
[Federal Register Volume 75, Number 227 (Friday, November 26, 2010)]
[Rules and Regulations]
[Pages 72660-72664]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29702]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR PARTS 230, 240 and 260

[Release Nos. 33-9158; 34-63348; 39-2472; File No. S7-02-09]
RIN 3235-AK26


Extension of Temporary Exemptions for Eligible Credit Default 
Swaps To Facilitate Operation of Central Counterparties To Clear and 
Settle Credit Default Swaps

AGENCY: Securities and Exchange Commission.

ACTION: Final temporary rules; extension.

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SUMMARY: We are extending the expiration dates in our temporary rules 
that provide exemptions under the Securities Act of 1933, the 
Securities Exchange Act of 1934, and the Trust Indenture Act of 1939 
for certain credit default swaps in order to continue facilitating the 
operation of one or more central counterparties for those credit 
default swaps until the implementation of the clearing provisions of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under 
the amendments, the expiration dates of the temporary rules are 
extended to July 16, 2011.

DATES: Effective Date: This rule is effective November 26, 2010, and 
the expiration dates for the temporary rules and amendments published 
January 22, 2009 (74 FR 3967) and extended in a release published on 
September 17, 2009 (74 FR 47719) are extended from November 30, 2010 to 
July 16, 2011.

FOR FURTHER INFORMATION CONTACT: Amy M. Starr, Senior Special Counsel, 
or Michael J. Reedich, Special Counsel, Office of Chief Counsel, 
Division of Corporation Finance, at (202) 551-3500, U.S. Securities and 
Exchange Commission, 100 F Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are adopting amendments to the following 
rules: temporary Rule 239T and Rule 146 under the Securities Act of 
1933 (``Securities Act''),\1\ temporary Rule 12a-10T and Rule 12h-1(h)T 
under the Securities Exchange Act of 1934 (``Exchange Act''),\2\ and 
temporary Rule 4d-11T under the Trust Indenture Act of 1939 
(``TIA'').\3\
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    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 78a et seq.
    \3\ 15 U.S.C. 77aaa et seq.
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I. Background

    In January 2009, we adopted interim final temporary Rule 239T and a 
temporary amendment to Rule 146 under the Securities Act, interim final 
temporary Rules 12a-10T and 12h-1(h)T under the Exchange Act, and 
interim final temporary Rule 4d-11T under the TIA (collectively, the 
``Temporary Rules''), and in September 2009, we extended the expiration 
date of these rules from September 25, 2009 to November 30, 2010. We 
adopted these rules in connection with temporary exemptive orders \4\ 
we issued to clearing agencies acting as central counterparties 
(``CCP''), which exempted the CCPs from the requirement to register as 
clearing agencies under Section 17A of the Exchange Act \5\ solely to 
perform the functions of a clearing agency for certain credit default 
swap (``CDS'') transactions.\6\ The exemptive orders also exempted 
certain eligible contract participants \7\ and others from certain 
Exchange Act requirements with respect to certain CDS.\8\ Also at that 
time, we temporarily exempted any exchange that effects transactions in 
certain CDS from the requirements under Sections 5 and 6 of the 
Exchange Act \9\ to register as a national securities exchange, and any 
broker or dealer that effects transactions on an exchange in certain 
CDS from the requirements of Section 5 of the Exchange Act.
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    \4\ See generally Securities Exchange Act Release Nos. 60372 
(Jul. 23, 2009), 74 FR 37748 (Jul. 29, 2009) and 61973 (Apr. 23, 
2010), 75 FR 22656 (Apr. 29, 2010) (temporary exemptions in 
connection with CDS clearing by ICE Clear Europe Limited); 
Securities Exchange Act Release Nos. 60373 (Jul. 23, 2009), 74 FR 
37740 (Jul. 29, 2009) and 61975 (Apr. 23, 2010), 75 FR 22641 (Apr. 
29, 2010) (temporary exemptions in connection with CDS clearing by 
Eurex Clearing AG); Securities Exchange Act Release Nos. 59578 (Mar. 
13, 2009), 74 FR 11781 (Mar. 19, 2009), 61164 (Dec. 14, 2009), 74 FR 
67258 (Dec. 18, 2009), and 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 
Nos. 59527 (Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009), 61119 (Dec. 
4, 2009), 74 FR 65554 (Dec. 10, 2009), and 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.
    \5\ 15 U.S.C. 78q-1.
    \6\ See Exchange Act Release No. 59246 (Jan. 14, 2009).
    \7\ See 7 U.S.C. 1a(12).
    \8\ See generally the actions noted in footnote 4, supra.
    \9\ 15 U.S.C. 78e and 78f.
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    We adopted the Temporary Rules and the CCP exemptive orders because 
we believed and continue to believe that the existence of CCPs for CDS 
would be important in helping to reduce counterparty risks inherent in 
the CDS market. Today, CDS agreements generally are negotiated and 
entered into bilaterally, but eligible trades may be submitted to the 
CCP for novation, which results in the CCP becoming the buyer to the 
original seller and the seller to the original buyer.\10\ The operation 
of a well-regulated CCP can significantly reduce counterparty risks by 
preventing the failure of a single-market participant from having a 
disproportionate effect on the overall market, since bilateral 
counterparty risk is eliminated as the creditworthiness of the original 
counterparties is replaced by the creditworthiness of the CCP.
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    \10\ ``Novation'' is a ``process through which the original 
obligation between a buyer and seller is discharged through the 
substitution of the CCP as seller to buyer and buyer to seller, 
creating two new contracts.'' Committee on Payment and Settlement 
Systems, Technical Committee of the International Organization of 
Securities Commissioners, Recommendations for Central Counterparties 
(November 2004) at 66.
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    At the time of the adoption of the Temporary Rules and the CCP 
exemptive orders, the OTC market for CDS was a source of concern to us 
and other financial regulators due to the systemic risk posed by CDS, 
the possible inability of parties to meet their obligations as 
counterparties under the CDS, and the potential resulting adverse 
effects on other markets and the financial system.\11\ In response, in 
January 2009, we took action to help foster the prompt development of 
CCPs for CDS, including granting conditional exemptions from certain 
provisions of the Federal securities laws.
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    \11\ In addition to the potential systemic risks that CDS pose 
to financial stability, we were concerned about other potential 
risks in this market, including operational risks, risks relating to 
manipulation and fraud, and regulatory arbitrage risks.
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    In September 2009, we extended the expiration date of the Temporary 
Rules to November 30, 2010 because, among other reasons, a number of 
legislative initiatives relating to the regulation of derivatives, 
including CDS, had been introduced by members of Congress and 
recommended by the United States Department of the Treasury 
(``Treasury''), and Congress had not yet

[[Page 72661]]

taken definitive action with respect to any of the legislative 
initiatives or the Treasury proposals.\12\
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    \12\ See, e.g., Derivatives Trading Integrity Act of 2009 (S. 
272) (introduced by Senator Tom Harkin in January 2009); The 
Derivatives Markets Transparency and Accountability Act (H.R. 977) 
(introduced by Representative Collin Peterson in February 2009); 
Authorizing the Regulation of Swaps Act (S. 961) (introduced by 
Senator Carl Levin and Senator Susan Collins in May 2009); 
Treasury's framework for regulatory reform (released in June 2009); 
Derivative Trading Accountability and Disclosure Act (H.R. 3300) 
(introduced by Representative Michael McMahon in July 2009); 
Description of Principles for OTC Derivatives Legislation (announced 
by Representative Barney Frank and Representative Collin Peterson in 
July 2009); Senator Charles Schumer's announcement regarding a 
potential bill establishing central trade repositories for OTC 
derivatives markets (August 2009); and Over-the-Counter Derivatives 
Markets Act of 2009 (prepared by Treasury and sent to Congress in 
August 2009).
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    On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act'') became law.\13\ The Dodd-Frank 
Act is intended to address regulatory gaps in the existing regulatory 
structure for the over-the-counter (``OTC'') derivatives markets by 
providing the Commission and the Commodity Futures Trading Commission 
(``CFTC'') the authority to regulate OTC derivatives. The primary goals 
of Title VII of the Dodd-Frank Act, among others, are to increase the 
transparency, efficiency and fairness of the OTC derivatives markets, 
improve investor protection and to reduce the potential for 
counterparty and systemic risk.\14\ To this end, Title VII of the Dodd-
Frank Act imposes a comprehensive regime for the regulation of 
``swaps'' and ``security-based swaps'' (as those terms are defined in 
the Dodd-Frank Act), including the clearing, exchange trading, and 
reporting of transactions in security-based swaps.\15\ Certain CDS are 
security-based swaps as defined under the Dodd-Frank Act.
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    \13\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act of 2010 (Pub. L. 111-203, H.R. 4173).
    \14\ See e.g., S. Rep. No. 111-176 at 2 (2010).
    \15\ Section 761(a)(6) of the Dodd-Frank Act defines a 
``security-based swap'' as any agreement, contract, or transaction 
that is a swap based on a narrow-based security index, a single 
security or loan, including any interest therein or on the value 
thereof; or the occurrence, nonoccurrence, or extent of the 
occurrence of an event relating to a single issuer of a security or 
the issuers of securities in a narrow-based security index, provided 
that such event directly affects the financial statements, financial 
condition, or financial obligations of the issuer.
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    The Dodd-Frank Act amends the Exchange Act to require, among other 
things, that transactions in security-based swaps be cleared through a 
clearing agency that is registered with the Commission or that is 
exempt from registration if the transactions are of a type that the 
Commission determines must be cleared, unless an exemption from 
mandatory clearing applies.\16\ Title VII of the Dodd-Frank Act also 
provides that a derivatives clearing organization that is registered 
with the CFTC and cleared swaps pursuant to an exemption from 
registration as a clearing agency prior the date of enactment of the 
Dodd-Frank Act, is deemed registered as a clearing agency for the 
purposes of clearing security-based swaps (``Deemed Registered 
Provision'').\17\ The Deemed Registered Provision, along with other 
general provisions under Title VII of the Dodd-Frank Act, become 
effective on July 16, 2011.\18\
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    \16\ See Section 763(a) of the Dodd-Frank Act, added as Section 
3C(a)(1) of the Exchange Act, 15 U.S.C. 78a.
    \17\ See Section 763(b) of the Dodd-Frank Act, added as Section 
17A(l) of the Exchange Act, 15 U.S.C. 78q-1.
    \18\ Section 774 of the Dodd-Frank Act states, ``[u]nless 
otherwise provided, the provisions of this subtitle shall take 
effect on the later of 360 days after the date of the enactment of 
this subtitle or, to the extent a provision of this subtitle 
requires a rulemaking, not less than 60 days after publication of 
the final rule or regulation implementing such provision of this 
subtitle.''
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    The Dodd-Frank Act also directs us to adopt regulations regarding, 
among other things, clearing agencies for, and the clearing of, 
security-based swaps, which include CDS. Under the Dodd-Frank Act, all 
security-based swaps, including certain types of CDS, are defined as 
securities under the Securities Act and the Exchange Act. In separate 
rulemakings, we will be proposing rules to implement the clearing 
provisions of the Dodd-Frank Act, among others.\19\ As part of our 
review of the application of the Securities Act, the Exchange Act and 
the TIA to security-based swaps and the implications for the clearing 
and exchange trading provisions of the Dodd-Frank Act and our rules 
implementing them, we will be evaluating the necessity and 
appropriateness of exemptions from the registration requirements of the 
Securities Act and Exchange Act and the indenture qualification 
provisions of the TIA for security-based swaps that will be cleared by 
clearing agencies. Pending the effective date of the relevant 
provisions of the Dodd-Frank Act, however, the Temporary Rules are 
needed to enable the CCPs to continue to clear eligible CDS in 
accordance with the exemptive orders we have provided. The Temporary 
Rules are an interim measure that will be supplanted by the 
comprehensive regulatory regime required by the Dodd-Frank Act.
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    \19\ Under the Dodd-Frank Act, we are responsible for proposing 
and adopting numerous rulemakings relating to Title VII and many 
other rules implementing other provisions of such Act.
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    At the time of adoption of the Temporary Rules in January 2009, we 
requested comment on various aspects of the Temporary Rules. We 
received a total of 15 letters, only two of which commented 
specifically on the Temporary Rules.\20\ Although those two letters 
generally supported allowing CCPs to clear and settle CDS transactions 
in accordance with the terms of the Temporary Rules, neither of the 
commenters specifically addressed the duration of the Temporary Rules 
and temporary amendments.\21\ The other commenters raised issues not 
directly related to this rulemaking. No comments have been submitted to 
us regarding the Temporary Rules since that time.
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    \20\ The public comments we received are available for Web site 
viewing and printing at the Commission's Public Reference Room at 
100 F St., NE., Washington, DC 20549 in File No. S7-02-09. They are 
also available online at http://www.sec.gov/comments/s7-02-09/s70209.shtml.
    \21\ See letters from the Yale Law School Capital Markets and 
Financial Instruments Clinic (March 23, 2009) and from IDX Capital 
(March 23, 2009).
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    The Temporary Rules expire on November 30, 2010. As we discuss 
above, until the effective date of the clearing provisions of Title VII 
of the Dodd-Frank Act and our rules implementing them, it is important 
that the CCPs continue to be able to clear eligible CDS without concern 
that the Temporary Rules are unavailable. As a result, we have 
determined that it is necessary and appropriate to extend the 
expiration date to July 16, 2011.\22\
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    \22\ See Section III, infra, for a discussion of why the 
extension of time is necessary.
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    We are only extending the expiration date of the Temporary Rules; 
we are not making any other changes to the Temporary Rules. The 
Temporary Rules were modeled on other exemptions we have provided in 
the past to facilitate trading in certain securities.\23\ They are 
limited in scope; in general, they facilitate the operation of the CCPs 
under the exemptive orders.\24\
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    \23\ See, e.g., Securities Act Section 3(a)(14) [15 U.S.C. 
77c(a)(14)], Securities Act Rule 238 [17 CFR 230.238]; Exchange Act 
Section 12(a) [15 U.S.C. 78l(a)], and Exchange Act Rule 12h-1(d) and 
(e) [17 CFR 240.12h-1(d) and (e)] (providing similar exemptions from 
provisions of the Federal securities laws for standardized options 
and securities futures products).
    \24\ For a fuller discussion of the exemptive rules, see 
Exchange Act Release 59246 (Jan. 14, 2009).
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II. Amendment of Expiration Date of the Temporary Rules

    In January 2009, we adopted the Temporary Rules on a temporary 
basis until September 25, 2009. We subsequently extended the expiration

[[Page 72662]]

date to November 30, 2010 to allow CCPs that were clearing and settling 
CDS transactions in the U.S. and in Europe to continue to clear and 
settle CDS transactions. The Temporary Rules also enable other CCPs 
that obtain exemptive orders to start clearing and settling CDS 
transactions in the manner contemplated by the exemptive orders.
    Since the adoption of the Temporary Rules and issuance of the 
exemptive orders, ICE Trust U.S. LLC (``ICE Trust''), and ICE Clear 
Europe, Ltd. (``ICE Clear Europe'') have been actively engaged as CCPs 
in clearing CDS transactions in reliance on our exemptions. As of 
October 25, 2010, ICE Trust has cleared 157,691 CDS transactions with a 
notional value of $7.8 trillion. As of October 25, 2010, ICE Clear 
Europe has cleared 175,102 CDS transactions with a notional value of 
[euro]3.8 trillion. We believe that the clearing of CDS transactions by 
ICE Trust and ICE Clear Europe has contributed and we anticipate will 
continue to contribute to increased transparency and the reduction of 
systemic risk in the CDS market.
    We also granted exemptive orders to three other CCPs to clear CDS 
that have functioned as CCPs in clearing CDS transactions in accordance 
with our exemptions.\25\ Two of these CCPs, The Chicago Mercantile 
Exchange and Eurex Clearing AG have advised our staff that they intend 
to continue to work with participants in the CDS market to promote 
their CCP services.
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    \25\ See Exchange Act Release Nos. 60373 (Jul. 23, 2009), 74 FR 
37740 (Jul. 29, 2009) and 61975 (Apr. 23, 2010), 75 FR 22641 (Apr. 
29, 2010) (temporary exemptions for Eurex Clearing AG); Exchange Act 
Release Nos. 59578 (Mar. 13, 2009), 74 FR 11781 (Mar. 19, 2009), 
61164 (Dec. 14, 2009), 74 FR 67258 (Dec. 18, 2009), and 61803 (Mar. 
30, 2010), 75 FR 17181 (Apr. 5, 2010) (temporary exemptions for 
Chicago Mercantile Exchange Inc.); and Exchange Act Release No. 
59164 (Dec. 24, 2008) 74 FR 139 (Jan. 2, 2009) (temporary exemption 
for LIFFE A&M and LCH.Clearnet Ltd.). LIFFE A&M and LCH.Clearnet 
Ltd, allowed their temporary exemption to expire.
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    The extension of the Temporary Rules and the exemptive orders will 
terminate at the time that the clearing provisions and rules 
implementing of Title VII of the Dodd-Frank Act become effective. The 
extension of such Temporary Rules is designed to the foster continued 
development and operation of CCPs for eligible CDS, which we believe is 
in the public interest. Once the Dodd-Frank Act provisions become 
effective, a new permanent and comprehensive regulatory regime for all 
security-based swaps will be implemented and the Temporary Rules 
affecting solely eligible CDS will no longer be necessary or 
appropriate. Therefore, due to the limited time the Temporary Rules 
will be needed, and our ongoing efforts to implement the provisions of 
the Dodd-Frank Act, we are extending the Temporary Rules until July 16, 
2011.

III. Certain Administrative Law Matters

    Section 553(b) of the Administrative Procedure Act (``APA'') 
generally requires an agency to publish notice of a proposed rule 
making in the Federal Register. This requirement does not apply, 
however, if the agency ``for good cause finds (and incorporates the 
finding and a brief statement of reasons therefore in the rules issued) 
that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.'' For the reasons we 
discuss throughout this release, we believe that there is good cause to 
extend these rules until July 16, 2011 without further notice or 
opportunity for comment.
    We sought comment on the Temporary Rules and as noted above, we 
received little comment when they were originally promulgated. In 
addition to the specific comments that we sought and received in 
connection with the Temporary Rules in January 2009, we have sought 
public input on implementing the provisions of the Dodd-Frank Act, 
which requires extensive public notice and comment rulemaking that will 
supplant and subsume the exemptive rules we have crafted as a temporary 
measure.\26\ Further, we will seek public comment in connection with 
the proposed rulemaking to implement the specific provisions of the 
Dodd-Frank Act relating to the treatment of security-based swaps under 
the Securities Act and the Exchange Act. Commenters will have full 
opportunity to provide their views on this new comprehensive regulatory 
regime.
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    \26\ See Public Comments on SEC Regulatory Initiatives Under the 
Dodd-Frank Act, located at http://www.sec.gov/spotlight/regreformcomments.shtml. None of these comments addressed the 
Temporary Rules.
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    Absent the extension of the Temporary Rules, such Temporary Rules 
would expire at the end of November 2010, prior to the effective date 
of the provisions of Title VII of the Dodd-Frank Act. The rules have 
been in place since January 2009, and CCPs have relied on them in 
clearing eligible CDS. Extending the expiration date of the Temporary 
Rules would not affect the substantive provisions of those rules. 
Without further extending the expiration date of the Temporary Rules to 
the time of effectiveness of the provisions of Title VII of the Dodd-
Frank Act, CCPs would not be able to continue to clear eligible CDS in 
accordance with the exemptive orders they have received from us. 
Extending the expiration date of the Temporary Rules will allow exempt 
CCPs to continue to clear eligible CDS until the provisions of the 
Dodd-Frank Act, including the rules promulgated under such Act, become 
effective. This will occur by the July 2011 expiration of the Temporary 
Rules. Therefore, we believe there is good cause to extend the 
Temporary Rules until July 16, 2011 and find that notice and 
solicitation of comment on the extension to be impracticable, 
unnecessary, or contrary to the public interest.\27\
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    \27\ This finding also satisfies the requirements of 5 U.S.C. 
808(2), allowing the rule amendments to become effective 
notwithstanding the requirements of 5 U.S.C. 801 (if a Federal 
agency finds that notice and public comment are ``impractical, 
unnecessary or contrary to the public interest,'' a rule shall take 
effect at such time as the Federal agency promulgating the rule 
determines.'').
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    The APA also generally requires that an agency publish an adopted 
rule in the Federal Register 30 days before it becomes effective.\28\ 
However, this requirement does not apply if the agency finds good cause 
not to delay the effective date.\29\ For reasons similar to those 
explained above, the Commission finds good cause not to delay the 
effective date.
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    \28\ 5 U.S.C. 553(d).
    \29\ 5 U.S.C. 553(d)(3).
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IV. Paperwork Reduction Act

    The Temporary Rules do not impose any new ``collections of 
information'' within the meaning of the Paperwork Reduction Act of 1995 
(``PRA''),\30\ nor do they create any new filing, reporting, 
recordkeeping, or disclosure reporting requirements for a CCP that is 
or will be issuing or clearing eligible CDS. Accordingly, we did not 
submit the Temporary Rules to the Office of Management and Budget for 
review in accordance with the PRA when we adopted them in January 
2009.\31\ We requested comment on whether our conclusion that there are 
no collections of information is correct, and we did not receive any 
comment. The extension of the expiration dates does not change our 
analysis.
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    \30\ 44 U.S.C. 3501 et seq.
    \31\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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V. Cost-Benefit Analysis

    In January 2009, we adopted the Temporary Rules, which exempt 
eligible CDS that are or will be issued or cleared by a CCP and offered 
and sold only to eligible contract participants from all provisions of 
the Securities Act, other than the Section 17(a) anti-fraud provision, 
as well as from the

[[Page 72663]]

registration requirements under Section 12 of the Exchange Act and from 
the provisions of the TIA. In September 2009, we adopted amendments to 
such rules to extend their expiration date to November 30, 2010. The 
Temporary Rules were intended to facilitate the operation of one or 
more CCPs to act as a clearing agency in the CDS market to reduce some 
of the risks in the CDS market. Today, we are adopting amendments to 
such rules to extend their expiration date to July 16, 2011.
    Since the adoption of the Temporary Rules and issuance of the 
exemptive orders, ICE Trust and ICE Clear Europe have been actively 
engaged as a CCP in clearing CDS transactions in accordance with our 
exemptions.
    On July 21, 2010, the Dodd-Frank Act was enacted. Among other 
things, the Dodd-Frank Act amends the Exchange Act to require that 
transactions in security-based swaps be cleared through a clearing 
agency that is either registered with the Commission or exempt from 
registration if the transactions are of a type that the Commission 
determines must be cleared, unless an exemption from mandatory clearing 
applies. As noted above, the Dodd-Frank Act directs us to regulate, 
among other things, clearing agencies for, and the clearing of, 
security-based swaps, which include certain CDS, and in separate 
rulemakings we will be proposing rules to implement the clearing 
provisions of the Dodd-Frank Act, among others. Extending the 
expiration dates of the Temporary Rules until July 16, 2011 will allow 
us to propose those rules, which will be subject to notice and comment. 
Pending the effective date of the clearing provisions of the Dodd-Frank 
Act, however, the Temporary Rules are needed to enable the CCPs to 
continue to clear eligible CDS in accordance with the exemptive orders 
we have provided.

A. Benefits

    The Temporary Rules and the CCP exemptive orders facilitate the 
operation of CCPs in the CDS market. We believe that extending the 
Temporary Rules and the CCP exemptive orders will continue to 
facilitate the operation of CCPs \32\ and the use by eligible contract 
participants of CDS CCPs while enabling us to provide some oversight of 
the non-excluded CDS market.\33\ We believe that the operation of two 
CCPs in accordance with our exemptions has increased transparency,\34\ 
increased available information about exposures to particular reference 
entities or reference securities,\35\ and reduced risks to participants 
in the market for CCP-cleared CDS.\36\ Not extending the termination 
date could cause significant disruptions in this market. Therefore, we 
believe that extending the termination date of the Temporary Rules 
provides important benefits to CDS market participants.
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    \32\ See Karen Brettell, Banks to submit 95 pct of eligible CDS 
for clearing (Sep. 1, 2009), available at http://www.reuters.com/article/euRegulatoryNews/idUSN0150814420090901?pageNumber=1&virtualBrandChannel=10522.
    \33\ See e.g., Exchange Act Release No. 59527, supra Note 10 
(our exemptions require that the CCPs provide us with, among other 
things, access to conduct on-site inspections of facilities, records 
and personnel).
    \34\ See Testimony of Mark Lenczowski, supra Note 12.
    \35\ See e.g., Exchange Act Release No. 59527, supra Note 26.
    \36\ See IntercontinentalExchange, supra Note 13.
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B. Costs

    Absent the exemptions provided by the Temporary Rules, a CCP may 
have to file a registration statement covering the offer and sale of 
the eligible CDS, may have to satisfy the applicable provisions of the 
TIA, and may have to register the class of eligible CDS that it has 
issued or cleared under the Exchange Act, which would provide investors 
with the disclosures and other protections of these requirements, 
including civil remedies in addition to antifraud remedies.
    We recognize that a consequence of extending the exemptions will be 
the unavailability of certain remedies under the Securities Act and the 
Exchange Act and certain protections under the TIA. While an investor 
would be able to pursue an antifraud action in connection with the 
purchase and sale of eligible CDS under Exchange Act Section 10(b),\37\ 
it would not be able to pursue civil remedies under Sections 11 or 12 
of the Securities Act.\38\ We could still pursue an antifraud action in 
the offer and sale of eligible CDS issued or cleared by a CCP.\39\ We 
believe that the incremental costs from the extension of the expiration 
date of the Temporary Rules will be minimal because the amendments are 
merely an extension of such Temporary Rules and such extension will not 
affect the information and remedies available to investors as a result 
of the Temporary Rules.
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    \37\ 15 U.S.C. 78j(b).
    \38\ 15 U.S.C. 77k and 77l.
    \39\ See 15 U.S.C. 77q and 15 U.S.C. 78j(b).
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VI. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    Section 23(a)(2) of the Exchange Act \40\ requires us, when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. Section 23(a)(2) prohibits us from 
adopting any rule that would impose a burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. In addition, Section 2(b) \41\ of the Securities Act and Section 
3(f) \42\ of the Exchange Act require us, when engaging in rulemaking 
where we are required to consider or determine whether an action is 
necessary or appropriate in the public interest, to also consider 
whether the action will promote efficiency, competition, and capital 
formation.
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    \40\ 15 U.S.C. 78w(a)(2).
    \41\ 15 U.S.C. 77b(b).
    \42\ 15 U.S.C. 78c(f).
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    The Temporary Rules we are extending today exempt eligible CDS 
issued or cleared by a CCP from all provisions of the Securities Act, 
other than the Section 17(a) antifraud provision, as well as from the 
registration requirements under Section 12 of the Exchange Act and the 
provisions of the TIA. Because these exemptions are available to any 
CCP offering and selling eligible CDS, we do not believe that extending 
the exemptions imposes a burden on competition. We also anticipate that 
extending the ability to settle CDS through CCPs will continue to 
improve the transparency of the CDS market and provide greater 
assurance to participants as to the capacity of the eligible CDS 
counterparty to perform its obligations under the eligible CDS. ICE 
Trust, for example, makes available on its Web site information about 
open interests, or net exposure, volume and pricing of CDS 
transactions. We believe that increased transparency in the CDS market 
could help to decrease further market turmoil and thereby facilitate 
the capital formation process.

VII. Regulatory Flexibility Act Certification

    The Commission hereby certifies pursuant to 5 U.S.C. 605(b) that 
extending Temporary Rules will not have a significant economic impact 
on a substantial number of small entities. The Temporary Rules exempt 
eligible CDS that are or will be issued or cleared by a CCP. None of 
the entities that are eligible to meet the requirements of the

[[Page 72664]]

exemption from registration under Section 17A is a small entity.

VIII. Statutory Authority and Text of the Rules and Amendments

    The amendments described in this release are being adopted under 
the authority set forth in Sections 18, 19 and 28 of the Securities 
Act; Sections 12(h), 23(a) and 36 of the Exchange Act; and Section 
304(d) of the TIA.

List of Subjects in 17 CFR Parts 230, 240 and 260

    Reporting and recordkeeping requirements, Securities.

Text of the Rules and Amendments

0
Accordingly, we are temporarily amending 17 CFR parts 230, 240, and 260 
as follows and the expiration date for the temporary rules published 
January 22, 2009 (74 FR 3967), and extended to November 30, 2010, is 
further extended from November 30, 2010, to July 16, 2011.

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for Part 230 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.

* * * * *


Sec. Sec.  230.146 and 230.239T  [Amended]

0
2. In Sec.  230.146(c)T, in the last sentence, remove the words 
``November 30, 2010'' and add, in their place, the words ``July 16, 
2011''.
0
3. In Sec.  230.239T(e), remove the words ``November 30, 2010'' and 
add, in their place, the words ``July 16, 2011''.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
4. The authority citation for Part 240 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78o-4, 78p, 78q, 78s, 
78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 
80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350; and 12 U.S.C. 
5221(e)(3) unless otherwise noted.

* * * * *


Sec. Sec.  240.12a-10T and 240.12h-1  [Amended]

0
5. In Sec.  240.12a-10T(b), remove the words ``November 30, 2010'' and 
add, in their place, the words ``July 16, 2011''.
0
6. In Sec.  240.12h-1(h)T, in the last sentence, remove the words 
``November 30, 2010'' and add, in their place, the words ``July 16, 
2011''.

PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 
1939

0
7. The authority citation for Part 260 continues to read as follows:

    Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-3, 
80b-4, and 80b-11.

Sec.  260.4d-11T  [Amended]

0
8. In Sec.  260.4d-11T, in the last sentence, remove the words 
``November 30, 2010'' and add, in their place, the words ``July 16, 
2011''.

    Dated: November 19, 2010.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-29702 Filed 11-24-10; 8:45 am]
BILLING CODE 8011-01-P


