81 FR 14966 - Trade Options
COMMODITY FUTURES TRADING COMMISSION Federal Register Volume 81, Issue 54 (March 21, 2016)
Federal Register Volume 81, Issue 54 (March 21, 2016)
| Page Range | 14966-14975 | |
| FR Document | 2016-06260 |
[Federal Register Volume 81, Number 54 (Monday, March 21, 2016)] [Rules and Regulations] [Pages 14966-14975] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-06260] ======================================================================= ----------------------------------------------------------------------- COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 32 RIN 3038-AE26 Trade Options AGENCY: Commodity Futures Trading Commission. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Commodity Futures Trading Commission (the ``Commission'' or the ``CFTC'') is issuing a final rule to amend the limited trade options exemption in the Commission's regulations, as described herein, with respect to the following subject areas: Reporting requirements for trade option counterparties that are not swap dealers or major swap participants; recordkeeping requirements for trade option counterparties that are not swap dealers or major swap participants; and certain non-substantive amendments. DATES: Effective date: The effective date for this final rule is March 21, 2016. FOR FURTHER INFORMATION CONTACT: David N. Pepper, Special Counsel, Division of Market Oversight, at (202) 418-5565 or [email protected]; or Mark Fajfar, Assistant General Counsel, Office of the General Counsel, at (202) 418-6636 or [email protected], Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. SUPPLEMENTARY INFORMATION: I. Introduction A. Background In April 2012, pursuant to section 4c(b) of the Commodity Exchange Act (the ``CEA'' or the ``Act''),\1\ the Commission issued a final rule to repeal and replace part 32 of its regulations concerning commodity options.\2\ The Commission undertook this effort to address section 721 of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank Act'' or ``Dodd-Frank''),\3\ which, among other things, amended the CEA to define the term ``swap'' to include commodity options.\4\ Notably, Sec. 32.2(a) provides the [[Page 14967]] general rule that commodity option transactions must be conducted in compliance with any Commission rule, regulation, or order otherwise applicable to any other swap.\5\ --------------------------------------------------------------------------- \1\ 7 U.S.C. 6c(b) (providing that no person shall offer to enter into, enter into or confirm the execution of, any transaction involving any commodity regulated under this chapter which is of the character of, or is commonly known to the trade as an ``option'' contrary to any rule, regulation, or order of the Commission prohibiting any such transaction or allowing any such transaction under such terms and conditions as the Commission shall prescribe). \2\ See Commodity Options, 77 FR 25320 (Apr. 27, 2012) (``Commodity Options Release''). The Commission also issued certain conforming amendments to parts 3 and 33 of its regulations. See id. The Commission's regulations are set forth in chapter I of title 17 of the Code of Federal Regulations. \3\ Public Law 111-203, 124 Stat. 1376 (2010). \4\ See 7 U.S.C. 1a(47)(A)(i) (defining ``swap'' to include an option of any kind that is for the purchase or sale, or based on the value, of 1 or more commodities''); 7 U.S.C. 1a(47)(B)(i) (excluding options on futures from the definition of ``swap''); 7 U.S.C. 1a(36) (defining an ``option'' as an agreement, contract, or transaction that is of the character of, or is commonly known to the trade as, an ``option''). The Commission defines ``commodity option'' or ``commodity option transaction'' as any transaction or agreement in interstate commerce which is or is held out to be of the character of, or is commonly known to the trade as, an ``option,'' ``privilege,'' ``indemnity,'' ``bid,'' ``offer,'' ``call,'' ``put,'' ``advance guaranty'' or ``decline guaranty'' and which is subject to regulation under the Act and Commission regulations. See 17 CFR 1.3(hh). \5\ See 17 CFR 32.2. --------------------------------------------------------------------------- In response to requests from commenters, the Commission added a limited exception to this general rule for physically delivered commodity options purchased by commercial users of the commodities underlying the options (the ``trade option exemption'').\6\ Adopted as an interim final rule, Sec. 32.3 provides that qualifying commodity options are generally exempt from the swap requirements of the CEA and the Commission's regulations, subject to certain specified conditions. To qualify for the trade option exemption, a commodity option transaction must meet the following requirements: (1) The offeror is either an eligible contract participant (``ECP'') \7\ or a producer, processor, commercial user of, or merchant handling the commodity that is the subject of the commodity option transaction, or the products or byproducts thereof (a ``commercial party'') that offers or enters into the commodity option transaction solely for purposes related to its business as such; (2) the offeree is, and the offeror reasonably believes the offeree to be, a commercial party that is offered or enters into the transaction solely for purposes related to its business as such; and (3) the option is intended to be physically settled so that, if exercised, the option would result in the sale of an exempt or agricultural commodity \8\ for immediate or deferred shipment or delivery.\9\ --------------------------------------------------------------------------- \6\ See 77 FR at 25326-29. See also 17 CFR 32.2(b), 32.3. The interim final rule continued the Commission's long history of providing special treatment to ``trade options'' dating back to the Commission's original trade option exemption in 1976. See Regulation and Fraud in Connection with Commodity and Commodity Option Transactions, 41 FR 5108 (Nov. 18, 1976). \7\ See 7 U.S.C. 1a(18) (defining ``eligible contract participant''); 17 CFR 1.3(m) (further defining ``eligible contract participant''). \8\ See 7 U.S.C. 1a(20) (defining ``exempt commodity'' to mean a commodity that is not an agricultural commodity or an ``excluded commodity,'' as defined in 7 U.S.C. 1a(19)); 17 CFR 1.3(zz) (defining ``agricultural commodity''). Examples of exempt commodities include energy commodities and metals. \9\ See 17 CFR 32.3(a). --------------------------------------------------------------------------- Commodity option transactions that meet these requirements are generally exempt from the provisions of the Act and any Commission rule, regulation, or order promulgated or issued thereunder, otherwise applicable to any other swap, except for the requirements enumerated in Sec. 32.3(b)-(d).\10\ These requirements include: Recordkeeping and reporting requirements; \11\ large trader reporting requirements in part 20; \12\ position limits under part 151; \13\ certain recordkeeping, reporting, and risk management duties applicable to swap dealers (``SDs'') and major swap participants (``MSPs'') in subparts F and J of part 23; \14\ capital and margin requirements for SDs and MSPs under CEA section 4s(e); \15\ and any applicable antifraud and anti- manipulation provisions.\16\ --------------------------------------------------------------------------- \10\ See 17 CFR 32.3(a), (b)-(d). \11\ See 17 CFR 32.3(b). \12\ See 17 CFR 32.3(c)(1). Applying Sec. 32.3(c)(1), reporting entities as defined in part 20--swap dealers and clearing members-- must consider their counterparty's trade option positions just as they would consider any other swap position for the purpose of determining whether a particular counterparty has a consolidated account with a reportable position. See 17 CFR 20.1. A trade option counterparty would not be responsible for filing large trader reports unless it qualifies as a ``reporting entity,'' as that term is defined in Sec. 20.1. \13\ See 17 CFR 32.3(c)(2). See also Int'l Swaps & Derivatives Ass'n v. U.S. Commodity Futures Trading Comm'n, 887 F. Supp. 2d 259, 270 (D.D.C. 2012), vacating the part 151 rulemaking, Position Limits for Futures and Swaps, 76 FR 71626 (Nov. 18, 2011). \14\ See 17 CFR 32.3(c)(3)-(4). Note that Sec. 32.3(c)(4) explicitly incorporates Sec. Sec. 23.201 and 23.204, which require counterparties that are SD/MSPs to comply with part 45 recordkeeping and reporting requirements, respectively, in connection with all their swaps activities (including all their trade option activities). See 17 CFR 23.201(c), 23.204(a). \15\ See 17 CFR 32.3(c)(5). \16\ See 17 CFR 32.3(d). Note that Sec. 32.2 also preserves the continued application of Sec. 32.4, which specifically prohibits fraud in connection with commodity option transactions, to commodity options subject to the trade option exemption. See 17 CFR 32.2, 32.4. --------------------------------------------------------------------------- In adopting Sec. 32.3,\17\ the Commission stated that the trade option exemption is generally intended to permit parties to hedge or otherwise enter into commodity option transactions for commercial purposes without being subject to the full Dodd-Frank swaps regime.\18\ This limited exemption continued the Commission's longstanding practice of providing commercial participants in trade options with relief from certain requirements that would otherwise apply to commodity options.\19\ The Commission further explained that the applicable conditions in Sec. 32.3(b)-(d) were primarily intended to preserve a level of visibility into the market for trade options while still reducing the regulatory compliance burden for trade option participants.\20\ --------------------------------------------------------------------------- \17\ In the year following the Commission's adoption of the trade option exemption, the Commission's Division of Market Oversight (``DMO'') issued a series of no-action letters granting relief from certain conditions in the trade option exemption. See CFTC No-Action Letter No. 12-06 (Aug. 14, 2012), available at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-06.pdf; CFTC No-Action Letter No. 12-41 (Dec. 5, 2012), available at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-41.pdf; CFTC No-Action Letter No. 13-08 (Apr. 5, 2013), available at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/13-08.pdf. CFTC No-Action Letter No. 13-08 (``No- Action Letter 13-08'') provides that DMO would not recommend that the Commission commence an enforcement action against a market participant that is a Non-SD/MSP for failing to comply with the part 45 reporting requirements, as required by Sec. 32.3(b)(1), provided that such Non-SD/MSP meets certain conditions, including reporting such exempt commodity option transactions via Form TO and notifying DMO no later than 30 days after entering into trade options having an aggregate notional value in excess of $1 billion during any calendar year. No-Action Letter 13-08 at 3-4. No-Action Letter 13-08 also grants relief from certain swap recordkeeping requirements in part 45 for a Non-SD/MSP that complies with the recordkeeping requirements set forth in Sec. 45.2, provided that if the counterparty to the trade option at issue is an SD or an MSP, the Non-SD/MSP obtains a legal entity identifier (``LEI'') pursuant to Sec. 45.6. Id. at 4-5. DMO will withdraw the no-action relief provided pursuant to No-Action Letter 13-08 upon the effective date of this final rule. \18\ See 77 FR at 25326, n.39. The limited trade option exemption in Sec. 32.3 operates as a general exemption from the rules otherwise applicable to swaps, subject to the conditions enumerated in Sec. 32.3. For example, trade options do not factor into the determination of whether a market participant is an SD or MSP; trade options are exempt from the rules on mandatory clearing; and trade options are exempt from the rules related to real-time reporting of swaps transactions. The provisions identified in this list are not intended to constitute an exclusive or exhaustive list of the swaps requirements from which trade options are exempt. \19\ See Regulation and Fraud in Connection with Commodity and Commodity Option Transactions, 41 FR 51808 (Nov. 24, 1976) (adopting an exemption from the general requirement that commodity options be traded on-exchange for commodity option transaction for certain transactions involving commercial parties); Suspension of the Offer and Sale of Commodity Options, 43 FR 16153, 16155 (Apr. 17, 1978) (adopting a rule suspending all trading in commodity options other than such exempt trade options); Trade Options on the Enumerated Agricultural Commodities, 63 FR 18821 (Apr. 16, 1998) (authorizing the off-exchange trading of trade options in agricultural commodities). \20\ See 77 FR at 25326-27. --------------------------------------------------------------------------- B. Existing Reporting Requirements for Trade Option Counterparties That Are Non-SD/MSPs Pursuant to Sec. 32.3(b)(1), the determination as to whether a trade option must be reported pursuant to part 45 is based on the status of the parties to the trade option and whether or not they have previously reported swaps to an appropriate swap data repository (``SDR'') pursuant to part 45.\21\ If a trade option involves at least one counterparty (whether as buyer or seller) that has (1) become obligated to comply with the reporting requirements of part 45, (2) as a reporting party, (3) during the twelve month period [[Page 14968]] preceding the date on which the trade option is entered into, (4) in connection with any non-trade option swap trading activity, then such trade option must also be reported pursuant to the reporting requirements of part 45. If only one counterparty to a trade option has previously complied with the part 45 reporting provisions, as described above, then that counterparty shall be the part 45 reporting counterparty for the trade option. If both counterparties have previously complied with the part 45 reporting provisions, as described above, then the part 45 rules for determining the reporting counterparty will apply.\22\ --------------------------------------------------------------------------- \21\ See 17 CFR 32.3(b)(1). \22\ See 17 CFR 45.8. --------------------------------------------------------------------------- To the extent that neither counterparty to a trade option has previously submitted reports to an SDR as a result of its swap trading activities as described above, then such trade option is not required to be reported pursuant to part 45. Instead, Sec. 32.3(b)(2) requires that each counterparty to an otherwise unreported trade option (i.e., a trade option that is not required to be reported to an SDR by either counterparty pursuant to Sec. 32.3(b)(1) and part 45) completes and submits to the Commission an annual Form TO filing providing notice that the counterparty has entered into one or more unreported trade options during the prior calendar year.\23\ Form TO requires an unreported trade option counterparty to: (1) Provide its name and contact information; (2) identify the categories of commodities (agricultural, metals, energy, or other) underlying one or more unreported trade options which it entered into during the prior calendar year; and (3) for each commodity category, identify the approximate aggregate value of the underlying physical commodities that it either delivered or received in connection with the exercise of unreported trade options during the prior calendar year. Counterparties to otherwise unreported trade options must submit a Form TO filing by March 1 following the end of any calendar year during which they entered into one or more unreported trade options.\24\ In adopting Sec. 32.3, the Commission stated that Form TO was intended to provide the Commission with a level of visibility into the market for unreported trade options that is ``minimally intrusive,'' thereby allowing it to identify market participants from whom it should collect additional information, or whom it should subject to additional reporting obligations in the future.\25\ --------------------------------------------------------------------------- \23\ Form TO is set out in appendix A to part 32 of the Commission's regulations. \24\ In 2014, approximately 330 Non-SD/MSPs submitted Form TO filings to the Commission, approximately 200 of which indicated delivering or receiving less than $10 million worth of physical commodities in connection with exercising unreported trade options in 2013, which was the first year in which Sec. 32.3 and Form TO reporting became effective. In 2015, approximately 349 Non-SD/MSPs submitted Form TO filings to the Commission, approximately 150 of which indicated delivering or receiving less than $10 million worth of physical commodities. \25\ See 77 FR at 25327-28. --------------------------------------------------------------------------- C. Existing Recordkeeping Requirements for Trade Option Counterparties That Are Non-SD/MSPs Commission regulation Sec. 32.3(b) provides that in connection with any commodity option transaction that is eligible for the trade option exemption, every counterparty shall comply with the swap data recordkeeping requirements of part 45, as otherwise applicable to any swap transaction.\26\ In discussing the trade option exemption conditions, however, the Commission noted in the preamble to the Commodity Options Release that ``[t]hese conditions include a recordkeeping requirement for any trade option activity, i.e., the recordkeeping requirements of 17 CFR 45.2,'' and did not reference or discuss any other provision of part 45 that contains recordkeeping requirements.\27\ --------------------------------------------------------------------------- \26\ See 17 CFR 32.3(b). \27\ See 77 FR at 25327. --------------------------------------------------------------------------- Pursuant to Commission regulation Sec. 45.2, records must be maintained by all trade option participants and made available to the Commission as specified therein.\28\ Notably, Sec. 45.2 applies different recordkeeping requirements, depending on the nature of the counterparty. For example, if a trade option counterparty is an SD or MSP, it would be subject to the recordkeeping provisions of Sec. 45.2(a). If a counterparty is a Non-SD/MSP, it would be subject to the less stringent recordkeeping requirements of Sec. 45.2(b).\29\ Additional recordkeeping requirements in part 45, separate and apart from those specified in Sec. 45.2 and which would apply to all trade option counterparties by operation of Sec. 32.3(b) include: --------------------------------------------------------------------------- \28\ 17 CFR 32.3(b), 45.2. \29\ In the case of Non-SD/MSPs, the primary recordkeeping requirements are set out in Sec. 45.2(b), which requires Non-SD/ MSPs to keep ``full, complete and systematic records, together with all pertinent data and memoranda, with respect to each swap in which they are a counterparty.'' Non-SD/MSPs are also subject to the other general recordkeeping requirements of Sec. 45.2, such as the requirement that records must be maintained for 5 years following the final termination of the swap and must be retrievable within 5 days. See 17 CFR 45.2(c). ---------------------------------------------------------------------------Each swap must be identified in all recordkeeping by the use of a unique swap identifier (``USI''); \30\ --------------------------------------------------------------------------- \30\ 17 CFR 45.5. --------------------------------------------------------------------------- Each counterparty to any swap must be identified in all recordkeeping by means of a single LEI; \31\ and --------------------------------------------------------------------------- \31\ Each counterparty to any swap subject to the Commission's jurisdiction must be identified in all recordkeeping and all swap data reporting pursuant to part 45 by means of a single LEI as specified in Sec. 45.6. See 17 CFR 45.6. --------------------------------------------------------------------------- Each swap must be identified in all recordkeeping by means of a unique product identifier (``UPI'') and product classification system.\32\ --------------------------------------------------------------------------- \32\ 17 CFR 45.7. --------------------------------------------------------------------------- D. Trade Options Notice of Proposed Rulemaking On May 7, 2015, the Commission published in the Federal Register a notice of proposed rulemaking that included several proposed amendments to the limited exemption for trade options in Commission regulation Sec. 32.3 (``the Proposal'').\33\ The Commission proposed modifications to the recordkeeping and reporting requirements in existing Sec. 32.3(b) that are applicable to trade option counterparties that are Non-SD/MSPs. The Commission also proposed a non-substantive amendment to existing Sec. 32.3(c) to eliminate the reference to the now-vacated part 151 position limits requirements. These proposed amendments were generally intended to relax reporting and recordkeeping requirements where two commercial parties enter into trade options with each other in connection with their respective businesses while maintaining regulatory insight into the market for unreported trade options. --------------------------------------------------------------------------- \33\ Trade Options, Notice of Proposed Rulemaking, 80 FR 26200 (May 7, 2015), available at http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2015-11020a.pdf. --------------------------------------------------------------------------- The Commission requested comment on all aspects of the Proposal.\34\ In response, the Commission received nine comment letters.\35\ Some of these [[Page 14969]] comment letters raised issues concerning the treatment of trade options, and, more generally, commodity options, in relation to the swap definition.\36\ However, in the Proposal, the Commission did not address the general treatment of commodity options, including trade options, in relation to the swap definition, nor did the Commission solicit comments on such definitional issues. Rather, as discussed above, the Proposal contained only specific proposed modifications to the recordkeeping and reporting requirements in Sec. 32.3(b) that are applicable to trade option counterparties that are Non-SD/MSPs, as well as a proposed non-substantive amendment to Sec. 32.3(c). Since issues concerning the treatment of commodity options in relation to the swap definition fall outside the scope of the Proposal, the Commission declines to address such definitional issues in this final rule. --------------------------------------------------------------------------- \34\ See 80 FR at 26202. Initially, comments on the Proposal were due on or before June 8, 2015. Then, on June 2, 2015, the Commission extended the comment period for the Proposal through June 22, 2015, in light of the Commission's then recently-published interpretation concerning forward contracts with embedded volumetric optionality. See Forward Contracts with Embedded Volumetric Optionality, 80 FR 28239 (May 18, 2015). \35\ All comment letters are available through the Commission's Web site at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1580. Comments addressing the Trade Options NPRM were received from the following parties: The American Gas Association (``AGA''); The American Public Gas Association (``APGA''); The American Public Power Association, Edison Electric Institute, Electric Power Supply Association, Large Public Power Council, National Rural Electric Cooperative Association (``Electric Associations''); The Coalition of Physical Energy Companies (``COPE''); Cogen Technologies Linden Venture, L.P. (``Linden''); The Commercial Energy Working Group (``CEWG''); The International Energy Credit Association (``IECA''); The Natural Gas Supply Association (``NGSA''); and Southern Company Services Inc. on behalf of and as agent for Alabama Power Co., Georgia Power Co., Gulf Power Co., Mississippi Power Co., and Southern Power Co. (``Southern''). \36\ See, e.g., IECA at 8-13; Linden at 2-8; Electric Associations at 6-10; AGA at 2-5; and Southern at 6-8. --------------------------------------------------------------------------- The following section will address the comments received on specific aspects of the Proposal in connection with explaining each of the amended regulations adopted herein. II. Discussion of Revised Regulations A. Revised Reporting Requirements for Trade Option Counterparties That Are Non-SD/MSPs 1. Elimination of Part 45 Reporting Requirements for Trade Option Counterparties That Are Non-SD/MSPs The Commission proposed to amend Sec. 32.3(b) such that a Non-SD/ MSP will under no circumstances be subject to part 45 reporting requirements with respect to its trade option activities.\37\ The Commission explained in the Proposal that this proposed amendment was intended to reduce reporting burdens for Non-SD/MSP trade option counterparties, many of whom face technical and logistical impediments that prevent timely compliance with part 45 reporting requirements.\38\ --------------------------------------------------------------------------- \37\ See 80 FR at 26203. Note that trade option counterparties that are SD/MSPs would continue to comply with the swap data reporting requirements of part 45, including where the counterparty is a Non-SD/MSP, as they would in connection with any other swap transaction. See 17 CFR 32.3(c)(4) [renumbered 32.3(c)(3)], 23.201 and 23.204. \38\ Id. --------------------------------------------------------------------------- NGSA, IECA, and APGA each supported deletion of part 45 reporting requirements for trade option counterparties that are Non-SD/MSPs.\39\ No commenter opposed deletion. --------------------------------------------------------------------------- \39\ See NGSA at 1 (``The elimination of Part 45 reporting . . . for [Non-SD/MSP] counterparties to trade options will eliminate costs that stem from those reporting efforts, and this is a welcome change in reporting requirements.''); see also IECA at 2; APGA at 2. --------------------------------------------------------------------------- The Commission recognizes that many parties who are not SDs or MSPs and do not engage in significant swap activity apart from trade options do not have the infrastructure in place to support part 45 reporting to an SDR and that instituting such infrastructure would be costly, particularly for small end users. Therefore, the Commission believes that these parties, who apart from their trade option activities would have very limited reporting obligations under part 45, should not be required to comply with part 45 reporting requirements solely on the basis of having had to report a minimal number of historical or inter- affiliate swaps during the same twelve-month period. Accordingly, for the reasons set forth above and in the Proposal, the Commission is adopting amended regulation Sec. 32.3(b), as proposed, by eliminating part 45 reporting requirements for trade option counterparties that are Non-SD/MSPs. 2. Elimination of the Form TO Notice Filing Requirement The Commission proposed to amend Commission regulation Sec. 32.3(b) such that a Non-SD/MSP would not be required to report otherwise unreported trade options on Form TO.\40\ The Commission further proposed to delete Form TO from appendix A to part 32. The Commission explained in the Proposal that these proposed amendments were intended to reduce reporting burdens for Non-SD/MSP trade option counterparties, many of whom face significant costs in preparing Form TO.\41\ --------------------------------------------------------------------------- \40\ See 80 FR at 26203. \41\ Id. --------------------------------------------------------------------------- AGA, Electric Associations, CEWG, APGA and NGSA each supported deletion of the Form TO reporting requirement.\42\ No commenter opposed deletion of Form TO. AGA commented that the proposed elimination of Form TO could ``reduce a significant compliance cost and obviate the need for small end-users to track and report their trade options activity for a given calendar year.'' \43\ Electric Associations commented that ``Form TO imposes substantial costs on end-users for personnel, legal advice and infrastructure,'' and completing Form TO requires an end-user to ``continuously track the commodity trade options it enters into, identify which of the commodity trade options have and have not been reported, and track the commodity trade options exercised. . . .'' \44\ CEWG commented that ``elimination of the obligation to file Form TO will allow [Non-SD/MSP trade option counterparties] to (i) reduce the amount of resources dedicated to identifying and tracking their trade options and (ii) reallocate resources for optimal utilization.'' \45\ COPE commented that filing the actual Form TO is not burdensome, but rather it is the underlying tracking that is burdensome.\46\ --------------------------------------------------------------------------- \42\ See, e.g., AGA at 2, 8; Electric Associations at 1, 5; CEWG at 2; APGA at 2; NGSA at 1. \43\ AGA at 8. \44\ See Electric Associations at 5. \45\ CEWG at 2. \46\ See COPE at 2. --------------------------------------------------------------------------- The Commission recognizes that completing Form TO imposes costs and burdens on Non-SD/MSPs who enter into trade options, especially small end users. The Commission notes that Form TO data, which is submitted annually, consists of approximated aggregate values of otherwise unreported trade options exercised within three broad ranges, and within four ``commodity categories.'' \47\ The Commission believes that, in view of the relatively limited surveillance and regulatory oversight benefits to be derived by the Commission from Form TO data, which is approximated, aggregated and undifferentiated, completion and submission of Form TO should no longer be required. --------------------------------------------------------------------------- \47\ Form TO requires Non-SD/MSP trade option counterparties to report the approximate size of unreported trade options exercised in the prior calendar year within three dollar-value ranges: Less than $10 million, between $10 million and $100 million, and over $100 million. Form TO also requires Non-SD/MSP trade option counterparties to indicate the ``commodity category'' in which they entered into one or more unreported trade options: Agricultural, metals, energy or ``other.'' See appendix A to part 32 of the Commission's regulations. --------------------------------------------------------------------------- Accordingly, for the reasons set forth above, the Commission is amending regulation Sec. 32.3(b), as proposed, by deleting the Form TO reporting requirement in connection with otherwise unreported trade options. Additionally, as proposed, the Commission is deleting appendix A to part 32, which contains Form TO. 3. The Proposed $1 Billion Notice and Alternative Notice Provisions Have Not Been Adopted The Commission proposed to further amend Sec. 32.3(b) by adding a new requirement that Non-SD/MSP trade [[Page 14970]] option counterparties provide notice by email to DMO within 30 days after entering into trade options, whether reported or unreported, that have an aggregate notional value in excess of $1 billion in any calendar year (the ``$1 Billion Notice'').\48\ The Commission further proposed that, as an alternative to filing the $1 Billion Notice, a Non-SD/MSP could provide notice by email to DMO that it reasonably expects to enter into trade options, whether reported or unreported, having an aggregate notional value in excess of $1 billion during any calendar year (the ``Alternative Notice'').\49\ Collectively, the $1 Billion Notice and the Alternative Notice were referred to in the proposal as the ``Notice Requirement.'' \50\ The Commission explained in the Proposal that in light of the other proposed amendments that would generally remove reporting requirements for Non-SD/MSP counterparties to trade options, the proposed Notice Requirement would provide the Commission insight into the size of the market for unreported trade options and the identities of the most significant market participants, and would help guide the Commission's efforts to collect additional information through its authority to obtain copies of books or records should market circumstances dictate.\51\ --------------------------------------------------------------------------- \48\ See 80 FR at 26203-04. As discussed above, the no-action relief provided by No-Action Letter 13-08 to Non-SD/MSP trade option counterparties from part 45 reporting requirements is also conditioned on the Non-SD/MSP providing DMO with a $1 Billion Notice. See note 17 and accompanying text, supra. In 2013, 2014 and 2015, DMO received $1 Billion Notices from nine, sixteen and fifteen Non-SD/MSPs, respectively. Most of these $1 Billion Notices were filed on behalf of large, well known energy companies. \49\ See 80 FR at 26203-04. The Commission proposed that Non-SD/ MSPs who provide the Alternative Notice would not be required to demonstrate that they actually entered into trade options with an aggregate notional value of $1 billion or more in the applicable calendar year. \50\ 80 FR at 26203. \51\ See 80 FR at 26203-04. --------------------------------------------------------------------------- Electric Associations, COPE and Southern each recommended against adoption of the proposed Notice Requirement.\52\ Electric Associations commented that it would be burdensome for Non-SD/MSPs to track and value trade options ``in a manner different than their ordinary tracking, measuring and recordkeeping for other cash commodity transactions (intended to be physically settled),'' and that such burden would be greater for smaller entities, which would need to track and value their trade options throughout the year, than it would be for large Non-SD/MSP counterparties, which could merely send the proposed Alternative Notice email to the Commission in January of each year.\53\ Southern commented that elimination of the Form TO reporting requirement would not be as meaningful if the Commission adopts the proposed $1 Billion Notice, because a Non-SD/MSP would nevertheless be required ``to classify, value and track their trade options'' all towards compliance with the Notice Requirement.\54\ --------------------------------------------------------------------------- \52\ See Electric Associations at 4-6; Cope at 3; Southern at 2- 3. \53\ See Electric Associations at 5-6. \54\ See Southern at 2-3. --------------------------------------------------------------------------- AGA generally supported the Notice Requirement reporting framework, but commented that it is especially difficult to value many common types of trade options, such as long-term trade options and trade options with open-ended price or quantity terms, towards compliance with the proposed $1 Billion Notice.\55\ --------------------------------------------------------------------------- \55\ See AGA at 5-8. --------------------------------------------------------------------------- The Commission recognizes that the relief provided by eliminating Form TO and part 45 reporting for trade option counterparties that are Non-SD/MSPs would be more meaningful if Non-SD/MSP trade option counterparties are not required to classify, value and track their trade options for the exclusive purpose of complying with the proposed Notice Requirement. The Commission also recognizes that commenters have expressed that trade options, especially trade options that have a long duration or open price or quantity terms, may be difficult to value. Thus, the burdens on Non-SD/MSP trade option counterparties to classify, value and track their trade options towards compliance with the proposed Notice Requirement could be significant, and it is not evident that there are any steps these counterparties could take to more accurately classify, value and track their trade options, given the uncertainties inherent in this type of contract. Therefore, in view of the relatively limited use of such data (which would be submitted in aggregate form and not categorized by commodity or by instrumentation) for surveillance and regulatory oversight purposes, the Commission does not believe that the proposed Notice Requirement is necessary. Accordingly, for the reasons set forth above, the Commission has chosen not to adopt as part of this final rule the proposed Notice Requirement, i.e., the proposed $1 Billion Notice and Alternative Notice requirements. B. Revised Recordkeeping Requirements for Trade Option Counterparties That Are Non-SD/MSPs The Commission proposed to amend Sec. 32.3(b) to clarify that trade option counterparties that are Non-SD/MSPs need not identify their trade options in all recordkeeping by means of either a USI or UPI, as required by Sec. Sec. 45.5 and 45.7.\56\ Rather, with respect to part 45 recordkeeping requirements, the Commission proposed to clarify that trade option counterparties that are Non-SD/MSPs need only comply with the applicable recordkeeping provisions in Sec. 45.2,\57\ along with the following proposed qualification: The Non-SD/MSP trade option counterparty must obtain an LEI pursuant to Sec. 45.6 and provide such LEI to its counterparty if that counterparty is an SD/MSP. This proposed amendment would allow a trade option counterparty that is an SD/MSP to comply with applicable part 45 swap data recordkeeping and reporting obligations by properly identifying its Non-SD/MSP trade option counterparty by that counterparty's LEI.\58\ --------------------------------------------------------------------------- \56\ See 80 FR at 26204; see also notes 30-32 and accompanying text, supra. \57\ Trade option counterparties that are SD/MSPs shall continue to comply with the swap data recordkeeping requirements of part 45, as they would in connection with any other swap. See 17 CFR 32.3(c). \58\ An SD/MSP that otherwise would report the trade option at issue pursuant to Sec. 32.3(c) is required to identify its counterparty to the trade option by that counterparty's LEI in all recordkeeping as well as all swap data reporting. See 17 CFR 23.201, 23.204, and 45.6. --------------------------------------------------------------------------- Electric Associations, COPE, IECA and Southern each recommended further reduction of trade option recordkeeping requirements for Non- SD/MSPs.\59\ Electric Associations commented that various types of end- users currently maintain records of trade options in ``different systems, in different formats and for different retention periods than transactions referencing the same commodities that are intended to be financially settled, causing such records to not be retrievable in the same manner or format, or as quickly, as financially settled transactions.'' \60\ COPE commented that compliance with part 45 recordkeeping requirements in connection with trade options is burdensome for end-users, who must ``identify and segregate trade options from other physical contracts, maintain the material required by CFTC regulations, and be prepared to provide requested data to the CFTC within five [[Page 14971]] days.'' \61\ COPE recommended allowing physical end-users to keep records of trade options ``in a manner no less stringent than that used for their physical commercial agreements, with an obligation to provide copies to the CFTC in a commercially reasonable time upon request.'' \62\ Southern recommended that the Commission provide further relief by permitting Non-SD/MSPs to ``maintain the documents that they would otherwise already maintain in their ordinary course of business.'' \63\ Southern further commented that the recordkeeping requirements under Sec. 45.2(b) are ``very broad and vague,'' and that carrying forward these requirements will result in a ``tremendous burden'' on Non-SD/ MSPs, who ``will need to undergo a significant effort to ensure `full, complete, and systematic records, together will all pertinent data and memoranda' are maintained for every trade option.'' \64\ The Commission did not receive any comments specifically addressing the requirement that a Non-SD/MSP trade option counterparty would need to obtain an LEI pursuant to Sec. 45.6 and provide such LEI to its counterparty if that counterparty is an SD/MSP. --------------------------------------------------------------------------- \59\ See Electric Associations at 10-11; COPE at 2-3; IECA at 2- 5; Southern at 4-5. \60\ Electric Associations at 11. \61\ COPE at 2-3. \62\ Id. at 3. \63\ Southern at 4. \64\ Id. --------------------------------------------------------------------------- The Commission recognizes that requiring Non-SD/MSPs to comply with the swap data recordkeeping requirements of part 45 in connection with their trade options may result in burdens and costs for such participants, especially for small end users. The Commission believes that it would be appropriate to alleviate such burdens and costs for these market participants, without compromising the Commission's ability to properly oversee trade option activities. In particular, the Commission expects that Non-SD/MSPs maintain records concerning their trade option activities in the ordinary course of business. Furthermore, the Commission will remain able to collect information concerning trade option activities as necessary. For example, where a Non-SD/MSP enters into a trade option opposite an SD/MSP, the SD/MSP counterparty must continue to comply with all applicable swaps-related recordkeeping and reporting requirements of part 45 with respect to that transaction.\65\ In order to facilitate such reporting and recordkeeping by trade option counterparties that are SD/MSPs, the Commission will adopt, as proposed, the requirement that a Non-SD/MSP trade option counterparty must obtain an LEI pursuant to Sec. 45.6 and provide such LEI to its counterparty if that counterparty is an SD/MSP. As stated above, this requirement allows an SD/MSP to properly identify its Non-SD/MSP trade option counterparty by that counterparty's LEI in all swap data recordkeeping and reporting relating to that transaction.\66\ As a result, the Commission will be able to gain insight into any trade option entered into by a Non-SD/MSP opposite a counterparty that is an SD/MSP. Additionally, under Sec. 32.3(c)(2)[renumbered Sec. 32.3(c)(1)], Non-SD/MSPs that are clearing members shall continue to comply with part 20 reporting and recordkeeping requirements in connection with their trade option activities.\67\ --------------------------------------------------------------------------- \65\ Trade option counterparties that are SD/MSPs shall continue to comply with the swap data recordkeeping and reporting requirements of part 45, as they would in connection with any other swap. See 17 CFR 32.3(c). \66\ See 17 CFR 32.3(c). \67\ 17 CFR 32.3(c)(1); 17 CFR part 20. A clearing member, as defined in Sec. 20.1, means any person who is a member of, or enjoys the privilege of, clearing trades in its own name through a clearing organization. Section 20.6(d) requires that all books and records required to be kept under Sec. 20.6 shall be furnished upon request to the Commission along with any pertinent information concerning such positions, transactions, or activities. The recordkeeping duties imposed by Sec. 20.6 are in accordance with the requirements of Regulation 1.31. See 17 CFR 20.6(a)-(b). --------------------------------------------------------------------------- Accordingly, the Commission is amending regulation Sec. 32.3(b) by deleting the requirement that a Non-SD/MSP must comply with the recordkeeping requirements of part 45 (as otherwise applicable to any swap) in connection with its trade option activities, subject to the exception that a Non-SD/MSP trade option counterparty must obtain an LEI pursuant to Sec. 45.6 and provide such LEI to its counterparty if that counterparty is an SD/MSP. C. Applicability of Position Limits to Trade Options Existing Commission regulation Sec. 32.3(c)(2) subjects trade options to part 151 position limits, to the same extent that part 151 would apply in connection with any other swap.\68\ However, as stated above, part 151 has been vacated.\69\ Furthermore, trade options are not subject to position limits under the Commission's current part 150 position limit regime.\70\ --------------------------------------------------------------------------- \68\ See 17 CFR 32.3(c)(2). \69\ See note 13 and accompanying text, supra. \70\ Under current Sec. 150.2, position limits apply to agricultural futures in nine listed commodities and options on those futures. Since trade options are not options on futures, Sec. 150.2 position limits do not currently apply to such transactions. See 17 CFR 150.2. --------------------------------------------------------------------------- In the Proposal, the Commission proposed to amend existing Sec. 32.3(c) by deleting Sec. 32.3(c)(2), including the reference to vacated part 151, because position limits do not currently apply to trade options. The Commission explained in the Proposal that this would not be a substantive change.\71\ Accordingly, for the reasons stated above, the Commission is deleting the cross-reference to vacated part 151 position limits from Sec. 32.3(c), as proposed. --------------------------------------------------------------------------- \71\ 80 FR at 26204-05. --------------------------------------------------------------------------- Several commenters requested assurance from the Commission that federal speculative position limits will not apply to trade options in the future as a result of the pending position limits rulemaking, which remains in the proposed rulemaking stage.\72\ The Commission believes that federal speculative position limits should not apply to trade options. To that end, the Commission intends to address this matter in the context of the proposed rulemaking on position limits, if such rule is adopted. --------------------------------------------------------------------------- \72\ See, e.g., AGA at 8-9; Electric Associations at 14-15; CEWG at 2-3; APGA at 2; NGSA at 2; IECA at 6-7; Southern at 5-6. On December 12, 2013, the Commission published in the Federal Register a notice of proposed rulemaking to establish speculative position limits for 28 exempt and agricultural commodity futures and options contracts and the physical commodity swaps that are economically equivalent to such contracts, including trade options. See Position Limits for Derivatives, Proposed Rules, 78 FR 75680 (Dec. 12, 2013) (``Position Limits Proposal''). Therein, the Commission proposed replacing the cross-reference to vacated part 151 in Sec. 32.3(c)(2) with a cross-reference to amended part 150 position limits. See 78 FR at 75711. As an alternative in the Position Limits Proposal, the Commission proposed to exclude trade options from speculative position limits and proposed an exemption for commodity derivative contracts that offset the risk of trade options. --------------------------------------------------------------------------- III. Related Matters A. Cost Benefit Analysis 1. Background As discussed above, the Commission is adopting amendments to the trade option exemption in Sec. 32.3 that: (1) Eliminate the part 45 reporting requirement for trade option counterparties that are Non-SD/ MSPs; (2) eliminate the Form TO filing requirement; (3) eliminate the part 45 recordkeeping requirements for trade option counterparties that are Non-SD/MSPs, with the exception being that a Non-SD/MSP trade option counterparty must obtain an LEI pursuant to Sec. 45.6 and provide such LEI to its counterparty if that counterparty is an SD/MSP; and (4) eliminate reference to the now-vacated part 151 position limits. In issuing this final rule, the Commission [[Page 14972]] has reviewed all relevant comment letters and taken into account significant issues raised therein.\73\ --------------------------------------------------------------------------- \73\ See note 35 and accompanying text, supra. --------------------------------------------------------------------------- The Commission believes that the baseline for this cost and benefit consideration is existing Sec. 32.3. Although No-Action Letter 13-08, as discussed above, has offered no-action relief that is similar to certain aspects of the relief provided by this final rule, as a no- action letter, it only represents the position of the issuing Division or Office and cannot bind the Commission or other Commission staff.\74\ Consequently, the Commission believes that No-Action Letter 13-08 should not set or affect the baseline against which the Commission considers the costs and benefits of this final rule. --------------------------------------------------------------------------- \74\ See 17 CFR 140.99(a)(2). See also No-Action Letter 13-08 at 5. --------------------------------------------------------------------------- In the Proposal, the Commission invited comment on all aspects of its consideration of the costs and benefits associated with the Proposal, and the five factors the Commission is required to consider under CEA section 15(a). The Commission did not receive any comments from the public in this regard. 2. Costs The Commission has considered whether elimination of part 45 reporting and recordkeeping requirements for trade option counterparties that are Non-SD/MSPs and the Form TO filing requirement could potentially reduce the amount of information available to the Commission to fulfill its regulatory mission, which could be a cost to the markets or the general public. However, the Commission shall remain able to collect sufficient information concerning trade option activities to fulfill its regulatory mission.\75\ --------------------------------------------------------------------------- \75\ See notes 65-67 and accompanying text. --------------------------------------------------------------------------- The Commission expects that Non-SD/MSPs will continue to maintain records concerning their trade option activities in the ordinary course of business. Additionally, where a Non-SD/MSP enters into a trade option opposite an SD/MSP, the SD/MSP counterparty must continue to comply with all applicable swaps-related recordkeeping and reporting requirements of part 45 with respect to that transaction. In order to facilitate such reporting and recordkeeping by trade option counterparties that are SD/MSPs, the Commission has adopted a requirement in amended Sec. 32.3(b) that a Non-SD/MSP trade option counterparty must obtain an LEI pursuant to Sec. 45.6 and provide such LEI to its counterparty if that counterparty is an SD/MSP. As stated above, this requirement allows an SD/MSP to properly identify its Non- SD/MSP trade option counterparty by that counterparty's LEI in all swap data recordkeeping and reporting.\76\ Thus, the Commission may continue to gain insight into any trade option entered into by a Non-SD/MSP opposite a counterparty that is an SD/MSP. Furthermore, under Sec. 32.3(c)(1), Non-SD/MSPs that are clearing members shall continue to comply with part 20 reporting and recordkeeping requirements in connection with their trade option activities. Therefore, the Commission believes that this final rule will not impose any additional costs on the markets themselves, or on the general public. --------------------------------------------------------------------------- \76\ See 17 CFR 32.3(b). --------------------------------------------------------------------------- 3. Benefits The Commission believes that this final rule has the benefit of reducing the regulatory burdens imposed by Sec. 32.3(b), particularly through the elimination of part 45 reporting and recordkeeping requirements for trade option counterparties that are Non-SD/MSPs and the Form TO filing requirement, each of which commenters have described as burdensome.\77\ --------------------------------------------------------------------------- \77\ See notes 39, 42-46, and 59-64, and accompanying text, supra. --------------------------------------------------------------------------- 4. Section 15(a) Factors Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA or issuing certain orders.\78\ Section 15(a) further specifies that the costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the section 15(a) factors. --------------------------------------------------------------------------- \78\ 7 U.S.C. 19(a). --------------------------------------------------------------------------- a. Protection of Market Participants and the Public The Commission recognizes that there may be trade-offs between reducing regulatory burdens and ensuring that the Commission has sufficient information to fulfill its regulatory mission. As discussed above, the amendments to Sec. 32.3 reduce some of the regulatory burdens on end users while still maintaining the Commission's insight into the market for trade options, as necessary, to protect the public. b. Efficiency, Competitiveness, and Financial Integrity of Markets The Commission believes that the amendments to Sec. 32.3 will reduce reporting and recordkeeping burdens on Non-SD/MSPs in the market for trade options, and will allow them to reallocate resources dedicated to trade options reporting to other more efficient purposes. Despite the deletion of swaps-related recordkeeping requirements in connection with trade options between two Non-SD/MSP counterparties, the Commission shall remain able to collect information concerning trade options as necessary to use in its market oversight role, thereby fulfilling the purposes of the CEA.\79\ --------------------------------------------------------------------------- \79\ See, e.g., 7 U.S.C. 5 (stating that it is a purpose of the CEA to deter disruptions to market integrity). See also notes 65-67 and accompanying text. --------------------------------------------------------------------------- The Commission believes that the amendments to Sec. 32.3 will not have any competitiveness impact because the amendments apply to all Non-SD/MSP trade option counterparties in the same way. Although the obligations of SD/MSPs under the amended rule differ from those of Non- SD/MSPs, the Commission does not believe that these differences relate to any factors of competition between the two types of trade option counterparties. c. Price Discovery The Commission believes that the amendments to Sec. 32.3 will likely not have a significant impact on price discovery. Given that trade options are not subject to the real-time reporting requirements applicable to other swaps, meaning that current prices of consummated trade options are likely not available to many market participants, the Commission believes any effect on price discovery will be negligible. d. Sound Risk Management Practices The Commission believes that this final rule will not have a meaningful adverse effect on the risk management practices of the affected market participants and end users. Although the final rule is intended to reduce some of the regulatory burdens on certain market participants and end users, the Commission expects that where two Non- SD/MSPs enter into a trade option with one another, each participant will continue to maintain records concerning that contract, and its exercise, in its ordinary course of business. Furthermore, the Commission shall [[Page 14973]] remain able to collect information concerning trade options as necessary to fulfill its regulatory mission. e. Other Public Interest Considerations The Commission has not identified any other public interest considerations for this final rule. As noted above, these amendments to Sec. 32.3 will reduce some regulatory burdens while maintaining the Commission's access to information to fulfill its regulatory mission. B. Regulatory Flexibility Analysis The Regulatory Flexibility Act (``RFA'') requires that agencies consider whether the rules they issue will have a significant economic impact on a substantial number of small entities and, if so, provide a regulatory flexibility analysis respecting the impact.\80\ The final rule, in amending Sec. 32.3, will affect the recordkeeping and reporting requirements for Non-SD/MSP counterparties relying on the trade option exemption in Sec. 32.3. Pursuant to the eligibility requirements in Sec. 32.3(a), such a Non-SD/MSP may be an ECP and/or a commercial party (i.e., a producer, processor, or commercial user of, or a merchant handling the exempt or agricultural commodity that is the subject of the commodity option transaction, or the products or by- products thereof) offering or entering into the trade option solely for purposes related to its business as such. Although the Commission has previously determined that ECPs are not small entities for RFA purposes,\81\ the Commission is not in a position to determine whether non-ECP commercial parties affected by the amendments would include a substantial number of small entities on which the rule would have a significant economic impact because Sec. 32.3 does not subject such entities to a minimum net worth requirement, allowing commercial entities of any economic status to enter into exempt trade options. Therefore, pursuant to 5 U.S.C. 604, the Commission offers this regulatory flexibility analysis addressing the impact of the proposal on small entities: --------------------------------------------------------------------------- \80\ See 5 U.S.C. 601 et seq. \81\ See Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 25, 2001). --------------------------------------------------------------------------- (1) A Statement of the Need for, and Objectives of, the Rule. The Commission is taking this regulatory action to modify the trade option exemption in Sec. 32.3 in response to comments from Non-SD/MSPs that the regulatory burdens currently imposed by Sec. 32.3 are unnecessarily burdensome. The objective for issuing this rule is to reduce the recordkeeping and reporting obligations for trade option counterparties that are Non-SD/MSPs. As stated above, the legal basis for the rule is the Commission's plenary options authority in CEA section 4c(b). (2) Summary of the significant issues raised by public comment on the Commission's initial analysis, the Commission's assessment of such issues, and a statement of any changes made as a result of such comments. The Commission did not receive any comment on the initial regulatory flexibility analysis. (3) A description of, and an estimate of, the number of small entities to which the rule will apply or an explanation of why no such estimate is available. The small entities to which the rule may apply are those commercial parties that would not qualify as ECPs and/or that fall within the definition of a ``small entity'' under the RFA, including size standards established by the Small Business Administration.\82\ Although more than 300 Non-SD/MSPs have reported their use of trade options to the Commission annually through Form TO, the limited information provided by Form TO is not sufficient for the Commission to determine whether and how many of those Non-SD/MSPs qualify as small entities under the RFA. --------------------------------------------------------------------------- \82\ See id. See also 5 U.S.C. 601(3) (defining ``small business'' to have the same meaning as the term ``small business concern'' in the Small Business Act); 15 U.S.C. 632(a)(1) (defining ``small business concern'' to include an agricultural enterprise with annual receipts not in excess of $750,000); 13 CFR 121.201 (establishing size standards for small business concerns). (4) A description of the projected reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities which will be subject to the requirement and the type of professional skills necessary for preparation of the report --------------------------------------------------------------------------- or record. The rule will relieve trade option counterparties that are Non-SD/ MSPs, which may include small entities, from certain recordkeeping and reporting requirements that would otherwise apply to them in connection with their trade option activities, such as part 45 reporting and recordkeeping requirements, and Form TO reporting requirements. (5) A description of any significant alternatives to the rule which accomplish the stated objectives of applicable statutes and which minimize any significant economic impact of the rule on small entities. A potential alternative to relieving Non-SD/MSPs, which may include small entities, from certain recordkeeping and reporting requirements would be to either (1) not amend the current rule, which would maintain certain recordkeeping and reporting requirements that Non-SD/MSPs have represented are onerous, or (2) create a rule with more specific reporting and recordkeeping parameters for specific entities. The Commission believes that this final rule will have a positive economic impact on Non-SD/MSPs that are small entities because it would generally relax reporting and recordkeeping requirements across all trade option counterparties that are Non-SD/MSPs. Therefore, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that this final rule will not have a significant economic impact on a substantial number of small entities. C. Paperwork Reduction Act The purposes of the Paperwork Reduction Act of 1995 (``PRA'') are, among other things, to minimize the paperwork burden to the private sector, ensure that any collection of information by a government agency is put to the greatest possible uses, and minimize duplicative information collections across the government.\83\ The PRA applies to all information, ``regardless of form or format,'' whenever the government is ``obtaining, causing to be obtained [or] soliciting'' information, and includes required disclosure to third parties or the public, of facts or opinions, when the information collection calls for answers to identical questions posed to, or identical reporting or recordkeeping requirements imposed on, ten or more persons.\84\ The PRA requirements have been determined to include not only mandatory but also voluntary information collections, and include both written and oral communications.\85\ Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number from the Office of Management and Budget (``OMB''). --------------------------------------------------------------------------- \83\ See 44 U.S.C. 3501. \84\ See 44 U.S.C. 3502. \85\ See 5 CFR 1320.3(c)(1). --------------------------------------------------------------------------- The Commission believes that this final rule will not impose any new information collection requirements that require approval of OMB under the PRA. As a general matter, the final rule relaxes reporting and recordkeeping [[Page 14974]] requirements for Non-SD/MSPs entering into trade options in connection with their respective businesses, including the withdrawal and removal of Form TO. Additionally, the Commission has chosen not to adopt as part of this final rule the proposed Notice Requirement, i.e., the proposed $1 Billion Notice and Alternative Notice requirements. Since this final rule does not impose any new information collection requirements, the final rule therefore does not result in the creation of any new information collection subject to OMB review or approval under the PRA. Furthermore, the Commission believes that this final rule will not cause a material net reduction in the current part 45 PRA burden estimates (OMB control number 3038-0096) to the extent that such reduced recordkeeping and reporting burdens for trade option counterparties that are Non-SD/MSPs will be insubstantial when compared to the overall part 45 PRA burden estimate as it relates to Non-SD/ MSPs. Accordingly, since there is no longer a need for Form TO, and since there will not be any other reporting or recordkeeping requirement falling under OMB Control Number 3038-0106, the Commission will file a request with OMB to discontinue OMB Control Number 3038-0106 (Form TO, Annual Notice Filing for Counterparties to Unreported Trade Options). List of Subjects in 17 CFR Part 32 Commodity futures, Consumer protection, Fraud, Reporting and recordkeeping requirements. For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR part 32 as follows: PART 32--REGULATION OF COMMODITY OPTION TRANSACTIONS 0 1. The authority citation for part 32 continues to read as follows: Authority: 7 U.S.C. 1a, 2, 6c, and 12a, unless otherwise noted. 0 2. Revise Sec. 32.3 to read as follows: Sec. 32.3 Trade options. (a) Subject to paragraphs (b), (c), and (d) of this section, the provisions of the Act, including any Commission rule, regulation, or order thereunder, otherwise applicable to any other swap shall not apply to, and any person or group of persons may offer to enter into, enter into, confirm the execution of, maintain a position in, or otherwise conduct activity related to, any transaction in interstate commerce that is a commodity option transaction, provided that: (1) Such commodity option transaction must be offered by a person that has a reasonable basis to believe that the transaction is offered to an offeree as described in paragraph (a)(2) of this section. In addition, the offeror must be either: (i) An eligible contract participant, as defined in section 1a(18) of the Act, as further jointly defined or interpreted by the Commission and the Securities and Exchange Commission or expanded by the Commission pursuant to section 1a(18)(C) of the Act; or (ii) A producer, processor, or commercial user of, or a merchant handling the commodity that is the subject of the commodity option transaction, or the products or by-products thereof, and such offeror is offering or entering into the commodity option transaction solely for purposes related to its business as such; (2) The offeree must be a producer, processor, or commercial user of, or a merchant handling the commodity that is the subject of the commodity option transaction, or the products or by-products thereof, and such offeree is offered or entering into the commodity option transaction solely for purposes related to its business as such; and (3) The commodity option must be intended to be physically settled, so that, if exercised, the option would result in the sale of an exempt or agricultural commodity for immediate or deferred shipment or delivery. (b) In connection with any commodity option transaction entered into pursuant to paragraph (a) of this section, every counterparty that is not a swap dealer or major swap participant shall obtain a legal entity identifier pursuant to Sec. 45.6 of this chapter if the counterparty to the transaction involved is a swap dealer or major swap participant, and provide such legal entity identifier to the swap dealer or major swap participant counterparty. (c) In connection with any commodity option transaction entered into pursuant to paragraph (a) of this section, the following provisions shall apply to every trade option counterparty to the same extent that such provisions would apply to such person in connection with any other swap: (1) Part 20 (Swaps Large Trader Reporting) of this chapter; (2) Subpart J of part 23 (Duties of Swap Dealers and Major Swap Participants) of this chapter; (3) Sections 23.200, 23.201, 23.203, and 23.204 of subpart F of part 23 (Reporting and Recordkeeping Requirements for Swap Dealers and Major Swap Participants) of this chapter; and (4) Section 4s(e) of the Act (Capital and Margin Requirements for Swap Dealers and Major Swap Participants). (d) Any person or group of persons offering to enter into, entering into, confirming the execution of, maintaining a position in, or otherwise conducting activity related to a commodity option transaction in interstate commerce pursuant to paragraph (a) of this section shall remain subject to part 180 (Prohibition Against Manipulation) and Sec. 23.410 (Prohibition on Fraud, Manipulation, and other Abusive Practices) of this chapter and the antifraud, anti-manipulation, and enforcement provisions of sections 2, 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 13 of the Act. (e) The Commission may, by order, upon written request or upon its own motion, exempt any person, either unconditionally or on a temporary or other conditional basis, from any provisions of this part, and the provisions of the Act, including any Commission rule, regulation, or order thereunder, otherwise applicable to any other swap, other than Sec. 32.4, part 180 (Prohibition Against Manipulation), and Sec. 23.410 (Prohibition on Fraud, Manipulation, and other Abusive Practices) of this chapter, and the antifraud, anti-manipulation, and enforcement provisions of sections 2, 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 13 of the Act, if it finds, in its discretion, that it would not be contrary to the public interest to grant such exemption. Appendix A to 17 CFR part 32 [Removed] 0 3. Remove appendix A to 17 CFR part 32. Issued in Washington, DC, on March 16, 2016, by the Commission. Christopher J. Kirkpatrick, Secretary of the Commission. Note: The following appendices will not appear in the Code of Federal Regulations. Appendices to Trade Options--Commission Voting Summary, Chairman's Statement, and Commissioner's Statement Appendix 1--Commission Voting Summary On this matter, Chairman Massad and Commissioners Bowen and Giancarlo voted in the affirmative. No Commissioner voted in the negative. Appendix 2--Statement of Chairman Timothy G. Massad Today, the CFTC has taken another important step to address the concerns of commercial end-users who rely on the [[Page 14975]] derivatives markets to hedge risk--and who, we should always remember, did not cause the financial crisis. Trade options are a type of commodity option primarily used in the agricultural, energy and manufacturing sectors. Today, the Commission has finalized some amendments to its rules that recognize trade options are different from the swaps that are the focus of the Dodd-Frank reforms. These changes will reduce the burdens on these commercial businesses and allow them to better address commercial risk. The action we have taken today will eliminate any potential obligation of commercial participants, who are not swap dealers (SD) or major swap participants (MSP), to report trade options to a swap data repository. We also have eliminated the requirement that these entities must report their trade option activities on ``Form TO,'' and we have eliminated Form TO altogether. Further, we have ended the swap-related recordkeeping requirements for these end-users in connection with their trade option activities, although when transacting in trade options with SDs or MSPs, they will need to obtain a legal entity identifier. These changes will reduce burdens and costs for trade option counterparties that are not SDs or MSPs and, in particular, for smaller end-users. We also have decided not to impose a requirement in the proposed rule that a commercial participant would need to provide notice to the Commission of its trade options activities if such activities have a value of more than $1 billion in any calendar year. This followed careful consideration of the benefits of such information to the Commission, as compared with the difficulties commercial end- users would face in valuating, tracking, and classifying their trade options. I'm pleased that today we have addressed some reasonable concerns of commercial end-users who are the critical users of the derivatives markets. This is just one of the many actions we have taken in this regard. We will continue to evaluate our rules with an eye towards the concerns of these businesses. I thank my fellow Commissioners for supporting today's action. Appendix 3--Concurring Statement of Commissioner Sharon Y. Bowen Our ruling today provides additional clarity for trade options, but I encourage market participants to look at it closely. Trade options have been caught in a difficult legal bind. Congress sought to ensure that people could not evade our swaps regulations. It did so by both having a very broad definition of a swap, while also limiting this Commission's authority to exempt swaps by regulation. Fortunately, however, Congress preserved the Commission's authority to exempt trade options, which is the authority we are once again using today. Importantly, this exemption provides additional legal certainty that our interpretations cannot. But we cannot overrule the Commodity Exchange Act with regulations and interpretations; we will always be bound by that statute. Therefore, I want to caution anyone tempted to rely on an interpretation to avoid CFTC jurisdiction when it comes to options. I fully recognize the difficulty in distinguishing between different types of physical contracts. If a particular contract or an element of a contract serves an economic purpose similar to an option, I believe the best course of action is to exercise caution and not assume your contract is outside of our jurisdiction based on an interpretation. While it may seem fine for a person using these contracts to hope that the interpretation is not called into question, I believe it would be wise, as a backstop, to make sure it also falls within the trade option exemption. [FR Doc. 2016-06260 Filed 3-18-16; 8:45 am] BILLING CODE 6351-01-P
![14966 Federal Register / Vol. 81, No. 54 / Monday, March 21, 2016 / Rules and Regulations
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Country Entity License requirement Federal Register citation
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P.O. Box 28515, Dubai, U.A.E.; and
202 B Sama Tower Sheikh Tayed
Road #3 Dubai, U.A.E., P.O. Box
16048; and BC2–414, RAK Free
Trade Zone P.O. Box 16048 Ras Al
Khaimah, U.A.E.; and G1/RAK Free
Trade Zone RAK—U.A.E.; and G–17
Sheikh Tayed Road #3 Ras Al
Khaimah Free Trade Zone, Dubai,
U.A.E.; and P.O. Box 10559 Ras Al
Khaimah, U.A.E.; and P.O. Box
25344 Bur Dubai, Dubai, U.A.E.; and
Suite 608 Atrium Center, Bank St.,
Bur Dubai, Dubai, U.A.E., P.O. Box
16048; and Suite 706 Atrium Center
Bank Street, Bur Dubai, Dubai U.A.E.
3 (See alternate address under Hong
Kong).
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T.V. Joe Ouseppachan, Office 228, Al For all items subject to Presumption of denial ...... 81 FR [INSERT FR PAGE
Aatar Shopping Mall, P.O. Box the EAR. (See § 744.11 NUMBER], 3/21/16.
115824, Karama, Dubai, U.A.E. of the EAR).
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Teofila Logistics, Office 228, Al Aatar For all items subject to Presumption of denial ...... 81 FR [INSERT FR PAGE
Shopping Mall, P.O. Box 115824, the EAR. (See § 744.11 NUMBER], 3/21/16.
Karama, Dubai, U.A.E. of the EAR).
TGO General Trading LLC, a.k.a., the For all items subject to Presumption of denial ...... 81 FR [INSERT FR PAGE
following one alias: the EAR. (See § 744.11 NUMBER], 3/21/16.
—Three Green Orbit. of the EAR).
19th Floor Festival Tower, Festival
City, P.O. Box 36605, Dubai, U.A.E.
* * * * * *
* * * * * * *
Dated: March 17, 2016. counterparties that are not swap dealers Commission issued a final rule to repeal
Kevin J. Wolf, or major swap participants; and certain and replace part 32 of its regulations
Assistant Secretary for Export non-substantive amendments. concerning commodity options.2 The
Administration. DATES: Effective date: The effective date Commission undertook this effort to
[FR Doc. 2016–06406 Filed 3–18–16; 8:45 am] for this final rule is March 21, 2016. address section 721 of the Dodd-Frank
BILLING CODE 3510–33–P FOR FURTHER INFORMATION CONTACT: Act Wall Street Reform and Consumer
David N. Pepper, Special Counsel, Protection Act (the ‘‘Dodd-Frank Act’’ or
Division of Market Oversight, at (202) ‘‘Dodd-Frank’’),3 which, among other
COMMODITY FUTURES TRADING 418–5565 or dpepper@cftc.gov; or Mark things, amended the CEA to define the
COMMISSION Fajfar, Assistant General Counsel, Office term ‘‘swap’’ to include commodity
of the General Counsel, at (202) 418– options.4 Notably, § 32.2(a) provides the
17 CFR Part 32 6636 or mfajfar@cftc.gov, Commodity
RIN 3038–AE26 Futures Trading Commission, Three 2 See Commodity Options, 77 FR 25320 (Apr. 27,
Lafayette Centre, 1155 21st Street NW., 2012) (‘‘Commodity Options Release’’). The
Trade Options Washington, DC 20581. Commission also issued certain conforming
SUPPLEMENTARY INFORMATION: amendments to parts 3 and 33 of its regulations. See
AGENCY: Commodity Futures Trading id. The Commission’s regulations are set forth in
Commission. I. Introduction chapter I of title 17 of the Code of Federal
Regulations.
ACTION: Final rule. A. Background 3 Public Law 111–203, 124 Stat. 1376 (2010).
4 See 7 U.S.C. 1a(47)(A)(i) (defining ‘‘swap’’ to
SUMMARY: The Commodity Futures In April 2012, pursuant to section
include an option of any kind that is for the
Trading Commission (the 4c(b) of the Commodity Exchange Act purchase or sale, or based on the value, of 1 or more
‘‘Commission’’ or the ‘‘CFTC’’) is (the ‘‘CEA’’ or the ‘‘Act’’),1 the commodities’’); 7 U.S.C. 1a(47)(B)(i) (excluding
issuing a final rule to amend the limited options on futures from the definition of ‘‘swap’’);
trade options exemption in the 1 7 U.S.C. 6c(b) (providing that no person shall 7 U.S.C. 1a(36) (defining an ‘‘option’’ as an
offer to enter into, enter into or confirm the agreement, contract, or transaction that is of the
Commission’s regulations, as described
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execution of, any transaction involving any character of, or is commonly known to the trade as,
herein, with respect to the following commodity regulated under this chapter which is an ‘‘option’’). The Commission defines ‘‘commodity
subject areas: Reporting requirements of the character of, or is commonly known to the option’’ or ‘‘commodity option transaction’’ as any
for trade option counterparties that are trade as an ‘‘option’’ contrary to any rule, transaction or agreement in interstate commerce
regulation, or order of the Commission prohibiting which is or is held out to be of the character of,
not swap dealers or major swap any such transaction or allowing any such or is commonly known to the trade as, an ‘‘option,’’
participants; recordkeeping transaction under such terms and conditions as the ‘‘privilege,’’ ‘‘indemnity,’’ ‘‘bid,’’ ‘‘offer,’’ ‘‘call,’’
requirements for trade option Commission shall prescribe). ‘‘put,’’ ‘‘advance guaranty’’ or ‘‘decline guaranty’’
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preceding the date on which the trade Commission stated that Form TO was • Each counterparty to any swap
option is entered into, (4) in connection intended to provide the Commission must be identified in all recordkeeping
with any non-trade option swap trading with a level of visibility into the market by means of a single LEI; 31 and
activity, then such trade option must for unreported trade options that is • Each swap must be identified in all
also be reported pursuant to the ‘‘minimally intrusive,’’ thereby allowing recordkeeping by means of a unique
reporting requirements of part 45. If it to identify market participants from product identifier (‘‘UPI’’) and product
only one counterparty to a trade option whom it should collect additional classification system.32
has previously complied with the part information, or whom it should subject
D. Trade Options Notice of Proposed
45 reporting provisions, as described to additional reporting obligations in the
Rulemaking
above, then that counterparty shall be future.25
the part 45 reporting counterparty for On May 7, 2015, the Commission
C. Existing Recordkeeping Requirements published in the Federal Register a
the trade option. If both counterparties for Trade Option Counterparties That notice of proposed rulemaking that
have previously complied with the part Are Non-SD/MSPs
45 reporting provisions, as described included several proposed amendments
above, then the part 45 rules for Commission regulation § 32.3(b) to the limited exemption for trade
determining the reporting counterparty provides that in connection with any options in Commission regulation § 32.3
will apply.22 commodity option transaction that is (‘‘the Proposal’’).33 The Commission
To the extent that neither eligible for the trade option exemption, proposed modifications to the
counterparty to a trade option has every counterparty shall comply with recordkeeping and reporting
previously submitted reports to an SDR the swap data recordkeeping requirements in existing § 32.3(b) that
as a result of its swap trading activities requirements of part 45, as otherwise are applicable to trade option
as described above, then such trade applicable to any swap transaction.26 In counterparties that are Non-SD/MSPs.
option is not required to be reported discussing the trade option exemption The Commission also proposed a non-
pursuant to part 45. Instead, § 32.3(b)(2) conditions, however, the Commission substantive amendment to existing
requires that each counterparty to an noted in the preamble to the Commodity § 32.3(c) to eliminate the reference to
otherwise unreported trade option (i.e., Options Release that ‘‘[t]hese conditions the now-vacated part 151 position limits
a trade option that is not required to be include a recordkeeping requirement for requirements. These proposed
reported to an SDR by either any trade option activity, i.e., the amendments were generally intended to
counterparty pursuant to § 32.3(b)(1) recordkeeping requirements of 17 CFR relax reporting and recordkeeping
and part 45) completes and submits to 45.2,’’ and did not reference or discuss requirements where two commercial
the Commission an annual Form TO any other provision of part 45 that parties enter into trade options with
filing providing notice that the contains recordkeeping requirements.27 each other in connection with their
counterparty has entered into one or Pursuant to Commission regulation respective businesses while maintaining
more unreported trade options during § 45.2, records must be maintained by regulatory insight into the market for
the prior calendar year.23 Form TO all trade option participants and made unreported trade options.
requires an unreported trade option available to the Commission as specified The Commission requested comment
counterparty to: (1) Provide its name therein.28 Notably, § 45.2 applies on all aspects of the Proposal.34 In
different recordkeeping requirements, response, the Commission received nine
and contact information; (2) identify the
depending on the nature of the comment letters.35 Some of these
categories of commodities (agricultural,
counterparty. For example, if a trade
metals, energy, or other) underlying one
option counterparty is an SD or MSP, it 31 Each counterparty to any swap subject to the
or more unreported trade options which
would be subject to the recordkeeping Commission’s jurisdiction must be identified in all
it entered into during the prior calendar
provisions of § 45.2(a). If a counterparty recordkeeping and all swap data reporting pursuant
year; and (3) for each commodity to part 45 by means of a single LEI as specified in
is a Non-SD/MSP, it would be subject to
category, identify the approximate § 45.6. See 17 CFR 45.6.
the less stringent recordkeeping 32 17 CFR 45.7.
aggregate value of the underlying
requirements of § 45.2(b).29 Additional 33 Trade Options, Notice of Proposed Rulemaking,
physical commodities that it either
recordkeeping requirements in part 45, 80 FR 26200 (May 7, 2015), available at http://
delivered or received in connection separate and apart from those specified www.cftc.gov/ucm/groups/public/@
with the exercise of unreported trade in § 45.2 and which would apply to all lrfederalregister/documents/file/2015-11020a.pdf.
options during the prior calendar year. trade option counterparties by operation
34 See 80 FR at 26202. Initially, comments on the
Counterparties to otherwise unreported Proposal were due on or before June 8, 2015. Then,
of § 32.3(b) include: on June 2, 2015, the Commission extended the
trade options must submit a Form TO • Each swap must be identified in all comment period for the Proposal through June 22,
filing by March 1 following the end of recordkeeping by the use of a unique 2015, in light of the Commission’s then recently-
any calendar year during which they swap identifier (‘‘USI’’); 30 published interpretation concerning forward
entered into one or more unreported contracts with embedded volumetric optionality.
See Forward Contracts with Embedded Volumetric
trade options.24 In adopting § 32.3, the 25 See 77 FR at 25327–28. Optionality, 80 FR 28239 (May 18, 2015).
26 See 17 CFR 32.3(b). 35 All comment letters are available through the
22 See 17 CFR 45.8. 27 See 77 FR at 25327. Commission’s Web site at http://comments.cftc.gov/
23 Form TO is set out in appendix A to part 32 28 17 CFR 32.3(b), 45.2.
PublicComments/CommentList.aspx?id=1580.
of the Commission’s regulations. 29 In the case of Non-SD/MSPs, the primary Comments addressing the Trade Options NPRM
24 In 2014, approximately 330 Non-SD/MSPs recordkeeping requirements are set out in § 45.2(b), were received from the following parties: The
submitted Form TO filings to the Commission, which requires Non-SD/MSPs to keep ‘‘full, American Gas Association (‘‘AGA’’); The American
approximately 200 of which indicated delivering or complete and systematic records, together with all Public Gas Association (‘‘APGA’’); The American
receiving less than $10 million worth of physical pertinent data and memoranda, with respect to each Public Power Association, Edison Electric Institute,
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commodities in connection with exercising swap in which they are a counterparty.’’ Non-SD/ Electric Power Supply Association, Large Public
unreported trade options in 2013, which was the MSPs are also subject to the other general Power Council, National Rural Electric Cooperative
first year in which § 32.3 and Form TO reporting recordkeeping requirements of § 45.2, such as the Association (‘‘Electric Associations’’); The Coalition
became effective. In 2015, approximately 349 Non- requirement that records must be maintained for 5 of Physical Energy Companies (‘‘COPE’’); Cogen
SD/MSPs submitted Form TO filings to the years following the final termination of the swap Technologies Linden Venture, L.P. (‘‘Linden’’); The
Commission, approximately 150 of which indicated and must be retrievable within 5 days. See 17 CFR Commercial Energy Working Group (‘‘CEWG’’); The
delivering or receiving less than $10 million worth 45.2(c). International Energy Credit Association (‘‘IECA’’);
of physical commodities. 30 17 CFR 45.5. The Natural Gas Supply Association (‘‘NGSA’’); and
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comment letters raised issues requirements for trade option personnel, legal advice and
concerning the treatment of trade counterparties that are Non-SD/MSPs.39 infrastructure,’’ and completing Form
options, and, more generally, No commenter opposed deletion. TO requires an end-user to
commodity options, in relation to the The Commission recognizes that ‘‘continuously track the commodity
swap definition.36 However, in the many parties who are not SDs or MSPs trade options it enters into, identify
Proposal, the Commission did not and do not engage in significant swap which of the commodity trade options
address the general treatment of activity apart from trade options do not have and have not been reported, and
commodity options, including trade have the infrastructure in place to track the commodity trade options
options, in relation to the swap support part 45 reporting to an SDR and exercised. . . .’’ 44 CEWG commented
definition, nor did the Commission that instituting such infrastructure that ‘‘elimination of the obligation to file
solicit comments on such definitional would be costly, particularly for small Form TO will allow [Non-SD/MSP trade
issues. Rather, as discussed above, the end users. Therefore, the Commission option counterparties] to (i) reduce the
Proposal contained only specific believes that these parties, who apart amount of resources dedicated to
proposed modifications to the from their trade option activities would identifying and tracking their trade
recordkeeping and reporting have very limited reporting obligations options and (ii) reallocate resources for
requirements in § 32.3(b) that are under part 45, should not be required to optimal utilization.’’ 45 COPE
applicable to trade option comply with part 45 reporting commented that filing the actual Form
counterparties that are Non-SD/MSPs, requirements solely on the basis of TO is not burdensome, but rather it is
as well as a proposed non-substantive having had to report a minimal number the underlying tracking that is
amendment to § 32.3(c). Since issues of historical or inter-affiliate swaps burdensome.46
concerning the treatment of commodity during the same twelve-month period. The Commission recognizes that
options in relation to the swap Accordingly, for the reasons set forth completing Form TO imposes costs and
definition fall outside the scope of the above and in the Proposal, the burdens on Non-SD/MSPs who enter
Proposal, the Commission declines to Commission is adopting amended into trade options, especially small end
address such definitional issues in this regulation § 32.3(b), as proposed, by users. The Commission notes that Form
final rule. eliminating part 45 reporting TO data, which is submitted annually,
The following section will address the requirements for trade option consists of approximated aggregate
comments received on specific aspects counterparties that are Non-SD/MSPs. values of otherwise unreported trade
of the Proposal in connection with options exercised within three broad
2. Elimination of the Form TO Notice
explaining each of the amended ranges, and within four ‘‘commodity
Filing Requirement
regulations adopted herein. categories.’’ 47 The Commission believes
The Commission proposed to amend that, in view of the relatively limited
II. Discussion of Revised Regulations Commission regulation § 32.3(b) such surveillance and regulatory oversight
A. Revised Reporting Requirements for that a Non-SD/MSP would not be benefits to be derived by the
Trade Option Counterparties That Are required to report otherwise unreported Commission from Form TO data, which
Non-SD/MSPs trade options on Form TO.40 The is approximated, aggregated and
Commission further proposed to delete undifferentiated, completion and
1. Elimination of Part 45 Reporting
Form TO from appendix A to part 32. submission of Form TO should no
Requirements for Trade Option
The Commission explained in the longer be required.
Counterparties That Are Non-SD/MSPs
Proposal that these proposed Accordingly, for the reasons set forth
The Commission proposed to amend amendments were intended to reduce above, the Commission is amending
§ 32.3(b) such that a Non-SD/MSP will reporting burdens for Non-SD/MSP regulation § 32.3(b), as proposed, by
under no circumstances be subject to trade option counterparties, many of deleting the Form TO reporting
part 45 reporting requirements with whom face significant costs in preparing requirement in connection with
respect to its trade option activities.37 Form TO.41 otherwise unreported trade options.
The Commission explained in the AGA, Electric Associations, CEWG, Additionally, as proposed, the
Proposal that this proposed amendment APGA and NGSA each supported Commission is deleting appendix A to
was intended to reduce reporting deletion of the Form TO reporting part 32, which contains Form TO.
burdens for Non-SD/MSP trade option requirement.42 No commenter opposed
counterparties, many of whom face 3. The Proposed $1 Billion Notice and
deletion of Form TO. AGA commented
technical and logistical impediments Alternative Notice Provisions Have Not
that the proposed elimination of Form
that prevent timely compliance with Been Adopted
TO could ‘‘reduce a significant
part 45 reporting requirements.38 compliance cost and obviate the need The Commission proposed to further
NGSA, IECA, and APGA each for small end-users to track and report amend § 32.3(b) by adding a new
supported deletion of part 45 reporting their trade options activity for a given requirement that Non-SD/MSP trade
calendar year.’’ 43 Electric Associations
Southern Company Services Inc. on behalf of and commented that ‘‘Form TO imposes 44 See Electric Associations at 5.
as agent for Alabama Power Co., Georgia Power Co., 45 CEWG at 2.
Gulf Power Co., Mississippi Power Co., and
substantial costs on end-users for 46 See COPE at 2.
Southern Power Co. (‘‘Southern’’). 47 Form TO requires Non-SD/MSP trade option
36 See, e.g., IECA at 8–13; Linden at 2–8; Electric 39 See NGSA at 1 (‘‘The elimination of Part 45
counterparties to report the approximate size of
Associations at 6–10; AGA at 2–5; and Southern at reporting . . . for [Non-SD/MSP] counterparties to
unreported trade options exercised in the prior
6–8. trade options will eliminate costs that stem from
calendar year within three dollar-value ranges: Less
those reporting efforts, and this is a welcome
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37 See 80 FR at 26203. Note that trade option
than $10 million, between $10 million and $100
counterparties that are SD/MSPs would continue to change in reporting requirements.’’); see also IECA
million, and over $100 million. Form TO also
comply with the swap data reporting requirements at 2; APGA at 2.
40 See 80 FR at 26203.
requires Non-SD/MSP trade option counterparties
of part 45, including where the counterparty is a to indicate the ‘‘commodity category’’ in which they
41 Id.
Non-SD/MSP, as they would in connection with entered into one or more unreported trade options:
any other swap transaction. See 17 CFR 32.3(c)(4) 42 See, e.g., AGA at 2, 8; Electric Associations at
Agricultural, metals, energy or ‘‘other.’’ See
[renumbered 32.3(c)(3)], 23.201 and 23.204. 1, 5; CEWG at 2; APGA at 2; NGSA at 1. appendix A to part 32 of the Commission’s
38 Id. 43 AGA at 8. regulations.
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days.’’ 61 COPE recommended allowing such reporting and recordkeeping by In the Proposal, the Commission
physical end-users to keep records of trade option counterparties that are SD/ proposed to amend existing § 32.3(c) by
trade options ‘‘in a manner no less MSPs, the Commission will adopt, as deleting § 32.3(c)(2), including the
stringent than that used for their proposed, the requirement that a Non- reference to vacated part 151, because
physical commercial agreements, with SD/MSP trade option counterparty must position limits do not currently apply to
an obligation to provide copies to the obtain an LEI pursuant to § 45.6 and trade options. The Commission
CFTC in a commercially reasonable time provide such LEI to its counterparty if explained in the Proposal that this
upon request.’’ 62 Southern that counterparty is an SD/MSP. As would not be a substantive change.71
recommended that the Commission stated above, this requirement allows an Accordingly, for the reasons stated
provide further relief by permitting SD/MSP to properly identify its Non- above, the Commission is deleting the
Non-SD/MSPs to ‘‘maintain the SD/MSP trade option counterparty by cross-reference to vacated part 151
documents that they would otherwise that counterparty’s LEI in all swap data position limits from § 32.3(c), as
already maintain in their ordinary recordkeeping and reporting relating to proposed.
course of business.’’ 63 Southern further that transaction.66 As a result, the Several commenters requested
commented that the recordkeeping Commission will be able to gain insight assurance from the Commission that
requirements under § 45.2(b) are ‘‘very into any trade option entered into by a federal speculative position limits will
broad and vague,’’ and that carrying Non-SD/MSP opposite a counterparty not apply to trade options in the future
forward these requirements will result that is an SD/MSP. Additionally, under as a result of the pending position limits
in a ‘‘tremendous burden’’ on Non-SD/ § 32.3(c)(2)[renumbered § 32.3(c)(1)], rulemaking, which remains in the
MSPs, who ‘‘will need to undergo a Non-SD/MSPs that are clearing proposed rulemaking stage.72 The
significant effort to ensure ‘full, members shall continue to comply with Commission believes that federal
complete, and systematic records, part 20 reporting and recordkeeping speculative position limits should not
together will all pertinent data and requirements in connection with their apply to trade options. To that end, the
memoranda’ are maintained for every trade option activities.67 Commission intends to address this
trade option.’’ 64 The Commission did Accordingly, the Commission is matter in the context of the proposed
not receive any comments specifically amending regulation § 32.3(b) by rulemaking on position limits, if such
addressing the requirement that a Non- deleting the requirement that a Non-SD/ rule is adopted.
SD/MSP trade option counterparty MSP must comply with the III. Related Matters
would need to obtain an LEI pursuant recordkeeping requirements of part 45
to § 45.6 and provide such LEI to its (as otherwise applicable to any swap) in A. Cost Benefit Analysis
counterparty if that counterparty is an connection with its trade option 1. Background
SD/MSP. activities, subject to the exception that
The Commission recognizes that As discussed above, the Commission
a Non-SD/MSP trade option is adopting amendments to the trade
requiring Non-SD/MSPs to comply with counterparty must obtain an LEI
the swap data recordkeeping option exemption in § 32.3 that: (1)
pursuant to § 45.6 and provide such LEI Eliminate the part 45 reporting
requirements of part 45 in connection to its counterparty if that counterparty
with their trade options may result in requirement for trade option
is an SD/MSP. counterparties that are Non-SD/MSPs;
burdens and costs for such participants,
especially for small end users. The C. Applicability of Position Limits to (2) eliminate the Form TO filing
Commission believes that it would be Trade Options requirement; (3) eliminate the part 45
appropriate to alleviate such burdens recordkeeping requirements for trade
Existing Commission regulation option counterparties that are Non-SD/
and costs for these market participants, § 32.3(c)(2) subjects trade options to part
without compromising the MSPs, with the exception being that a
151 position limits, to the same extent Non-SD/MSP trade option counterparty
Commission’s ability to properly that part 151 would apply in connection
oversee trade option activities. In must obtain an LEI pursuant to § 45.6
with any other swap.68 However, as and provide such LEI to its counterparty
particular, the Commission expects that stated above, part 151 has been
Non-SD/MSPs maintain records if that counterparty is an SD/MSP; and
vacated.69 Furthermore, trade options (4) eliminate reference to the now-
concerning their trade option activities are not subject to position limits under
in the ordinary course of business. vacated part 151 position limits. In
the Commission’s current part 150 issuing this final rule, the Commission
Furthermore, the Commission will position limit regime.70
remain able to collect information
71 80 FR at 26204–05.
concerning trade option activities as 66 See 17 CFR 32.3(c). 72 See, e.g., AGA at 8–9; Electric Associations at
necessary. For example, where a Non- 67 17 CFR 32.3(c)(1); 17 CFR part 20. A clearing 14–15; CEWG at 2–3; APGA at 2; NGSA at 2; IECA
SD/MSP enters into a trade option member, as defined in § 20.1, means any person at 6–7; Southern at 5–6. On December 12, 2013, the
opposite an SD/MSP, the SD/MSP who is a member of, or enjoys the privilege of, Commission published in the Federal Register a
clearing trades in its own name through a clearing
counterparty must continue to comply organization. Section 20.6(d) requires that all books
notice of proposed rulemaking to establish
with all applicable swaps-related speculative position limits for 28 exempt and
and records required to be kept under § 20.6 shall agricultural commodity futures and options
recordkeeping and reporting be furnished upon request to the Commission along contracts and the physical commodity swaps that
requirements of part 45 with respect to with any pertinent information concerning such are economically equivalent to such contracts,
positions, transactions, or activities. The
that transaction.65 In order to facilitate recordkeeping duties imposed by § 20.6 are in
including trade options. See Position Limits for
Derivatives, Proposed Rules, 78 FR 75680 (Dec. 12,
accordance with the requirements of Regulation 2013) (‘‘Position Limits Proposal’’). Therein, the
61 COPE at 2–3. 1.31. See 17 CFR 20.6(a)–(b). Commission proposed replacing the cross-reference
62 Id. at 3.
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68 See 17 CFR 32.3(c)(2).
to vacated part 151 in § 32.3(c)(2) with a cross-
63 Southern at 4. 69 See note 13 and accompanying text, supra.
reference to amended part 150 position limits. See
64 Id. 70 Under current § 150.2, position limits apply to 78 FR at 75711. As an alternative in the Position
65 Trade option counterparties that are SD/MSPs agricultural futures in nine listed commodities and Limits Proposal, the Commission proposed to
shall continue to comply with the swap data options on those futures. Since trade options are not exclude trade options from speculative position
recordkeeping and reporting requirements of part options on futures, § 150.2 position limits do not limits and proposed an exemption for commodity
45, as they would in connection with any other currently apply to such transactions. See 17 CFR derivative contracts that offset the risk of trade
swap. See 17 CFR 32.3(c). 150.2. options.
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![Federal Register / Vol. 81, No. 54 / Monday, March 21, 2016 / Rules and Regulations 14973
remain able to collect information and reporting obligations for trade A potential alternative to relieving
concerning trade options as necessary to option counterparties that are Non-SD/ Non-SD/MSPs, which may include
fulfill its regulatory mission. MSPs. As stated above, the legal basis small entities, from certain
for the rule is the Commission’s plenary recordkeeping and reporting
e. Other Public Interest Considerations
options authority in CEA section 4c(b). requirements would be to either (1) not
The Commission has not identified (2) Summary of the significant issues amend the current rule, which would
any other public interest considerations raised by public comment on the maintain certain recordkeeping and
for this final rule. As noted above, these Commission’s initial analysis, the reporting requirements that Non-SD/
amendments to § 32.3 will reduce some Commission’s assessment of such MSPs have represented are onerous, or
regulatory burdens while maintaining issues, and a statement of any (2) create a rule with more specific
the Commission’s access to information changes made as a result of such reporting and recordkeeping parameters
to fulfill its regulatory mission. comments. for specific entities. The Commission
B. Regulatory Flexibility Analysis believes that this final rule will have a
The Commission did not receive any
positive economic impact on Non-SD/
The Regulatory Flexibility Act comment on the initial regulatory
MSPs that are small entities because it
(‘‘RFA’’) requires that agencies consider flexibility analysis.
would generally relax reporting and
whether the rules they issue will have (3) A description of, and an estimate of, recordkeeping requirements across all
a significant economic impact on a the number of small entities to trade option counterparties that are
substantial number of small entities which the rule will apply or an Non-SD/MSPs.
and, if so, provide a regulatory explanation of why no such Therefore, the Chairman, on behalf of
flexibility analysis respecting the estimate is available. the Commission, hereby certifies
impact.80 The final rule, in amending The small entities to which the rule pursuant to 5 U.S.C. 605(b) that this
§ 32.3, will affect the recordkeeping and may apply are those commercial parties final rule will not have a significant
reporting requirements for Non-SD/MSP that would not qualify as ECPs and/or economic impact on a substantial
counterparties relying on the trade that fall within the definition of a number of small entities.
option exemption in § 32.3. Pursuant to ‘‘small entity’’ under the RFA, including
the eligibility requirements in § 32.3(a), size standards established by the Small C. Paperwork Reduction Act
such a Non-SD/MSP may be an ECP Business Administration.82 Although The purposes of the Paperwork
and/or a commercial party (i.e., a more than 300 Non-SD/MSPs have Reduction Act of 1995 (‘‘PRA’’) are,
producer, processor, or commercial user reported their use of trade options to the among other things, to minimize the
of, or a merchant handling the exempt Commission annually through Form TO, paperwork burden to the private sector,
or agricultural commodity that is the the limited information provided by ensure that any collection of
subject of the commodity option Form TO is not sufficient for the information by a government agency is
transaction, or the products or by- Commission to determine whether and put to the greatest possible uses, and
products thereof) offering or entering how many of those Non-SD/MSPs minimize duplicative information
into the trade option solely for purposes qualify as small entities under the RFA. collections across the government.83
related to its business as such. Although (4) A description of the projected The PRA applies to all information,
the Commission has previously reporting, recordkeeping, and other ‘‘regardless of form or format,’’
determined that ECPs are not small compliance requirements of the whenever the government is ‘‘obtaining,
entities for RFA purposes,81 the rule, including an estimate of the causing to be obtained [or] soliciting’’
Commission is not in a position to classes of small entities which will information, and includes required
determine whether non-ECP commercial be subject to the requirement and disclosure to third parties or the public,
parties affected by the amendments the type of professional skills of facts or opinions, when the
would include a substantial number of necessary for preparation of the information collection calls for answers
small entities on which the rule would report or record. to identical questions posed to, or
have a significant economic impact The rule will relieve trade option identical reporting or recordkeeping
because § 32.3 does not subject such counterparties that are Non-SD/MSPs, requirements imposed on, ten or more
entities to a minimum net worth which may include small entities, from persons.84 The PRA requirements have
requirement, allowing commercial certain recordkeeping and reporting been determined to include not only
entities of any economic status to enter requirements that would otherwise mandatory but also voluntary
into exempt trade options. Therefore, apply to them in connection with their information collections, and include
pursuant to 5 U.S.C. 604, the trade option activities, such as part 45 both written and oral
Commission offers this regulatory reporting and recordkeeping communications.85 Under the PRA, an
flexibility analysis addressing the requirements, and Form TO reporting agency may not conduct or sponsor, and
impact of the proposal on small entities: requirements. a person is not required to respond to,
(1) A Statement of the Need for, and (5) A description of any significant a collection of information unless it
Objectives of, the Rule. alternatives to the rule which displays a currently valid control
The Commission is taking this accomplish the stated objectives of number from the Office of Management
regulatory action to modify the trade applicable statutes and which and Budget (‘‘OMB’’).
option exemption in § 32.3 in response minimize any significant economic The Commission believes that this
to comments from Non-SD/MSPs that impact of the rule on small entities. final rule will not impose any new
the regulatory burdens currently information collection requirements that
require approval of OMB under the
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imposed by § 32.3 are unnecessarily 82 See id. See also 5 U.S.C. 601(3) (defining
burdensome. The objective for issuing ‘‘small business’’ to have the same meaning as the PRA. As a general matter, the final rule
term ‘‘small business concern’’ in the Small relaxes reporting and recordkeeping
this rule is to reduce the recordkeeping Business Act); 15 U.S.C. 632(a)(1) (defining ‘‘small
business concern’’ to include an agricultural
80 See 83 See 44 U.S.C. 3501.
5 U.S.C. 601 et seq. enterprise with annual receipts not in excess of
81 See 84 See 44 U.S.C. 3502.
Opting Out of Segregation, 66 FR 20740, $750,000); 13 CFR 121.201 (establishing size
20743 (Apr. 25, 2001). standards for small business concerns). 85 See 5 CFR 1320.3(c)(1).
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![14974 Federal Register / Vol. 81, No. 54 / Monday, March 21, 2016 / Rules and Regulations
requirements for Non-SD/MSPs entering (1) Such commodity option (4) Section 4s(e) of the Act (Capital
into trade options in connection with transaction must be offered by a person and Margin Requirements for Swap
their respective businesses, including that has a reasonable basis to believe Dealers and Major Swap Participants).
the withdrawal and removal of Form that the transaction is offered to an (d) Any person or group of persons
TO. Additionally, the Commission has offeree as described in paragraph (a)(2) offering to enter into, entering into,
chosen not to adopt as part of this final of this section. In addition, the offeror confirming the execution of,
rule the proposed Notice Requirement, must be either: maintaining a position in, or otherwise
i.e., the proposed $1 Billion Notice and (i) An eligible contract participant, as conducting activity related to a
Alternative Notice requirements. Since defined in section 1a(18) of the Act, as commodity option transaction in
this final rule does not impose any new further jointly defined or interpreted by interstate commerce pursuant to
information collection requirements, the the Commission and the Securities and paragraph (a) of this section shall
final rule therefore does not result in the Exchange Commission or expanded by remain subject to part 180 (Prohibition
creation of any new information the Commission pursuant to section Against Manipulation) and § 23.410
collection subject to OMB review or 1a(18)(C) of the Act; or (Prohibition on Fraud, Manipulation,
approval under the PRA. Furthermore, (ii) A producer, processor, or and other Abusive Practices) of this
the Commission believes that this final commercial user of, or a merchant chapter and the antifraud, anti-
rule will not cause a material net handling the commodity that is the manipulation, and enforcement
reduction in the current part 45 PRA subject of the commodity option provisions of sections 2, 4b, 4c, 4o,
burden estimates (OMB control number transaction, or the products or by- 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and
3038–0096) to the extent that such products thereof, and such offeror is 13 of the Act.
reduced recordkeeping and reporting offering or entering into the commodity (e) The Commission may, by order,
burdens for trade option counterparties option transaction solely for purposes upon written request or upon its own
that are Non-SD/MSPs will be related to its business as such; motion, exempt any person, either
insubstantial when compared to the (2) The offeree must be a producer, unconditionally or on a temporary or
overall part 45 PRA burden estimate as processor, or commercial user of, or a other conditional basis, from any
it relates to Non-SD/MSPs. merchant handling the commodity that provisions of this part, and the
Accordingly, since there is no longer is the subject of the commodity option provisions of the Act, including any
a need for Form TO, and since there will transaction, or the products or by- Commission rule, regulation, or order
not be any other reporting or products thereof, and such offeree is thereunder, otherwise applicable to any
recordkeeping requirement falling under offered or entering into the commodity other swap, other than § 32.4, part 180
OMB Control Number 3038–0106, the option transaction solely for purposes (Prohibition Against Manipulation), and
Commission will file a request with related to its business as such; and § 23.410 (Prohibition on Fraud,
OMB to discontinue OMB Control (3) The commodity option must be Manipulation, and other Abusive
Number 3038–0106 (Form TO, Annual intended to be physically settled, so Practices) of this chapter, and the
Notice Filing for Counterparties to that, if exercised, the option would antifraud, anti-manipulation, and
Unreported Trade Options). result in the sale of an exempt or enforcement provisions of sections 2,
agricultural commodity for immediate 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c,
List of Subjects in 17 CFR Part 32
or deferred shipment or delivery. 6d, 9, and 13 of the Act, if it finds, in
Commodity futures, Consumer (b) In connection with any commodity its discretion, that it would not be
protection, Fraud, Reporting and option transaction entered into pursuant contrary to the public interest to grant
recordkeeping requirements. to paragraph (a) of this section, every such exemption.
For the reasons stated in the counterparty that is not a swap dealer or
preamble, the Commodity Futures major swap participant shall obtain a Appendix A to 17 CFR part 32 [Removed]
Trading Commission amends 17 CFR legal entity identifier pursuant to § 45.6 ■ 3. Remove appendix A to 17 CFR part
part 32 as follows: of this chapter if the counterparty to the 32.
transaction involved is a swap dealer or Issued in Washington, DC, on March 16,
PART 32—REGULATION OF major swap participant, and provide 2016, by the Commission.
COMMODITY OPTION TRANSACTIONS such legal entity identifier to the swap Christopher J. Kirkpatrick,
dealer or major swap participant Secretary of the Commission.
■ 1. The authority citation for part 32
counterparty.
continues to read as follows: (c) In connection with any commodity Note: The following appendices will not
Authority: 7 U.S.C. 1a, 2, 6c, and 12a, option transaction entered into pursuant appear in the Code of Federal Regulations.
unless otherwise noted. to paragraph (a) of this section, the
■ 2. Revise § 32.3 to read as follows: following provisions shall apply to Appendices to Trade Options—
every trade option counterparty to the Commission Voting Summary,
§ 32.3 Trade options. same extent that such provisions would Chairman’s Statement, and
(a) Subject to paragraphs (b), (c), and apply to such person in connection with Commissioner’s Statement
(d) of this section, the provisions of the any other swap: Appendix 1—Commission Voting
Act, including any Commission rule, (1) Part 20 (Swaps Large Trader Summary
regulation, or order thereunder, Reporting) of this chapter;
otherwise applicable to any other swap On this matter, Chairman Massad and
(2) Subpart J of part 23 (Duties of
Commissioners Bowen and Giancarlo voted
shall not apply to, and any person or Swap Dealers and Major Swap in the affirmative. No Commissioner voted in
group of persons may offer to enter into, Participants) of this chapter;
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the negative.
enter into, confirm the execution of, (3) Sections 23.200, 23.201, 23.203,
maintain a position in, or otherwise and 23.204 of subpart F of part 23 Appendix 2—Statement of Chairman
conduct activity related to, any (Reporting and Recordkeeping Timothy G. Massad
transaction in interstate commerce that Requirements for Swap Dealers and Today, the CFTC has taken another
is a commodity option transaction, Major Swap Participants) of this important step to address the concerns of
provided that: chapter; and commercial end-users who rely on the
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![Federal Register / Vol. 81, No. 54 / Monday, March 21, 2016 / Rules and Regulations 14975
derivatives markets to hedge risk—and who, I fully recognize the difficulty in organizations, methodologies for
we should always remember, did not cause distinguishing between different types of eliciting patient preferences, and
the financial crisis. Trade options are a type physical contracts. If a particular contract or strategies for communicating benefits,
of commodity option primarily used in the an element of a contract serves an economic
agricultural, energy and manufacturing purpose similar to an option, I believe the
risks, and clinical outcomes to patients
sectors. Today, the Commission has finalized best course of action is to exercise caution and research subjects. Members will be
some amendments to its rules that recognize and not assume your contract is outside of invited to serve for overlapping terms of
trade options are different from the swaps our jurisdiction based on an interpretation. up to 4 years. Almost all non-Federal
that are the focus of the Dodd-Frank reforms. While it may seem fine for a person using members of this committee serve as
These changes will reduce the burdens on these contracts to hope that the interpretation Special Government Employees. The
these commercial businesses and allow them is not called into question, I believe it would
to better address commercial risk.
core of voting members may include one
be wise, as a backstop, to make sure it also technically qualified member, selected
The action we have taken today will falls within the trade option exemption.
eliminate any potential obligation of by the Commissioner or designee, who
commercial participants, who are not swap [FR Doc. 2016–06260 Filed 3–18–16; 8:45 am] is identified with consumer interests
dealers (SD) or major swap participants BILLING CODE 6351–01–P and is recommended by either a
(MSP), to report trade options to a swap data consortium of consumer-oriented
repository. We also have eliminated the
requirement that these entities must report
organizations or other interested
DEPARTMENT OF HEALTH AND persons.
their trade option activities on ‘‘Form TO,’’
and we have eliminated Form TO altogether.
HUMAN SERVICES
The function of the Committee is to
Further, we have ended the swap-related provide advice to the Commissioner on
recordkeeping requirements for these end- Food and Drug Administration
complex issues relating to medical
users in connection with their trade option
activities, although when transacting in trade 21 CFR Part 14 devices, the regulation of devices, and
options with SDs or MSPs, they will need to their use by patients. Agency guidance
[Docket No. FDA–2016–N–0001]
obtain a legal entity identifier. These changes and policies, clinical trial or registry
will reduce burdens and costs for trade design, patient preference study design,
option counterparties that are not SDs or
Patient Engagement Advisory
Committee benefit-risk determinations, device
MSPs and, in particular, for smaller end- labeling, unmet clinical needs, available
users. AGENCY: Food and Drug Administration,
We also have decided not to impose a alternatives, patient reported outcomes,
requirement in the proposed rule that a HHS. and device-related quality of life or
commercial participant would need to ACTION: Final rule. health status issues are among the topics
provide notice to the Commission of its trade that may be considered by the
options activities if such activities have a SUMMARY: The Food and Drug Committee. The Committee provides
value of more than $1 billion in any calendar Administration (FDA) is amending the relevant skills and perspectives in order
year. This followed careful consideration of standing advisory committees’
the benefits of such information to the
to improve communication of benefits,
regulations to add the Patient risks, and clinical outcomes, and
Commission, as compared with the Engagement Advisory Committee.
difficulties commercial end-users would face increase integration of patient
in valuating, tracking, and classifying their DATES: This rule is effective March 21, perspectives into the regulatory process
trade options. 2016. for medical devices. It performs its
I’m pleased that today we have addressed FOR FURTHER INFORMATION CONTACT: duties by identifying new approaches,
some reasonable concerns of commercial Letise Williams, Office of Center promoting innovation, recognizing
end-users who are the critical users of the Director, Center for Devices and
derivatives markets. This is just one of the unforeseen risks or barriers, and
many actions we have taken in this regard. Radiological Health, Food and Drug identifying unintended consequences
We will continue to evaluate our rules with Administration, 10903 New Hampshire that could result from FDA policy.
an eye towards the concerns of these Ave., Silver Spring, MD 20993, email: The Committee name and function
businesses. I thank my fellow Commissioners Letise.Williams@fda.hhs.gov, 301–796–
for supporting today’s action.
were established with the Committee
8398.
charter on October 6, 2015. Therefore,
Appendix 3—Concurring Statement of SUPPLEMENTARY INFORMATION: The the Agency is amending 21 CFR 14.100
Commissioner Sharon Y. Bowen Patient Engagement Advisory to add the Committee name and
Our ruling today provides additional Committee (the Committee) was function to its current list as set forth in
clarity for trade options, but I encourage established on October 6, 2015 (80 FR the regulatory text of this document.
market participants to look at it closely. 57007, September 21, 2015).
Under 5 U.S.C. 553(b)(3)(B) and (d)
Trade options have been caught in a The Committee will provide advice to
and 21 CFR 10.40(d) and (e), the Agency
difficult legal bind. Congress sought to the Commissioner of Food and Drugs
ensure that people could not evade our finds good cause to dispense with notice
(the Commissioner), or designee, on
swaps regulations. It did so by both having and public comment procedures and to
complex issues relating to medical
a very broad definition of a swap, while also proceed to an immediate effective date
devices, regulation of devices, and their
limiting this Commission’s authority to on this rule. Notice and public comment
exempt swaps by regulation. use by patients.
The Committee will be composed of and a delayed effective date are
Fortunately, however, Congress preserved unnecessary and are not in the public
the Commission’s authority to exempt trade a core of nine voting members including
options, which is the authority we are once the Chair. Members and the Chair are interest as this final rule is merely
again using today. Importantly, this selected by the Commissioner or codifying the addition of the name and
exemption provides additional legal certainty designee from among authorities who function of the Patient Engagement
Lhorne on DSK5TPTVN1PROD with RULES
that our interpretations cannot. But we are knowledgeable in areas such as Advisory Committee to reflect the
cannot overrule the Commodity Exchange committee charter.
Act with regulations and interpretations; we
clinical research, primary care patient
will always be bound by that statute. experience, and healthcare needs of Therefore, the Agency is amending 21
Therefore, I want to caution anyone tempted patient groups in the United States, or CFR 14.100 to add paragraph (d)(5) as
to rely on an interpretation to avoid CFTC who are experienced in the work of set forth in the regulatory text of this
jurisdiction when it comes to options. patient and health professional document.
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Document Created: 2016-03-19 01:00:28
Document Modified: 2016-03-19 01:00:28
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Final rule. | |
| Contact | David N. Pepper, Special Counsel, Division of Market Oversight, at (202) 418-5565 or [email protected]; or Mark Fajfar, Assistant General Counsel, Office of the General Counsel, at (202) 418-6636 or [email protected], Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. | |
| FR Citation | 81 FR 14966 | |
| RIN Number | 3038-AE26 | |
| CFR Associated | Commodity Futures; Consumer Protection; Fraud and Reporting and Recordkeeping Requirements |
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