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2013-12133a

2013-12133a

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Vol. 78 Friday,No. 105 May 31, 2013Part III
Commodity Futures Trading Commission
17 CFR Part 43Procedures To Establish Appropriate Minimum Block Sizes for LargeNotional Off-Facility Swaps and Block Trades; Final Rule
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32866
Federal Register
/Vol. 78, No. 105/Friday, May 31, 2013/Rules and Regulations
COMMODITY FUTURES TRADINGCOMMISSION17 CFR Part 43
RIN 3038–AD08
Procedures To Establish AppropriateMinimum Block Sizes for LargeNotional Off-Facility Swaps and Block Trades
AGENCY
:
Commodity Futures TradingCommission.
ACTION
:
Final rule.
SUMMARY
:
The Commodity FuturesTrading Commission is adoptingregulations to implement certainstatutory provisions enacted by Title VIIof the Dodd-Frank Wall Street Reformand Consumer Protection Act.Specifically, in accordance with section727 of the Dodd-Frank Act, theCommission is adopting regulations thatdefine the criteria for grouping swapsinto separate swap categories andestablish methodologies for settingappropriate minimum block sizes foreach swap category. In addition, theCommission is adopting furthermeasures under the Commission’sregulations to prevent the publicdisclosure of the identities, businesstransactions and market positions of swaps market participants.
DATES
:
Effective date: 
 July 30, 2013.
FOR FURTHER INFORMATION CONTACT
:
 JohnW. Dunfee, Assistant General Counsel,Office of the General Counsel, 202–418–5396,
 jdunfee@cftc.gov; George Pullen,Economist, 202–418–6709,gpullen@cftc.gov 
, or Nhan Nguyen,Special Counsel, 202–418–5932,
nnguyen@cftc.gov 
,
Division of Market Oversight; 
Esen Onur, Economist, Officeof the Chief Economist, 202–418–6146,
eonur@cftc.gov 
; Commodity FuturesTrading Commission, Three LafayetteCenter, 1155 21st Street NW.,Washington, DC 20581.
SUPPLEMENTARY INFORMATION
:
Table of Contents
I. BackgroundA. The Dodd-Frank ActB. The Initial Proposal1. Overview2. Public Comments in Response to theInitial ProposalC. Issuance of the Real-Time ReportingFinal RuleD. Further Block Proposal1. Policy Goals2. Summary of Proposed Approach3. Overview of Comments Received4. Additional Proposal RegardingAggregation of BlocksII. Procedures To Establish AppropriateMinimum Block Sizes for Large NotionalOff-Facility Swaps and Block Trades—Final RulesA. Criteria for Distinguishing Among SwapCategories in Each Asset Class1. Interest Rate and Credit Asset Classesa. Background b. Interest Rate Swap Categoriesi. Interest Rate Swap Data Summaryii. Summary of Proposed Rulec. Credit Swap Categoriesi. Credit Swap Data Summaryii. Credit Swap Data Analysis2. Swap Category in the Equity Asset Class3. Swap Categories in the FX Asset Class4. Swap Categories in the OtherCommodity Asset Class5. Comments Regarding Swap CategoriesAcross Asset ClassesB. Appropriate Minimum Block SizeMethodologies for the Initial and Post-Initial Periods1. Phase-in of Appropriate Minimum BlockSizes2. Overview of Proposed Approach3. The 67-Percent Notional AmountCalculation for Determination of Appropriate Minimum Block Sizes4. Data for Determination of AppropriateMinimum Block Sizes in the Post-InitialPeriod5. Methodology for Determining theAppropriate Minimum Block Sizes byAsset Classa. Interest Rate and Credit Default Swaps b. Equityc. FXi. Initial Period Methodologyii. Post-Initial Period Methodologyd. Other Commodityi. Initial Period Methodologyii. Post-Initial Period Methodology6. Special Provisions for the Determinationof Appropriate Minimum Block Sizes forCertain Types of Swapsa. Swaps With Optionality b. Swaps With Composite Reference Pricesc. Physical Commodity Swapsd. Currency Conversione. Successor CurrenciesC. Procedural Provisions1. §43.6(a) Commission Determination2. §43.6(f)(4) and (5) Publication andEffective Date of Post-Initial AppropriateMinimum Block Sizes3. §43.6(g) Notification of Election4. §43.7 Delegation of Authority5. §43.6(h)(6)—Aggregation6. §43.6(i) Eligible Block TradeParticipantsIII. Anonymity Protections for the PublicDissemination of Swap Transaction andPricing DataA. Policy GoalsB. Establishing Notional Cap Sizes forSwap Transaction and Pricing Data ToBe Publicly Disseminated in Real-Time1. Policy Goals for Establishing NotionalCap Sizes2. Proposed Amendments Related to CapSizes—§43.2 Definitions and §43.4Swap Transaction and Pricing Data ToBe Publicly Disseminated in Real-Timea. Initial Cap Sizes b. Post-Initial Cap Sizes and the 75-PercentNotional Amount CalculationC. Masking the Geographic Detail of Swapsin the Other Commodity Asset Class1. Policy Goals for Masking the GeographicDetail for Swaps in the OtherCommodity Asset Class2. Proposed Amendments to §43.43. Application of Proposed §43.4(d)(4)(iii)and Proposed Appendix E to Part 43—Geographic Detail for Delivery or PricingPointsa. U.S. Delivery or Pricing Pointsi. Natural Gas and Related Productsii. Petroleum and Related Productsiii. Electricity and Sourcesiv. All Remaining Other Commodities b. Non-U.S. Delivery or Pricing Pointsc. Basis Swapsd. Comments Received and CommissionDetermination4. Further Revisions to Part 43a. Additional Contracts Added toAppendix B to Part 43 b. Technical Revisions to Part 43IV. Paperwork Reduction ActA. BackgroundB. Description of the Collection1. §43.6(g)—Notification of Election2. Amendments to §43.4(d)(4) and 43.4(h)V. Cost-Benefit ConsiderationsA. BackgroundB. The Statutory Mandate To Consider theCosts and Benefits of the Commission’sAction: Section 15(a) of the CEAC. Rules Establishing DeterminationCriteria and Methodology (§43.6(a)–(f)and (h))1. Rule Summarya. Rule 43.6(a) Commission Determination b. Rule 43.6(b) Swap Categoryc. Rules 43.6(c)–(f) and (h) Methods forDetermining Appropriate MinimumBlock Sizes2. Overview of Comments Received3. Costsa. Direct Costs b. Indirect Costs4. Benefits5. Alternativesa. Commission Determination of MinimumBlock Sizes b. Swap Category Alternativesc. Block Methodology Alternatives6. CEA Section 15(a) Factorsa. Protection of Market Participants and thePublic b. Efficiency, Competitiveness andFinancial Integrity of Marketsc. Price Discoveryd. Sound Risk Management Practicese. Other Public Interest ConsiderationsD. Cost-Benefit Considerations Relevant tothe Block Trade/Large Notional Off-Facility Swap Election Process (§43.6(g))1. Costs Relevant to the Election Process43.6(g))a. Incremental, Non-Recurring Expenditureto a Non-Financial End-user, SEF orDCM To Update Existing Technology b. Incremental, Non-Recurring Expenditureto a Non-Financial End-User, SEF orDCM To Provide Training to ExistingPersonnel and Update Written Policiesand Proceduresc. Incremental, Recurring Expenses to aNon-Financial End-User, DCM or SEFAssociated With IncrementalCompliance, Maintenance andOperational Support in Connection Withthe Proposed Election Process
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32867
Federal Register
/Vol. 78, No. 105/Friday, May 31, 2013/Rules and Regulations
1
See
Public Law 111–203, 124 Stat. 1376 (2010).
2
The short title of Title VII of the Dodd-Frank Actis the ‘‘Wall Street Transparency andAccountability Act of 2010.’’
3
See
7 U.S.C. 1 et seq.
4
See generally 
CEA section 2(a)(13), 7 U.S.C.2(a)(13).
5
CEA section 2(a)(13)(A).
6
Section 2(a)(13)(E) explicitly refers to the swapsdescribed only in sections 2(a)(13)(C)(i) and2(a)(13)(C)(ii) of the CEA (
i.e.,
clearable swaps,including swaps that are exempt from clearing). Asnoted in the Commission’s Initial Proposal (asdefined below), its Real-Time Reporting Final Rule(as defined below), and its Further Block Proposal(as defined below), the Commission, in exercisingits authority under CEA section 2(a)(13)(B) to‘‘make swap transaction and pricing data availableto the public in such form and at such times as theCommission determines appropriate to enhanceprice discovery,’’ is authorized to prescribe rulessimilar to those provisions in section 2(a)(13)(E) touncleared swaps described in section 2(a)(13)(C)(iii)and (iv) of the CEA.
7
CEA section 2(a)(13)(E)(iv). Section 5h(f)(2)(C) of the CEA imposes a similar directive upon registeredswap execution facilities (‘‘SEF’’) by requiring thatthey set forth rules for block trades for swapexecution purposes.
8
156 Cong. Rec. S5921 (daily ed. July 15, 2010)(Statement of Sen. Blanche Lincoln).
9
This provision does not cover swaps that are‘‘determined to be required to be cleared but are notcleared.’’
See
CEA section 2(a)(13)(C)(iv).
d. Incremental, Non-Recurring Expenditureto an SDR To Update ExistingTechnology To Capture and PubliclyDisseminate Swap Data for Block Tradesand Large Notional Off-Facility Swaps2. Comments Received3. Benefits Relevant to the Election Process43.6(g))4. Alternatives5. Application of the Section 15(a) Factorsto §43.6(g)a. Protection of Market Participants and thePublic b. Efficiency, Competitiveness andFinancial Integrityc. Price Discoveryd. Sound Risk Management Practicese. Other Public Interest ConsiderationsE. Costs and Benefits Relevant toAnonymity Protections (Amendments to§43.4(d)(4) and (h))1. Amendments to §43.4(d)(4)2. Amendments to §43.4(h)3. Costs Relevant to the Amendments to§43.4(d)(4) and (h)4. Benefits Relevant to the Amendments to§43.45. Alternatives6. Application of the Section 15(a) Factorsto the Amendments to §43.4a. Protection of Market Participants and thePublic b. Efficiency, Competitiveness andFinancial Integrityc. Price Discoveryd. Sound Risk Management Practicese. Other Public Interest ConsiderationsF. Costs and Benefits Relevant to§43.6(h)(6)—Aggregation1. Overview of Comments Received2. Costs3. Benefits4. Section 15(a) Factorsa. Protection of Market Participants and thePublic b. Efficiency, Competitiveness, andFinancial Integrity of the FuturesMarketsc. Price Discoveryd. Sound Risk Management Practicese. Other Public Interest ConsiderationsG. Costs and Benefits Relevant to§43.6(i)—Eligible Block Trade Parties1. Overview of Comments Received2. Costs3. Benefits4. Section 15(a) Factorsa. Protection of Market Participants and thePublic b. Efficiency, Competitiveness, andFinancial Integrity of the FuturesMarketsc. Price Discoveryd. Sound Risk Management Practicese. Other Public Interest ConsiderationsVI. Regulatory Flexibility ActVII. Example of a Post-Initial AppropriateMinimum Block Size DeterminationUsing the 67-Percent Notional AmountCalculationVIII. List of Commenters Who Responded tothe Further Block Proposal
I. Background
A. The Dodd-Frank Act 
On July 21, 2010, President Obamasigned the Dodd-Frank Wall StreetReform and Consumer Protection Act(‘‘Dodd-Frank Act’’).
1
Title VII of theDodd-Frank Act
2
amended theCommodity Exchange Act (‘‘CEA’’)
3
toestablish a comprehensive newregulatory framework for swaps andsecurity-based swaps. This legislationwas enacted to reduce risk, increasetransparency and promote marketintegrity within the financial system by,
inter alia: 
(1) Providing for theregistration and comprehensiveregulation of swap dealers (‘‘SDs’’) andmajor swap participants (‘‘MSPs’’); (2)imposing mandatory clearing and tradeexecution requirements on standardizedderivative products; (3) creating robustrecordkeeping and real-time reportingregimes; and (4) enhancing theCommission’s rulemaking andenforcement authorities with respect to,among others, all registered entities andintermediaries subject to theCommission’s oversight.Section 727 of the Dodd-Frank Actcreated section 2(a)(13) of the CEA,which authorizes and requires theCommission to promulgate regulationsfor the real-time public reporting of swap transaction and pricing data.
4
 Section 2(a)(13)(A) provides that ‘‘real-time public reporting’’ means reporting‘‘data relating to a swap transaction,including price and volume, as soon astechnologically practicable after thetime at which the swap transaction has been executed.’’
5
Section 2(a)(13)(B)states that the purpose of section2(a)(13) is ‘‘to authorize the Commissionto make swap transaction and pricingdata available to the public in such formand at such times as the Commissiondetermines appropriate to enhance pricediscovery.’’In general, section 2(a)(13) of the CEAdirects the Commission to prescriberegulations providing for the publicavailability of transaction and pricingdata for certain swaps. Section 2(a)(13)places two other statutory requirementson the Commission that are relevant tothis final rule. First, sections2(a)(13)(E)(ii) and (iii) of the CEArespectively require the Commission toprescribe regulations specifying ‘‘thecriteria for determining what constitutesa large notional swap transaction (blocktrade) for particular markets andcontracts’’ and ‘‘the appropriate timedelay for reporting large notional swaptransactions (block trades) to thepublic.’’
6
In promulgating regulationsunder section 2(a)(13), section2(a)(13)(E)(iv) directs the Commission totake into account whether publicdisclosure of swap transaction andpricing data ‘‘will materially reducemarket liquidity.’’
7
 The second statutory requirementrelevant to this final rule is found insections 2(a)(13)(E)(i) and 2(a)(13)(C)(iii)of the CEA. Through these sections,Congress sought to ‘‘ensure that thepublic reporting of swap transaction andpricing data [would] not disclose thenames or identities of the parties to[swap] transactions.’’
8
Accordingly,§2(a)(13)(E)(i) of the CEA requires theCommission to protect the identities of counterparties to mandatorily-clearedswaps, swaps excepted from themandatory clearing requirement, andvoluntarily-cleared swaps. Section2(a)(13)(C)(iii) of the CEA requires theCommission to prescribe rules thatmaintain the anonymity of businesstransactions and market positions of thecounterparties to an uncleared swap.
9
 In order to carry out the requirementsof section 2(a)(13), including amongother things the two statutoryrequirements regarding blocks andanonymity described above, theCommission issued a notice of proposedrulemaking on December 7, 2010 (the‘‘Initial Proposal’’). On January 9, 2012,the Commission issued a final ruleregarding Real-Time Public Reporting of Swap Transaction Data adopting severalprovisions contained in the InitialProposal (the ‘‘Real-Time ReportingFinal Rule’’). The Real-Time Reporting
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