), 1.3(kk), 1.17(c)(iii), 1.17(c)(5)(ii)(A), 1.17(c)(5)(xi), 1.17(j)(1), 1.31(b)(3)(iii)(B), 1.33(a)(2)(i), 1.33(a)(2)(ii), 1.33(b)(2)(iv), 1.33(b)(3), 1.34(b), 1.35(b)(2)(iii), 1.35(b)(3)(iii), 1.35(d)(1), 1.35(e), 1.39(a), 1.39(a)(3), 1.44, 1.44(b), 1.46(a)(iii), 1.46(a)(iv), 4.23(a)(1), 4.23(b)(1), 4.33(b)(1), 5.13(b)(3), 10.68(b)(1)(i), 15.00(p)(1)(ii), 16.00(a), 16.01(a), 16.01(b), 18.04(b)(3), 18.04(b)(3)(ii), 18.04(b)(6), 18.04(b)(6)(ii), 31.8(a)(1), 31.8(a)(2)(iii), 31.8(a)(2)(iv), 31.9(a), 31.9(a)(1), 32.12(a), 32.13(a), 32.13(e)(2), 33.4, 33.4(a)(4), 33.4(a)(5)(iv), 33.4(a)(5)(iv)(A), 33.4(a)(5)(iv)(B), 33.4(a)(5)(iv)(C), 33.4(a)(5)(iv), 33.4(b)(1)(iii), 33.4(d)(3), 33.7(b), 33.7(b)(1), 33.7(b)(2)(i), 33.7(b)(5), 33.7(b)(6), 33.7(b)(7)(ii), 33.7(b)(7)(iii), 33.7(b)(7)(iv), 33.7(b)(7)(v), and 33.7(b)(7)(x); 17 CFR pt. 36 app. A (paragraph 3 under PRICE LINKAGE, (c)(3)(ii) under CORE PRINCIPLE IV OF SECTION 2(h)(7)(C)—POSITION LIMITATIONS OR ACCOUNTABILITY, (c) under TRADING PROCEDURES, (c) under FAIR AND EQUITABLE TRADING, (b)(4) under POSITION LIMITATIONS OR ACCOUNTABILITY); 17 CFR 40.3(a)(4)(ii); 17 CFR pt. 40 app. A Guideline No. 1(a),(c)(2)(ii), and (c)(2)(ii)(B); 17 CFR 41.25(c), 41.25(g)(6), 145.7(j), 147.3(b)(7)(vi), 149.103, 149.150(b)(2), 149.150(d)(1), 150.3(a)(4)(i)(A), 150.5(b)(1), 150.5(c)(1), and 160.30; 17 CFR pt. 160 app. B Sample Clause A-7; 17 CFR 190.01(x)(1), 190.01(x)(2), 190.01(kk)(3), 190.01(kk)(4), 190.01(kk)(5), 190.01(ll), 190.02(f)(1), 190.05(a)(1), 190.05(b)(1), 190.05(b)(1)(iii), 190.05(c)(3), 190.07(e)(2)(i), 190.07(e)(2)(ii), 190.07(e)(2)(ii)(A), and 190.07(e)(2)(ii)(B); 17 CFR pt. 190 app. A, Form 1, paragraph 4 and Form 4 (Proof of Claim), paragraphs (c), (d) and (e). 26 17 CFR 1.3 (emphasis added). The “physical” definition was first added to regulation 1.3 in 1983 to enable trading, on DCMs, in options to buy or sell an underlying commodity and has not been substantively amended. 27 In the Federal Register release proposing the addition of regulation 1.3(ll), the Commission stated that “[t]he proposed definition is intended to be coextensive with the Commission's jurisdiction with respect to commodity options.” 28 At the time of that proposal in 1982, cash-settled futures on non-physical commodities had just been introduced in the form of the Chicago Mercantile Exchange's Eurodollar futures. In that context, in proposing rules to permit exchange-traded options on underlying commodities, it made sense to name such options based on physical commodities, which constituted the vast majority of commodities covered by then-existing futures contracts. 27 See Domestic Exchange-Traded Commodity Options; Expansion of Pilot Program To Include Options on Physicals, 47 FR 56996, Dec. 22, 1982 and 48 FR 12519, Mar. 25, 1983. 28 Domestic Exchange-Traded Commodity Options; Expansion of Pilot Program Provisions, 47 FR 28401, June 30, 1982. At present, however, options may be traded on both physically deliverable and non-physically deliverable commodities, such as interest rates and temperatures. Using the term “physical” to refer to an option on both physically deliverable commodities and non-physically deliverable commodities may be confusing on its face. 29 Also, the requirement in the forward exclusion from the “swap” definition contained in CEA section 1a(47)(B)(ii), as amended by Dodd-Frank section 721(a)(21), that a sale of a non-financial commodity or security for deferred shipment or delivery “is intended to be physically settled” would be meaningless if “physical” included non-physical. As noted above, the introductory text of regulation 1.3 states that its defined terms have the meanings assigned to them in regulation 1.3, unless the context otherwise requires. 29 Moreover, the Commission has recently proposed a rewrite of its options regulations in parts 32 and 33. References to options on a physical would be removed from part 33, which will apply only to DCM-traded options on futures. Options on physicals would be permitted to transact under revised part 32, which permits all options that are swaps under the Dodd-Frank swap definition to transact subject to the same rules applicable to any other swap. See Commodity Options and Agricultural Swaps, 76 FR 6095, Feb. 3, 2011. The Commission requests comment on whether any changes to the “physical” definition are necessary or warranted. Should the Commission revise the definition of “physical” to limit it to its common sense meaning? Should the Commission remove it on the theory that the meaning of “physical” is self-evident? Should the Commission address such issues, if at all, in other rulemakings where they arise more directly, such as with respect to emission-related commodities as they relate to the forward exclusion from the swap definition? 30 If so, should the Commission replace the term “physical” with some other more suitable term in the relevant regulations referencing current regulation 1.3(ll)? If so, what should the new term be? Should the Commission take no action, in reliance on the ability of interested parties to interpret the “unless the context otherwise requires” language of regulation 1.3, or on some other basis? 31 30 The Commission received several comment letters regarding environmental commodity issues in response to the advance notice of proposed rulemaking regarding Definitions Contained in Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act, 75 FR 51429, Aug. 20, 2010. See Letter from Kyle Danish, Van Ness Feldman, P.C., Counsel to the Coalition for Emission Reduction Projects ( available at http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=26164& SearchText=emission%20reduction ); Letter from Thomas Huetteman, Chairman, Jeffery C. Fort, Chair, Market Oversight Committee, and Jeremy D. Weinstein, Member, Environmental Markets Association ( available at http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=26166&SearchText=ema ); Letter from R. Michael Sweeney, Jr., Mark W. Menezes, and David T. McIndoe, Hunton & Williams, LLP, on behalf of the Working Group of Commercial Energy Firms ( available at http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=26219&SearchText=working%20group ). 31 In a number of cases ( e.g., the reference to “physical safeguards” in Regulation 160.30 (Procedures to safeguard customer records and information); and the reference to “provide physical access to handicapped persons” in Regulation 149.150 (Program accessibility: Existing facilities)), the context will make it obvious that the term “physical” is meant to have its plain meaning. d. Regulation 1.3(yy): Commodity Interest The Commission proposes to add swaps on all commodities within the CFTC's jurisdiction to the definition of “commodity interest” in regulation 1.3(yy). 32 Commodity interest currently is defined as: “(1) Any contract for the purchase or sale of a commodity for future delivery; (2) Any contract, agreement or transaction subject to Commission regulation under section 4c or 19 of the Act; and (3) Any contract, agreement or transaction subject to Commission jurisdiction under section 2(c)(2) of the Act.” The term “commodity interest” is cross-referenced by 33 other Commission regulations and appendices to parts of Commission regulations. 33 Generally, the term is meant to encompass all agreements, contracts and transactions within the Commission's jurisdiction, though not all such agreements, contracts and transactions are expressly set forth therein. 34 32 17 CFR 1.3(yy). 33 See 17 CFR 1.12, 1.56, 1.59, 3.10, 3.12, 3.21, 4.6, 4.7, 4.10, 4.12- 4.14, 4.22-4.25, 4.30-4.34, 4.36, 4.41, 30.3, 160.3-160.5, and 166.1-166.3; 17 CFR pt. 3 app. B, 17 CFR pt. 4 app. A, and 17 CFR pt. 190 app. B. 34 For example, the term “contract for the purchase or sale of a commodity for future delivery” in current regulation 1.3(yy)(1) encompasses options on futures and security futures products. Similarly, the term “swaps” if added to proposed regulation 1.3(yy) would include mixed swaps. Of course, the impact of the scope of proposed regulation 1.3(yy) is only as extensive as the other regulations referencing it. The Dodd-Frank Act adds a definition of “swap” to the CEA. 35 DFA section 712(d) requires the Commission to further define the term “swap” jointly with the Securities and Exchange Commission. 36 The Commission is proposing to add “swap” to the “commodity interest” definition so that the regulations cross-referencing it will apply to swaps. 35 DFA section 721(a)(47); codified at 7 U.S.C. 1a(47). 36 The Commissions have not yet proposed a further definition of the term “swap.” 2. Regulation 1.4: Use of Electronic Signatures The Commission proposes to revise regulation 1.4 37 to extend the benefit of electronic signatures and other electronic actions to SDs and MSPs. Section 731 of the Dodd-Frank Act amends the CEA by adding new sections 4s(i)(1), requiring SDs and MSPs to “conform with such standards as may be prescribed by the Commission by rule or regulation that relate to timely and accurate confirmation, processing, netting, documentation, and valuation of all swaps,” 38 and 4s(i)(2), requiring the Commission to adopt rules “governing documentation standards for swap dealers and major swap participants.” 39 37 17 CFR 1.4. 38 7 U.S.C. 6s(i)(1). 39 7 U.S.C. 6s(i)(2). Pursuant to the foregoing authority, the Commission previously proposed new regulation 23.501(a)(1), which would require “[e]ach swap dealer and major swap participant entering into a swap transaction with a counterparty that is a swap dealer or major swap participant [to] execute a confirmation for the swap transaction,” according to a specified schedule. 40 Also pursuant to the foregoing authority, the Commission has proposed new regulation 23.501(a)(2), which would require “[e]ach swap dealer and major swap participant entering into a swap transaction with a counterparty that is not a swap dealer or a major swap participant [to] send an acknowledgment of such swap transaction,” according to a specified schedule. 41 Proposed regulation 23.500(a) would define such an “acknowledgment” as “a written or electronic record of all of the terms of a swap signed and sent by one counterparty to the other.” 42 In issuing the proposed confirmation and acknowledgment rules cited above, the Commission explained that “[w]hen one party acknowledges the terms of a swap and its counterparty verifies it, the result is the issuance of a confirmation.” 43 40 Confirmation, Portfolio Reconciliation, and Portfolio Compression Requirements for Swap Dealers and Major Swap Participants, 75 FR 81519, Dec. 28, 2010. 41 Id. 42 Id. 43 75 FR at 81522. Regulation 1.4 currently provides that an FCM, IB, CPO and CTA receiving an electronically signed document is in compliance with Commission regulations requiring signed documents, provided that such entity generally accepts electronic signatures. 44 The rationale for allowing the existing entities listed in regulation 1.4 to use electronic signatures ( i.e., “[a]s part of [the Commission's] ongoing efforts to facilitate the use of electronic technology and media”) 45 applies equally to SDs and MSPs. Therefore, the Commission proposes to add SDs and MSPs to the list of entities covered by regulation 1.4 and to amend its structure to account for the provisions of the Commission's proposed confirmation and acknowledgement obligations discussed above. 46 44 17 CFR 1.4. The regulation also requires that the signatures in question comply with applicable Federal laws and Commission regulations, and requires the relevant entity to employ reasonable safeguards regarding the use of electronic signatures, including safeguards against alteration of the record of the electronic signature. Id. 45 Use of Electronic Signatures by Customers, Participants and Clients of Registrants, 64 FR 47151, Aug. 30, 1999. 46 This includes proposing a change to the title of regulation 1.4 to reflect these changes. Proposed regulation 1.4 is entitled “Use of electronic signatures, acknowledgments and verifications.” 3. Regulation 1.31: Books and Records; Keeping and Inspection In recent years, the phrase “books and records” has evolved with respect to the varying formats used to communicate and store information. 47 The Federal Rules of Civil Procedure have been revised to reflect this evolution by requiring producing parties to produce electronically stored information as specified in the request, but if not so specified, then as they are kept in the normal course of business or in a reasonably usable form. 48 Similarly, the Commission's own data delivery standards, which accompany the Commission's requests for production, indicate a preference for requested electronic information to be produced in native file format. The Commission's delivery standards provide technical instructions to producers designed to enable the Commission to receive such information in a machine-readable format that is compatible with the technology used by the Commission. 47 U.S. Commodity Futures Trading Commission, Division of Market Oversight, Advisory for Futures Commission Merchants, Introducing Brokers, and Members of a Contract Market over Compliance with Recordkeeping Requirements, Feb. 5, 2009 ( http://www.cftc.gov/ucm/groups/public/@industryoversight/documents/file/recordkeepingdmoadvisory0209.pdf ) [hereinafter Recordkeeping Advisory]. 48 F ed . R. C iv . P. 34(b)(2)(E); F ed . R. C iv . P. 34, advisory committee note, 2006 amendment (“Rule 34(b) provides that a party must produce documents as they are kept in the usual course of business or must organize and label them to correspond with the categories in the discovery request. The production of electronically stored information should be subject to comparable requirements to protect against deliberate or inadvertent production in ways that raise unnecessary obstacles for the requesting party”). Recognizing that storage formats vary across different types of electronically stored information and to be consistent with current Commission practice and the Federal Rules of Civil Procedure, the proposed changes to regulations 1.31(a)(1), (a)(2), and (b) would require that: (1) All books and records required to be kept by the Act or by the Commission's regulations be kept in their original (for paper records) or native file format (for electronic records); and (2) production of such records be made in a form specified by the Commission. In addition, as provided in the existing regulation, books and records may continue to be stored on electronic storage media, provided, however, that for electronic records, the storage media must preserve the native file format of the electronic records. Keeping electronic records in their native file format and producing them in a format designated by the Commission should not create any unreasonable burdens on persons required to maintain records under the Act and Commission regulations in light of Federal Rule of Civil Procedure 34(b), which would apply to such persons—and all other persons in possession of investigatory information—upon the filing of an enforcement action in Federal district court. Rule 34(b) permits the requesting party to designate the form or forms in which it wants electronically stored information produced in order to facilitate its usability. This is recognition that “the form of production is more important to the exchange of electronically stored information than of hard-copy materials.” 49 49 F ed . R. C iv . P. 34, advisory committee note, 2006 amendment. The Commission also proposes amendments to regulation 1.31 to incorporate two books and records obligations that proposed regulation 23.203(b) applies to SDs and MSPs. Proposed regulation 23.203(b) would require SDs and MSPs to (1) keep records of swap or related cash or forward transactions until the termination, maturity, expiration, transfer, assignment, or novation date of the transaction and for a period of five years after such date; and (2) make such records available for inspection not only by the Commission and the United States Department of Justice, but also to any applicable prudential regulator, as that term is defined in section 1a(39) of the Act, or, in connection with security-based swap agreements described in section 1a(47)(A)(v) of the Act, the United States Securities and Exchange Commission. By contrast, existing regulation 1.31, which pertains to “ all books and records required to be kept by the Act,” requires that records be kept for five years and that they be made available only to the Commission and the Department of Justice. 50 The Proposal would add to regulation 1.31 the special requirements for swaps and cash related transactions in proposed regulation 23.203(b). 50 17 CFR 1.31(a) (emphasis added). The Commission solicits comments on the potential costs and effects of the proposed new requirement that all books and records be maintained in their original form (for paper) and their native file format (for electronic records) as provided in the proposed rule. Comment also is requested regarding whether the retention period for any communication medium ( e.g., oral communications) should be shorter than the retention period applicable to other required records. In this regard, the Commission requests that commenters specify what the proposed retention period should be and why. 4. Regulation 1.33: Monthly and Confirmation Statements Regulation 1.33 requires FCMs to maintain certain records and to regularly furnish monthly and confirmation statements to customers regarding commodity futures and option transactions they have entered into on behalf of customers. The DFA amended the definition of FCM in section 1a of the CEA to authorize an FCM to solicit or accept orders for swaps in addition to commodity futures and option transactions. 51 Therefore, the Commission proposes adding requirements for monthly and confirmation statements applicable to swaps. 51 DFA section 721(a)(13). Proposed regulation 1.33(a)(3) describes what information on swap positions an FCM must provide in monthly statements to its customers. Proposed regulation 1.33(b)(2) would extend the requirement that an FCM furnish confirmation statements to customers to swaps executed on a customer's behalf and describes what information such a confirmation statement must contain. In addition, the Commission proposes to amend regulation 1.33 to reflect proposed changes to the definitions of the terms “commodity interest,” “customer,” and “open contract” in regulation 1.3. 5. Regulation 1.35: Records of Cash Commodity, Futures and Option Transactions The Commission proposes to amend regulation 1.35 in several respects. First, the Commission proposes to revise paragraph (a) such that this regulation's recordkeeping obligations would extend to trades executed by FCMs and IBs on SEFs. Those obligations currently apply only to trades executed on DCMs. Similarly, the proposed amendments would extend all of the regulation 1.35 recordkeeping obligations currently applicable to members of DCMs to include “members,” as that term is proposed to be defined in proposed regulation 1.3, of SEFs. Second, the proposed revisions replace the terms “commodity futures transactions,” “retail forex exchange transactions,” and “commodity option transactions” with the term “commodity interests.” According to the Commission's proposed definition of “commodity interest” in regulation 1.3, “commodity interest” includes all of the aforementioned transactions as well as swaps. Thus, the Commission proposes that regulation 1.35's recordkeeping obligations for transactions in futures, commodity options, and retail forex exchange transactions also apply to swaps. 52 Pursuant to the Dodd-Frank Act, DCMs are permitted to list swaps, and FCMs and IBs are permitted to execute swaps on behalf of customers. 53 52 Accordingly, the Commission also proposes to amend the title of regulation 1.35 to reflect such a change. Therefore, proposed regulation 1.35 is entitled “Records of commodity interest and cash commodity transactions.” 53 See 7 U.S.C. 1a(28) and 1a(31), as amended by DFA sections 721(a)(13) and (a)(15), respectively. In relevant part, existing regulation 1.35 requires FCMs, IBs, and DCM members to “keep full, complete, and systematic records, together with all pertinent data and memoranda, of all transactions relating to [their] business of dealing in commodity futures, commodity options and cash commodities,” subject to the requirements of regulation 1.31. Specifically included among the records to be retained under regulation 1.35 are “all orders (filled, unfilled, or canceled), trading cards, signature cards, street books, journals, ledgers, canceled checks, copies of confirmations, copies of statements of purchase and sale, and all other records, data and memoranda” that have been prepared in the course of an FCM's, an IB's, or a DCM member's business of dealing in commodity futures, commodity options, and cash commodities. On February 5, 2009, the Commission's Division of Market Oversight (“DMO”) issued an advisory stating that “[t]he Commission's recordkeeping regulations, by their terms, do not distinguish between whatever medium is used to record the information covered by the regulations, including emails, instant messages, and any other form of communication created or transmitted electronically.” 54 Thus, the advisory made clear that the existing language of regulation 1.35 “appl[ies] to records that are created or retained in an electronic format, including email, instant messages, and other forms of communication created or transmitted electronically for all trading.” 55 Accordingly, under the Commission's existing regulations, FCMs, IBs, and DCM members are required to retain and produce for inspection any such electronic records, subject to the retention and accessibility requirements set forth in regulation 1.31. 54 See Recordkeeping Advisory, supra note 47, at 3. 55 Id. at 4. Notwithstanding the DMO advisory relating to certain electronic records, the Commission's existing recordkeeping requirements, as they relate to FCMs, IBs and DCM members, remain limited by a 1996 Commission decision, Gilbert v. Lind-Waldock & Co., wherein audio tapes of telephone conversations with customers were found to be beyond the definition of “records” covered by regulation 1.35. 56 56 [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,720 at 43,992 n.23 (CFTC June 17, 1996). Consequently, where Commission-regulated persons use oral communications, the Commission has encountered greater difficulties in effectively exercising its enforcement responsibilities, thereby increasing the potential for market abuses. Such difficulties have been particularly acute in cases where the Commission is required to establish a threshold level of knowledge and/or intent on the part of the actor, such as cases involving market manipulation and false reporting. The Commission's enforcement success in such cases often has correlated directly with the existence of high-quality recordings of voice communications between the persons involved. Conversely, the Commission's enforcement capabilities have been limited in cases where such voice recordings were not available. Significant technological advancements in recent years, particularly with respect to the cost of capturing and retaining copies of electronic material, including telephone communications, have made the prospect of enhancing the Commission's recordkeeping requirements for oral communications more economically feasible and systemically prudent. Evidence of these trends was examined in March 2008 by the United Kingdom's Financial Services Authority (“FSA”), which studied the issue of mandating the recording and retention of voice conversations and electronic communications. The FSA issued a Policy Statement detailing its findings and ultimately implemented rules relating to the recording and retention of such communications, including a rule requiring all financial service firms to record any relevant communication by employees on their firm-issued or firm-sanctioned cell phones that will take effect on November 14, 2011. 57 Similar rules that mandate recording of certain voice and/or telephone conversations have been promulgated by the Hong Kong Securities and Futures Commission 58 and by the Autorité des Marchés Financiers in France, 59 and have been recommended by the International Organization of Securities Commissions (“IOSCO”). 60 57 Financial Services Authority, “Policy Statement: Telephone Recording: recording of voice conversations and electronic communications” (Mar. 2008); Financial Services Authority, “Taping: Removing the mobile phone exemption,” (Mar. 2010); Financial Services Authority, “Policy Statement: Taping of Mobile Phones: Feedback on CP 10/7 and Final Rules,” (Nov. 2010). 58 Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission para. 3.9 (2010) (H.K.). 59 General Regulation of the Autorité des Marchés Financiers art. 313-51 (2010) (Fr.). 60 Press Release, International Organization of Securities Commissions, “IOSCO Publishes Recommendations to Enhance Commodity Futures Markets Oversight,” (Mar. 5, 2009), http://www.iosco.org/news/pdf/IOSCONEWS137.pdf. The IOSCO members on the committee formulating the recommendations included Brazil, Canada (Ontario and Quebec), Dubai, France, Germany, Hong Kong, Italy, Japan, Norway, Switzerland, the United Kingdom, and the United States. Under the FSA rules, firms (identified generally as those entities conducting any of the following activities: receiving, executing, arranging for execution of customer orders or transactions carried out on behalf of the firm) must take reasonable steps to record relevant (relevant means conversations or communications between the firm and the client or when the firm is acting on behalf of a client with another person) telephone conversations (including mobile telephones) and keep a copy of relevant electronic communications that enable the referenced activities to be carried out. Firms are required to keep recordings of certain telephone lines for a period of at least six months in a medium that is readily accessible. In promulgating this rule, the FSA issued guidance stating the following benefits: “i) recorded communication may increase the probability of successful enforcement; ii) this reduces the expected value to be gained from committing market abuse; and iii) this, in principle, leads to increased market confidence and greater price efficiency.” In determining its policy, the FSA conducted a cost-benefit analysis, including eight meetings with several trade associations including the Securities Industry and Financial Markets Association (“SIFMA”), the International Swaps and Derivatives Association (“ISDA”), and the Futures and Options Association (“FOA”). The FSA report estimated that 80% of telephone lines of its firms that would need to be recorded were already being recorded at the time of its study. 61 61 See Financial Services Authority, “Policy Statement: Telephone Recording: recording of voice conversations and electronic communications” (Mar. 2008); Financial Services Authority, “Taping: Removing the mobile phone exemption” (Mar. 2010); Financial Services Authority, “Policy Statement: Taping of Mobile Phones: Feedback on CP 10/7 and Final Rules” (Nov. 2010). Indeed, the futures industry has imposed a requirement on certain of its member firms to tape telephone conversations with customers since 1997. Since then, the National Futures Association (“NFA”) has required member firms with more than a certain percentage of APs who have been disciplined to record all telephone conversations between the member's APs and both existing and potential customers for a period of two years. Those recordings must be retained for a period of five years from the date each tape is created, and the tapes shall be readily accessible during the first two years of the five year period. 62 A similar rule exists in the securities industry. 63 62 See Interpretative Notice to NFA Compliance Rule 2-9, Supervision of Telemarketing Activity, 9021 (Feb. 18, 1997). 63 See NASD Rule 3010, Supervision (the procedures required by this rule include tape-recording all telephone conversations between the member's registered persons and both existing and potential customers. All tape recordings made pursuant to the requirements of this paragraph shall be retained for a period of not less than three years from the date the tape was created, the first two years in an easily accessible place). Consistent with these developments, the proposed change to regulation 1.35(a) would explicitly require FCMs, RFEDs, IBs and members of DCMs and SEFs to record all oral communications that lead to the execution of transactions in a commodity interest or cash commodity. In addition to increasing consistency across regulatory regimes, this proposal would harmonize regulation 1.35 with the recordkeeping requirements proposed for SDs and MSPs under the Dodd-Frank Act. 64 The proposed amendments to regulation 1.35 would require that the recorded communications be identifiable by counterparty and transaction. As noted above, one of the proposed revisions to regulation 1.31 would require that each recorded communication be maintained in its native file format and produced in a form specified by any Commission representative. Records of these communications may continue to be stored on electronic storage media, provided, however, that for electronic records, the storage media must preserve the native file format of the electronic records. Records must be maintained for a period of five years and shall be readily accessible for the first two years of that five-year period. 64 See Reporting, Recordkeeping, and Daily Trading Records Requirements for Swap Dealers and Major Swap Participants, 75 FR 7666, Dec. 9, 2010 (Proposed regulation 23.202(a)(1) would require “[e]ach swap dealer and major swap participant [to] make and keep pre-execution trade information, including, at a minimum, records of all oral and written communications provided or received concerning quotes, solicitations, bids, offers, instructions, trading, and prices, that lead to the execution of a swap, whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device or other digital or electronic media”). The Commission solicits comments on the potential costs and benefits of requiring registrants to record and maintain oral communications as provided in the proposed rule. 65 65 The Commission has received several comments on the costs and benefits associated with its proposed regulation 23.202 Daily Trading Records (Reporting, Recordkeeping, and Daily Trading Records Requirements for Swap Dealers and Major Swap Participants, 75 FR 76666, Dec. 9, 2010) and will consider those comments in connection with these proposed rules. The comments are available on the Commission's Web site at http://www.cftc.gov. As part of the ministerial amendments proposed in this release, the Commission is proposing to renumber portions of regulation 1.35 so that paragraphs currently numbered 1.35(a-1) and 1.35(a-2) will be renumbered 1.35(b) and 1.35(c), respectively. As a result, paragraphs currently numbered 1.35(b), (c), (d) and (e) will be renumbered 1.35(d), (e) (f) and (g), respectively. Because proposed regulation 1.35 extends recordkeeping obligations to swaps, the Commission has proposed special language for swaps, where appropriate. In paragraph (b)(2) (proposed (d)(2)) (records of futures, commodity options, and retail forex exchange transactions for each account), the Commission has proposed adding provision (iv). Proposed regulation 1.35(d)(2)(iv) would require FCMs, IBs, and any clearing members clearing swaps executed on a DCM or SEF to maintain records describing the date, price, quantity, market, commodity, and, if cleared, DCO of each swap. The Commission recognizes that money managers currently execute bunched swap orders on behalf of clients and allocate the trades to individual clients post-execution. The Commission believes that the bunched order procedures currently applicable to futures can be adapted for use in swap trading. Therefore, the Commission proposes to amend subsection (a-1)(5) (proposed (b)(5)), which addresses post-execution allocation of bunched orders. As discussed below, the Commission also is proposing to delete appendix C to part 1, which predated regulation 1.35(a-1)(5) (proposed (b)(5)) and also addresses bunched orders. In order to have a single standard for all intermediaries that might have discretion over customer accounts, the Commission is proposing to include FCMs and IBs as eligible account managers in regulation 1.35(a-1)(5) (proposed (b)(5)). Unlike other account managers, however, FCMs and IBs are prohibited from including proprietary trades in a bunched order with customer trades. Accordingly, the Commission is proposing to add a cross-reference in regulation 1.35(a-1)(5) (proposed (b)(5)) to regulations 155.3 and 155.4, which impose that restriction on FCMs and IBs, respectively. The Commission requests comment on whether the proposal to add FCMs and IBs to the list of eligible account managers is appropriate. The Commission further proposes to amend regulation 1.35(a-1) (proposed (b)) to provide that specific customer account identifiers need not be included in confirmations or acknowledgments provided pursuant to proposed regulation 23.501(a), if the requirements of regulation 1.35(a-1)(5) (proposed (b)(5)) are met. This would enable account managers to bunch orders for trades executed bilaterally with SDs or MSPs. The proposal would require that, similar to the current procedure for futures, the allocation be completed by the end of the day of execution and provided to the counterparty. The Commission requests comment on whether the proposed procedures for handling bunched swap orders would be effective. In particular, the Commission requests comment on whether allocation can be conducted by the end of the day of execution. The Commission proposes deleting paragraphs (f)-(l) of regulation 1.35. Pursuant to the CFMA, regulation 38.2 required DCMs to comply with an enumerated list of Commission regulations, and exempted them from all remaining Commission regulations that were no longer applicable post-CFMA. 66 Paragraphs (f)-(l) of regulation 1.35 are not among those enumerated regulations still applicable to DCMs and, therefore, have been moot since regulation 38.2 took effect. Regulations 1.35(f)-(l) required contract markets: To identify floor brokers, floor traders, and clearing members in a certain manner; to keep records indicating the time of trade executions in a certain manner; to maintain records of changes in the price of transactions; to demonstrate their effectiveness in complying with recordkeeping obligations; and to create rules imposing certain recordkeeping requirements on contract market members. The DCM Core Principles proposal in December 2010 substantially revised part 38, but did not revoke regulation 38.2. 67 66 See 71 FR 1964, Jan. 12, 2006. 67 Core Principles and Other Requirements for Designated Contract Markets, 75 FR 80572, Dec. 22, 2010. As part of the ministerial amendments proposed in this release, the Commission is proposing to eliminate from the Commission's regulations any provisions that have been inapplicable to DCMs since the passage of the CFMA, and that remain inapplicable after the passage of the DFA. Paragraphs (f)-(l) of regulation 1.35 are among those provisions. Pursuant to the proposed removal of paragraph (j) of regulation 1.35, the Commission also proposes copying most of that provision into proposed subsection (d)(7)(i) (currently (b)(7)(i)). Finally, the Commission proposes the following technical correction to regulation 1.35(b)(3)(v) (proposed (d)(3)(v)): that the final sentence reference “commodity futures, retail forex, commodity option, or swap books and records” instead of “commodity retail forex or commodity option books and records.” 6. Regulation 1.37: Customer's or Option Customer's Name, Address, and Occupation Recorded; Record of Guarantor or Controller of Account Dodd-Frank Act section 723(a)(3) added a new section 2(h)(8) to the CEA to require, among other things, that swaps subject to the clearing requirement of CEA section 2(h)(1) be executed either on a DCM or on a SEF. The DFA established SEFs as a new category of regulated markets for the purpose of trading and executing swaps. 68 Because SEFs are now regulated markets under the CEA, many of the Commission's existing regulatory provisions that currently are applicable to DCMs also will become applicable to SEFs. 68 Section 723(a)(3) of the Dodd-Frank Act amends section 2(h) of the CEA, providing that with respect to transactions involving a swap subject to the clearing requirement of section 2(h)(1) of the CEA, counterparties must execute the transaction on a DCM or a SEF. Accordingly, the Commission proposes to amend paragraphs (c) and (d) of regulation 1.37, pertaining to recording foreign traders' and guarantors' names, addresses, and business information. Currently, these provisions apply to DCMs and futures and options contracts executed on those facilities. The proposed revision would amend the provisions to also include SEFs and swap transactions. Additionally, the Commission proposes to amend the title and remaining text of regulation 1.37 to reflect the proposed removal of the term “option customer.” 69 69 See supra note 15 and accompanying text. 7. Regulation 1.39: Simultaneous Buying and Selling Orders of Different Principals; Execution of, for and Between Principals Like regulation 1.37, the Commission is proposing to amend regulation 1.39 to apply it to SEFs and swaps. Regulation 1.39, which currently applies to members of contract markets, governs the simultaneous execution of buy and sell orders of different principals for the same commodity for future delivery by a member and permits the execution of such orders between such principals on a contract market. The Commission proposes to amend this provision to include eligible contract participants (“ECPs”) on SEFs and registrants, and to include swap transactions. The Commission is also amending paragraph (c) to eliminate the reference to “cross trades” as they are no longer defined under section 4c(a) of the Act, as amended by the DFA. 8. Regulation 1.40: Crop, Market Information Letters, Reports; Copies Required Regulation 1.40 requires FCMs, RFEDs, IBs and members of contract markets to furnish to the Commission certain information they publish or circulate concerning crop or market information affecting prices of commodities. The Commission is proposing to apply regulation 1.40 to ECPs trading on SEFs to the extent that such ECPs have trading privileges on the SEF. ECPs that do not have trading privileges on a SEF would not be subject to regulation 1.40. The amendments also update the forms of communication covered by the regulation by replacing the word “telegram” with “telecommunication.” 9. Regulation 1.59: Activities of Self-Regulatory Employees, Governing Board Members, Committee Members and Consultants The Commission proposes to amend regulation 1.59 to include SEFs and swaps. The Commission is also proposing to amend regulation 1.59(b) to correct certain cross-references to the Act and its regulations. Paragraph (c) of proposed regulation 1.59 has been revised to apply only to registered futures associations, as the prohibitions contained therein applicable to the other SROs already are addressed in proposed regulation 40.9. 10. Regulation 1.63: Service on Self-Regulatory Organization Governing Boards or Committees by Persons With Disciplinary Histories The Commission is proposing to amend regulation 1.63 to correct certain cross-references to the Act and its regulations. The Commission also is proposing to amend paragraph (d) to incorporate the posting of notices required under that paragraph on each SRO's Web site. 11. Regulation 1.67: Notification of Final Disciplinary Action Involving Financial Harm to a Customer Regulation 1.67 requires contract markets, upon taking any final disciplinary action involving a member causing financial harm to a non-member, to provide notice to the FCM that cleared the transaction. FCMs and other registrants on SEFs should also be notified of any disciplinary action involving transactions on a SEF they executed for ECPs. Accordingly, the Commission is proposing to amend regulation 1.67 to include SEFs, registrants and ECPs on such facilities. 12. Regulation 1.68: Customer Election Not To Have Funds, Carried by a Futures Commission Merchant for Trading on a Registered Derivatives Transaction Execution Facility, Separately Accounted for and Segregated The Commission proposes to remove regulation 1.68. Regulation 1.68 permits a customer of an FCM to allow the FCM to not separately account for and segregate such customer's funds if, among other things, such funds are being carried by the FCM to trade on or through the facilities of a DTEF, a category of trading organization added to the CEA by section 111 of the CFMA. 70 No DTEF has ever registered with the Commission. Furthermore, section 734 of the Dodd-Frank Act repeals the DTEF provisions in the CEA, effective July 15, 2011. Therefore, because the statutory provisions underpinning regulation 1.68 will be repealed, the Commission proposes to remove it from the Commission's regulations. 71 70 Public Law 106-554, 114 Stat. 2763, app. E (2000) (codified at CEA section 5a, 7 U.S.C. 7a). 71 The Commission is also proposing to delete all other references to DTEFs, except those already removed by other proposals, throughout its regulations. See infra Part II.G. 13. Regulations 1.44, 1.53, and 1.62—Deletion of Regulations Inapplicable to Designated Contract Markets The CFMA adopted core principles for DCMs. 72 On August 10, 2001, the Commission published final rules implementing provisions of the CFMA, in which it concluded that the CFMA's framework effectively constituted a broad exemption from many of the existing regulations applicable to DCMs. 73 In implementing the provisions of the CFMA, the final rule exempted DCMs from such regulations. Specifically, the final rule codified regulation 38.2, which required DCMs to comply with an enumerated list of Commission regulations, and exempted them from all remaining Commission regulations no longer applicable post-CFMA. As part of the ministerial amendments proposed in this release, the Commission is proposing to eliminate from the Commission's regulations any provisions that have been inapplicable to DCMs since the CFMA was enacted and that remain inapplicable after enactment of the DFA. Accordingly, the Commission proposes to eliminate the following regulations: Regulation 1.44 (Records and reports of warehouses, depositories, and other similar entities; visitation of premises), regulation 1.53 (Enforcement of contract market bylaws, rules, regulations, and resolutions), and regulation 1.62 (Contract market requirement for floor broker and floor trader registration). 72 Public Law 106-554, 114 Stat. 2763 (2000). 73 A New Regulatory Framework for Trading Facilities, Intermediaries and Clearing Organizations, 66 FR 42256, Aug. 10, 2001. 14. Appendix C to Part 1: Bunched Orders and Account Identification The Commission proposes to eliminate appendix C to part 1. Appendix C consists of a Commission Interpretation regarding certain account identification requirements pertaining to the practice of combining orders for different accounts into a single order book, referred to as bunched orders. The procedures for bunched orders are set forth in regulation 1.35(a-1)(5). Accordingly, the procedures under appendix C to part 1 are duplicative and no longer necessary. B. Part 7 The Commission is proposing to rename part 7 of the Commission's regulations “Registered Entity Rules Altered or Supplemented by the Commission,” thus reflecting the language in section 8a(7) of the Act, as amended by the Dodd-Frank Act, which provides the basis for Part 7. The Commission is also proposing to make a similar change in regulation 7.1, replacing contract market rules with registered entity rules. Finally, the Commission is proposing to remove and reserve subparts B (Chicago Mercantile Exchange Rules) and C (Board of Trade of the City of Chicago Rules) and their associated sections. C. Part 8 The Commission proposes to remove part 8 of its regulations. 74 As part of its implementation of the Dodd-Frank Act, on December 1, 2010, the Commission issued a comprehensive NPRM for DCMs. 75 In the NPRM, the Commission proposed regulations in “Subpart N—Disciplinary Procedures” of part 38 to amend the disciplinary procedure requirements applicable to DCMs. 76 Several of the proposed regulations in subpart N of part 38 are similar to the text of the disciplinary procedures found in part 8 of the Commission's regulations. 77 Although the Commission noted in the DCM NPRM that the proposed disciplinary procedures propose new disciplinary procedures for inclusion in part 38, the Commission proposes to remove part 8 from its regulations to avoid any confusion that could result from those regulations containing two sets of exchange disciplinary procedures. 78 The effective date of any deletion of these part 8 regulations would be contemporaneous with the effective date of any changes to the part 38 regulations. 74 Regulation 38.2 exempts designated contract markets from all Commission rules not specifically reserved. 17 CFR 38.2. The Part 8 rules were not reserved. 75 Core Principles and Other Requirements for Designated Contract Markets, 75 FR 80572, Dec. 22, 2010. 76 75 FR at 80597. Section 735(a) of the Dodd-Frank Act eliminates all DCM designation criteria, including Designation Criterion 6 (Disciplinary Procedures). Section 735(b) of the Dodd-Frank Act creates a new Core Principle 13 (Disciplinary Procedures) that is devoted exclusively to exchange disciplinary proceedings, and captures disciplinary concepts inherent in both Designation Criterion 6 and in current DCM Core Principle 2. 77 Paragraph (b)(4) of the acceptable practices for former Core Principle 2 referenced part 8 of the Commission's regulations as an example that DCMs could follow to comply with Core Principle 2. 17 CFR pt. 38, app. B, Acceptable Practices for Core Principle 2 at (b)(4). In its experience, the Commission has found that many DCMs' disciplinary programs do in fact model their disciplinary structures and processes on part 8. 78 75 FR at 80597. D. Parts 15, 18, 21, and 36 The Commission also proposes to incorporate changes into parts 15, 18, 21, and 36 of its regulations to account for (1) the DFA's elimination of two categories of exempt markets, exempt commercial markets (“ECMs”) and electronic boards of trade (“EBOTs”); and (2) the DFA's grandfather relief provisions for such entities. Section 723 of the DFA strikes CEA section 2(h), thus eliminating the ECM category. Section 734 of the DFA strikes CEA section 5d, thus eliminating the EBOT category. Section 734 also strikes CEA section 5a, thus eliminating the DTEF category of regulated markets effective July 15, 2011, as discussed above. Both sections 723 and 734 of the Dodd-Frank Act contain grandfather provisions whereby ECMs and EBOTs may petition the Commission to continue to operate as ECMs and EBOTs. Pursuant to the grandfather provisions, in September 2010, the Commission issued orders regarding the treatment of such grandfather petitions (the “Grandfather Relief Orders”). 79 Under the Grandfather Relief Orders, the Commission may, subject to certain conditions, provide relief to ECMs and EBOTs for up to one year. 79 75 FR 56513, Sept. 16, 2010. Pursuant to the DFA and the Grandfather Relief Orders, the Commission proposes to remove from parts 15, 18, 21 and 36 80 references to CEA sections 2(h) and 5d and to replace those references, where appropriate, with references to the Grandfather Relief Orders as the authority under which ECMs and EBOTs can continue to operate. The Commission also proposes to remove from parts 15, 18, 21, and 36 of its regulations references to CEA sections 2(d), 2(g), and 5a, as well as references to DTEFs. 80 Part 36 provisions apply to ECMs and EBOTs. The Commission is not proposing to delete part 36 in its entirety because part 36 provisions will continue to apply to ECMs and EBOTs that continue to operate under the Grandfather Relief Orders. E. Parts 41, 140, and 145 The Commission also proposes to incorporate changes into its regulations to account for other new categories of registered entities and to include new products now subject to Commission jurisdiction. Section 733 of the Dodd-Frank Act added new section 5h to the CEA and created SEFs. Section 728 of the Dodd-Frank Act added new section 21 to the CEA and created SDRs. SEFs will allow for the trading and clearing of swap transactions between ECPs, as that term is defined in CEA section 1a(18). 81 In addition to the amendments contained in proposed part 37, the Commission is proposing additional amendments throughout the regulations to include SEFs and SDRs where necessary. The Commission also proposes to delete from part 41 references to DTEFs as that term was deleted from CEA section 5b by the Dodd-Frank Act, effective July 15, 2011. 82 81 For a detailed discussion of the proposed rules as they directly relate to SEFs, see 76 FR 1214, Jan. 7, 2011. 82 Section 5b of the CEA provided for the registration of DTEFs. Although secondary references to DTEFs remain in the act, none of those would enable an entity to commence operations as a DTEF. The proposed deletions are in regulations 41.2, 41.12, 41.13, 41.21-41.25, 41.27, 41.43 and 41.49. The proposed changes throughout parts 140 (Organization, Functions and Procedures of the Commission) and 145 (Commission Records and Information) reflect the need to incorporate SEFs and SDRs into the Commission's regulations dealing with the rights and obligations of other registered entities. Proposed regulation 140.72 provides the Commission with the authority to disclose confidential information to SEFs and SDRs. This provision allows the Commission, or specifically identified Commission personnel, to disclose information necessary to effectuate the purposes of the CEA, including such matters as transactions or market operations. Proposed regulation 140.96 authorizes the Commission to publish in the Federal Register information pertaining to the applications for registration of DCMs, SEFs and SDRs, as well as new rules and rule amendments which present novel or complex issues that require additional time to analyze, an inadequate explanation by the submitting registered entity, or a potential inconsistency with the Act, or regulations under the Act. Proposed regulation 140.99 also includes SEFs and SDRs in the category of registered entities that may petition the Commission for exemptive relief and no-action and interpretative letters. Proposed regulation 140.735-3 adds SEFs and SDRs to the list of entities from which Commission members and employees may not accept employment or compensation. The Commission proposes adding swaps to those agreements, contracts or transactions Commission staff may not trade. The Commission would like to take this opportunity to also add retail forex transactions, as that term is defined in regulation 5.1(m), to this list. Finally, proposed regulation 145.9 expands the definition of “submitter” by adding SEFs and SDRs to the list of registered entities to which a person's confidential information has been submitted, and which, in turn, submit that information to the Commission. This amendment allows individuals who have submitted information to a SEF or SDR to request confidential treatment under regulation 145.9. F. Part 155 1. Regulation 155.2: Trading Standards for Floor Brokers The Commission proposes removing the references to regulation 1.41 within regulation 155.2 because the Commission removed and reserved regulation 1.41 in 2001 (66 FR 42256) pursuant to the CFMA. The Commission also proposes removing the related reference to former section 5a(a)(12)(A) of the Act. G. Other General Changes to CFTC Regulations 1. Removal of References to DTEFs The Commission proposes the removal of references to DTEFs and regulations pertaining to DTEFs in parts 1, 5, 15, 36, 41, 140, and 155 because section 734 of the DFA abolished DTEFs, effective July 15, 2011. 83 83 This proposed rulemaking is not deleting those DTEF references that other NPRMs have already proposed deleting from the Commission's regulations ( e.g., some references in part 3 and all references in part 40). 2. Other Conforming Changes The Commission also proposes in various parts of its regulations to update cross-references to CEA provisions, now renumbered after the passage of the DFA. An example of one such change is proposed regulation 166.5, in which the Commission proposes to update the statutory reference to “eligible contract participant,” to reflect the Dodd-Frank Act's renumbering of CEA section 1a. Additionally, where typographical errors or other minor inconsistencies were discovered while reviewing CFTC regulations, the Proposal includes instructions and proposed regulations to correct them. III. Request for Comment The Commission requests comment generally on all aspects of the proposed rules. As discussed in more detail above, the Commission also requests comment on: whether any changes to the “physical” definition in regulation 1.3 are necessary or warranted; the potential costs and effects of the proposed new requirements that all books and records be maintained in their original form (for paper) and their native file format (for electronic records); whether the retention period for any communication medium ( e.g., oral communications) should be shorter than the retention period applicable to other required records; the potential costs and effects of requiring registrants to record and maintain oral communications; whether the proposal to add FCMs and IBs to the list of eligible account managers is appropriate; and whether the proposed procedures for handling bunched swap orders are feasible. IV. Administrative Compliance A. Paperwork Reduction Act The Paperwork Reduction Act provides that an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it has been approved by the Office of Management and Budget (“OMB”) and displays a currently valid control number. 84 This proposed rulemaking contains new collections of information for which the Commission must seek a valid control number. The Commission therefore is submitting this proposal to OMB for its review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for these new collections of information is “Books and Records Requirements for Certain Registrants and Other Market Participants.” Responses to these information collections would be mandatory. 84 44 U.S.C. 3501 et seq. With respect to all of the Commission's collections, the Commission will protect proprietary information according to the Freedom of Information Act and 17 CFR part 145, “Commission Records and Information.” In addition, section 8(a)(1) of the Commodity Exchange Act strictly prohibits the Commission, unless specifically authorized by the Act, from making public “data and information that would separately disclose the business transactions or market positions of any person and trade secrets or names of customers.” The Commission also is required to protect certain information contained in a government system of records according to the Privacy Act of 1974, 5 U.S.C. 552a. 1. Information To Be Provided by Reporting Entities/Persons a. Proposed Amendments to Regulation 1.31 (Books and Records; Keeping and Inspection) Regulation 1.31 describes the manner in which “all books and records required to be kept by the Act” must be maintained. Most of the requirements of regulation 1.31 are applicable to FCMs, IBs, RFEDs, CTAs, CPOs, and members of DCMs and SEFs in conjunction with other part 1 regulations, and the PRA burdens either have been or will be covered by the OMB control numbers associated with the other part 1 regulations. Examples of these other part 1 regulations are regulation 1.33, which requires certain registrants to produce monthly and confirmation statements, and regulation 1.35, which requires the maintenance of records of cash commodity, futures, and option transactions. Regulation 1.31 would also be applicable to SDs and MSPs in conjunction with proposed part 23 regulations. 85 85 Reporting, Recordkeeping, and Daily Trading Records Requirements for Swap Dealers and Major Swap Participants, 75 FR 76666, Dec. 9, 2010. i. Obligation To Develop and Maintain Recordkeeping Policies and Controls Regulation 1.31 additionally contains discrete stand-alone collections for which a control number must be sought. Subsection (b)(3)(ii) requires persons keeping records using electronic storage media to “develop and maintain written operational procedures and controls (an `audit system') designed to provide accountability over [the entry of records into the electronic storage media].” This provision is already applicable to FCMs, RFEDs, IBs, CTAs, CPOs, and members of DCMs, and would be applicable to SDs and MSPs pursuant to the proposed part 23 regulations. As members of SEFs will be newly subject to the part 1 regulations, the Commission must estimate the burden of subsection (b)(3)(ii) on these entities and seek OMB approval for this new application of the subsection. The Commission anticipates that members of SEFs may incur certain one-time start-up costs in connection with establishing the audit system. This will include drafting and adopting procedures and controls and may include updates to existing recordkeeping systems. The Commission estimates the burden hours associated with these one-time start-up costs to be 100 hours. As there will not be any SEFs operating until after the Dodd-Frank Act becomes effective in July 2011, it is not possible for the Commission to estimate with precision how many SEF members there will be or how many of those SEF members will be FCMs, SDs, or MSPs that are being covered by already pending existing information collections. Nonetheless, the Commission has estimated that 35 SEFs will register with it after the Dodd-Frank Act becomes effective, and now is estimating that there may be on average 100 members of a SEF that will not fall under one of the other collections. Accordingly, the aggregate new burden of subsection (b)(3)(ii) is estimated to be 100 one-time burden hours to approximately 3,500 SEF members. The Commission expects that compliance and operations managers will be employed in the establishment of the written procedures and controls under subsection (b)(3)(ii). According to recent Bureau of Labor Statistics, the mean hourly wage of an employee under occupation code 11-3031, “Financial Managers,” that is employed by the “Securities and Commodity Contracts Intermediation and Brokerage” industry is $74.41. 86 Because members of SEFs may be large entities that may engage employees with wages above the mean, the Commission has conservatively chosen to use a mean hourly wage of $100 per hour. Accordingly, the burden associated with developing written procedures and controls will total approximately $10,000 for each applicable member of a SEF on a one-time basis. 86 Occupational Employment Statistics, Occupation Employment and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2009). ii. Representation to the Commission Members of SEFs will also have to comply with regulation 1.31(c), which requires persons employing an electronic storage system to provide a representation to the Commission prior to the initial use of the system. 87 The Commission estimates the burden of drafting this representation in accordance with regulation 1.31(c) and submitting it to the Commission to be 1 hour. 87 As with subsection (b)(3)(ii), regulation 1.31(c) is already applicable or will be made applicable by other actions to FCMs, IBs, DCM members, as well as SDs or MSPs pursuant to proposed part 23 regulations. According to recent Bureau of Labor Statistics, the mean hourly wage of an employee under occupation code 11-3031, “Financial Managers,” (which includes operations managers) that is employed by the “Securities and Commodity Contracts Intermediation and Brokerage” industry is $74.41. 88 Because members of SEFs may be large entities that may engage employees with wages above the mean, the Commission has conservatively chosen to use a mean hourly wage of $100 per hour. Accordingly, the burden associated with drafting and submitting the representation prior to using an electronic storage system would be $100 per affected member of a SEF. 88 Occupational Employment Statistics, Occupation Employment and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2009). b. Proposed Amendments to Regulation 1.33 (Monthly and Confirmation Statements) The Commission proposes amending regulation 1.33 by requiring FCMs to include in their monthly and confirmation statements sent to customers certain specified information related to a customer's swap positions. The information required to be summarized in respect of swap transactions would be analogous to information currently required to be kept in respect of futures and commodity option transactions. The Commission estimates the burden of complying with regulation 1.33 in respect of swap transactions to be 1 hour for each swap confirmation and 1 hour for each monthly statement. According to recent Bureau of Labor Statistics, the mean hourly wage of an employee under occupation code 11-3031, “Financial Managers,” (which includes operations managers) that is employed by the “Securities and Commodity Contracts Intermediation and Brokerage” industry is $74.41. 89 Accordingly the burden associated with complying with 1.33 in respect of a swap confirmation and each monthly statement to be $74.41 ($74.41 × 1 hour) for each swap transaction entered into. 89 Occupational Employment Statistics, Occupation Employment and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2009). c. Proposed Amendments to Regulation 1.35 (Records of Commodity Interest and Cash Commodity Transactions) The proposed amendments would require members of SEFs to comply with the regulation 1.35 recordkeeping requirements that are currently followed by FCMs, IBs, RFEDs, and members of DCMs. The Commission anticipates that members of SEFs will spend approximately eight hours per trading day (or 2,016 hours per year based on 252 trading days) compiling and maintaining transaction records. According to recent Bureau of Labor Statistics, the mean hourly wage of an employee under occupation code 11-3031, “Financial Managers,” (which includes operations managers) that is employed by the “Securities and Commodity Contracts Intermediation and Brokerage” industry is $74.41. 90 Because members of SEFs may be large entities that may engage employees with wages above the mean, the Commission has conservatively chosen to use a mean hourly wage of $100 per hour. Thus, each SEF member will have a burden of $201,600 per year (2,016 hours × $100/hour). 90 Occupational Employment Statistics, Occupation Employment and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2009). The proposed amendments to regulation 1.35 would also require FCMs, RFEDs, IBs, and members of DCMs to comply with the regulation 1.35 recordkeeping requirements for any swap transactions into which they enter. Because the proposed recordkeeping requirements for swaps would be equivalent to the recordkeeping requirements they must currently follow in respect of futures and commodity option transactions, the additional burden for any swap transaction would be the same for any additional futures and commodity option transaction for which they keep records pursuant to regulation 1.35 in its current form. The Commission estimates that the recordkeeping burden associated with each swap transaction would be 0.5 hours, for a total burden of $50 per transaction. The proposed amendments to regulation 1.35 would also require that each FCM, IB, RFED and member of a DCM or SEF retain all oral and written communications provided or received concerning quotes, solicitations, bids, offers, instructions, trading, and prices, that lead to the execution of transactions in a commodity interest or cash commodity, whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device or other digital or electronic media, with a further requirement that each transaction record be maintained as a separate electronic file identifiable by transaction and counterparty. The Commission anticipates that the aforementioned registrants and members of DCMs and SEFs may incur certain one-time start-up costs in connection with establishing a system to retain oral communications. The Commission estimates that the cost of procuring systems to record these oral communications will be $55,000 for an average large entity that does not already have such systems in place, and estimates procurement costs of $10,000 for each small entity that does not already have such systems in place. The Commission estimates the burden hours associated with these start-up costs to be 135 hours for any entity that does not already have a system in place. According to the recent Bureau of Labor Statistics, the mean hourly wage of computer programmers under occupation code 15-1021 and computer software engineers under program codes 15-1031 and 1032 are between $34.10 and $44.94. 91 Because members of SEFs may be large entities that may engage employees with wages above the mean, the Commission has conservatively chosen to use a mean hourly programming wage of $50 per hour for each of the categories of persons who will have to establish the system for maintaining oral records. Accordingly, the start-up burden associated with establishing an audit system would be $6,750 ($50 × 135 hours) per affected FCM, IB, RFED, member of a DCM, and member of a SEF. 91 Occupational Employment Statistics, Occupational Employment and Wages: 15-1021, Computer Programmers, http://www.bls.gov/oes/current/oes151021.htm (May 2009); Occupational Employment Statistics, Occupational Employment and Wages: 15-1031, Computer Software Engineers, Applications, http://www.bls.gov/oes/current/oes151031.htm (May 2009); Occupational Employment Statistics, Occupational Employment and Wages: 15-1032, Computer Software Engineers, Systems Software, http://www.bls.gov/oes/current/oes151032.htm (May 2009). The Commission also estimates that each of these persons will have to devote one hour per trading day to ensure the operation of the system to retain oral records. This would lead to $12,600 per year (1 hour per trading day × 252 trading days per year × $50/hour) per affected FCM, IB, RFED, member of a DCM, and member of a SEF. d. Amendments to Regulation 1.37 (Customer's Name, Address, and Occupation Recorded; Record of Guarantor or Controller of Account) The Commission proposes amending regulation 1.37(a) by requiring each FCM, IB, and member of a DCM to keep the same kind of record (showing the customer's name, address, occupation or business, and name of any other person guaranteeing the account or exercising any trading control over it) for any swap transactions it “carries or introduces” for another person. The Commission estimates that it will take each of these entities an average of 0.4 hours to gather the information and file it or key it into the entity's customer recordkeeping programs. The Commission also proposes amending regulation 1.37(b) by requiring each FCM carrying an omnibus account for another FCM, a foreign broker, a member of a DCM or any other person to maintain a daily record for such account of the total open long contracts and the total open short contracts in each swap. FCMs presently have an equivalent obligation with respect to futures and commodity option transactions. These daily records typically are maintained in electronic form. Therefore, once a position is entered into the entity's systems, the daily record will be automatically available. The Commission estimates that entering the position into the system, commencing with the placement of an order and ending with execution will take each of these entities an average of 0.4 hours. The Commission additionally proposes amending regulation 1.37(c) by requiring SEFs to comply with a provision that DCMs must currently follow: Keep a record showing the true name, address, and principal occupation or business of any foreign trader executing transactions on the facility or exchange. According to regulation 1.37(d), this provision does not apply in respect of futures/options/swaps that foreign traders execute through FCMs or IBs. The Commission estimates that it would take a SEF a total of 0.4 hours to prepare each record in accordance with regulation 1.37(c). According to the Bureau of Labor Statistics, the mean hourly wage of an employee under occupation code 43-9021, “Data Entry Keyer,” that is employed in “Office and Administrative Support” is $14.03. 92 Because SEFs may be large entities employing persons at wages higher than the average, the Commission conservatively estimates the mean hourly wage to be $19.03 per hour. Thus, the burden associated with preparing a record with regulation 1.37(c) would be $7.61 ($19.03/hour × 0.4 hours). 92 Occupational Employment Statistics, National Industry-Specific Occupational Employment and Wage Estimates, NAICS 523100—Securities and Commodity Contracts Intermediation and Brokerage, http://www.bls.gov/oes/current/naics4_523100.htm#43-0000 (May 2009). e. Amendments to Regulation 1.39 (Simultaneous Buying and Selling Orders of Different Principals; Execution of, for and Between Principals) The Commission proposes amending regulation 1.39, which currently applies to DCMs, by enabling members of SEFs to execute simultaneous buying and selling orders of different principals pursuant to rules of the SEF if certain conditions are met. Among those conditions, a SEF would have to record these transactions in a manner that “shows all transaction details required to be captured by the Act, Commission rule, or regulation.” The Commission anticipates that the data to be captured would already exist in the SEF's trading system. The Commission estimates that it will take the SEF an average of 0.1 hours to capture this data, and storage costs of less than $1 per record. According to the recent Bureau of Labor Statistics, the mean hourly wage of computer programmers under occupation code 15-1021 and computer software engineers under program codes 15-1031 and 1032 are between $34.10 and $44.94. 93 Because SEFs may be large entities that may engage employees with wages above the mean, the Commission has conservatively chosen to use a mean hourly programming wage of $50 per hour for each of the categories of persons who will have to establish the system for maintaining oral records. Accordingly, the start-up burden associated with the data capture requirements would be an average of $5. 93 Occupational Employment Statistics, Occupational Employment and Wages: 15-1021, Computer Programmers, http://www.bls.gov/oes/current/oes151021.htm (May 2009); Occupational Employment Statistics, Occupational Employment and Wages: 15-1031, Computer Software Engineers, Applications, http://www.bls.gov/oes/current/oes151031.htm (May 2009); Occupational Employment Statistics, Occupational Employment and Wages: 15-1032, Computer Software Engineers, Systems Software, http://www.bls.gov/oes/current/oes151032.htm (May 2009). B. Regulatory Flexibility Act The Regulatory Flexibility Act (“RFA”) 94 requires that agencies consider whether the rules they propose will have a significant economic impact on a substantial number of small entities and, if so, provide a regulatory flexibility analysis respecting the impact. The rules proposed by the Commission are for the most part technical amendments to conform the affected parts to provisions of the Dodd-Frank Act and, as such, non-substantive. The Commission is also amending its books and records regulations to require FCMs, IBs, RFEDs, and members of DCMs to observe recordkeeping requirements for swaps that they currently observe in respect of futures and commodity option transactions. Additionally, the Commission is proposing to apply certain of those books and records regulations to members of SEFs, mirroring obligations that currently are met by members of DCMs. The Commission is also proposing to add a substantive rule change to regulation 1.35. The substantive rules would affect FCMs, IBs, RFEDs, and members of DCMs and SEFs. 94 5 U.S.C. 601 et seq. Except for the new regulations requiring FCMs, IBs, RFEDs, and members of DCMs and SEFs to record all oral communications leading to the execution of transactions in a commodity interest or cash commodity, the Commission has determined that none of the proposed rules will have a significant economic impact on any substantial number of entities. Additionally, as presented below, the Commission previously has determined or is now determining that all entities except for certain IBs are not small entities for the purposes of the RFA. Therefore, according to 5 U.S.C. 605(b), the Chairman, on behalf of the Commission, is hereby certifying that all rules except for the oral communications recordkeeping rules will not have a significant economic effect on a significant number of small entities. A regulatory flexibility analysis addressing the impact of the oral communications recordkeeping rules on certain IBs is provided herein. 1. FCMs, RFEDs, DCMs, ECPs, and Large Traders The Commission has previously determined that registered FCMs, RFEDs, DCMs, ECPs, and large traders are not small entities for purposes of the RFA. 95 Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the proposed rules will not have a significant economic impact on a substantial number of small entities with respect to these entities. 95 See respectively and as indicated: 47 FR 18618, 18619, Apr. 30, 1982 (DCMs, FCMs, and large traders); 66 FR 20740, 20743, Apr. 25, 2001 (ECPs); and 75 FR 55410, 55416, Sept. 19, 2010 (RFEDs). 2. SEFs SEFs are new categories of registrant under the Dodd-Frank Act. Therefore, the Commission has not previously addressed the question of whether SEFs are, in fact, “small entities” for purposes of the RFA. For the reasons that follow, the Commission is hereby determining that none of these entities would be small entities. Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the proposed rules, with respect to SEFs, will not have a significant impact on a substantial number of small entities. The Dodd-Frank Act defines a SEF as a trading system or platform in which multiple participants have the ability to accept bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility that facilitates the execution of swaps between persons and is not a DCM. The Commission previously determined that a DCM is not a small entity because, among other things, it may only be designated when it meets specific criteria, including expenditure of sufficient resources to establish and maintain adequate self-regulatory programs. Likewise, the Commission will register an entity as a SEF only after it has met specific criteria, including the expenditure of sufficient resources to establish and maintain an adequate self-regulatory program. Moreover, members of SEFs, to whom many of the proposed regulations would apply, additionally are not small entities for the purposes of the RFA. As noted above, the Commission previously determined that ECPs are not small entities, and the Dodd-Frank Act provides that only ECPs can enter into swaps on a SEF. Accordingly, as with DCMs, the Commission is hereby determining that SEFs and members of SEFs are not “small entities” for purposes of the RFA. 3. Regulatory Flexibility Analysis for Oral Communication Rules Applicable to IBs The Commission has not previously determined that IBs are not “small entities” for the purposes of the RFA. Historically, the Commission has evaluated within the context of a particular regulatory proposal whether all or some affected IBs would be considered to be small entities and, if so, the economic impact on them of the particular regulation. Accordingly, the Commission offers, pursuant to 5 U.S.C. 603, the following initial regulatory flexibility analysis, which it shall transmit to the Chief Counsel for Advocacy of the Small Business Administration as 5 U.S.C. 603 requires: a. A Description of the Reasons Why Action by the Agency Is Being Considered The Commission is considering the adoption of the proposed amendments to regulation 1.35 requiring FCMs, RFEDs, IBs and DCM and SEF members to keep records of all oral communications leading to the execution of transactions in a commodity interest or cash commodity for several reasons. To begin, such an amendment to regulation 1.35 would protect customers from abusive sales practices, would protect registrants from the risks associated with transactional disputes, and would allow registrants to follow-up more effectively on customer complaints of abuses by their associated persons. Additionally, the amendment would make enforcement investigations more efficient by preserving critical evidence that otherwise may be lost to lapsed and inconsistent memories. This, in turn, is expected to increase the success of enforcement actions, which benefits customers, regulated entities, and the markets as a whole. 96 Finally, it is being proposed for regulatory parity, as it has been proposed recently for SDs and MSPs as part of their recordkeeping and reporting obligations. 97 96 In promulgating its own taping rule, the Financial Services Authority issued guidance stating the following benefits: “(i) Recorded communication may increase the probability of successful enforcement; (ii) this reduces the expected value to be gained from committing market abuse; and (iii) this, in principle, leads to increased market confidence and greater price efficiency.” See Financial Services Authority, “Policy Statement: Telephone Recording: recording of voice conversations and electronic communications” (Mar. 2008). 97 See Reporting, Recordkeeping, and Daily Trading Records Requirements for Swap Dealers and Major Swap Participants, 75 FR 76666, Dec. 9, 2010. b. A Succinct Statement of the Objectives of, and Legal Basis for, the Proposed Rule As stated above, the objective of the proposed amendment to regulation 1.35 is to protect the market participants and the public, as well as to increase market integrity. In terms of the legal basis for this proposed rule, the Commission has been authorized by sections 4g and 8a(5) of the CEA to adopt regulations requiring registrants to keep books and records pertaining to such transactions and positions in a form and manner and for such period as may be required by the Commission. 98 98 7 U.S.C. 6g and 12a(5). c. A Description of and, Where Feasible, an Estimate of the Number of Small Entities To Which the Proposed Rule Will Apply There are an estimated 1,500 IBs registered with the Commission at any given time. Between 80 and 90% of these IBs are “guaranteed introducing brokers,” many of which may be small entities. There are an estimated 11,500 members of DCMs, some of which may be small entities. The Commission believes, however, that it is likely that less than 10% of the members of DCMs would be small entities given the capital and other resources they would need to comply with DCM rules. d. A Description of the Projected Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule, Including an Estimate of the Classes of Small Entities Which Will Be Subject to the Requirement and the Type of Professional Skills Necessary for Preparation of the Report or Record Proposed regulation 1.35 would require all FCMs, RFEDs, IBs and members of DCMs or SEFs to keep records of all oral communications that lead to the execution of a commodity interest or cash commodity transaction. All small IBs and small DCM or SEF members will be subject to this requirement. The proposed regulation is primarily a recordkeeping requirement, which will obligate those firms that do not already do so to tape the telephone lines of their traders and sales forces. Maintenance of these oral communications for five years will require investments in hardware, software, and information technology personnel, all of which will be scalable to the size of the enterprise. There may be periodic reporting requirements, most frequently in response to a subpoena from the Commission, any other federal agency that has regulatory or civil enforcement authority over the firm, and the markets in which it conducts business, as well as law enforcement. e. Identification, to the Extent Practicable, of All Relevant Federal Rules Which May Duplicate, Overlap or Conflict With the Proposed Rule The Commission has not identified any Federal rules which may duplicate, overlap, or conflict with the proposed rule. Certain firms may be obligated to retain oral communications by rule of a private SRO. f. Description of Any Significant Alternatives to the Proposed Rule Which Accomplish the Stated Objectives of Applicable Statutes and Which Minimize Any Significant Economic Impact of the Proposed Rule on Small Entities The Commission has identified no significant alternatives that may minimize any significant economic impact of the proposed rule amendment on small entities. Clarification, consolidation, or simplification of compliance and reporting requirements would leave a large portion of the sales operations in the futures industry uncovered, and in consequence, the customers that transact business with them. Moreover, the benefits from the enforcement of the CEA by the Commission and by the Department of Justice at the criminal level would be lost. Finally, leaving a large portion of the sales operations uncovered by this rule could create regulatory arbitrage, causing large entities subject to this rule to move their sales operations into a series of small firms. The same would apply for exemptions. Given the foregoing, the Commission has determined to treat equally all entities that engage in oral communications that lead to the execution of commodity interest and cash commodity transactions. To the extent that certain IBs and members of DCMs and SEFs are impacted by the proposed amendments, the RFA analysis focuses on whether the proposed amendments will have a significant economic impact on a substantial number of small entities. At present, such entities are subject to certain recordkeeping retention and reporting requirements, based on the nature of their respective businesses; the proposed amendments would augment the existing recordkeeping retention and reporting requirements of these firms. The Commission understands that recent advancements in technology, particularly with respect to capturing records and storing such records, will enable all affected entities, including small entities, to incorporate into their existing recordkeeping programs the enhanced requirements set forth in the proposed amendments, without encountering a significant economic impact. The United Kingdom's FSA, which recently adopted similar recordkeeping requirements, discussed the declining costs of such recordkeeping programs in a Policy Statement addressing these and other issues. 99 99 Financial Services Authority, “Policy Statement: Telephone Recording: recording of voice conversations and electronic communications” (Mar. 2008). In addition to the rules promulgated by the Financial Services Authority, similar rules which mandate recording of certain voice and/or telephone conversations have been promulgated by the Comissão de Valores Mobiliários in Brazil and by the Autorité des Marchés Financiers in France. C. Cost-Benefit Analysis Section 15(a) of the CEA 100 requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA. Section 15(a) specifies that the costs and benefits shall be considered against five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission may give greater weight to one or more of the five enumerated considerations to determine, in its discretion, that a particular rule is necessary or appropriate to protect the public interest or to effectuate any of the provisions or accomplish any of the purposes of the CEA. 100 7 U.S.C. 19(a). 1. Costs a. Amendments to Regulation 1.31 With respect to costs, the Commission has determined that for FCMs, IBs, CPOs, CTAs and members of DCMs, costs to institute recordkeeping systems to retain swap records for the life of the swap ( i.e., until the termination, maturity, expiration, transfer, assignment, or novation date of the transaction) and for five years after that date would be far outweighed by the benefits to the financial system as a whole. The Commission is not imposing any cost that a prudent FCM, IB, CPO, CTA, and DCM member would not already incur in maintaining records for swap transactions. A prudent registrant would retain a swap record for the life of the swap to ensure that its rights under the contract are protected and its obligations are fulfilled. As to the proposed requirements that records be kept in their original form (for paper records) and native file format (for electronic records), that the method of storage maintains electronic records in their native file format, and that the records be produced to the Commission in a form specified by the Commission, the Commission is not imposing significant new burdens on registrants and regulated entities. The Commission understands that registrants and regulated entities already retain electronic records in these forms. Moreover, to the extent that a registrant's transactional activity is retained on a platform operated by or additionally is captured by a regulated entity, trading mechanism, clearinghouse or another regulated entity (for example, where an IB transacts through an FCM) that is required to maintain these records in the same form, the registrant may rely on the retention requirements of the other registrant in order to comply with the proposed requirements of regulation 1.31. b. Amendments to Regulation 1.33, 1.35, 1.37, and 1.39 The proposed regulations would require FCMs, IBs, RFEDs, DCMs and members of DCMs to comply with the same recordkeeping functions for swaps that they currently adhere to with respect to futures and commodity option transactions. The Commission anticipates that in complying with amended regulations 1.33, 1.35, 1.37 and 1.39, the aforementioned persons will already have the framework for producing and storing records and would only make adjustments as necessary to provide the additional information regarding swaps. Because the recordkeeping requirements in respect of swaps would be equivalent to the existing recordkeeping requirements for futures and commodity option transactions, the cost of complying with the proposed amendments should not differ materially from the cost of recording additional futures or commodity option transactions. The Commission has also amended the aforementioned recordkeeping regulations by applying them to SEFs and their members. These persons will therefore need to factor in the costs in complying with these regulations before commencing their operations. c. Amendments to Regulation 1.35 (Records of Oral Communications). To the extent FCMs, RFEDs, IBs, members of DCMs, and members of SEFs enter into transactions in a commodity interest or cash commodity, the newly proposed requirements under regulation 1.35 would require them to record all oral communications that lead to the execution of transactions in a commodity interest or cash commodity. As described above, it is expected that any additional cost imposed by the recordkeeping requirements of proposed amendments to regulation 1.35 would be minimal for the average large FCM, RFED, IB, or DCM or SEF member because the information and data required to be recorded is information and data a prudent FCM, RFED, IB, or DCM or SEF member would already maintain during the ordinary course of its business. 101 Moreover, most FCMs, RFEDs, IBs, or members of DCMs or SEFs have adequate existing resources, technology systems, and recordkeeping structures that are capable of adjusting to the new regulatory framework without material diversion of resources away from commercial operations. 101 The Commission preliminarily has determined that any additional cost imposed by the recordkeeping requirements of proposed regulation 23.202(a)(1) (which has an analogous requirement for SDs and MSPs relating to retention of oral and written communications that lead to the execution of swaps) “would be minimal because the information and data required to be recorded is information and data a prudent swap dealer or major swap participant would already maintain during the ordinary course of its business,” and “[m]oreover, most swap dealers and major swap participants have adequate, existing resources and recordkeeping structures that are capable of adjusting to the new regulatory framework without material diversion of resources away from commercial operations.” See Reporting, Recordkeeping, and Daily Trading Records Requirements for Swap Dealers and Major Swap Participants, 75 FR 76666, 76673, Dec. 9, 2010. The Commission also believes that such costs would be minimal for the average small IB or member of a SEF who does not have digital telephone systems in place and may not have robust or up-to-date electronic data saving and storage capacity. 2. Benefits a. Amendments to Regulation 1.31. The Commission believes that the benefit of requiring FCMs, IBs, CPOs, CTAs, and DCM and SEF members to maintain swap records for the life of the swap ( i.e., until the termination, maturity, expiration, transfer, assignment, or novation date of the transaction) and for five years after that date is significant, as is the requirement to maintain records in their native format. Proposed regulation 23.203(b)(2) has already proposed requiring SDs and MSPs to maintain swap records for the life of the swap and for five years after termination, maturity, expiration, transfer, assignment, or novation date of the transaction. 102 It would therefore be inconsistent not to require other registrants, as well as DCM and SEF members to have the same obligation for swap records that they keep. The five-year retention period, which already applies to records for futures and commodity option transactions, is meant to protect market participants, the integrity of the market, and the public at large by ensuring that an audit trail is maintained for routine compliance examinations, in the event of counterparty complaints, or in case of other events that may trigger an investigation by the Commission and other government agencies. 102 75 FR 76666, Dec. 9, 2010. b. Amendments to Regulations 1.33, 1.35, 1.37, and 1.39 The Commission believes that there are significant benefits in requiring FCMs, IBs, RFEDs, DCMs and members of DCMs to comply with the same recordkeeping functions for swaps that they currently adhere to with respect to futures and commodity option transactions. The Commission also believes that there are significant benefits in requiring SEFs and members of SEFs to comply with certain of the recordkeeping functions contained in regulations 1.33, 1.35, 1.37 and 1.39. First is the issue of regulatory parity: Because many swaps will be executed on trading platforms, they should be subject to the same recordkeeping requirements as futures and commodity options. Moreover, these recordkeeping rules are fundamental to the Commission's efforts to maintain an orderly marketplace and to remain informed about market positions. c. Amendments to Regulation 1.35 (Records of Oral Communications) The proposed amendments to regulation 1.35 would newly require FCMs, RFEDs, IBs, and DCM and SEF members to comply with regulation 1.35 for any swap transactions into which they enter. The benefit of this amendment is significant because it requires these registrants to perform the same recordkeeping functions for swaps that they already perform for futures transactions, which protect the integrity and efficiency of the markets, market participants, and the public at large by ensuring that these records are available in the event of customer disputes, routine compliance examinations, and regulatory investigations. Notwithstanding the potential costs described above that could be incurred by FCMs, RFEDs, IBs, and DCM and SEF members in complying with the proposed amendments that would newly require them to record all oral communications that lead to the execution of a transaction in a commodity interest or cash commodity, the Commission believes the benefits of the proposed amendments are significant and important. First, the Commission believes that the proposed amendments will enhance the protection of market participants and the public by increasing the probability of timely successful enforcement of the CEA and Commission regulations, particularly in cases involving suspected fraud, market manipulation and/or false reporting, by deterring market abuses, and additionally by reducing the expected value to be gained from committing market abuse. The Commission believes that increasing the quantity and quality of contemporaneous records that affected persons must retain, as provided under the proposed amendments, will protect market participants and the public from harm by wrongdoers. Such increases in the quantity and quality of contemporaneous records will enable the Commission to more fully and accurately establish the knowledge and intent of wrongdoers at the time of their wrongful acts. The Commission believes that the enhanced protection of market participants and the public outweighs the costs that may be borne by persons under the proposed amendments who do not already maintain oral communications. Second, the Commission anticipates that the proposed amendments will lead to increased market confidence and greater price efficiency by reducing the expected value to be gained from committing market abuse, thereby deterring such inefficient acts. By requiring the recording of oral communications, which could be evidence of anti-competitive behavior, the proposed amendments will discourage anti-competitive behavior, thereby enhancing competition. Third, the Commission believes that the proposed amendments, by increasing the probability of timely successful enforcement of the CEA and Commission regulations, and by deterring market abuses, will benefit the financial integrity of futures markets and lead to more effective price dis [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2011-12270. Public record. Not legal advice.