
[Federal Register: April 29, 2010 (Volume 75, Number 82)]
[Notices]               
[Page 22641-22656]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29ap10-128]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61975; File No. S7-17-09]

 
Order Extending and Modifying Temporary Conditional Exemptions 
Under the Securities Exchange Act of 1934 in Connection With Request on 
Behalf of Eurex Clearing AG Related to Central Clearing of Credit 
Default Swaps, and Request for Comment

April 23, 2010.

I. Introduction

    Over the past year, the Securities and Exchange Commission 
(``Commission'') has taken multiple actions to protect investors and 
ensure the integrity of the nation's securities markets, including 
actions \1\ designed to address concerns related to the market in 
credit default swaps (``CDS'').\2\ The over-the-counter (``OTC'') 
market for CDS has been a source of particular concern to us and other 
financial regulators, and we have recognized that facilitating the 
establishment of central counterparties (``CCPs'') for CDS can play an 
important role in reducing the counterparty risks inherent in the CDS 
market, and thus can help mitigate potential systemic impact. We have 
therefore found that taking action to help foster the prompt 
development of CCPs, including granting temporary conditional 
exemptions from certain provisions of the federal securities laws, is 
in the public interest.\3\
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    \1\ See generally Securities Exchange Act Release No. 60372 
(Jul. 23, 2009), 74 FR 37748 (Jul. 29, 2009) and Securities Exchange 
Act Release No. 61973 (Apr. 23, 2010) (temporary exemptions in 
connection with CDS clearing by ICE Clear Europe Limited); 
Securities Exchange Act Release No. 60373 (Jul. 23, 2009), 74 FR 
37740 (Jul. 29, 2009) (temporary exemptions in connection with CDS 
clearing by Eurex Clearing AG) (hereinafter, the ``July Eurex 
Order''); Securities Exchange Act Release No. 59578 (Mar. 13, 2009), 
74 FR 11781 (Mar. 19, 2009), Securities Exchange Act Release No. 
61164 (Dec. 14, 2009), 74 FR 67258 (Dec. 18, 2009) and Securities 
Exchange Act Release No. 61803 (Mar. 30, 2010), 75 FR 17181 (Apr. 5, 
2010) (temporary exemptions in connection with CDS clearing by 
Chicago Mercantile Exchange Inc.); Securities Exchange Act Release 
No. 59527 (Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009), Securities 
Exchange Act Release No. 61119 (Dec. 4, 2009), 74 FR 65554 (Dec. 10, 
2009) and Securities Exchange Act Release No. 61662 (Mar. 5, 2010), 
75 FR 11589 (Mar. 11, 2010) (temporary exemptions in connection with 
CDS clearing by ICE Trust U.S. LLC); Securities Exchange Act Release 
No. 59164 (Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009) (temporary 
exemptions in connection with CDS clearing by LIFFE A&M and 
LCH.Clearnet Ltd.) and other Commission actions discussed in several 
of these orders.
    In addition, we have issued interim final temporary rules that 
provide exemptions under the Securities Act of 1933 and the 
Securities Exchange Act of 1934 for CDS to facilitate the operation 
of one or more central counterparties for the CDS market. See 
Securities Act Release No. 8999 (Jan. 14, 2009), 74 FR 3967 (Jan. 
22, 2009) (initial approval); Securities Act Release No. 9063 (Sep. 
14, 2009), 74 FR 47719 (Sep. 17, 2009) (extension until Nov. 30, 
2010).
    Further, the Commission provided temporary exemptions in 
connection with Sections 5 and 6 of the Securities Exchange Act of 
1934 for transactions in CDS; these exemptions expired on March 24, 
2010. See Securities Exchange Act Release No. 59165 (Dec. 24, 2008), 
74 FR 133 (Jan. 2, 2009) (initial exemption); Securities Exchange 
Act Release No. 60718 (Sep. 25, 2009), 74 FR 50862 (Oct. 1, 2009) 
(extension until Mar. 24, 2010).
    \2\ A CDS is a bilateral contract between two parties, known as 
counterparties. The value of this financial contract is based on 
underlying obligations of a single entity (``reference entity'') or 
on a particular security or other debt obligation, or an index of 
several such entities, securities, or obligations. The obligation of 
a seller to make payments under a CDS contract is triggered by a 
default or other credit event as to such entity or entities or such 
security or securities. Investors may use CDS for a variety of 
reasons, including to offset or insure against risk in their fixed-
income portfolios, to take positions in bonds or in segments of the 
debt market as represented by an index, or to take positions on the 
volatility in credit spreads during times of economic uncertainty.
    Growth in the CDS market has coincided with a significant rise 
in the types and number of entities participating in the CDS market. 
CDS were initially created to meet the demand of banking 
institutions looking to hedge and diversify the credit risk 
attendant to their lending activities. However, financial 
institutions such as insurance companies, pension funds, securities 
firms, and hedge funds have entered the CDS market.
    \3\ See generally actions referenced in note 1, supra.
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    The Commission's authority over the OTC market for CDS is limited. 
Specifically, Section 3A of the Securities Exchange Act of 1934 
(``Exchange Act'') limits the Commission's authority over swap

[[Page 22642]]

agreements, as defined in Section 206A of the Gramm-Leach-Bliley 
Act.\4\ For those CDS that are swap agreements, the exclusion from the 
definition of security in Section 3A of the Exchange Act, and related 
provisions, will continue to apply. The Commission's action today does 
not affect these CDS, and this Order does not apply to them. For those 
CDS that are not swap agreements (``non-excluded CDS''), the 
Commission's action today provides temporary conditional exemptions 
from certain requirements of the Exchange Act.
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    \4\ 15 U.S.C. 78c-1. Section 3A excludes both a non-security-
based and a security-based swap agreement from the definition of 
``security'' under Section 3(a)(10) of the Exchange Act, 15 U.S.C. 
78c(a)(10). Section 206A of the Gramm-Leach-Bliley Act defines a 
``swap agreement'' as ``any agreement, contract, or transaction 
between eligible contract participants (as defined in section 1a(12) 
of the Commodity Exchange Act * * *) * * * the material terms of 
which (other than price and quantity) are subject to individual 
negotiation.'' 15 U.S.C. 78c note.
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    The Commission believes that using well-regulated CCPs to clear 
transactions in CDS provides a number of benefits, by helping to 
promote efficiency and reduce risk in the CDS market and among its 
participants, contributing generally to the goal of market stability, 
and by requiring maintenance of records of CDS transactions that would 
aid the Commission's efforts to prevent and detect fraud and other 
abusive market practices.\5\
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    \5\ See generally actions referenced in note 1, supra.
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    Earlier this year, the Commission granted temporary conditional 
exemptions to Eurex Clearing AG (``Eurex'') and certain related parties 
to permit Eurex to clear and settle CDS transactions.\6\ Those 
exemptions are scheduled to expire on April 23, 2010. Eurex has 
requested that the Commission extend the temporary conditional 
exemptions and expand them to address activities in connection with: 
(a) Eurex requiring its clearing members to execute certain 
transactions associated with Eurex's process for determining daily 
settlement prices used in marking positions to market, and (b) Eurex 
clearing CDS transactions of its members' customers (in addition to 
clearing CDS transactions of members and their affiliates, as permitted 
by the current exemption).\7\
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    \6\ For purposes of this Order, ``Cleared CDS'' means a credit 
default swap that is submitted (or offered, purchased, or sold on 
terms providing for submission) to Eurex, that is offered only to, 
purchased only by, and sold only to eligible contract participants 
(as defined in Section 1a(12) of the Commodity Exchange Act as in 
effect on the date of this Order (other than a person that is an 
eligible contract participant under paragraph (C) of that section)), 
and in which: (i) The reference entity, the issuer of the reference 
security, or the reference security is one of the following: (A) An 
entity reporting under the Exchange Act, providing Securities Act 
Rule 144A(d)(4) information, or about which financial information is 
otherwise publicly available; (B) a foreign private issuer whose 
securities are listed outside the United States and that has its 
principal trading market outside the United States; (C) a foreign 
sovereign debt security; (D) an asset-backed security, as defined in 
Regulation AB, issued in a registered transaction with publicly 
available distribution reports; or (E) an asset-backed security 
issued or guaranteed by the Federal National Mortgage Association 
(``Fannie Mae''), the Federal Home Loan Mortgage Corporation 
(``Freddie Mac'') or the Government National Mortgage Association 
(``Ginnie Mae''); or (ii) the reference index is an index in which 
80 percent or more of the index's weighting is comprised of the 
entities or securities described in subparagraph (i). See definition 
in paragraph III.(f)(1) of this Order. As discussed above, the 
Commission's action today does not affect CDS that are swap 
agreements under Section 206A of the Gramm-Leach-Bliley Act. See 
text at note 4, supra.
    \7\ See Letter from Paul Architzel, Alston & Bird, to Elizabeth 
Murphy, Secretary, Commission, Apr. 23, 2010 (``April 2010 
request'').
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    Based on the facts presented and the representations made on behalf 
of Eurex,\8\ and for the reasons discussed in this Order, and subject 
to certain conditions, the Commission is extending the existing 
temporary conditional exemptions. In addition, the Commission is 
expanding the existing temporary conditional exemptions to accommodate 
those required trading processes and customer clearing. Specifically, 
this Order conditionally exempts Eurex and certain clearing members of 
Eurex, on a temporary basis, from the registration requirements of 
Sections 5 and 6 of the Exchange Act solely in connection with the 
calculation of mark-to-market prices for non-excluded CDS cleared by 
Eurex. This Order also conditionally exempts Eurex clearing members 
from broker-dealer registration requirements and related requirements 
in connection with using Eurex to clear CDS transactions of their 
customers. This Order also makes certain related changes to the 
temporary exemption of eligible contract participants and others from 
certain Exchange Act requirements with respect to non-excluded CDS 
cleared by Eurex. The other exemptions connected with CDS clearing by 
Eurex--granted to Eurex in connection with clearing agency registration 
requirements, as well as granted to registered broker-dealers--are 
largely unchanged. The Commission is extending the exemptive relief 
provided in connection with CDS clearing by Eurex through November 30, 
2010.
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    \8\ See id. The exemptions we are granting today are based on 
all of the representations made in the April 2010 request on behalf 
of Eurex, which incorporate representations made on behalf of Eurex 
as part of the request that preceded our earlier relief in 
connection with CDS clearing by Eurex. We recognize, however, that 
there could be legal uncertainty in the event that one or more of 
the underlying representations were to become inaccurate. 
Accordingly, if any of these exemptions were to become unavailable 
by reason of an underlying representation no longer being materially 
accurate, the legal status of existing open positions in non-
excluded CDS that previously had been cleared pursuant to the 
exemptions would remain unchanged, but no new positions could be 
established pursuant to the exemptions until all of the underlying 
representations were again accurate.
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II. Discussion

A. Description of Eurex's Activities to Date and Proposed Expansion of 
Activities

    Eurex's request for an extension of its current temporary 
exemptions and their expansion to accommodate clearing of CDS 
transactions by its clearing members' customers and to accommodate an 
auction process for determining CDS settlement prices describes how 
Eurex has cleared CDS to date and how the proposed arrangements for 
central clearing of customer CDS transactions would operate.\9\ The 
request also makes representations about the safeguards associated with 
those arrangements, as described below.\10\
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    \9\ See April 2010 request, supra note 7. The description in 
this Order of Eurex's proposed activities also is based on the 
provisions of Eurex's rules (``clearing conditions'').
    \10\ Eurex's April 2010 request incorporates by reference the 
representations of its earlier letter, supplementing those 
representations with respect to customer clearing, segregation and 
requiring trading in connection with settlement price calculation. 
See April 2010 request, supra note 7.
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1. Eurex Proposed Use of Settlement Price Auction Process
    Eurex proposes to alter its procedures for determining daily 
settlement prices that will be used in marking positions to market, by 
calculating a daily mark-to-market price based on end of day prices 
submitted by participating members. Under these procedures, Eurex will 
rank the bid and ask prices submitted by members, and then pair any 
locking or crossing bid/ask prices to reveal the first non-crossed, 
non-locked bid/offer pair and determine the point in that range at 
which the most trade volume will occur. If the ranking does not result 
in any crossed orders or locked interests, the mark-to-market price 
will be the midpoint of the range.
    To ensure the reliability of the process, Eurex will randomly 
require clearing members whose prices lock or cross to execute 
transactions at the locked or crossed prices farthest from the mark-to-
market price. This trading will be required on a limited basis, with no 
more than three such trades in any 30-day period and limited to no more

[[Page 22643]]

than ten percent of a dealer's quote participation.
2. Proposed Activity Clearing CDS Transactions of Members' Customers
    Eurex requests an exemption for customer access to CDS clearing it 
provides, similar to its existing exemptions for clearing members' 
proprietary CDS transactions. Eurex requests an exemption to 
accommodate two types of customers: ``Registered Customers'' and other 
customers.
    Registered Customers are customers that will enter into a tri-party 
agreement with Eurex and the clearing member, in which the clearing 
member agrees to guarantee the Registered Customer's position and the 
Registered Customer agrees to be bound by Eurex's Clearing Conditions. 
Registered Customers' positions are carried in Eurex's systems on a 
fully disclosed basis. Clearing members will retain, with Eurex, 
separate accounts for each Registered Customer, with positions being 
separately booked and margined and separately disclosed on Eurex 
reports (which can be directly provided to the Registered Customers). 
Other customers, in contrast, do not enter into separate agreements 
with Eurex, and their positions will be comingled in a clearing 
member's customer omnibus clearing account with Eurex.
    Customer clearing by Eurex will accommodate CDS transactions that 
Registered Customers enter directly into with the Eurex members that 
clear those customers' CDS transactions, as well as Registered 
Customers' CDS transactions with other counterparties. For transactions 
that a Registered Customer enters into with its clearing member, 
novation will result in two CDS positions between that clearing member 
and Eurex (one trade being booked to the clearing member's agent 
account for the benefit of customers (``Agent account'') at Eurex, and 
one booked to its proprietary account), in addition to the original CDS 
position between that clearing member and the Registered Customer. For 
transactions that a Registered Customer enters into with a clearing 
member counterparty other than the firm that clears transactions for 
the Registered Customer, novation will result in the original trade 
being replaced with three trades, one between that clearing member 
counterparty and Eurex (in that counterparty's proprietary account at 
Eurex), another between the Registered Customer's clearing member and 
Eurex (in that member's agent account), and another trade between the 
Registered Customer and its clearing member.\11\ Registered Customers 
also may enter into CDS transactions with a counterparty that is not a 
Eurex clearing member, in which case the transaction will be cleared 
through the Registered Customer's and the counterparty's respective 
clearing members.
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    \11\ This process is designed to ensure that Eurex maintains a 
matched book of offsetting CDS contracts.
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    For customers that are not Registered Customers, the clearing 
mechanics will differ in that the customer position between the 
clearing member and Eurex will be in an omnibus account (rather than 
being reflected in Eurex's system as for a Registered Customer). The 
clearing member's internal recordkeeping system will identify the 
contracts with particular customers, and Eurex will rely on the 
clearing member's records if it is necessary to identify the beneficial 
owners of those positions.
    Under Eurex customer clearing, the clearing relationship and 
Eurex's guarantee extends only between Eurex and the clearing member. 
Eurex states that clearing of CDS transactions will benefit customers, 
among other reasons, by protecting customer collateral in case of 
default by the customer's clearing member, and by offering customers 
the ability to transfer positions in the event of clearing member 
default.
    The customer relationship would be governed by an agreement between 
the customer and the clearing member, and clearing members and their 
customers generally will have in place International Swaps and 
Derivatives Association (``ISDA'') Master Agreements governing their 
transactions prior to submission for clearing. These agreements would 
address, among other issues, procedures whereby an executing dealer may 
``give up'' a contract to the customer's clearing member, and the 
treatment of CDS transactions that are not accepted for clearing by 
Eurex.\12\
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    \12\ A transaction may not be accepted for clearing by Eurex, 
for example, if sufficient initial margin is not posted.
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    Eurex has no rule requiring an executing broker to be a clearing 
member. Eurex expects that transactions will be submitted to Eurex 
through one or more ``third party confirmation platform providers'' 
that will facilitate the matching and confirmation of the trade terms 
by the parties, as well as the electronic submission of the affirmed 
trade to Eurex for clearing.\13\ Eurex also expects that the platform 
will submit, to the relevant parties, notice of Eurex's acceptance or 
rejection of the trade. Third party confirmation platform providers may 
provide additional back-office or similar services to clearing members 
or clients. Eurex is currently in negotiations to enable it to accept 
transactions from one or more third party confirmation platform 
providers.\14\
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    \13\ Under this approach, for example, when a Registered 
Customer and executing broker agree to terms of the transaction 
(including that the transaction should be submitted to Eurex for 
clearing), the executing broker will submit the trade terms to the 
third party confirmation platform provider, which will forward those 
terms to the Registered Customer for affirmation. Once the 
Registered Customer has affirmed the trade, the platform will 
forward those terms to the clearing member designated by the 
Registered Customer for affirmation. Once all three parties have 
affirmed the transaction, it will be submitted to Eurex for 
clearing. Eurex will determine whether to accept or reject the 
submitted trade in accordance with its risk management policies and 
procedures.
    \14\ Eurex Clearing Conditions permits any execution venue or 
trade confirmation platform that meets the technical requirements to 
participate in its clearance and settlement architecture. Eurex 
represents that it is committed to work with reasonably qualified 
execution venues and trade processing platforms to facilitate 
functionality for submission of trades by non-member dealers if 
there is interest in such functionality.
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3. Framework for Collection and Protection of Customer Margin
a. Margin Requirements for Clearing Members and Customers
    Eurex's clearing conditions will require clearing members to 
collect, from their customers, collateral that is no less than the 
amount required to meet the margin calculated by Eurex. Clearing 
members may require customers to post additional margin above the Eurex 
requirements.
    Margin is separately calculated for each clearing member with 
respect to its different proprietary and agent accounts. As noted 
above, clearing members will have separate accounts at Eurex for each 
of their Registered Customers. Each clearing member will use omnibus 
accounts to hold collateral posted by the clearing member's other 
customers. The margin requirement for Registered Customers is additive 
with respect to each Registered Customer, and does not net across the 
positions of multiple Registered Customers. For other customers, in 
contrast, the margin required by Eurex to collateralize the clearing 
member's positions is calculated on a net basis among all of those 
customers' positions.
b. Treatment of Customer Margin
    Eurex states that its framework for segregation of customer margin 
will be available to all customers, and will be required for cleared 
CDS transactions of all customers of Eurex's U.S. clearing members and 
for all U.S. customers of other Eurex clearing members. Eurex will 
offer buy-side customers individual segregation of positions and 
collateral

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for Registered Customers, and will offer segregation of positions and 
collateral of other customers using customer omnibus accounts.\15\
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    \15\ Eurex states that it expects that its clearing members may 
also include futures commission merchants (``FCMs'') registered with 
the Commodity Futures Trading Commission (``CFTC''). As discussed 
below, such FCM clearing members may rely on this Order's exemption 
from certain broker-dealer related requirements to the extent those 
clearing members comply with the conditions of the exemption, 
including conditions related to the segregation of customer 
collateral. See note 38, infra.
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i. Individual Segregation for Registered Customers
    Eurex's procedures for protecting collateral posted by Registered 
Customers in connection with Cleared CDS will distinguish between 
collateral that is posted by customers as required by Eurex to margin a 
customer's position, and additional collateral that clearing members 
may choose to collect from those customers.
    In the case of securities collateral that a Registered Customer 
posts to satisfy Eurex's margin requirement, a tri-party agreement 
among Eurex, the clearing member and the customer will provide that the 
customer will directly transfer the collateral to Eurex, to be 
maintained in a separate ``RC Margin Collateral Account'' specific to 
that Registered Customer.\16\ Eurex will give the Registered Customer a 
pledge for the return of an amount equivalent to the net value of the 
securities (after the customer's obligations have been satisfied) in 
the event of the clearing member's insolvency.
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    \16\ Securities collateral pledged to Eurex for the purpose of 
margining CDS positions will be deposited with Clearstream Banking 
Frankfurt and Sega Intersettle.
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    Cash collateral posted by a Registered Customer to satisfy the 
Eurex-required margin obligation will be deposited by the customer into 
a dedicated trust account of the clearing member at a third-party bank; 
this cash will immediately be forwarded to Eurex, to be separately 
booked and recorded in Eurex's accounts as customer funds and held in a 
depository.\17\ This cash would be subject to a pledge back from Eurex 
to the Registered Customer.\18\
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    \17\ Cash collateral in the form of euros will be deposited by 
Eurex in the Deutsche Bundesbank; cash collateral in the form of 
Swiss Francs will be deposited by Eurex in the Swiss National Bank; 
cash collateral in the form of other currencies, such as U.S. 
dollars or pounds sterling, will be deposited by Eurex in a 
commercial bank. These amounts will be held for the benefit of 
customers.
    \18\ Eurex may invest cash collateral only in certain ``approved 
instruments'' described in Part 2.2 of the Eurex Organizational 
Manual under the Eurex investment guidelines. In particular, Part 
2.2.1 addresses ``secured money market investments,'' and provides 
that, as a general principle, placements would be made on a secured 
basis to the largest possible extent, using reverse repurchase 
agreements as the preferred instrument. It further provides that 
securities accepted as collateral should be issued or guaranteed by 
central or regional governments, agencies, multilateral development 
banks, the International Monetary Fund, the European Community or 
the Bank for International Settlements; if, however, there is not a 
sufficient volume of such securities, certain covered bonds or bank 
bonds may be used. Eligible securities need to meet certain credit 
rating criteria. Part 2.2.2 provides that certain unsecured money 
market placements are allowed in certain situations where part 2.2.1 
is not available. Eurex states that these approved instruments are 
similarly conservative to those instruments in which customer funds 
may be invested under CFTC Rule 1.25, with the distinction that Rule 
1.25 is focused on investments available in the U.S. domestic 
market.
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    A clearing member may require a Registered Customer to deposit 
collateral in excess of the amount of collateral required by Eurex in 
connection with that customer's position. Unless Eurex provides 
otherwise, this ``Excess Customer Collateral'' will be deposited with 
Eurex (to be held in the RC Margin Collateral Account specific to that 
Registered Customer in the case of collateral in the form of 
securities, or with a depository in the case of collateral in the form 
of cash).\19\ Alternatively, in response to market demand, Eurex may 
provide that clearing members and Registered Customers can agree that a 
clearing member will deposit the customer's Excess Customer Collateral 
with an independent third-party custodian that provides a written 
acknowledgement that it will hold the funds separately from other 
assets explicitly for the benefit of each of the clearing member's 
individual customers, and that has over $1 billion in regulatory 
capital.\20\
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    \19\ Eurex would exercise its primary lien over only so much of 
the deposited collateral as is required to satisfy Eurex's margin 
requirement.
    \20\ The Commission notes that this Order's exemption for Eurex 
clearing members in connection with certain Exchange Act broker-
dealer related requirements includes conditions that impose 
additional requirements for the holding of customer collateral. 
Clearing members must comply with those additional requirements to 
rely on that broker-dealer related exemption.
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ii. Segregation of Collateral Posted by Customers That Are Not 
Registered Customers
    Eurex will protect the collateral posted by customers that are not 
Registered Customers in a way that differs from the procedures used 
with respect to Registered Customers. In contrast to Registered 
Customers, each clearing member will only need to post with Eurex 
sufficient collateral to satisfy the net CDS position associated with 
that clearing member's non-Registered customers.\21\ Also, in contrast 
to Registered Customers, Eurex will not separately record non-
Registered customers' collateral that is posted with Eurex.
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    \21\ In other words, the amount the clearing member is required 
to post to Eurex in connection with these customers is determined by 
reference to all of the positions of those customers. For Registered 
Customers, in contrast, clearing members must post with Eurex at 
least all of the collateral that the clearing member collects 
pursuant to Eurex requirements; this amount does not account for 
netting across the positions of different Registered Customers.
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A. Initial Framework

    Initially, Eurex will provide that clearing members may only post 
cash as collateral to satisfy the margin requirement of customers that 
are not Registered Customers. The customers will transfer, to the 
clearing member, title to collateral posted to satisfy this 
requirement; the clearing member then will immediately deposit, with 
Eurex, an amount of cash necessary to address the net margin 
requirement associated with these customers' positions. Eurex will hold 
a primary pledge with respect to the deposited cash.\22\
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    \22\ The clearing member would grant back to an independent 
collateral agent for the benefit of these customers an interest in 
any collateral returned to the third-party custodian (as described 
below) by Eurex in the event of the clearing member's insolvency or 
default.
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    The collateral that a clearing member will be required to collect 
from these customers will exceed the amount of net margin (reflecting 
the net exposure associated with those customers' positions) that the 
clearing member must forward to Eurex. Clearing members also may 
collect from these customers additional amounts of collateral in excess 
of the Eurex-required margin. This excess collateral will not be held 
at Eurex; instead, clearing members must post this collateral as soon 
as possible to a third-party custodian, consistent with the use of 
third-party custodians discussed above in the context of Registered 
Customers.\23\ Clearing members must grant back, to these customers 
(such as through the use of an independent collateral agent) a pro rata 
security interest in the customer collateral on deposit with the third-
party custodian.
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    \23\ As noted above, this Order's broker-dealer related 
exemptions include conditions that impose additional requirements as 
to the use of third-party depositories. See note 20, supra.
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B. Future Framework

    Eurex anticipates that in the near future it will make changes to 
the segregation framework for non-Registered customers. Under the 
revised framework, these customers will transfer cash or securities 
collateral

[[Page 22645]]

required by the clearing member into one of two trust accounts at a 
third-party custodian, consistent with the use of third-party 
custodians discussed above. The Omnibus Customer Margin Account at this 
custodian will secure the clearing member's net obligation in respect 
of these customers; the clearing member will grant a first priority 
pledge in favor of Eurex over this account, and will notify the third-
party custodian of that pledge.\24\ The Segregated Customer Custody 
Account at this custodian will hold additional collateral that the 
clearing member collects from these customers (as required by Eurex, or 
in addition to the Eurex-required collateral). The clearing member 
would be required to take steps, such as through the use of granting a 
security interest to an independent collateral agent, to enable these 
non-Registered customers to segregate this collateral away from the 
clearing member's insolvency estate.
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    \24\ Interest or distributions on this account will be paid to 
the clearing member; the party that benefits from those amounts will 
be determined by agreement between the clearing member and the 
customer (as also is the case for the initial framework with regard 
to interest earned on cash posted with the third-party custodian).
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C. Risk of Customer Loss in Connection with Default

    If a default by a customer other than a Registered Customer results 
in a shortfall, Eurex may, after first exhausting the clearing member's 
available assets, use the net margin as necessary to satisfy that 
shortfall. As a result, under both Eurex's initial framework and its 
future framework regarding the collateral posted by these non-
Registered customers, the customers whose collateral is commingled (at 
Eurex or at a third-party depository) are subject to the risk of loss 
resulting from the default of another non-Registered customer of that 
clearing member, up to the amount of the net margin associated with the 
positions of that clearing members' non-Registered customers.
c. Treatment of Variation Margin
    Eurex states that losses and gains caused by the relative change in 
the value of contracts are reflected in mark-to-market margin that is 
calculated daily. Such variation margin would be calculated as a debit 
against deposited collateral or as a credit to the customer's 
collateral account. Eurex anticipates, however, that in the future it 
will enhance this framework by providing for cash flows of these 
amounts.
    Eurex states that its rules require clearing members to segregate 
all funds accruing from their customer's positions, in addition to 
funds received from their customers to margin those positions. In other 
words, the rules require that clearing members segregate all mark-to-
market margin that accrues to customers, as well as any funds paid to 
the clearing member on behalf of the clearing member's customers.\25\
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    \25\ Sections 1.83 through 1.8.6 of Eurex's rules.
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4. Default and Portability Rules
a. Portability of Positions and Collateral
    Prior to clearing member default, Registered Customers and other 
customers would be able to instruct that positions and collateral be 
moved to another clearing member. This would be subject to: (i) The 
approval of all involved parties, (ii) a release by the clearing member 
with respect to any outstanding obligations of the customer to the 
clearing member, and (iii) a release by Eurex.
    In the case of Registered Customers, following clearing member 
default but prior to the filing of formal insolvency proceedings the 
security agreements would provide that the collateral would be returned 
to the Registered Customer, facilitating the transfer of the collateral 
to a new clearing member. In the case of customer omnibus accounts, 
Eurex would be able to ascertain the beneficial owners of positions 
with the clearing member's cooperation, allowing the collateral to be 
transferred with the agreement of the affected entities.
b. Shortfalls and Liquidation Procedures
    If a clearing member were to become insolvent as the result of a 
Registered Customer, Eurex would have the right to use the collateral 
in that Registered Customer's account to satisfy the shortfall. In that 
event, Eurex would not be able to use the collateral posted by other 
customers to make up the shortfall. If a clearing member became 
insolvent due to a shortfall associated with a customer other than a 
Registered Customer, as noted above Eurex could use collateral in the 
account up to the amount of net omnibus position, causing loss to non-
defaulting customers.\26\
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    \26\ Eurex states that the individually segregated collateral of 
Registered Customers will never be used to cover any shortfall 
caused by any other customer.
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    In the event of a clearing member's default, the clearing member 
would be required to close its cleared CDS transactions; otherwise 
Eurex could close the positions on behalf of the clearing members.\27\ 
If Eurex cannot close those transactions within a reasonable period, it 
may use a voluntary auction process to liquidate the position in whole 
or in part, and assign the remaining positions among non-defaulting 
clearing members pro rata.
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    \27\ These procedures may be subject to the action of the 
receiver of the clearing member, such as the Federal Deposit 
Insurance Corp. in the case of a U.S. bank clearing member.
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5. Other Clearing Member Requirements Related to Customer Clearing
    Eurex states that before offering CDS clearance and settlement 
services to U.S. customers of non-U.S. clearing members, it will adopt 
a requirement that the clearing member be regulated by: (i) A signatory 
to the International Organization of Securities Commissions (``IOSCO'') 
Multilateral Memorandum of Understanding Concerning Consultation and 
Cooperation and the Exchange of Information, (ii) a signatory to a 
bilateral arrangement with the Commission for enforcement cooperation, 
or (iii) a financial regulatory authority in Ireland or Sweden.

B. Temporary Conditional Exemption from Exchange Registration 
Requirements

    Eurex represents that, in connection with its clearing and risk 
management process, it will calculate an end-of-day settlement price 
for each Cleared CDS in which a Eurex clearing member has a cleared 
position, based on prices submitted by Eurex clearing members. As part 
of this mark-to-market process, Eurex will periodically require Eurex 
clearing members that submit quotes that lock or cross to execute 
certain CDS trades. Requiring Eurex clearing members to trade CDS 
periodically in this manner is designed to help ensure that such 
submitted prices reflect each Eurex clearing member's best assessment 
of the value of each of its open positions in Cleared CDS on a daily 
basis, thereby reducing risk by allowing Eurex to impose appropriate 
margin requirements.
    Section 5 of the Exchange Act states that ``[i]t shall be unlawful 
for any broker, dealer, or exchange, directly or indirectly, to make 
use of the mails or any means or instrumentality of interstate commerce 
for the purpose of using any facility of an exchange * * * to effect 
any transaction in a security, or to report any such transactions, 
unless such exchange (1) is registered as a national securities 
exchange under section 6 of [the Exchange Act], or (2) is exempted from 
such registration * * * by reason of the limited volume of transactions 
effected on such

[[Page 22646]]

exchange * * *.'' \28\ Section 6 of the Exchange Act sets forth a 
procedure whereby an exchange \29\ may register as a national 
securities exchange.\30\ To facilitate the establishment of Eurex's 
end-of-day settlement price process, including the periodically 
required trading described above, the Commission is exercising its 
authority under Section 36 of the Exchange Act to temporarily exempt 
Eurex and Eurex clearing members, through November 30, 2010, from 
Sections 5 and 6 of the Exchange Act and the rules and regulations 
thereunder in connection with Eurex's calculation of mark-to-market 
prices for open positions in Cleared CDS. This temporary exemption is 
subject to the following conditions:
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    \28\ 15 U.S.C. 78e.
    \29\ Section 3(a)(1) of the Exchange Act, 15 U.S.C. 78c(a)(1), 
defines ``exchange.'' Rule 3b-16 under the Exchange Act, 17 CFR 
240.3b-16, defines certain terms used in the statutory definition of 
exchange. See Exchange Act Release No. 40760 (December 8, 1998), 63 
FR 70844 (December 22, 1998) (adopting Rule 3b-16 in addition to 
Regulation ATS).
    \30\ 15 U.S.C. 78f. Section 6 of the Exchange Act also sets 
forth various requirements to which a national securities exchange 
is subject.
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    First, Eurex must report the following information with respect to 
the calculation of mark-to-market prices for Cleared CDS to the 
Commission within 30 days of the end of each quarter, and preserve such 
reports during the life of the enterprise and of any successor 
enterprise:
     The total volume of transactions, expressed in the 
currency of the underlying instrument, executed during the quarter, 
broken down by reference entity, security, or index; and
     The total unit volume and/or notional amount executed 
during the quarter, broken down by reference entity, security, or 
index.
    Second, Eurex must establish and maintain adequate safeguards and 
procedures to protect members' confidential trading information. Such 
safeguards and procedures shall include: (a) limiting access to the 
confidential trading information of members to those employees of Eurex 
who are operating the system or responsible for its compliance with 
this exemption or any other applicable rules; and (b) establishing and 
maintaining standards controlling employees of Eurex trading for their 
own accounts. Eurex must establish and maintain adequate oversight 
procedures to ensure that the safeguards and procedures established 
pursuant to this condition are followed.
    Third, Eurex must comply with the conditions to the temporary 
exemption from to the temporary exemption from registration as a 
clearing agency extended by this Order,\31\ given that this exemption 
is granted in the context of our goal of continuing to facilitate 
Eurex's ability to act as a CCP for non-excluded CDS, and given Eurex's 
representation that it must require periodic trading of Cleared CDS 
positions by Eurex clearing members whose submitted end-of-day prices 
lock or cross, to enhance the reliability of end-of-day settlement 
prices submitted as part of the daily mark-to-market process.
---------------------------------------------------------------------------

    \31\ See Part II.E, infra.
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    The Commission is also temporarily exempting each Eurex clearing 
member, through November 30, 2010, from the prohibition in Section 5 of 
the Exchange Act to the extent that such Eurex clearing member uses any 
facility of Eurex to effect any transaction in Cleared CDS, or to 
report any such transaction, in connection with Eurex's calculation of 
mark-to-market prices for open positions in Cleared CDS. Absent an 
exemption, Section 5 would prohibit any Eurex clearing member that is a 
broker or dealer from effecting transactions in Cleared CDS on Eurex, 
which will rely on this Order for an exemption from exchange 
registration. The Commission believes that temporarily exempting Eurex 
clearing members from the restriction in Section 5 is necessary and 
appropriate in the public interest and is consistent with the 
protection of investors because it will facilitate their use of Eurex's 
CCP for Cleared CDS, which for the reasons set forth in this Order the 
Commission believes to be beneficial. Without also temporarily 
exempting Eurex clearing members from this Section 5 requirement, the 
Commission's temporary exemption of Eurex from Sections 5 and 6 of the 
Exchange Act would be ineffective, because Eurex clearing members that 
are brokers or dealers would not be permitted to effect transactions on 
Eurex in connection with the end-of-day settlement price process.

C. Temporary Conditional Exemption From Broker-Dealer Related 
Requirements for Certain Clearing Members of Eurex and Others

    The July Eurex Order did not address clearing of customer 
transactions by Eurex, and that order thus did not provide Eurex 
clearing members that hold customer collateral in connection with 
cleared CDS transactions with an exemption from broker-dealer 
requirements under the Exchange Act. Absent an exception or exemption, 
persons that effect transactions in non-excluded CDS that are 
securities may be required to register as broker-dealers pursuant to 
Section 15(a)(1) of the Exchange Act.\32\ Moreover, certain other 
requirements of the Exchange Act could apply to such persons, as 
broker-dealers, regardless of whether they are registered with the 
Commission.
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    \32\ Section 15(a)(1) generally provides that, absent an 
exception or exemption, a broker or dealer that uses the mails or 
any means of interstate commerce to effect transactions in, or to 
induce or attempt to induce the purchase or sale of, any security 
must register with the Commission.
    Section 3(a)(4) of the Exchange Act generally defines a 
``broker'' as ``any person engaged in the business of effecting 
transactions in securities for the account of others,'' but excludes 
certain bank securities activities. 15 U.S.C. 78c(a)(4). Section 
3(a)(5) of the Exchange Act generally defines a ``dealer'' as ``any 
person engaged in the business of buying and selling securities for 
his own account,'' but includes exceptions for certain bank 
activities. 15 U.S.C. 78c(a)(5). Exchange Act Section 3(a)(6) 
defines a ``bank'' as a bank or savings association that is directly 
supervised and examined by state or federal banking authorities 
(with certain additional requirements for banks and savings 
associations that are not chartered by a federal authority or a 
member of the Federal Reserve System). 15 U.S.C. 78c(a)(6).
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    It is consistent with our investor protection mandate to require 
securities intermediaries that receive or hold funds and securities on 
behalf of others to comply with standards that safeguard the interests 
of their customers. For example, a registered broker-dealer is required 
to segregate assets held on behalf of customers from proprietary assets 
because segregation will assist customers in recovering assets in the 
event the broker-dealer fails. To the extent that funds and securities 
are not segregated, they could be used by an intermediary to fund its 
own business and could be attached to satisfy debts of the intermediary 
if it were to fail. Moreover, the maintenance of adequate capital and 
liquidity protects customers, CCPs and other market participants. 
Adequate books and records (including both transactional and position 
records) are necessary to facilitate day to day operations as well as 
to help resolve situations in which an intermediary fails and either a 
regulatory authority, receiver, trustee or other entity is forced to 
liquidate the firm. Appropriate records also are necessary to allow 
examiners to review for improper activities, such as insider trading or 
other fraud.
    At the same time, requiring intermediaries that receive or hold 
funds and securities on behalf of customers in connection with 
transactions in non-excluded CDS to register as broker-dealers may 
deter the use of CCPs in customer CDS transactions, which would cause 
customers to lose the counterparty risk benefits of central clearing, 
and would

[[Page 22647]]

lessen the systemic risk reduction benefits associated with central 
clearing.
    Those factors argue in favor of flexibility in applying the 
requirements of the Exchange Act to these intermediaries, conditioned 
on requiring the intermediaries to take reasonable steps to help 
increase the likelihood that their customers would be protected in the 
event the intermediary became insolvent, even if those safeguards are 
as not as strong as those required of registered broker-dealers. This 
requires us to balance the goals of promoting the central clearing of 
customer CDS transactions against the goal of protecting customers, and 
to be mindful that these conditions cannot provide legal certainty that 
customer collateral in fact would be protected in the event an Eurex 
clearing member were to become insolvent.
    In granting the temporary exemption, we also are relying on Eurex's 
representation that before offering the Non-Member Framework, it will 
adopt a requirement that non-U.S. clearing members subject to the 
framework are regulated by: (i) A signatory to the International 
Organization of Securities Commissions (``IOSCO'') Multilateral 
Memorandum of Understanding Concerning Consultation and Cooperation and 
the Exchange of Information, (ii) a signatory to a bilateral 
arrangement with the Commission for enforcement cooperation, or (iii) a 
financial regulatory authority in Ireland or Sweden.\33\
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    \33\ Non-U.S. clearing members that do not meet these criteria 
would not be eligible to rely on this exemption.
    The Commission has established informal relationships with 
securities authorities in Ireland and Sweden and cooperates with 
them on an ad hoc basis. Also, the securities regulators in both 
Ireland and Sweden have applied to become signatories to the IOSCO 
Multilateral Memorandum of Understanding for Consultation, 
Cooperation and the Exchange of Information.
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    Accordingly, pursuant to Section 36 of the Exchange Act, the 
Commission finds that it is necessary or appropriate in the public 
interest and is consistent with the protection of investors to exercise 
its authority to grant a conditional exemption through November 30, 
2010, with respect to certain Exchange Act requirements related to 
broker-dealers. This exemption is available to Eurex clearing members 
other than registered broker-dealers. This exemption also is available 
to any eligible contract participant, other than a registered broker-
dealer, that does not receive or hold funds or securities for the 
purpose of purchasing, selling, clearing, settling, or holding Cleared 
CDS positions for other persons.\34\ Solely with respect to Cleared 
CDS, those persons temporarily will be exempt from the broker-dealer 
registration requirements of Section 15(a)(1), and the other 
requirements of the Exchange Act (other than paragraphs (4) and (6) of 
Section 15(b)\35\) and the rules and regulations thereunder that apply 
to a broker or dealer that is not registered with the Commission.
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    \34\ In some circumstances, an eligible contract participant 
that does not hold customer funds or securities nonetheless may act 
as a dealer in securities transactions, or as a broker (such as an 
inter-dealer broker).
    Solely for purposes of this requirement, an eligible contract 
participant would not be viewed as receiving or holding funds or 
securities for purpose of purchasing, selling, clearing, settling, 
or holding Cleared CDS positions for other persons, if the other 
persons involved in the transaction would not be considered 
``customers'' of the eligible contract participant under the 
analysis used for determining whether certain persons would be 
considered ``customers'' of a broker-dealer under Exchange Act Rule 
15c3-3(a)(1). For these purposes, and for the purpose of the 
definition of ``Cleared CDS,'' the terms ``purchasing'' and 
``selling'' mean the execution, termination (prior to its scheduled 
maturity date), assignment, exchange, or similar transfer or 
conveyance of, or extinguishing the rights or obligations under, a 
Cleared CDS, as the context may require. This is consistent with the 
meaning of the terms ``purchase'' or ``sale'' under the Exchange Act 
in the context of security-based swap agreements. See Exchange Act 
Section 3A(b)(4).
    \35\ Exchange Act Sections 15(b)(4) and 15(b)(6) grant the 
Commission authority to take action against broker-dealers and 
associated persons in certain situations. Accordingly, while this 
exemption from broker-dealer requirements generally extends to 
persons that act as broker-dealers in the market for Cleared CDS 
(potentially including inter-dealer brokers that do not hold funds 
or securities for others), such persons may be subject to actions 
under Sections 15(b)(4) and (b)(6) of the Exchange Act.
    In addition, such persons may be subject to actions under 
Exchange Act Section 15(c)(1), 15 U.S.C. 78o(c)(1), which prohibits 
brokers and dealers from using manipulative or deceptive devices. As 
noted above, Section 15(c)(1) explicitly applies to security-based 
swap agreements. Sections 15(b)(4), 15(b)(6) and 15(c)(1), of 
course, would not apply to persons subject to this exemption who do 
not act as broker-dealers or associated persons of broker-dealers.
---------------------------------------------------------------------------

    For all Eurex clearing members--regardless of whether they receive 
or hold customer collateral in connection with Cleared CDS--this 
temporary exemption is conditioned on the clearing member being in 
material compliance with Eurex's rules, as well as on the clearing 
member being in compliance with applicable laws and regulations 
relating to capital, liquidity, and segregation of customers' funds and 
securities (and related books and records provisions) with respect to 
Cleared CDS.
    For Eurex clearing members that receive or hold funds or securities 
of U.S. persons (or who receive or hold funds or securities of any 
person in the case of a U.S. clearing member)--other than for an 
affiliate that controls, is controlled by, or is under common control 
with the clearing member--in connection with Cleared CDS, this 
temporary exemption further is conditioned on the customer not being a 
natural person, and on the clearing member providing certain risk 
disclosures to the customer.\36\
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    \36\ The clearing member must disclose that it is not regulated 
by the Commission and that U.S. broker-dealer segregation 
requirements and protections under the Securities Investor 
Protection Act will not apply, that the insolvency law of the 
applicable jurisdiction may affect the customer's ability to recover 
funds and securities or the speed of any such recovery, and (if 
applicable) that non-U.S. members may be subject to an insolvency 
regime that is materially different from that applicable to U.S. 
persons.
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    Also, those clearing members that receive or hold such customer 
funds or securities must transfer those funds and securities, as 
promptly as practicable after receipt, to either the appropriate 
customer account at Eurex \37\ or an account held by a third-party 
custodian, as described below.\38\
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    \37\ Cash collateral transferred to Eurex may be invested in 
certain ``approved instruments,'' as discussed above. See note 18, 
supra.
    \38\ Eurex anticipates that registered FCMs may become clearing 
members of Eurex; Eurex thus may apply to the CFTC for an order, 
under Section 4d of the Commodity Exchange Act (``CEA''), to allow 
FCM clearing members to segregate the collateral posted by customers 
as margin for Cleared CDS transactions and positions in an account 
established in accordance with Section 4d and underlying rules.
     This Order does not preclude Eurex clearing members that are 
FCMs (and that are not registered broker-dealers) from relying on 
this exemption from broker-dealer related requirements under the 
Exchange Act, provided such members comply with the conditions of 
this exemption, including conditions related to segregation of 
customer collateral. The Commission intends to monitor developments 
that may form the basis for alternative segregation conditions for 
FCM members of Eurex.
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    Collateral that is held at a third-party custodian, moreover, must 
either be held: (1) In the name of the customer, subject to an 
agreement in which the customer, the clearing member and the custodian 
are parties, acknowledging that the assets held therein are customer 
assets used to collateralize obligations of the customer to the 
clearing member, and that the assets held in the account may not 
otherwise be pledged or rehypothecated by the clearing member or the 
custodian; or (2) in an omnibus account for which the clearing member 
maintains daily records as to the amount owing to each customer, and 
which is subject to an agreement between the clearing member and the 
custodian specifying: (i) That all account assets are held for the 
exclusive benefit of the clearing member's customers and are being kept 
separate from any other accounts that the clearing member maintains 
with the

[[Page 22648]]

custodian; (ii) that the account assets may not be used as security for 
a loan to the clearing member by the custodian, and shall be subject to 
no right, charge, security interest, lien, or claim of any kind in 
favor of the custodian or any person claiming through the custodian; 
and (iii) that the assets may not otherwise be pledged or 
rehypothecated by the clearing member or the custodian.\39\ Under 
either approach, the third-party custodian cannot be affiliated with 
the clearing member.\40\ Moreover, if the third-party custodian is a 
U.S. entity, it must be a bank (as that term is defined in Section 
3(a)(6) of the Exchange Act), have total regulatory capital of at least 
$1 billion,\41\ and have been approved to engage in a trust business by 
its appropriate regulatory agency. A custodian that is not a U.S. 
entity must have regulatory capital of at least $1 billion,\42\ and 
must provide the clearing member, the customer and Eurex with a legal 
opinion \43\ providing that the account assets are subject to 
regulatory requirements in the custodian's home jurisdiction designed 
to protect, and provide for the prompt return of, custodial assets in 
the event of the custodian's insolvency, and that the assets held in 
that account reasonably could be expected to be legally separate from 
the clearing member's assets in the event of the clearing member's 
insolvency. Also, cash collateral posted with the third-party custodian 
may be invested in other assets that constitute ``approved 
instruments'' pursuant to part 2.2 under the Eurex Organizational 
Manual.\44\ Finally, a clearing member that uses a third-party 
custodian to hold customer collateral must notify Eurex of that use.
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    \39\ We do not contemplate that either of these approaches 
involving the use of a third-party custodian would interfere with 
the ability of a clearing member and its customer to agree as to how 
any return or losses earned on those assets would be distributed 
between the clearing member and its customer.
    Also, the restriction in both approaches on the clearing 
member's and the custodian's ability to rehypothecate these customer 
funds and securities does not preclude that collateral from being 
transferred to Eurex as necessary to satisfy variation margin 
requirements in connection with the customer's CDS position.
    \40\ For purposes of the Order, an ``affiliated person'' of a 
clearing member mean any person who directly or indirectly controls 
a clearing member or any person who is directly or indirectly 
controlled by or under common control with a clearing member; 
ownership of 10 percent or more of an entity's common stock will be 
deemed prima facie control of that entity. See definition in 
paragraph III.(f)(2) of this Order. This standard is analogous to 
the standard used to identify affiliated persons of broker-dealers 
under Exchange Act Rule 15c3-3(a)(13), 17 CFR 240.15c3-3(a)(13).
    \41\ In particular, custodians that are U.S. entities must have 
total capital, as calculated to meet the applicable requirements 
imposed by the entity's appropriate regulatory agency of at least $1 
billion. The term ``appropriate regulatory agency'' is defined in 
Section 3(a)(34) of the Exchange Act, 15 U.S.C. 78c(a)(34)).
    \42\ Custodians that are non-U.S. entities must have total 
capital, as calculated to meet the applicable requirements imposed 
by the foreign financial regulatory authority of at least $1 
billion. The term ``foreign financial regulatory authority'' is 
defined in Section 3(a)(52) of the Exchange Act, 15 U.S.C. 
78c(a)(52)).
    \43\ This condition requiring that Eurex receive a legal opinion 
as a repository for regulators, and other conditions of this Order 
that require clearing members to convey information (e.g., an audit 
report related to the clearing member's compliance with exemptive 
conditions) to Eurex, does not impose upon Eurex any independent 
duty to audit or otherwise review such information. These conditions 
also do not impose on Eurex any independent fiduciary or other 
obligation to any customer of a clearing member.
    \44\ See note 18, supra.
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    To the extent there is any delay in the clearing member 
transferring such funds and securities to Eurex or a third-party 
custodian,\45\ the clearing member must effectively segregate the 
collateral in a way that, pursuant to applicable law, could reasonably 
be expected to effectively protect the collateral from the clearing 
member's creditors. The clearing member may not permit such persons to 
``opt out'' of such segregation even if applicable regulations or laws 
otherwise would permit such ``opt out.''
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    \45\ This provision is intended to address short-term technology 
or operational issues.
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    To facilitate compliance with the segregation practices that are 
required as a condition to this temporary exemption, the clearing 
member also must annually provide Eurex with a self-assessment that it 
is in compliance with the requirements, along with a report by the 
clearing member's independent third-party auditor that attests to that 
assessment. The report must be dated the same date as the clearing 
member's annual audit report (but may be separate from it), and must be 
produced in accordance with the standards that the auditor follows in 
auditing the clearing member's financial statements.\46\
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    \46\ As the self-assessment is intended to serve as the basis 
for the third-party auditor's report, we expect the self-assessment 
to be generally contemporaneous with that report.
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    Finally, to support these segregation practices and enhance the 
ability to detect and deter circumstances in which clearing members 
fail to segregate customer collateral consistent with the exemption, 
this temporary exemption is conditioned on the clearing member agreeing 
to provide the Commission with access to information related to Cleared 
CDS transactions.\47\ In particular, the clearing member would provide 
the Commission (upon request and subject to agreements reached between 
the Commission or the U.S. Government and an appropriate foreign 
securities authority \48\) with information or documents within the 
clearing member's possession, custody, or control, as well as testimony 
of clearing member personnel and assistance in taking the evidence of 
other persons, that relates to Cleared CDS transactions. If, after the 
clearing member has exercised its best efforts to provide this 
information (including requesting the appropriate governmental body 
and, if legally necessary, its customers), the clearing member 
nonetheless is prohibited from providing the information by applicable 
foreign law or regulations, this temporary conditional exemption would 
no longer be available to the clearing member.\49\
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    \47\ This requirement for clearing members to make information 
available to the Commission is consistent with a requirement in 
Exchange Act Rule 15a-6(a)(3)(i)(B), which exempts certain foreign 
broker-dealers from registering with the Commission. See Exchange 
Act Rule 15a-6(a)(3)(i)(B).
    \48\ The term ``foreign securities authority'' is defined in 
Section 3(a)(50) of the Exchange Act, 15 U.S.C. 78c(a)(50).
    \49\ Consistent with the discussion above as to the loss of an 
exemption due to an underlying representation no longer being 
accurate, see note 8, supra, if a clearing member were to lose the 
benefit of this exemption due to the failure to provide information 
to the Commission as the result of a prohibition by an applicable 
foreign law or regulation, the legal status of existing open 
positions in non-excluded CDS associated with those clearing members 
and its customers would remain unchanged, but the clearing member 
could not establish new CDS positions pursuant to the exemption.
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    We recognize that requiring clearing members that receive or hold 
customer collateral to satisfy these conditions will not guarantee that 
a customer would receive the return of its collateral in the event of a 
clearing member's insolvency, particularly in light of the fact-
specific nature of the insolvency process and the multiplicity of 
insolvency regimes that may apply to Eurex's members clearing for U.S. 
customers. We believe, however, that these are reasonable steps for 
increasing the likelihood that customers would be able to access 
collateral in such an insolvency event. We also recognize that these 
customers generally may be expected to be sophisticated market 
participants that should be able to weigh the risks associated with 
entering into arrangements with intermediaries that are not registered 
broker-dealers, particularly in light of the disclosure required as a 
condition to this temporary exemption.

[[Page 22649]]

D. Modified and Extended Temporary Conditional General Exemption for 
Eurex and Certain Eligible Contract Participants

    The existing order on behalf of Eurex temporarily exempted Eurex, 
and certain members and eligible contract participants from a number of 
Exchange Act requirements, subject to certain conditions, recognizing 
that applying the full panoply of Exchange Act requirements to 
participants in transactions in non-excluded CDS likely would deter 
some participants from using CCPs to clear CDS transactions. That 
temporary conditional exemption, however, did not extend to the 
antifraud provisions of the Exchange Act, in light of the importance of 
continuing to apply those antifraud provisions to transactions in non-
excluded CDS.\50\
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    \50\ OTC transactions subject to individual negotiation that 
qualify as security-based swap agreements are subject to those 
provisions. While Section 3A of the Exchange Act excludes ``swap 
agreements'' from the definition of ``security,'' certain antifraud 
and insider trading provisions under the Exchange Act explicitly 
apply to security-based swap agreements. See (a) paragraphs (2) 
through (5) of Section 9(a), 15 U.S.C. 78i(a), prohibiting the 
manipulation of security prices; (b) Section 10(b), 15 U.S.C. 
78j(b), and underlying rules prohibiting fraud, manipulation or 
insider trading (but not prophylactic reporting or recordkeeping 
requirements); (c) Section 15(c)(1), 15 U.S.C. 78o(c)(1), which 
prohibits brokers and dealers from using manipulative or deceptive 
devices; (d) Sections 16(a) and (b), 15 U.S.C. 78p(a) and (b), which 
address disclosure by directors, officers and principal 
stockholders, and short-swing trading by those persons, and rules 
with respect to reporting requirements under Section 16(a); (e) 
Section 20(d), 15 U.S.C. 78t(d), providing for antifraud liability 
in connection with certain derivative transactions; and (f) Section 
21A(a)(1), 15 U.S.C. 78u-1(a)(1), related to the Commission's 
authority to impose civil penalties for insider trading violations.
    ``Security-based swap agreement'' is defined in Section 206B of 
the Gramm-Leach-Bliley Act as a swap agreement in which a material 
term is based on the price, yield, value, or volatility of any 
security or any group or index of securities, or any interest 
therein.
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    We are modifying the existing temporary conditional exemption to 
accommodate customer CDS clearing by Eurex. As revised, this temporary 
conditional exemption applies to Eurex and to any eligible contract 
participants \51\--including any Eurex clearing member \52\--other than 
eligible contract participants that are self-regulatory organizations, 
or eligible contract participants that are registered brokers or 
dealers.\53\
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    \51\ This exemption in general applies to eligible contract 
participants, as defined in Section 1a(12) of the Commodity Exchange 
Act as in effect on the date of this Order, other than persons that 
are eligible contract participants under paragraph (C) of that 
section.
    \52\ The current exemption specifically applies to any ``Eurex 
U.S. Clearing Member'' and ``Eurex Non-U.S. Clearing Members.'' 
These terms were defined to exclude U.S. members that submitted 
customer CDS trades for clearing, and to exclude non-U.S. members 
that submitted customer CDS trades for clearing for the account of 
any other person except a U.S. person. In light of our expansion of 
the Eurex exemptions to accommodate customer clearing, we no longer 
are limiting the exemption in that way, and are not using those 
definitions.
    \53\ The current exemption also excludes persons that hold funds 
and securities for others. This restriction no longer is necessary 
in light of the exemption from broker-dealer related requirements.
    Also, a separate temporary exemption addresses the Cleared CDS 
activities of registered broker-dealers. See Part II.E, infra. 
Solely for purposes of this Order, a ``registered broker-dealer,'' 
or a ``broker or dealer registered under Section 15(b) of the 
Exchange Act,'' does not refer to someone that would otherwise be 
required to register as a broker or dealer solely as a result of 
activities in Cleared CDS in compliance with this Order.
---------------------------------------------------------------------------

    In light of the temporary conditional exemption that we are 
granting from certain Exchange Act requirements related to broker-
dealers, we also are modifying this temporary conditional exemption by 
excluding from its scope the broker-dealer registration requirements of 
Section 15(a)(1),\54\ and the other requirements of the Exchange Act, 
including paragraphs (4) and (6) of Section 15(b), and the rules and 
regulations thereunder that apply to a broker or dealer that is not 
registered with the Commission.\55\
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78o(a)(1).
    \55\ Currently, this exemption only excludes paragraphs (4) and 
(6) of Section 15(b) from its scope.
---------------------------------------------------------------------------

    Eurex clearing members relying on this temporary conditional 
exemption must be in material compliance with Eurex rules. Moreover, to 
help promote compliance with the temporary conditional exemption that 
we are granting from certain Exchange Act requirements specifically 
related to broker-dealers, any Eurex clearing member relying on this 
exemption that participates in the clearing of Cleared CDS transactions 
on behalf of other persons must annually provide a certification to 
Eurex that attests to whether the clearing member is relying on the 
temporary exemption from broker-dealer related requirements described 
below.\56\
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    \56\ We expect the clearing member to initially provide this 
certification to Eurex around the time it commences relying on this 
exemption. To the extent we extend this temporary conditional 
exemption and include the same type of certification requirement, 
the clearing member then would annually renew the certification.
---------------------------------------------------------------------------

    As before, this temporary conditional exemption, solely with 
respect to Cleared CDS, generally addresses the provisions of the 
Exchange Act and the rules and regulations thereunder that do not apply 
to security-based swap agreements. Thus, persons relying on the 
exemption would still be subject to those Exchange Act requirements 
that explicitly are applicable in connection with security-based swap 
agreements.\57\ Also, as before, this temporary conditional exemption 
does not extend to: the exchange registration requirements of Exchange 
Act Sections 5 and 6; \58\ the clearing agency registration 
requirements of Exchange Act Section 17A; the requirements of Exchange 
Act Sections 12, 13, 14, 15(d), and 16; \59\ or certain provisions 
related to government securities.\60\ This revised temporary exemption 
will be in effect through November 30, 2010.
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    \57\ See note 50, supra. In addition, all provisions of the 
Exchange Act related to the Commission's enforcement authority in 
connection with violations or potential violations of such 
provisions would remain applicable. Thus, for example, the 
Commission retains the ability to investigate potential violations 
and bring enforcement actions in the federal courts as well as in 
administrative proceedings, and to seek the full panoply of remedies 
available in such cases.
    \58\ These are subject to a separate temporary class exemption. 
See note 1, supra. A national securities exchange that effects 
transactions in Cleared CDS would continue to be required to comply 
with all requirements under the Exchange Act applicable to such 
transactions. A national securities exchange could form subsidiaries 
or affiliates that operate exchanges exempt under that order. Any 
subsidiary or affiliate of a registered exchange could not 
integrate, or otherwise link, the exempt CDS exchange with the 
registered exchange including the premises or property of such 
exchange for effecting or reporting a transaction without being 
considered a ``facility of the exchange.'' See Section 3(a)(2), 15 
U.S.C. 78c(a)(2).
    The revised exemptions connected with CDS clearing by Eurex also 
includes a separate temporary exemption from Sections 5 and 6 in 
connection with the mark-to-market process of Eurex.
    \59\ 15 U.S.C. 78l, 78m, 78n, 78o(d), 78p. Eligible contract 
participants and other persons instead should refer to the interim 
final temporary rules issued by the Commission. See note 1, supra.
    \60\ This exemption specifically does not extend to the Exchange 
Act provisions applicable to government securities, as set forth in 
Section 15C, 15 U.S.C. 78o-5, and its underlying rules and 
regulations. The exemption also does not extend to related 
definitions found at paragraphs (42) through (45) of Section 3(a), 
15 U.S.C. 78c(a). The Commission does not have authority under 
Section 36 to issue exemptions in connection with those provisions. 
See Exchange Act Section 36(b), 15 U.S.C. 78mm(b).
---------------------------------------------------------------------------

E. Extension of Other Temporary Exemptions Associated With CDS Clearing 
by Eurex

    The order we previously granted to facilitate CDS clearing by Eurex 
conditionally exempts Eurex, until April 23, 2010, from the clearing 
agency registration requirements of Section 17A of the Exchange Act in 
connection with Cleared CDS. Subject to the conditions in that 
exemption, Eurex is permitted to act as a CCP for Cleared CDS without 
having to register with the Commission as a clearing agency. In 
granting that exemption, the Commission recognized the need to ensure 
the prompt establishment of Eurex as a CCP for CDS

[[Page 22650]]

transactions, while also ensuring that important elements of Section 
17A of the Exchange Act, which sets forth the framework for the 
regulation and operation of the U.S. clearance and settlement system 
for securities, apply to the non-excluded CDS market. The temporary 
exemption is subject to a number of conditions designed to enable 
Commission staff to monitor Eurex's clearance and settlement of CDS 
transactions.\61\ The temporary exemption, moreover, in part is based 
on Eurex's representation that it met the standards set forth in the 
Committee on Payment and Settlement Systems (``CPSS'') and IOSCO report 
entitled: Recommendation for Central Counterparties (``RCCP'').\62\ The 
exemption expires on April 23, 2010. For consistency with the other 
exemptions we are granting in connection with CDS clearing by Eurex, 
and consistent with our earlier findings, we find pursuant to Section 
36 of the Exchange Act that it is necessary and appropriate in the 
public interest and is consistent with the protection of investors for 
the Commission to extend, through November 30, 2010, the conditional 
relief provided from the clearing agency registration requirements of 
Section 17A we previously granted to Eurex.
---------------------------------------------------------------------------

    \61\ See July Eurex order.
    \62\ The RCCP was drafted by a joint task force (``Task Force'') 
composed of representative members of IOSCO and CPSS and published 
in November 2004. The Task Force consisted of securities regulators 
and central bankers from 19 countries and the European Union. The 
U.S. representatives on the Task Force included staff from the 
Commission, the Federal Reserve Board, and the Commodity Futures 
Trading Commission.
    The RCCP establishes a framework that requires a CCP to have (i) 
the ability to facilitate the prompt and accurate clearance and 
settlement of CDS transactions and to safeguard its users' assets; 
and (ii) sound risk management, including the ability to 
appropriately determine and collect clearing fund and monitor its 
users' trading. This framework is generally consistent with the 
requirements of Section 17A of the Exchange Act.
---------------------------------------------------------------------------

    Finally, the earlier order also exempts registered broker-dealers, 
until April 23, 2010, from certain Exchange Act requirements in 
connection with their activities involving Cleared CDS. In crafting 
these temporary exemptions, we balanced the need to avoid creating 
disincentives to the prompt use of CCPs against the critical role that 
certain broker-dealers play in promoting market integrity and 
protecting customers (including broker-dealer customers that are not 
involved with CDS transactions). Accordingly, we exempted registered 
broker-dealers from provisions of the Exchange Act and the rules and 
regulations thereunder that do not apply to security-based swap 
agreements, subject to certain exceptions.\63\ For consistency with the 
other exemptions we are granting in connection with CDS clearing by 
Eurex, and consistent with our earlier findings, we find pursuant to 
Section 36 of the Exchange Act that it is necessary and appropriate in 
the public interest and is consistent with the protection of investors 
for the Commission to extend, through November 30, 2010, the 
conditional relief previously provided to registered broker-dealers in 
connection with Cleared CDS.
---------------------------------------------------------------------------

    \63\ See July Eurex order.
---------------------------------------------------------------------------

F. Solicitation of Comments

    When we granted our initial temporary conditional exemptions in 
connection with CDS clearing by Eurex, we solicited comment on all 
aspects of the exemptions, and specifically requested comment as to the 
duration of the temporary exemptions, the appropriateness of the 
exemptive conditions, and whether Eurex should be required to register 
as a clearing agency under the Exchange Act. We received no comments in 
response this request.
    In connection with this Order extending the temporary conditional 
exemptions granted in connection with CDS clearing by Eurex, and 
expanding that relief to accommodate central clearing of customer CDS 
transactions, we reiterate our request for comments on all aspects of 
the exemptions. We particularly request comments as to the relief we 
are granting in connection with customer clearing, including whether 
Eurex members that clear customer CDS transactions should be required 
to register as broker-dealers, whether the conditions that we have 
placed on the relief adequately protect customer funds and securities 
from the threat posed by clearing member insolvency, whether additional 
conditions or requirements are appropriate to promote compliance with 
the requirements of the exemptions, and what, if any, additional 
conditions would be appropriate.
    We also particularly request comment as to whether the segregation 
conditions of this Order should extend to certain transfers of 
variation margin associated with Cleared CDS, as well as whether CDS 
customers are able to easily access mark-to-market profits associated 
with Cleared CDS. Do any practices (such as, for example, negotiated 
``thresholds'' in credit support annexes between clearing members and 
customers) impede customers from demanding and receiving the timely 
return of such mark-to-market profits? Should the Commission condition 
any future exemptions on segregating the mark-to-market profits 
associated with Cleared CDS if they are not returned to customers 
within a certain amount of time following demand (subject to provisions 
regarding reasonable minimum transfer amounts, and provisions 
permitting offset against amounts owing from the customer directly to 
the clearing member)? Would such a condition impose significant 
operational or other costs that may deter the clearing of customer CDS 
transactions? Are there other factors (e.g., costs, benefits, market 
conditions, economic considerations, or availability of credit hedges) 
that may reduce the significance of any customer protection benefits 
provided by requiring segregation of such mark-to-market profits? We 
also invite comment on whether differences among CDS CCPs regarding 
protection of mark-to-market profits may have competitive impacts.
    In addition, we request comment on how clearing members intend to 
comply with this Order's condition requiring the segregation of all 
margin posted by customers connected with purchasing, selling, 
clearing, settling or holding Cleared CDS positions--not only the gross 
margin required by Eurex rules. To what extent would clearing firms 
typically require certain customers to post such ``excess'' margin 
above the Eurex requirements in connection with Cleared CDS 
transactions?
    Finally, to what extent do clearing members and customers seek to 
include Cleared CDS positions within portfolio margining calculations 
that include other instruments (e.g., non-cleared CDS, other OTC 
derivatives or securities)? If portfolio margining is used, how do 
clearing members allocate the total collateral required by a clearing 
member from a customer between the portion posted in connection with 
Cleared CDS (and hence subject to this Order's segregation conditions) 
and the portion attributable to other derivatives transactions 
involving that clearing member and customer? To the extent a clearing 
member's portfolio margin calculations include a customer's Cleared CDS 
positions, is it reasonable to conclude that any portion of the 
customer margin is not connected with Cleared CDS, and thus does not 
need to be segregated? Would a dealer's inclusion of Cleared CDS 
positions in its portfolio margin calculation interfere with the 
customer protection benefits of CDS clearing in the event of a dealer's 
insolvency? In other words, would the dealer's cleared CDS customer 
positions be portable to another dealer if collateralized solely by the 
Eurex-

[[Page 22651]]

required margin, or would the dealer's cleared CDS customers be placed 
at a disadvantage in an insolvency situation because of this practice? 
Should the Commission provide firms with further guidance regarding the 
inclusion of Cleared CDS in portfolio margin calculations?
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/other.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number S7-17-09 on the subject line; or
     Use the Federal eRulemaking Portal (http://
www.regulations.gov/). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-17-09. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. We will post all comments on the Commission's Internet Web site 
(http://www.sec.gov/rules/other.shtml). Comments are also available for 
Web site viewing and printing in the Commission's Public Reference 
Room, 100 F Street, NE., Washington, DC 20549, on official business 
days between the hours of 10 a.m. and 3 p.m. All comments received will 
be posted without change; we do not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly.

III. Conclusion

    It is hereby ordered, pursuant to Section 36(a) of the Exchange 
Act, that, through November 30, 2010:
    (a) Exemption from Section 17A of the Exchange Act.
    Eurex Clearing AG (``Eurex'') shall be exempt from Section 17A of 
the Exchange Act solely to perform the functions of a clearing agency 
for Cleared CDS (as defined in paragraph (f)(1) of this Order), subject 
to the following conditions:
    (1) Eurex shall make available on its Web site its annual audited 
financial statements.
    (2) Eurex shall keep and preserve at least one copy of all 
documents, including all correspondence, memoranda, papers, books, 
notices, accounts and other such records as shall be made or received 
by it relating to its Cleared CDS clearance and settlement services. 
These records shall be kept for at least five years and for the first 
two years shall be held in an easily accessible place.
    (3) Eurex shall supply information and periodic reports relating to 
its Cleared CDS clearance and settlement services as may be reasonably 
requested by the Commission, and shall provide access to the Commission 
to conduct on-site inspections of all facilities (including automated 
systems and systems environment), records, and personnel related to 
Eurex's Cleared CDS clearance and settlement services.
    (4) Eurex shall notify the Commission, on a monthly basis, of any 
material disciplinary actions taken against any of its members using 
its Cleared CDS clearance and settlement services, including the denial 
of services, fines, or penalties. Eurex shall notify the Commission 
promptly when it terminates on an involuntary basis the membership of 
an entity that is using Eurex's Cleared CDS clearance and settlement 
services. Both notifications shall describe the facts and circumstances 
that led to Eurex's disciplinary action.
    (5) Eurex shall notify the Commission of all changes to its rules, 
procedures, and any other material events affecting its Cleared CDS 
clearance and settlement services, including its fee schedule and 
changes to risk management practices, not less than one day prior to 
effectiveness or implementation of such changes or, in exigent 
circumstances, as promptly as reasonably practicable under the 
circumstances. All such rule changes will be posted on Eurex's Web 
site. Such notifications will not be deemed rule filings that require 
Commission approval.
    (6) Eurex shall provide the Commission with reports prepared by 
independent audit personnel concerning its Cleared CDS clearance and 
settlement services that are generated in accordance with risk 
assessment of the areas set forth in the Commission's Automation Review 
Policy Statements. Eurex shall provide the Commission with annual 
audited financial statements for Eurex prepared by independent audit 
personnel.
    (7) Eurex shall report all significant systems outages to the 
Commission. If it appears that the outage may extend for 30 minutes or 
longer, Eurex shall report the systems outage immediately. If it 
appears that the outage will be resolved in fewer than 30 minutes, 
Eurex shall report the systems outage within a reasonable time after 
the outage has been resolved.
    (8) Eurex, directly or indirectly, shall make available to the 
public on terms that are fair and reasonable and not unreasonably 
discriminatory: (i) All end-of-day settlement prices and any other 
prices with respect to Cleared CDS that Eurex may establish to 
calculate mark-to-market margin requirements for Eurex clearing 
members; and (ii) any other pricing or valuation information with 
respect to Cleared CDS as is published or distributed by Eurex.
(b) Exemption From Sections 5 and 6 of the Exchange Act
    (1) Eurex shall be exempt from the requirements of Sections 5 and 6 
of the Exchange Act and the rules and regulations thereunder in 
connection with its calculation of mark-to-market prices for open 
positions in Cleared CDS, subject to the following conditions:
    (i) Eurex shall report the following information with respect to 
the calculation of mark-to-market prices for Cleared CDS to the 
Commission within 30 days of the end of each quarter, and preserve such 
reports during the life of the enterprise and of any successor 
enterprise:
    (A) The total volume of transactions, expressed in the currency of 
the underlying instrument, executed during the quarter, broken down by 
reference entity, security, or index; and
    (B) The total unit volume and/or notional amount executed during 
the quarter, broken down by reference entity, security, or index;
    (ii) Eurex shall establish and maintain adequate safeguards and 
procedures to protect clearing members' confidential trading 
information. Such safeguards and procedures shall include: (A) Limiting 
access to the confidential trading information of clearing members to 
those employees of Eurex who are operating the system or responsible 
for its compliance with this exemption or any other applicable rules; 
and (B) establishing and maintaining standards controlling employees of 
Eurex trading for their own accounts. Eurex must establish and maintain 
adequate oversight procedures to ensure that the safeguards and 
procedures established pursuant to this condition are followed; and
    (iii) Eurex shall satisfy the conditions of the temporary exemption 
from Section 17A of the Exchange Act set forth in paragraphs (a)(1)-(8) 
of this Order.
    (2) Any Eurex clearing member shall be exempt from the requirements 
of

[[Page 22652]]

Section 5 of the Exchange Act to the extent such Eurex clearing member 
uses any facility of Eurex to effect any transaction in Cleared CDS, or 
to report any such transaction, in connection with Eurex's clearance 
and risk management process for Cleared CDS.
    (c) Exemption for Eurex, Eurex clearing members, and certain 
eligible contract participants.
    (1) Persons eligible. The exemption in paragraph (c)(2) is 
available to:
    (i) Eurex; and
    (ii) Any eligible contract participant (as defined in Section 
1a(12) of the Commodity Exchange Act as in effect on the date of this 
Order (other than a person that is an eligible contract participant 
under paragraph (C) of that section)), including any Eurex clearing 
member, other than:
    (A) an eligible contract participant that is a self-regulatory 
organization, as that term is defined in Section 3(a)(26) of the 
Exchange Act; or
    (B) a broker or dealer registered under Section 15(b) of the 
Exchange Act (other than paragraph (11) thereof).
    (2) Scope of exemption.
    (i) In general. Subject to the conditions specified in paragraph 
(c)(3) of this subsection, such persons generally shall, solely with 
respect to Cleared CDS, be exempt from the provisions of the Exchange 
Act and the rules and regulations thereunder that do not apply in 
connection with security-based swap agreements. Accordingly, under this 
exemption, those persons remain subject to those Exchange Act 
requirements that explicitly are applicable in connection with 
security-based swap agreements (i.e., paragraphs (2) through (5) of 
Section 9(a), Section 10(b), Section 15(c)(1), paragraphs (a) and (b) 
of Section 16, Section 20(d) and Section 21A(a)(1) and the rules 
thereunder that explicitly are applicable to security-based swap 
agreements). All provisions of the Exchange Act related to the 
Commission's enforcement authority in connection with violations or 
potential violations of such provisions also remain applicable.
    (ii) Exclusions from exemption. The exemption in paragraph 
(c)(2)(i), however, does not extend to the following provisions under 
the Exchange Act:
    (A) Paragraphs (42), (43), (44), and (45) of Section 3(a);
    (B) Section 5;
    (C) Section 6;
    (D) Section 12 and the rules and regulations thereunder;
    (E) Section 13 and the rules and regulations thereunder;
    (F) Section 14 and the rules and regulations thereunder;
    (G) The broker-dealer registration requirements of Section 
15(a)(1), and the other requirements of the Exchange Act (including 
paragraphs (4) and (6) of Section 15(b)) and the rules and regulations 
thereunder that apply to a broker or dealer that is not registered with 
the Commission;
    (H) Section 15(d) and the rules and regulations thereunder;
    (I) Section 15C and the rules and regulations thereunder;
    (J) Section 16 and the rules and regulations thereunder; and
    (K) Section 17A (other than as provided in paragraph (a)).
    (3) Conditions for Eurex clearing members.
    (i) Any Eurex clearing member relying on this exemption must be in 
material compliance with the rules of Eurex.
    (ii) Any Eurex clearing member relying on this exemption that 
participates in the clearing of Cleared CDS transactions on behalf of 
other persons must annually provide a certification to Eurex that 
attests to whether the clearing member is relying on the exemption from 
broker-dealer related requirements set forth in paragraph (d) of this 
Order.
    (d) Exemption from broker-dealer related requirements for Eurex 
clearing members and certain eligible contract participants.
    (1) Persons eligible. The exemption in paragraph (d)(2) is 
available to:
    (i) Any Eurex clearing member (other than one that is registered as 
a broker or dealer under Section 15(b) of the Exchange Act (other than 
paragraph (11) thereof)); and
    (ii) Any eligible contract participant that does not receive or 
hold funds or securities for the purpose of purchasing, selling, 
clearing, settling, or holding Cleared CDS positions for other persons 
(other than one that is registered as a broker or dealer under Section 
15(b) of the Exchange Act (other than paragraph (11) thereof)).
    (2) Scope of exemption. The persons described in paragraph (d)(1) 
shall, solely with respect to Cleared CDS, be exempt from the broker-
dealer registration requirements of Section 15(a)(1) and the other 
requirements of the Exchange Act (other than Sections 15(b)(4) and 
15(b)(6)) and the rules and regulations thereunder that apply to a 
broker or dealer that is not registered with the Commission, subject to 
the conditions set forth in paragraph (d)(3) with respect to Eurex 
clearing members.
    (3) Conditions for Eurex clearing members.
    (i) General condition for Eurex clearing members. A Eurex clearing 
member relying on this exemption must be in material compliance with 
the rules of Eurex, and also must be in material compliance with 
applicable laws and regulations relating to capital, liquidity, and 
segregation of customers' funds and securities (and related books and 
records provisions) with respect to Cleared CDS.
    (ii) Additional conditions for Eurex clearing members that receive 
or hold customer funds or securities. Any Eurex clearing member that 
receives or holds funds or securities for the purpose of purchasing, 
selling, clearing, settling, or holding Cleared CDS positions for U.S. 
persons (or for any person if the clearing member is a U.S. clearing 
member)--other than for an affiliate that controls, is controlled by, 
or is under common control with the clearing member--also shall comply 
with the following conditions with respect to such activities:
    (A) The U.S. person (or any person if the clearing member is a U.S. 
clearing member) for whom the clearing member receives or holds such 
funds or securities shall not be natural persons;
    (B) The clearing member shall disclose to such U.S. person (or to 
any such person if the clearing member is a U.S. clearing member) that 
the clearing member is not regulated by the Commission and that U.S. 
broker-dealer segregation requirements and protections under the 
Securities Investor Protection Act will not apply to any funds or 
securities held by the clearing member, that the insolvency law of the 
applicable jurisdiction may affect such persons' ability to recover 
funds and securities, or the speed of any such recovery, in an 
insolvency proceeding, and, if applicable, that non-U.S. clearing 
members may be subject to an insolvency regime that is materially 
different from that applicable to U.S. persons;
    (C) As promptly as practicable after receipt, the clearing member 
shall transfer such funds and securities (other than those promptly 
returned to such other person) to:
    (I) The appropriate customer margin account at Eurex; or
    (II) an account held by a third-party custodian, subject to the 
following requirements:
    (a) the funds and securities must be held either:
    (1) In the name of a customer, subject to an agreement to which the 
customer, the clearing member and the custodian are parties, 
acknowledging that the assets held therein are customer assets used to 
collateralize obligations of the customer to the clearing member, and 
that the assets held in that account may not otherwise be pledged or

[[Page 22653]]

rehypothecated by the clearing member or the custodian; or
    (2) in an omnibus account for which the clearing member maintains a 
daily record as to the amount held in the account that is owed to each 
customer, and which is subject to an agreement between the clearing 
member and the custodian specifying that:
    (i) All assets in that account are held for the exclusive benefit 
of the clearing member's customers and are being kept separate from any 
other accounts maintained by the clearing member with the custodian;
    (ii) the assets held in that account shall at no time be used 
directly or indirectly as security for a loan to the clearing member by 
the custodian and shall be subject to no right, charge, security 
interest, lien, or claim of any kind in favor of the custodian or any 
person claiming through the custodian; and
    (iii) the assets held in that account may not otherwise be pledged 
or rehypothecated by the clearing member or the custodian;
    (b) the custodian may not be an affiliated person of the clearing 
member (as defined at paragraph (f)(2)); and
    (1) if the custodian is a U.S. entity, it must be a bank (as that 
term is defined in section 3(a)(6) of the Exchange Act), have total 
capital, as calculated to meet the applicable requirements imposed by 
the entity's appropriate regulatory agency (as defined in section 
3(a)(34) of the Exchange Act), of at least $1 billion, and have been 
approved to engage in a trust business by its appropriate regulatory 
agency;
    (2) if the custodian is not a U.S. entity, it must have total 
capital, as calculated to meet the applicable requirements imposed by 
the foreign financial regulatory authority (as defined in section 
3(a)(52) of the Exchange Act) responsible for setting capital 
requirements for the entity, equating to at least $1 billion, and 
provide the clearing member, the customer and Eurex with a legal 
opinion providing that the assets held in the account are subject to 
regulatory requirements in the custodian's home jurisdiction designed 
to protect, and provide for the prompt return of, custodial assets in 
the event of the insolvency of the custodian, and that the assets held 
in that account reasonably could be expected to be legally separate 
from the clearing member's assets in the event of the clearing member's 
insolvency;
    (c) such funds may be invested in investments that constitute 
``approved instruments'' pursuant to part 2.2 under the Eurex 
Organizational Manual; and
    (d) the clearing member must provide notice to Eurex that it is 
using the third-party custodian to hold customer collateral.
    (D) To the extent there is any delay in transferring such funds and 
securities to the third-parties identified in paragraph (C), the 
clearing member shall effectively segregate the collateral in a way 
that, pursuant to applicable law, is reasonably expected to effectively 
protect such funds and securities from the clearing member's creditors. 
The clearing member shall not permit such persons to ``opt out'' of 
such segregation even if regulations or laws otherwise would permit 
such ``opt out.''
    (E) The clearing member annually must provide Eurex with:
    (I) An assessment by the clearing member that it is in compliance 
with all the provisions of paragraphs (d)(3)(ii)(A) through (D) in 
connection with such activities, and
    (II) a report by the clearing member's independent third-party 
auditor that attests to, and reports on, the clearing member's 
assessment described in paragraph (d)(3)(ii)(E)(I) and that is
    (a) dated as of the same date as, but which may be separate and 
distinct from, the clearing member's annual audit report;
    (b) produced in accordance with the auditing standards followed by 
the independent third party auditor in its audit of the clearing 
member's financial statements.
    (F) The clearing member shall provide the Commission (upon request 
or pursuant to agreements reached between the Commission or the U.S. 
Government and any foreign securities authority (as defined in Section 
3(a)(50) of the Exchange Act)) with any information or documents within 
the possession, custody, or control of the clearing member, any 
testimony of personnel of the clearing member, and any assistance in 
taking the evidence of other persons, wherever located, that the 
Commission requests and that relates to Cleared CDS transactions, 
except that if, after the clearing member has exercised its best 
efforts to provide the information, documents, testimony, or 
assistance, including requesting the appropriate governmental body and, 
if legally necessary, its customers (with respect to customer 
information) to permit the clearing member to provide the information, 
documents, testimony, or assistance to the Commission, the clearing 
member is prohibited from providing this information, documents, 
testimony, or assistance by applicable foreign law or regulations, then 
this exemption shall not longer be available to the clearing member.
    (e) Exemption for certain registered broker-dealers.
    A broker or dealer registered under Section 15(b) of the Exchange 
Act (other than paragraph (11) thereof) shall be exempt from the 
provisions of the Exchange Act and the rules and regulations thereunder 
specified in paragraph (c)(2), solely with respect to Cleared CDS, 
except:
    (1) Section 7(c);
    (2) Section 15(c)(3);
    (3) Section 17(a);
    (4) Section 17(b);
    (5) Regulation T, 12 CFR 200.1 et seq.;
    (6) Rule 15c3-1;
    (7) Rule 15c3-3;
    (8) Rule 17a-3;
    (9) Rule 17a-4;
    (10) Rule 17a-5; and
    (11) Rule 17a-13.
    (f) Definitions.
    For purposes of this Order:
    (1) ``Cleared CDS'' shall mean a credit default swap that is 
submitted (or offered, purchased, or sold on terms providing for 
submission) to Eurex, that is offered only to, purchased only by, and 
sold only to eligible contract participants (as defined in Section 
1a(12) of the Commodity Exchange Act as in effect on the date of this 
Order (other than a person that is an eligible contract participant 
under paragraph (C) of that section)), and in which:
    (i) The reference entity, the issuer of the reference security, or 
the reference security is one of the following:
    (A) An entity reporting under the Exchange Act, providing 
Securities Act Rule 144A(d)(4) information, or about which financial 
information is otherwise publicly available;
    (B) A foreign private issuer whose securities are listed outside 
the United States and that has its principal trading market outside the 
United States;
    (C) A foreign sovereign debt security;
    (D) An asset-backed security, as defined in Regulation AB, issued 
in a registered transaction with publicly available distribution 
reports; or
    (E) An asset-backed security issued or guaranteed by Fannie Mae, 
Freddie Mac or Ginnie Mae; or
    (ii) The reference index is an index in which 80 percent or more of 
the index's weighting is comprised of the entities or securities 
described in subparagraph (i).
    (2) For purposes of this Order, the term ``Affiliated Person of the 
Clearing Member'' shall mean any person who directly or indirectly 
controls a clearing member or any person who is directly or indirectly 
controlled by or under common control with the clearing member. 
Ownership of 10 percent or more of the common stock of the relevant 
entity will be deemed prima facie control of that entity.

[[Page 22654]]

IV. Paperwork Reduction Act

    Certain provisions of this Order contain ``collection of 
information requirements'' within the meaning of the Paperwork 
Reduction Act of 1995.\64\ The Commission has submitted the proposed 
amendments to the Office of Management and Budget (``OMB'') for review 
in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. 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.
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    \64\ 44 U.S.C. 3501 et seq.
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A. Collection of Information

    As discussed above, the Commission has found it to be necessary or 
appropriate in the public interest and consistent with the protection 
of investors to grant the temporary conditional exemptions discussed in 
this Order through November 30, 2010. Among other things, the Order 
would require a Eurex clearing member that receives or holds customers' 
funds or securities for the purpose of purchasing, selling, clearing, 
settling, or holding Cleared CDS positions to; (i) provide Eurex with 
certain certifications/notifications, (ii) make certain disclosures to 
Cleared CDS customers, (iii) enter into certain agreements to protect 
customer assets, (iv) maintain a record of each customer's share of 
assets maintained in an omnibus account, and (v) obtain a separate 
report, as part of its annual audit report, as to its compliance with 
the conditions of the Order regarding protection of customer assets.

B. Proposed Use of Information

    These collection of information requirements are designed to, among 
other things, inform Cleared CDS customers that their ability to 
recover assets placed with the clearing member are dependent on the 
applicable insolvency regime, provide Commission staff with access to 
information regarding whether clearing members are complying with the 
conditions of this Order, and provide documentation helpful for the 
protection of Cleared CDS customers' funds and securities.

C. Respondents

    Based on conversations with industry participants, the Commission 
understands that approximately 12 firms may be presently engaged as CDS 
dealers and thus may seek to be a clearing member of Eurex. In 
addition, 8 more firms may enter into this business. Consequently, the 
Commission estimates that Eurex, like the other CCPs that clear CDS 
transactions, may have up to 20 clearing members.

D. Total Annual Reporting and Recordkeeping Burden

    Paragraph III.(c)(3)(ii) of the Order requires any Eurex clearing 
member relying on the exemptive relief specified in paragraph (c) that 
participates in the clearing of Cleared CDS transactions on behalf of 
other persons to annually provide a certification to Eurex that attests 
to whether the clearing member is relying on the exemption from broker-
dealer related requirements set forth in paragraph (d) of this Order. 
The Commission estimates that it would take a clearing member 
approximately one half hour each year to complete the certification and 
provide it to Eurex, resulting in an aggregate burden of 10 hours per 
year for all 20 clearing members to comply with this requirement on an 
annual basis.\65\
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    \65\ 10 hours = (20 clearing members x \1/2\ hour per clearing 
member). This estimate is based on burden estimates published with 
respect to other Commission actions that contained similar 
certification requirements (see e.g., Exchange Act Release No. 41661 
(Jul 27, 1999), 64 FR 42012 (Aug. 3, 1999), and the burden 
associated with the Year 2000 Operational Capability Requirements, 
including notification and certifications required by Rule 15b7-
3T(e)).
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    Paragraph III.(d)(3)(ii)(C)(II)(d) of the Order requires that a 
clearing member notify Eurex if it is using a third-party custodian to 
hold customer collateral. The Commission estimates that it would take a 
clearing member approximately one half hour each year to draft a 
notification and provide it to Eurex, which would result in an 
aggregate burden of 10 hours per year for all 20 clearing members to 
comply with this requirement on an annual basis.\66\
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    \66\ Id.
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    Paragraph III.(d)(3)(ii)(B) of the Order requires an Eurex clearing 
member to disclose to its U.S. customers \67\ that it is not regulated 
by the Commission and that U.S. broker-dealer segregation requirements 
and protections under the Securities Investor Protection Act will not 
apply to any funds or securities it holds, that the insolvency law of 
the applicable jurisdiction may affect the customers' ability to 
recover funds and securities, or the speed of any such recovery, in an 
insolvency proceeding, and, if it is not a U.S. entity, that it may be 
subject to an insolvency regime that is materially different from that 
applicable to U.S. persons. The Commission believes that clearing 
members could use the language in the Order that describes the 
disclosure that must be made as a template to draft the disclosure. 
Consequently the Commission estimates, based on staff experience, that 
it would take a clearing member approximately one hour to draft the 
disclosure. Further, the Commission believes clearing members will 
include this disclosure with other documents or agreements provided to 
cleared CDS customers and a clearing member may take approximately one 
half hour to determine how the disclosure should be integrated into 
those other documents or agreements, resulting in a one-time aggregate 
burden of 30 hours for all 20 clearing members to comply with this 
requirement.\68\
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    \67\ If the clearing member is a U.S. entity, it must make this 
disclosure to all of its customers.
    \68\ 30 hours = (1 hour per clearing member to draft the 
disclosure + \1/2\ hour per clearing member to determine how the 
disclosure should be integrated into those other documents or 
agreements) x 20 clearing members.
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    Paragraph III.(d)(3)(ii)(C)(II)(a)(1) of the Order requires that, 
if an Eurex clearing member chooses to segregate each of its customers' 
funds and securities in a separate account, it must obtain a tri-party 
agreement for each such account acknowledging that the assets held in 
the account are customer assets used to collateralize obligations of 
the customer to the clearing member, and that the assets held in the 
account may not otherwise be pledged or re-hypothecated by the clearing 
member or the custodian. Paragraph III.(d)(ii)(C)(II)(a)(2) of the 
Order requires that, if an Eurex clearing member chooses to segregate 
its customers' funds and securities on an omnibus basis, it must obtain 
an agreement with the custodian with respect to the omnibus account 
acknowledging that the assets held in the account (i) are customer 
assets and are being kept separate from any other accounts maintained 
by the clearing member with the custodian, (ii) may at no time be used 
directly or indirectly as security for a loan to the clearing member by 
the custodian and shall be subject to no right, charge, security 
interest, lien, or claim of any kind in favor of the custodian or any 
person claiming through the custodian, and (iii) may not otherwise be 
pledged or re-hypothecated by the clearing member or the custodian. 
Opening a bank account generally includes discussions regarding the 
purpose for the account and a determination as to the terms and 
conditions applicable to such an account. We understand that most banks 
presently maintain omnibus and other similar types of accounts that are 
designed to recognize legally that the assets in the account may not be 
attached to cover debts of the account

[[Page 22655]]

holder. Thus the standard agreement for this type of account used by 
banks should contain the representations and disclosures required by 
the proposed amendment. However, a small percentage of clearing members 
may need to work with a bank to modify its standard agreement. We 
estimate that 5% of the 20 clearing members, or 1 firm, may use a bank 
with a standard agreement that does not contain the required 
language.\69\ We further estimate each clearing member that uses a bank 
with a standard agreement that does not contain the required language 
would spend approximately 20 hours of employee resources working with 
the bank to update its standard agreement template.\70\ Therefore, we 
estimate that the total one-time burden to the industry as a result of 
this proposed requirement would be approximately 20 hours.\71\
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    \69\ This estimate is based on burden estimates published with 
respect to other Commission actions that contained similar 
certification requirements (see e.g., Exchange Act Release No. 55431 
(Mar. 9, 2007), 72 FR 12862 (Mar. 19, 2007), and the burden 
associated with the amendments to the financial responsibility 
rules, including language required in securities lending 
agreements).
    \70\ Id.
    \71\ 20 hours = (20 clearing members x 5%) x 20 hours to work 
with a bank to update its standard agreement template to include the 
necessary language.
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    Paragraph III.(d)(3)(ii)(C)(II)(a)(2) of the Order further requires 
that the clearing member maintain a daily record as to the amount held 
in the omnibus account that is owed to each customer. The Commission 
included this requirement in the Order to stress the importance of such 
a record. However it believes that a prudent clearing member likely 
would create and maintain such a record for business purposes. 
Consequently, the Commission believes this requirement would not create 
any additional paperwork burden.
    Paragraph III.(d)(3)(ii)(E) of the Order requires Eurex clearing 
members that receive or hold customers' funds or securities for the 
purpose of purchasing, selling, clearing, settling, or holding Cleared 
CDS positions annually to provide Eurex with an assessment that it is 
in compliance with all the provisions of paragraphs III.(d)(3)(ii)(A) 
through (D) of the Order in connection with such activities, and a 
report by the clearing member's independent third-party auditor, as of 
the same date as the firm's annual audit report,\72\ that attests to, 
and reports on, the clearing member's assessment. The Commission 
estimates that it will take each clearing member approximately five 
hours each year to assess its compliance with the requirements of the 
order relating to segregation of customer assets and attest that it is 
in compliance with those requirements.\73\ Further, the Commission 
estimates that it will cost each clearing member approximately $200,000 
more each year to have its auditor prepare this special report as part 
of its audit of the clearing member.\74\ Consequently, the Commission 
estimates that compliance with this requirement will result in an 
aggregate annual burden of 100 hours for all 20 clearing members, and 
that the total additional cost of this requirement will be 
approximately $4,000,000 each year.\75\
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    \72\ The Commission intends for this requirement to be performed 
in conjunction with the firm's annual audit report.
    \73\ This estimate is based on burden estimates published with 
respect to other Commission actions that contained similar 
certification requirements (see e.g., Securities Act Release No. 
8138 (Oct. 9, 2002) (67 FR 66208 (Oct. 30, 2002)), and the burden 
associated with the Disclosure Required by the Sarbanes-Oxley Act of 
2002, including requirements relating to internal control reports).
    \74\ This estimate is based on staff conversations with an audit 
firm. That firm suggested that the cost of such an audit report 
could range from $10,000 to $1 million, depending on the size of the 
clearing member, the complexity of its systems, and whether the work 
included a review of other systems already being reviewed as part of 
audit work the firms is already providing to the clearing member. 
The staff understands that it would be less costly to perform this 
type of audit if the clearing member chooses to forward all customer 
collateral to Eurex (an option allowed by the order) and does not 
use any third party. Finally, the staff understands that most Eurex 
clearing members are large dealers whose audits likely include 
internal control reviews and SAS 70 reports regarding custody of 
customer assets, which would require a review of the same or similar 
systems used to comply with the audit report requirement in this 
order.
    \75\ 100 hours = (5 hours for each clearing member to assess its 
compliance with the requirements of the order relating to 
segregation of customer assets and attest that it is in compliance 
with those requirements x 20 clearing members). $4 million = 
$200,000 per clearing member x 20 clearing members.
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    In sum, the Commission estimates that the total additional burden 
associated with all of the conditions contained in the exemptive order 
would be approximately 170 hours,\76\ and that the total additional 
cost associated with compliance with the exemptive order would be 
approximately $4 million.\77\
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    \76\ 170 hours = (10 hours per year to complete the 
certification and provide it to Eurex + 10 hours per year to prepare 
the notification + 30 hours to draft the disclosure and determine 
how the disclosure should be integrated into those other documents 
or agreements + 20 hours to work with the bank to update its 
standard account agreement template to include the necessary 
language + 100 hours per year to assess its compliance with the 
requirements of the order relating to segregation of customer assets 
and attest that it is in compliance with those requirements). This 
total burden includes one-time burdens of 50 hours (= 30 hours to 
draft the disclosure and determine how the disclosure should be 
integrated into those other documents or agreements + 20 hours to 
work with the bank to update its standard account agreement template 
to include the necessary language) and annual burdens of 120 hours 
(=10 hours per year to complete the certification and provide it to 
Eurex + 10 hours per year to prepare the notification + 100 hours 
per year to assess its compliance with the requirements of the order 
relating to segregation of customer assets and attest that it is in 
compliance with those requirements).
    \77\ The estimated cost of the additional audit report. See 
footnote 75 and accompanying text.
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E. Collection of Information Is Mandatory

    The collections of information contained in the conditions to the 
Order are mandatory for any entity wishing to rely on the exemptions 
granted by the Order.

F. Confidentiality

    Certain of the conditions of this Order that address collections of 
information require Eurex clearing members to make disclosures to their 
customers, or to provide other information to Eurex (and in some cases 
also to customers). Apart from those requirements, the provisions of 
this Order that address collections of information do not address or 
restrict the confidentiality of the documentation prepared by Eurex 
clearing members under the exemptive conditions. Accordingly, Eurex 
clearing members would have to make the applicable information 
available to regulatory authorities or other persons to the extent 
otherwise provided by law.

G. Request for Comment on Paperwork Reduction Act

    The Commission requests, pursuant to 44 U.S.C. 3506(c)(2)(B), 
comment on the collections of information contained in the Order to:
    (i) Evaluate whether the collections of information are necessary 
for the proper performance of the functions of the Commission, 
including whether the information would have practical utility;
    (ii) evaluate the accuracy of the Commission's estimates of the 
burden of the collections of information;
    (iii) determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected; and
    (iv) evaluate whether there are ways to minimize the burden of the 
collections of information on those required to respond, including 
through the use of automated collection techniques or other forms of 
information technology.
    Persons who desire to submit comments on the collection of 
information requirements should direct their comments to the OMB, 
Attention: Desk Officer for the Securities and

[[Page 22656]]

Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, and should also send a copy of their comments to 
Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 
F Street, NE., Washington, DC 20549-1090, and refer to File No. S7-17-
09. OMB is required to make a decision concerning the collections of 
information between 30 and 60 days after publication of this document 
in the Federal Register; therefore, comments to OMB are best assured of 
having full effect if OMB receives them within 30 days of this 
publication. The Commission has submitted the proposed collections of 
information to OMB for approval. Requests for the materials submitted 
to OMB by the Commission with regard to these collections of 
information should be in writing, refer to File No. S7-17-09, and be 
submitted to the Securities and Exchange Commission, Office of Investor 
Education and Advocacy, 100 F Street, NE., Washington, DC 20549-0213.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-9931 Filed 4-28-10; 8:45 am]
BILLING CODE 8011-01-P

