
[Federal Register Volume 75, Number 232 (Friday, December 3, 2010)]
[Notices]
[Pages 75518-75520]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-30376]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63390; File No. S7-17-09]


Order Extending 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

November 29, 2010.

I. Introduction

    The Securities and Exchange Commission (``Commission'') has taken 
multiple actions designed to help foster the prompt development of 
credit default swap (``CDS'') central counterparties (``CCP''), 
including granting temporary conditional exemptions from certain 
provisions of the federal securities laws.\1\
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    \1\ 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. In addition, the Commission has 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 Nos. 
8999 (Jan. 14, 2009), 74 FR 3967 (Jan. 22, 2009) (initial approval), 
9063 (Sep. 14, 2009), 74 FR 47719 (Sep. 17, 2009) (extension until 
Nov. 30, 2010), and 9158 (Nov. 30, 2010) (extension until Jul. 16, 
2011).
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    In July 2009, the Commission issued an order providing temporary 
conditional exemptions to Eurex Clearing AG (``Eurex''), and certain 
other parties, to permit Eurex to clear and settle CDS transactions.\2\ 
In response to Eurex's request, the Commission temporarily extended and 
expanded the exemptions in April 2010.\3\ The current

[[Page 75519]]

exemptions pursuant to the April 2010 Eurex Exemptive Order are 
scheduled to expire on November 30, 2010, and Eurex has requested that 
the Commission extend the exemptions contained in the April 2010 Eurex 
Exemptive Order.\4\
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    \2\ Securities Exchange Act Release No. 60373 (Jul. 23, 2009), 
74 FR 37740 (Jul. 29, 2009) (``July 2009 Eurex Exemptive Order'').
    \3\ Securities Exchange Act Release No. 61975 (Apr. 23, 2010), 
75 FR 22641 (Apr. 29, 2010) (``April 2010 Eurex Exemptive Order'').
    \4\ See Letter from Paul Architzel, Alston & Bird, to Elizabeth 
Murphy, Secretary, Commission, Nov. 29, 2010 (``November 2010 
Request'').
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II. Discussion

A. Legislative Developments

    Subsequent to the Commission's issuance of the April 2010 Eurex 
Exemptive Order, the President signed the Dodd-Frank Wall Street Reform 
and Consumer Protection Act of 2010 (``Dodd-Frank Act'') into law.\5\ 
The Dodd-Frank Act was enacted to, among other purposes, promote the 
financial stability of the United States by improving accountability 
and transparency in the financial system.\6\ To this end, the 
provisions of Title VII of the Dodd-Frank Act provide for the 
comprehensive regulation of security-based swaps \7\ by the 
Commission.\8\ 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 they are of a type 
that the Commission determines must be cleared, unless an exception or 
exemption from mandatory clearing applies.\9\ Specifically, Section 
763(b) of the Dodd-Frank Act adds a new Section 17A(g) to the Exchange 
Act which states: ``It shall be unlawful for a clearing agency, unless 
registered with the Commission, directly or indirectly to make use of 
the mails or any means or instrumentality of interstate commerce to 
perform the functions of a clearing agency with respect to a security-
based swap.'' \10\ This new registration provision, along with other 
general provisions under Title VII of the Dodd-Frank Act, becomes 
effective on July 16, 2011.\11\ As a result, the Commission anticipates 
that Eurex would need to apply and become registered as a clearing 
agency under Section 17A of the Exchange Act when relevant provisions 
of the Dodd-Frank Act become effective in order to clear security-based 
swaps.
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    \5\ Public Law 111-203 (July 21, 2010).
    \6\ See Public Law 111-203, Preamble.
    \7\ Section 761(a)(6) of the Dodd-Frank Act defines a 
``security-based swap'' as any agreement, contract, or transaction 
that is a ``swap,'' as defined in Section 1a(47) of the Commodity 
Exchange Act, 7 U.S.C. 1a(47), that is based on an index that is a 
narrow-based security index, a single security, or a 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. See Section 3(a)(68) of the Securities 
Exchange Act of 1934 (``Exchange Act''), 15 U.S.C.78c(a)(68) (as 
added by Section 761(a)(6) of the Dodd-Frank Act). Section 712(d) of 
the Dodd-Frank Act provides that the Commission and the Commodity 
Futures Trading Commission (``CFTC''), in consultation with the 
Board of Governors of the Federal Reserve System, shall, among other 
things, jointly further define the terms ``swap'' and ``security-
based swap.''
    \8\ Section 761(a)(2) of the Dodd-Frank Act explicitly includes 
security-based swaps in the definition of ``security'' in Section 
3(a)(10) of the Exchange Act, 15 U.S.C. 78c.
    \9\ See Section 763(a) of the Dodd-Frank Act (adding new Section 
3C to the Exchange Act, 15 U.S.C. 78c-2).
    \10\ While Title VII of the Dodd-Frank Act provides that certain 
entities that cleared swaps pursuant to an exemption from 
registration as a clearing agency prior to the date of enactment of 
the Dodd-Frank Act are deemed registered as a clearing agency for 
the purposes of clearing security-based swaps (``Deemed Registered 
Provision''), Eurex would not qualify for the Deemed Registered 
Provision. See Section 763(b) of the Dodd-Frank Act (adding new 
Section 17A(l) to the Exchange Act, 15 U.S.C. 78q-1(1)). A clearing 
agency must be a depository institution that cleared swaps as a 
multilateral clearing organization or a derivative clearing 
organization that cleared swaps pursuant to an exemption from 
registration as a clearing agency. Id. Since Eurex is not a 
depository institution and is not a derivative clearing 
organization, it does not qualify for the Deemed Registered 
Provision.
    \11\ 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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B. Eurex's Request for Extension of April 2010 Eurex Exemptive Order

    Eurex seeks an extension of the temporary exemptions of the April 
2010 Eurex Exemptive Order under the same terms and conditions 
contained in the April 2010 Eurex Exemptive Order.\12\ Eurex's request 
for an extension of the April 2010 Eurex Exemptive Order incorporates 
the representations made in its request preceding the April 2010 Eurex 
Exemptive Order and its request preceding the July 2009 Eurex Exemptive 
Order.\13\ These representations are discussed in detail in our earlier 
Eurex orders. Eurex represents that these representations remain 
valid.\14\
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    \12\ See November 2010 Request, supra note 4.
    \13\ See id.
    \14\ In the April 2010 Eurex Exemptive Order, the Commission 
described Eurex's proposed activity to clear CDS transactions of its 
members' customers. Under this proposed activity, Eurex intended to 
provide customer clearing capability for: (i) customers that would 
enter into a tri-party agreement with Eurex and the clearing member, 
in which the clearing member agrees to guarantee the customer's 
position and the customer agrees to be bound by Eurex's Clearing 
Conditions (``Registered Customer'') and (ii) customers that do not 
enter into such an agreement. Eurex indicated in its November 2010 
Request that it now intends to provide customer clearing capability 
only for Registered Customers under the exemptive relief.
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    Accordingly, consistent with our findings in the April 2010 Eurex 
Exemptive Order, and, in particular, in light of the risk management 
and systemic benefits in continuing to facilitate CDS clearing by Eurex 
until Title VII of the Dodd-Frank Act becomes fully effective, 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 extend the exemptive relief granted in the April 2010 
Eurex Exemptive Order until July 16, 2011. Specifically, pursuant to 
the Commission's authority under Section 36 of the Exchange Act,\15\ 
based on the facts presented and the representations made by Eurex,\16\ 
the Commission is extending until July 16, 2011, under the same terms 
and conditions in the April 2010 Eurex Exemptive Order, each of the 
existing exemptions connected with CDS clearing by Eurex, which 
include: The temporary conditional exemption granted to Eurex from 
clearing agency registration under Section 17A of the Exchange Act 
solely to perform the functions of a clearing agency for certain non-
excluded CDS; the temporary conditional exemption of Eurex and certain 
of its clearing members 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 certain non-excluded CDS cleared by Eurex; 
the temporary conditional exemption of Eurex and certain eligible 
contract participants from certain Exchange Act

[[Page 75520]]

requirements with respect to certain non-excluded CDS cleared by Eurex; 
the temporary conditional exemption of Eurex clearing members and 
certain others from broker-dealer registration requirements and related 
requirements in connection with CDS clearing by Eurex (including 
clearing of customer CDS transactions); and the temporary conditional 
exemption from certain Exchange Act requirements granted to registered 
broker-dealers with respect to certain non-excluded CDS.\17\
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    \15\ 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes 
the Commission to conditionally or unconditionally exempt any 
person, security, or transaction, or any class of classes of 
persons, securities, or transactions, from any provision or 
provisions of the Exchange Act or any rule or regulation thereunder, 
by rule, regulation, or order, to the extent that such exemption is 
necessary or appropriate in the public interest, and is consistent 
with the protection of investors.
    \16\ See November 2010 Request, supra note 4. The exemptions we 
are granting today are based on all of the representations made by 
Eurex in its request, which incorporate representations made by 
Eurex in its request for relief granted in the April 2010 Eurex 
Exemptive Order and its request for relief granted in the July 2009 
Eurex Exemptive Order. 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 (as 
defined in the April 2010 Eurex Exemptive Order) 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.
    \17\ See April 2010 Eurex Exemptive Order, supra note 4.
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C. Solicitation of Comments

    When we granted the April 2010 Eurex Exemptive Order, we requested 
comment on all aspects of the exemptions. We received no comments in 
response this request.
    In connection with this Order extending exemptions granted in 
connection with CDS clearing by Eurex, we reiterate our request for 
comments on all aspects of the exemptions.
    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 Elizabeth M. Murphy, 
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 website 
(http://www.sec.gov/rules/other.shtml). Comments are also available for 
website 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, until July 16, 2011, the following exemptions connected with 
CDS clearing by Eurex contained in the April 2010 Eurex Exemptive Order 
are extended: (i) The temporary conditional exemption granted to Eurex 
from clearing agency registration under Section 17A of the Exchange Act 
solely to perform the functions of a clearing agency for certain non-
excluded CDS; (ii) the temporary conditional exemption of Eurex and 
certain of its clearing members 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 certain non-excluded CDS 
cleared by Eurex; (iii) the temporary conditional exemption of Eurex 
and certain eligible contract participants from certain Exchange Act 
requirements with respect to certain non-excluded CDS cleared by Eurex; 
(iv) the temporary conditional exemption of Eurex clearing members and 
certain others from broker-dealer registration requirements and related 
requirements in connection with CDS clearing by Eurex (including 
clearing of customer CDS transactions); and (v) the temporary 
conditional exemption from certain Exchange Act requirements granted to 
registered broker-dealers with respect to certain non-excluded CDS.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-30376 Filed 12-2-10; 8:45 am]
BILLING CODE 8011-01-P


