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Proposed Rule2022-26849

Reporting and Information Requirements for Derivatives Clearing Organizations

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Published

December 15, 2022

Issuing agencies

Commodity Futures Trading Commission

Abstract

The Commodity Futures Trading Commission (CFTC or Commission) is proposing to amend certain reporting and information regulations applicable to derivatives clearing organizations (DCOs). These proposed amendments would, among other things, update information requirements associated with commingling customer funds and positions in futures and swaps in the same account, address certain systems-related reporting obligations regarding exceptional events, revise certain daily and event-specific reporting requirements, and include in an appendix the fields that a DCO is required to provide on a daily basis. In addition, the Commission is proposing to amend certain delegation provisions.

Full Text

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<title>Federal Register, Volume 87 Issue 240 (Thursday, December 15, 2022)</title>
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[Federal Register Volume 87, Number 240 (Thursday, December 15, 2022)]
[Proposed Rules]
[Pages 76698-76735]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-26849]

[[Page 76697]]

Vol. 87

Thursday,

No. 240

December 15, 2022

Part II

Commodity Futures Trading Commission

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17 CFR Parts 39 and 140

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Reporting and Information Requirements for Derivatives Clearing
Organizations; Proposed Rule

Federal Register / Vol. 87, No. 240 / Thursday, December 15, 2022 /
Proposed Rules

[[Page 76698]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 39 and 140

RIN 3038-AF12

Reporting and Information Requirements for Derivatives Clearing
Organizations

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (CFTC or Commission)
is proposing to amend certain reporting and information regulations
applicable to derivatives clearing organizations (DCOs). These proposed
amendments would, among other things, update information requirements
associated with commingling customer funds and positions in futures and
swaps in the same account, address certain systems-related reporting
obligations regarding exceptional events, revise certain daily and
event-specific reporting requirements, and include in an appendix the
fields that a DCO is required to provide on a daily basis. In addition,
the Commission is proposing to amend certain delegation provisions.

DATES: Comments must be received by February 13, 2023.

ADDRESSES: You may submit comments, identified by ``Reporting and
Information Requirements for Derivatives Clearing Organizations'' and
RIN number 3038-AF12, by any of the following methods:
<bullet> CFTC Comments Portal: <a href="https://comments.cftc.gov">https://comments.cftc.gov</a>. Select
the ``Submit Comments'' link for this rulemaking and follow the
instructions on the Public Comment Form.
<bullet> Mail: Send to Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
<bullet> Hand Delivery/Courier: Follow the same instructions as for
Mail, above.
Please submit your comments using only one of these methods. To
avoid possible delays with mail or in-person deliveries, submissions
through the CFTC Comments Portal are encouraged.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
<a href="https://comments.cftc.gov">https://comments.cftc.gov</a>. You should submit only information that you
wish to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act (FOIA), a petition for confidential
treatment of the exempt information may be submitted according to the
procedures established in Sec. 145.9 of the Commission's
regulations.\1\
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\1\ 17 CFR 145.9. Commission regulations referred to in this
release are found at 17 CFR chapter I (2021), and are accessible on
the Commission's website at <a href="https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm">https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm</a>.
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The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from <a href="https://comments.cftc.gov">https://comments.cftc.gov</a> that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the FOIA.

FOR FURTHER INFORMATION CONTACT: Eileen A. Donovan, Deputy Director,
202-418-5096, <a href="/cdn-cgi/l/email-protection#89ecede6e7e6ffe8e7c9eaeffdeaa7eee6ff">[email&#160;protected]</a>; Parisa Nouri, Associate Director, 202-
418-6620, <a href="/cdn-cgi/l/email-protection#89f9e7e6fcfbe0c9eaeffdeaa7eee6ff">[email&#160;protected]</a>; or August A. Imholtz III, Special Counsel,
202-418-5140, <a href="/cdn-cgi/l/email-protection#8feee6e2e7e0e3fbf5cfece9fbeca1e8e0f9">[email&#160;protected]</a>; Division of Clearing and Risk,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW, Washington, DC 20581; Theodore Z. Polley III, Associate
Director, (312) 596-0551, <a href="/cdn-cgi/l/email-protection#a7d3d7c8cbcbc2dee7c4c1d3c489c0c8d1">[email&#160;protected]</a>; or Elizabeth Arumilli,
Special Counsel, (312) 596-0632, <a href="/cdn-cgi/l/email-protection#5a3f3b282f37333636331a393c2e39743d352c">[email&#160;protected]</a>; Division of
Clearing and Risk, Commodity Futures Trading Commission, 525 West
Monroe Street, Chicago, Illinois 60661.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Proposed Amendments to Sec. 39.13(h)(5)
III. Proposed Amendments to Sec. 39.15(b)(2)
IV. Proposed Amendments to Sec. 39.18
V. Proposed Amendments to Sec. 39.19(c)
A. Daily Reporting of Variation Margin and Cash Flows--Sec.
39.19(c)(1)(i)(B) and (C)
B. Codifying the Existing Reporting Fields for the Daily
Reporting Requirements in New Appendix C to Part 39
C. Additional Proposed Reporting Fields for the Daily Reporting
Requirements--Sec. 39.19(c)(1)
D. Individual Customer Account Identification Requirements--
Sec. 39.19(c)(1)(i)(D)
E. Daily Reporting of Margin Model Back Testing--Sec.
39.19(c)(1)(i)
F. Fully Collateralized Positions--Sec. 39.19(c)(1)(ii)
G. Reporting Change of Control of the DCO--Sec.
39.19(c)(4)(ix)(A)(1)
H. Reporting Changes to Credit Facility Funding and Liquidity
Funding Arrangements--Sec. 39.19(c)(4)(xii) and (xiii)
I. Reporting Issues With Credit Facility Funding Arrangements,
Liquidity Funding Arrangements, and Custodian Banks--Sec.
39.19(c)(4)(xv)
J. Reporting of Updated Responses to the Disclosure Framework
for Financial Market Infrastructures--Sec. 39.19(c)(4)(xxv)
VI. Proposed Amendments to Sec. 39.21(c)
A. Publication of Margin-Setting Methodology and Financial
Resource Package Information--Sec. 39.21(c)(3) and (4)
B. Publication of List of Clearing Members--Sec. 39.21(c)(7)
VII. Proposed Amendments to Sec. 39.37(c) and (d)
VIII. Proposed Amendments to Sec. 140.94(c)(10)
IX. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
D. Antitrust Considerations

I. Background

Regulatory requirements for DCOs are set forth in part 39 of the
Commission's regulations. In January 2020, the Commission amended many
of the provisions in part 39 in order to, among other things, enhance
certain risk management and reporting obligations, clarify the meaning
of certain provisions, and simplify processes for registration and
reporting.\2\ Since that time, the Commission has become aware of
certain issues with the amended reporting and information requirements
that would benefit from further change or clarification. These proposed
changes are discussed in greater detail below.\3\
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\2\ Derivatives Clearing Organization General Provisions and
Core Principles, 85 FR 4800 (Jan. 27, 2020), available at <a href="https://www.federalregister.gov/documents/2020/01/27/2020-01065/derivatives-clearing-organization-general-provisions-and-core-principles">https://www.federalregister.gov/documents/2020/01/27/2020-01065/derivatives-clearing-organization-general-provisions-and-core-principles</a>.
\3\ The Commission is also proposing a technical correction to
Sec. 39.25(c), changing the word ``describe'' to ``have.''
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II. Proposed Amendments to Sec. 39.13(h)(5)

Regulation 39.13(h)(5) requires a DCO to have rules that require
its clearing members to maintain current written risk management
policies and procedures; ensure that it has the authority to request
and obtain information and documents from its clearing members
regarding their risk management policies, procedures, and practices;
and require its clearing members to make information and documents
regarding their risk management policies, procedures, and practices
available to the Commission

[[Page 76699]]

upon the Commission's request. It also requires the DCO to review the
risk management policies, procedures, and practices of each of its
clearing members on a periodic basis.
It is the Commission's view that these requirements are unnecessary
for clearing members that clear only fully collateralized positions, as
fully collateralized positions do not expose the DCO to any credit or
default risk stemming from the inability of a clearing member to meet a
margin call or a call for additional capital. Therefore, and consistent
with other recent amendments to part 39 to address fully collateralized
positions,\4\ the Commission is proposing new Sec. 39.13(h)(5)(iii),
which would provide that a DCO that clears fully collateralized
positions may exclude from the requirements of paragraphs (h)(5)(i) and
(ii) those clearing members that clear only fully collateralized
positions.\5\ These requirements would still apply in the case of
clearing members that clear fully collateralized positions but also
margined products.\6\
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\4\ See 85 FR 4800, 4803-4805.
\5\ By adopting this regulation, this requirement would be
consistent with and would supersede a related interpretation issued
by the Division of Clearing and Risk. See CFTC Letter No. 14-05
(Jan. 16, 2014).
\6\ The Commission is also proposing to combine paragraphs
(h)(5)(i)(B) and (C) of Sec. 39.13, which require, respectively,
that a DCO have rules that: ensure that it has the authority to
request and obtain information and documents from its clearing
members regarding their risk management policies, and require its
clearing members to make such information and documents available to
the Commission upon request. These revisions are purely technical
and are not meant to alter the requirements in any way.
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III. Proposed Amendments to Sec. 39.15(b)(2)

Regulation 39.15(b)(2) sets forth procedures a DCO must follow to
obtain Commission approval to commingle customer positions and
associated funds from two or more of three separate account classes--
futures and options, foreign futures and options, and swaps--in either
a futures or cleared swaps customer account.
Regulation 39.15(b)(2)(i) requires a DCO seeking to commingle
customer positions and associated funds in a cleared swaps customer
account subject to Section 4d(f) of the Commodity Exchange Act (CEA)
\7\ to submit rules pursuant to Sec. 40.5 for Commission approval.\8\
Regulation 39.15(b)(2)(ii) requires a DCO seeking to commingle customer
positions and associated funds in a futures account subject to Section
4d(a) of the CEA to also submit rules for approval pursuant to Sec.
40.5.\9\
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\7\ See 7 U.S.C. 6d(f).
\8\ Regulation 40.5 requires the Commission to approve a new
rule or rule amendment unless it is inconsistent with the CEA or the
Commission's regulations promulgated thereunder. See 17 CFR 40.5.
\9\ See 7 U.S.C. 6d(a).
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Until Sec. 39.15(b)(2)(ii) was amended in 2020, a DCO seeking to
commingle in a futures account had to seek a Commission order. Given
that the procedural requirements are now the same with respect to both
futures and cleared swaps customer accounts, the Commission is
proposing to consolidate paragraphs (b)(2)(i) and (b)(2)(ii) into a
single paragraph.
Existing Sec. 39.15(b)(2)(i) also specifies the information that a
DCO must include in its rule submission to obtain Commission approval.
The Commission has identified items of information currently required
by the regulation that appear to be redundant or of limited use to the
Commission given the Commission's pre-existing understanding of a DCO's
risk management through its supervision of DCOs and other Commission
regulations applicable to DCOs. This information is also available to
the DCO's clearing members and the public through other means, such as
the public information disclosures required under Sec. 39.21. The
Commission has also identified limited instances in which additional
information would be helpful to the Commission in reviewing a DCO's
commingling rule submission. Therefore, the Commission is proposing to
further amend Sec. 39.15(b)(2)(i) as described below.
First, the Commission proposes to amend existing paragraph
(b)(2)(i)(B), which requires the DCO to provide an analysis of the risk
characteristics of the products that would be eligible for commingling.
The Commission proposes to specify that this analysis should discuss
any risk characteristics of products to be commingled that are unusual
in relation to the other products the DCO clears, and how the DCO plans
to manage any identified risks. The purpose of this requirement is to
allow the Commission and the public to understand any increased risk
posed to customers by commingling products that otherwise would be held
in separate accounts and to understand the DCO's ability to manage
those risks. The Commission is proposing to use the term ``unusual''
because Sec. 39.13(g)(2) already requires a DCO to have initial margin
requirements that account for any unusual characteristics of, or risks
associated with, particular products or portfolios.\10\ However, the
Commission requests comment on whether there are better ways to
articulate this concept. For example, should the Commission specify
that the discussion should cover products that have margining,
liquidity, default management, pricing, or other risk characteristics
that differ from those currently cleared by the DCO?
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\10\ See Derivatives Clearing Organization General Provisions
and Core Principles, 76 FR 69334, 69365, n.86 (Nov. 8, 2011),
available at <a href="https://www.federalregister.gov/documents/2011/11/08/2011-27536/derivatives-clearing-organization-general-provisions-and-core-principles">https://www.federalregister.gov/documents/2011/11/08/2011-27536/derivatives-clearing-organization-general-provisions-and-core-principles</a>.
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The Commission proposes to remove existing paragraph (b)(2)(i)(C),
which requires the DCO to identify whether any swaps to be commingled
would be executed bilaterally and/or executed on a designated contract
market and/or a swap execution facility. The Commission has not found
this information to be relevant to its review of commingling rule
submissions.
The Commission proposes to remove existing paragraph (b)(2)(i)(E),
which requires the DCO to provide an analysis of the availability of
reliable prices for each of the eligible products. The Commission
believes this requirement is unnecessary as Sec. 39.13(g)(5)
separately requires that a DCO have for all of its products a reliable
source of timely price data, as well as written procedures and sound
valuation models for addressing circumstances where pricing data is not
readily available or reliable.
The Commission proposes to amend paragraph (b)(2)(i)(F) (and
renumber it as (b)(2)(iv)), which currently requires the DCO to
describe the financial, operational, and managerial standards or
requirements for clearing members that would be permitted to commingle
eligible products. The Commission recognizes that this could be
interpreted to require that the DCO describe all of the requirements
applicable to clearing members that would be permitted to commingle
eligible products, including those requirements that apply to the DCO's
clearing members generally. The proposed amendment would require only
that the DCO describe any additional requirements that would apply to
clearing members permitted to commingle eligible products.
The Commission proposes to amend paragraph (b)(2)(i)(G) (and
renumber it as (b)(2)(v)), which currently requires that a DCO discuss
its systems and procedures used to oversee clearing members' risk
management of commingled eligible products. The Commission recognizes
that a DCO would not necessarily need to implement any systems and
procedures specifically for commingled eligible products. Accordingly,
the proposed amendment clarifies that a DCO should

[[Page 76700]]

describe any changes it will implement to oversee clearing members'
risk management of commingled eligible products, but also provides that
a DCO may instead provide an analysis of why existing risk management
systems and procedures are adequate.
The Commission proposes to remove existing paragraph (b)(2)(i)(H),
which requires the DCO to describe its financial resources, including
the composition and availability of a guaranty fund with respect to the
eligible products that would be commingled. This requirement is
duplicative of Sec. 39.21(c)(4), which requires a DCO to publicly
disclose on its website the size and composition of its financial
resources package available in the event of a clearing member default.
The Commission proposes to remove existing paragraph (b)(2)(i)(I),
which requires the DCO to provide a description and analysis of the
margin methodology that would be applied to the commingled eligible
products, including any margin reduction applied to correlated
positions, and any applicable margin rules with respect to both
clearing members and customers. Regulation 39.21(c)(3) separately
requires a DCO to publicly disclose information concerning its margin
methodology on its website, so the requirement in paragraph
(b)(2)(i)(I) typically yields information that is already available to
the Commission and the public. In place of paragraph (b)(2)(i)(I), the
Commission proposes to add new paragraph (b)(2)(vii), which would
require the DCO to discuss the extent to which it anticipates allowing
portfolio margining of commingled positions, including a description
and analysis of any margin reduction to be applied to correlated
positions and the language of any applicable clearing rules or
procedures. The DCO also would be required to provide an express
confirmation that any portfolio margining will be allowed only as
permitted under Sec. 39.13(g)(4), which allows portfolio margining of
positions only if the price risks with respect to such positions are
``significantly and reliably correlated.'' The Commission is proposing
to require this confirmation out of concern that Commission approval of
the commingling of customer positions would be misinterpreted as
approval of the portfolio margining of those positions as well,
regardless of whether the requirements of Sec. 39.13(g)(4) are met.
The Commission proposes to remove existing paragraph (b)(2)(i)(K),
which requires the DCO to discuss the procedures it would follow if a
clearing member defaulted, and the procedures that the clearing member
would follow if a customer defaulted, with respect to any of the
commingled eligible products. To the extent a DCO would follow its
existing default procedures, this information is already available to
the Commission and the public, because Sec. 39.21(c)(6) requires a DCO
to publicly disclose its default rules and procedures on its website.
The Commission therefore proposes to amend existing paragraph
(b)(2)(i)(J) (and renumber it as paragraph (b)(2)(vi)), which also
concerns default management, to add a requirement that the DCO discuss
any default management procedures that are unique to the products
eligible for commingling. This change would appropriately focus the
required discussion of the DCO's default management procedures on any
changes necessitated by the commingling of eligible products.
The Commission proposes to remove existing paragraph (b)(2)(i)(L),
which requires the DCO to describe its arrangements for obtaining daily
position data with respect to eligible products in the account. Because
the DCO would be proposing to commingle positions in products it
clears, the DCO would necessarily have position data for the eligible
products.
The Commission proposes to remove existing paragraph (b)(2)(iii),
which provides that the Commission may request additional information
from the DCO in support of the DCO's rule submission and may approve
the rule submission in accordance with Sec. 40.5. The Commission
proposes to replace it with new paragraph (b)(2)(viii), which would
require submission of any other information necessary for the
Commission to evaluate the rule submission's compliance with the CEA
and the Commission's regulations, and provide that the Commission may
request supplemental information to evaluate the DCO's submission.
Proposed paragraph (b)(2)(viii), like existing paragraph (b)(2)(iii),
would ensure that the Commission can consider all information relevant
to the rule submission.\11\ The paragraph also would clarify that the
Commission can extend the review period in accordance with Sec.
40.5(d) to request and obtain supplemental information.
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\11\ Removing existing paragraph (b)(2)(iii) and replacing it
with new paragraph (b)(2)(viii) would also delete redundant language
incorporating Sec. 40.5 as the applicable procedure for rule
approval.
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Finally, the Commission proposes to add language to the
introductory paragraph of Sec. 39.15(b)(2) underscoring the standard
of review for Commission approval of a commingling rule submission.
While the current regulation already provides that relevant rules are
submitted for approval pursuant to Sec. 40.5, the Commission has
observed instances in which submitting DCOs do not recognize that the
requirements and standard of review contained in Sec. 40.5 apply. To
draw attention to the applicability of the requirements of Sec. 40.5,
including the standard of review contained therein, the Commission
proposes amending Sec. 39.15(b)(2) to explicitly reference them.
In evaluating commingling rule submissions, the Commission
recognizes that it has access to supervisory information that may not
be available to market participants and the public. The Commission
requests comment as to whether there is additional information that
would be helpful to market participants and the public in evaluating a
DCO's commingling rule submission.

IV. Proposed Amendments to Sec. 39.18

Regulation 39.18(g)(1) requires that a DCO promptly notify staff of
the Division of Clearing and Risk (Division) of any hardware or
software malfunction, security incident, or targeted threat that
materially impairs, or creates a significant likelihood of material
impairment of, automated system operation, reliability, security, or
capacity.
The Commission is proposing to amend Sec. 39.18(g)(1) to require
that a DCO promptly notify the Division of any hardware or software
malfunction or operator error that impairs, or creates a significant
likelihood of impairment of, automated system operation, reliability,
security, or capacity. The Commission is further proposing to adopt new
Sec. 39.18(g)(2) to require that a DCO promptly notify the Division of
any security incident or threat that compromises or could compromise
the confidentiality, availability, or integrity of any automated system
or any information, services, or data, including, but not limited to,
third-party information, services, or data, relied upon by the DCO in
discharging its responsibilities (the text of existing Sec.
39.18(g)(2) would be renumbered as Sec. 39.18(g)(3), without any
further revisions). In connection with the proposed amendments to Sec.
39.18(g), the Commission is proposing to amend Sec. 39.18(a) to define
``hardware or software malfunction'' and ``automated system.'' These
changes are discussed in detail below.
As noted above, Sec. 39.18(g)(1) requires a DCO to promptly notify
the Division

[[Page 76701]]

of any ``hardware or software malfunction,'' which the Commission
proposes to define in Sec. 39.18(a) as ``any circumstance where an
automated system or a manually initiated process fails to function as
designed or intended, or the output of the software produces an
inaccurate result.'' The Commission is proposing to amend Sec.
39.18(g)(1) to also require a DCO to notify the Division when operator
error impairs (or creates a significant likelihood of impairment of)
the operation, reliability, security, or capacity of an automated
system. Because operator error can cause the same or similar issues
that can result from hardware or software malfunctions, the Commission
believes that it is important for a DCO to notify the Division when
operator error causes, or creates a significant likelihood of,
impairment of the operation, reliability, security, or capacity of the
DCO's automated systems. Lastly, the Commission is proposing to define
in Sec. 39.18(a) the term ``automated system'' as computers, ancillary
equipment, software, firmware, and similar procedures, services
(including support services), and related resources that a DCO uses in
its operations. The Commission also is proposing to delete from Sec.
39.18(g)(1), and not include in new Sec. 39.18(g)(2), any reference to
materiality.
Based on its experience with this regulation, the Commission
believes that neither hardware nor software malfunctions, nor security
incidents or threats--particularly cybersecurity incidents or threats--
are readily categorized as material or non-material. For example, a
software malfunction that impairs (or creates a significant likelihood
of impairment of) the operation, reliability, security, or capacity of
an automated system can be material, even if the malfunction does not
have any effect on the metrics or thresholds often used to determine
materiality, such as the number of trades affected by the malfunction,
the dollar value of those trades, or the length of a delay in
processing and clearing those trades. There have also been instances
where the Division learned of a malfunction, incident, or threat that
had not been reported, even though Division staff readily concluded,
upon subsequently learning of the malfunction, incident, or threat,
that it was material and that the DCO should have notified the
Division. In some cases, this is because different materiality
thresholds used by DCOs resulted in inconsistent reporting across DCOs.
The Commission believes that both DCOs and the Division will benefit
from having a clear, bright-line rule that requires DCOs to report each
qualifying hardware or software malfunction, or operator error, and
security incident and threat, as opposed to attempting to determine
whether a particular malfunction, incident, or threat qualifies as
material.
In addition to proposing to modify Sec. 39.18(g)(1) as described
above, the Commission also is proposing to delete the requirement that
a DCO notify the Division of any security incident or targeted threat
that materially impairs, or creates a significant likelihood of
material impairment of, automated system operation, reliability,
security, or capacity. In its place, the Commission is proposing, as
new Sec. 39.18(g)(2), a requirement that a DCO report any security
incident or threat that compromises or could compromise the
confidentiality, availability, or integrity of any automated system, or
any information, services, or data, including, but not limited to,
third-party information, services, or data, relied upon by the DCO in
discharging its responsibilities. Requiring the reporting of any
threat, not just ``targeted'' ones, is intended to ensure that the
Division receives notice of the full spectrum of cyberattacks and
cyberthreats. Additionally, proposed new Sec. 39.18(g)(2) is intended
to ensure that a DCO notifies the Division of security incidents or
threats that could affect the information, services, or data,
including, but not limited to, third-party information, services, or
data, relied upon by the DCO in discharging its responsibilities, in
addition to the existing requirement that a DCO provide notice of any
security incident or threat that affects the automated system itself.
To the extent that a DCO relies on another entity in connection with
providing clearing services, whether via an inter-affiliate services
agreement, an arms-length commercial relationship with a third-party
vendor, or any other arrangement, then it is important that the DCO
notify the Commission upon discovery of any security incidents or
threats affecting the information, services, or data that the DCO
relies upon from the other entity, just as if the incident or threat
had occurred at the DCO. Lastly, proposed new Sec. 39.18(g)(2) is
intended to ensure that a DCO notifies the Division if its automated
systems or the information, services, or data relied upon by the DCO
are, or could be, compromised, as opposed to only receiving notice when
those systems are, or could be, impaired.

V. Proposed Amendments to Sec. 39.19(c)

Regulation 39.19, which was adopted in 2011 \12\ and revised in
2020,\13\ imposes daily, periodic, and event-specific reporting
requirements on DCOs. As discussed below, the Commission is proposing
to amend the daily reporting requirements in Sec. 39.19(c)(1) and the
event-specific reporting requirements in Sec. 39.19(c)(4).
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\12\ See 76 FR at 69399.
\13\ See 85 FR at 4817.
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A. Daily Reporting of Variation Margin and Cash Flows--Sec.
39.19(c)(1)(i)(B) and (C)

Regulation 39.19(c)(1) requires a DCO to report to the Commission
on a daily basis initial margin, variation margin, cash flow, and
position information for each clearing member, by house origin and by
each customer origin. The Commission recently amended Sec. 39.19(c)(1)
to require a DCO to also report this information by individual customer
account.\14\ In adopting this change, the Commission stated that the
amendments to Sec. 39.19(c)(1) were not intended to require DCOs to
report any information that they do not currently have, or do not
currently report, subject to any operational or technological
limitations that have been discussed with Commission staff. The
Commission further specified that the changes to Sec. 39.19(c)(1) to
require reporting of information ``by each individual customer
account'' were meant to reflect the information that DCOs currently
report, to varying degrees, acknowledging that customer-level
information may not be available to all DCOs.\15\
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\14\ Id. at 4817.
\15\ See id. at 4818.
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The Commission now understands that, although DCOs possess
customer-level information regarding initial margin and positions, many
DCOs do not possess customer-level information regarding variation
margin and cash flows. Also, certain DCOs do not currently have
mechanisms in place to collect such information from their respective
clearing members, nor do they expect that they could implement these
mechanisms without imposing significant new reporting and/or account
registration requirements on clearing members. Therefore, the
Commission is proposing to amend Sec. 39.19(c)(1)(i)(B) and (C) to
remove the requirement that a DCO report daily variation margin and
cash flows by individual customer account.\16\
---------------------------------------------------------------------------

\16\ The Division issued a no-action letter addressing
compliance with the amended requirements in Sec. 39.19(c)(1). See
CFTC Letter No. 21-01 (Dec. 31, 2020); see also CFTC Letter No. 21-
31 (Dec. 22, 2021). The proposed amendments to Sec.
39.19(c)(1)(i)(B) and (C) would eliminate the requirement for which
additional time was provided in the staff letter.

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[[Page 76702]]

The Commission requests comment on the proposal to amend Sec.
39.19(c)(1)(i)(B) and (C) to remove the requirement that a DCO report
daily variation margin and cash flows by individual customer account.
The Commission also requests comment on whether there are products or
market segments (e.g., interest rate swaps) where it may be appropriate
for the Commission to retain these requirements.

B. Codifying the Existing Reporting Fields for the Daily Reporting
Requirements in New Appendix C to Part 39

The Commission is proposing to add a new appendix to part 39 of the
Commission's regulations that would codify the existing reporting
fields for the daily reporting requirements in Sec. 39.19(c)(1). Until
now, the instructions, reporting fields, and technical specifications
for daily reporting have been contained in the Reporting Guidebook,
which the Division provides to DCOs to facilitate reporting pursuant to
Sec. 39.19(c)(1).\17\
---------------------------------------------------------------------------

\17\ Commodity Futures Trading Commission Guidebook for Part 39
Daily Reports, Version 1.0.1, Dec. 10, 2021 (Reporting Guidebook).
---------------------------------------------------------------------------

When Sec. 39.19(c)(1) was first adopted in 2011, DCOs were
required to report to the Commission on a daily basis initial margin,
variation margin, cash flow, and position information for each clearing
member, by house origin and by each customer origin.\18\ To implement
these requirements and provide more detailed instructions and technical
specifications, the Division, after consulting with DCOs, developed and
distributed the Reporting Guidebook. The Reporting Guidebook was
designed to ensure that all DCOs were reporting a standard set of
information in a uniform manner, and that the information was useful to
the Commission in its surveillance and oversight of DCOs and the
derivatives markets.
---------------------------------------------------------------------------

\18\ See 76 FR at 69399. The Commission amended Sec.
39.19(c)(1) in 2020 to require a DCO to also report this information
by individual customer account. See 85 FR at 4817.
---------------------------------------------------------------------------

The Division updated and revised the Reporting Guidebook over the
years, most recently in 2017 and again in 2021. Each time, it engaged
extensively with DCOs in connection with the revisions. The engagement
included discussions regarding whether DCOs possessed certain data, and
the format in which DCOs would supply that data so that it would be
useful by the Division. In addition to the discussions associated with
revising the Reporting Guidebook, the Division and DCOs also regularly
engaged cooperatively, on an as-needed basis to address any issues that
arose regarding daily reporting.
The current version of the Reporting Guidebook reflects the
cumulative development of the guidebook over the years, from 2012
through 2021. During that time, DCOs have continuously relied on the
Reporting Guidebook to report to the Division the required information
in accordance with Sec. 39.19(c)(1). The Reporting Guidebook also has
grown in length, comprehensiveness, detail, and complexity. It now
consists of numerous separate reporting fields, including data fields
that directly implement the reporting requirements of Sec.
39.19(c)(1), as well as additional fields for reporting information on
an optional basis that, although helpful to the Division in its
oversight of DCOs and the derivatives markets, is not required under
Sec. 39.19(c)(1).
Given the evolution and expansion of the Reporting Guidebook over
time, the Commission is proposing to add a new appendix C to part 39
that would set out the relevant contents of the Reporting Guidebook,
specifically the reporting fields for which a DCO is required to
provide data on a daily basis, as well as additional optional data that
DCOs may provide.\19\ The Commission is not proposing to codify the
non-substantive technical and procedural aspects of the Reporting
Guidebook that address the format and manner in which DCOs provide this
information.
---------------------------------------------------------------------------

\19\ Appendix C specifies whether a field is mandatory,
optional, or conditional. In this context, fields that are
``conditional'' would be reported by the DCO if it collects or
calculates the particular data element and uses the data element in
the normal course of its risk management and operations, or if the
field is subject to any row-level validation rule described in the
Reporting Guidebook.
---------------------------------------------------------------------------

C. Proposed Additional Reporting Fields for the Daily Reporting
Requirements--Sec. 39.19(c)(1)

The Commission is proposing to include in appendix C several new
fields that do not appear in the Reporting Guidebook but would further
implement the existing daily reporting requirements under Sec.
39.19(c)(1). These new fields, applicable to interest rate swaps only,
include the delta ladder, gamma ladder, vega ladder, zero rate curves,
and yield curves that the DCO uses in connection with managing risks
associated with interest rate swaps positions. Some DCOs that clear
interest rate swaps already provide this information to the Commission
on a voluntary basis. The Commission believes that all DCOs that clear
interest rate swaps have this information, and have the ability to
report it to the Commission, regardless of whether they currently do
so. The Commission needs this information to better ascertain and
evaluate the risks associated with these positions, including using
this information to stress test these positions and to develop an
improved understanding of how market price changes would affect these
positions. As proposed, the reporting of this information would be
required for interest rate swaps only, due to the relatively broad
range of risk exposures across a wide variety of tenors. By way of
comparison, contracts with optionality (e.g., swaptions) are generally
less cleared than other asset classes; therefore, risk measures other
than delta ladders would not, as of now, be that significant and thus
not particularly informative relative to the cost of reporting.
However, over time, swap contracts with explicit or implicit option
characteristics may become more common, potentially leading to greater
benefits than costs for non-delta risk measures. Because of this, the
Commission requests comment on the potential value of additional risk
ladders. For delta ladders specifically, the broad spectrum of risk
exposures in rates somewhat contrasts with other asset classes. Credit
default swaps tend to be highly focused on the 5-year tenor; therefore,
delta ladders would not provide much information beyond that of a
single, aggregate delta value. The same is true for FX contracts, which
tend to be concentrated in very short tenors. In contrast, large
interest rate swap exposures are common for tenors spanning from a
single week to 30 years. Therefore, the Commission seeks to obtain data
on how this risk is allocated among certain tenor ranges.
Additionally, the Commission is proposing to require that a DCO
include in its daily reports timing information about variation margin
calls and payments. Specifically, the Commission is proposing that this
information include the time and amount of each variation margin call
to each clearing member, the time and amount that variation margin is
received from each clearing member, and the time and amount that
variation margin is paid to each clearing member. The Commission needs
this information to improve its risk surveillance of DCOs. Information
regarding the size and frequency of

[[Page 76703]]

variation margin calls, and when those calls are paid, is directly
relevant to DCO liquidity and how clearing member and customer risk is
being managed, both of which are important to the Commission in
evaluating risks at each DCO and across the derivatives markets. The
Commission anticipates that receiving this information on a daily basis
would support its ongoing surveillance and oversight of DCOs and the
markets, including potentially identifying liquidity issues as they
develop, especially to the extent that liquidity issues associated with
one clearing member could affect multiple DCOs. The Commission also
anticipates that this information would be useful for historical
analysis to evaluate whether potential deficiencies exist regarding DCO
liquidity as it relates to the collection and payment of variation
margin, including examining whether and how particular market
circumstances contribute to liquidity issues, and what measures might
be appropriate to address such deficiencies or issues.
Further, the Commission is proposing to require a DCO that clears
interest rate swaps, forward rate agreements, or inflation index swaps
to include in its daily reports the actual trade date for each position
along with an event description. Although DCOs currently report the
date that these products are cleared, DCOs are not required to report
the trade date. The Commission seeks to improve its understanding of
when and how positions in interest rate swaps, forward rate agreements,
and inflation index swaps arose, because these products sometimes are
not cleared on the trade date. Adding the trade date and event
description to positions in these products would improve the
Commission's understanding of the lifecycle of each position, which
would result in a better understanding of the risks these positions
present to the DCO and its clearing members.
Additionally, the Commission is proposing to require a DCO to
include in its daily reports information that reflects that the daily
report is complete.\20\ The Commission is proposing to require that
completeness information be submitted either as a manifest file that
contains a list of files sent by the DCO, or by including the file
number and count information embedded within each report, where each
FIXML file would indicate its position in the sequence of files
submitted that day, i.e., file 1 of 10. To the extent that a DCO
submits to the Commission multiple files in satisfaction of its daily
reporting obligations, it can be difficult for Commission staff to
determine whether a DCO has completed its reporting for the day, which
in turn makes it difficult to validate the information received.
Completeness information is necessary to determine whether DCO daily
reporting is complete, which would assist the Commission in its
validation and timely use of the reported information.
---------------------------------------------------------------------------

\20\ The Commission believes that the proposed requirement that
each DCO include in its daily report information that reflects that
the daily report is complete is a ``format and manner'' requirement
under Sec. 39.19(b)(1).
---------------------------------------------------------------------------

Additional details regarding the proposed reporting fields
discussed above are included in the proposed new appendix C to part 39.
The goal is to ensure that appendix C includes every data field that is
needed to adequately capture the new information that would be reported
under the proposal.\21\ Therefore, the Commission requests comment on
each of the proposed new daily reporting fields in appendix C, and
specifically, whether there are any additional fields that would be
necessary or would make the reported data more meaningful. The
Commission further requests comment on whether, to the extent that
commenters have concerns regarding the proposed requirement that DCOs
report timing information for variation margin calls and payments, DCOs
should instead be required to report whether calls and payments were
made during a broader timeframe, such as at the beginning, middle, or
end of day, and how those timeframes should be defined. The Commission
also requests comment on which of the two proposed approaches for
reporting completeness information is preferable, or whether there are
additional alternatives that may be superior.
---------------------------------------------------------------------------

\21\ In practice, to the extent that a DCO later finds that
there are additional data fields that would be necessary or
appropriate to better capture the information that is being
reported, the Commission is proposing to add, as new Sec.
39.19(c)(1)(iii), the ability for a DCO to, after consultation with
the Division, voluntarily submit any additional data fields it
believes would be necessary or appropriate.
---------------------------------------------------------------------------

Lastly, the Commission currently receives from DCOs daily position
information that includes settlement prices for a range of contracts
with open interest. The Commission is considering whether to also
require that DCOs provide the current settlement prices and related
information published by designated contract markets for futures and
options contracts with no open interest in order to enhance the
Commission's ability to perform futures and options risk surveillance
by using complete settlement price data. The Commission would likely
require the current settlement price, settlement currency, and
settlement date, to the extent that a DCO possesses this information.
The Commission requests comment on the costs to DCOs, if any,
associated with providing this information on a daily basis, and
whether the fields listed are necessary or appropriate to capture the
information that would be reported.

D. Individual Customer Account Identification Requirements--Sec.
39.19(c)(1)(i)(D)

Regulation 39.19(c)(1)(i)(D) requires the daily reporting of end-
of-day positions for each clearing member, by house origin and by each
customer origin, and by each individual customer account. The
Commission recently amended this provision to require, among other
things, that a DCO identify each individual customer account using both
a legal entity identifier (LEI) and any internally-generated
identifier, where available, within each customer origin for each
clearing member.\22\ The Commission intended that this requirement
apply to all instances within Sec. 39.19(c)(1) where a DCO is required
to report information at the individual customer account level.
However, this may not have been clear because paragraph (D) addresses
only the reporting of end-of-day positions.
---------------------------------------------------------------------------

\22\ 85 FR at 4817.
---------------------------------------------------------------------------

The Commission wishes to clarify that the requirement that a DCO
identify each individual customer account by LEI and internally-
generated identifier was not intended to be limited to end-of-day
position reporting under paragraph (D), but rather to apply to all
instances in Sec. 39.19(c)(1) where a DCO is required to report
information at the individual customer account level. Under the
proposal, Sec. 39.19(c)(1)(i)(A) is the only other paragraph within
Sec. 39.19(c)(1) that requires a DCO to report information at the
individual customer account level. The Commission therefore proposes to
amend Sec. 39.19(c)(1)(i)(A) to specify that when a DCO reports
initial margin requirements and initial margin on deposit by each
individual customer account as required, the DCO also must identify
each individual customer account by LEI and internally-generated
identifier, where available.
The Commission further seeks to clarify that the requirement that a
DCO identify each individual customer account using both an LEI and any
internally-generated identifier, ``where available,'' is intended to
mean this information is required, in either case,

[[Page 76704]]

only if the DCO has the information associated with an account. The
Commission is therefore proposing a technical change to make this more
clear.

E. Daily Reporting of Margin Model Back Testing--Sec. 39.19(c)(1)(i)

The Commission is proposing to add to Sec. 39.19(c)(1)(i) a
requirement that a DCO include in its daily reports the results of the
margin model back testing that a DCO is required to perform daily
pursuant to Sec. 39.13(g)(7)(i). Some DCOs currently provide back
testing information to the Commission on a voluntary basis. Back
testing is critical to evaluating the efficacy of DCO margin models,
which are in turn a critical component of DCO risk management.
Receiving back testing information from DCOs on a daily basis would
enhance the Commission's supervision and oversight of DCOs and the
derivatives markets by enabling the Commission to evaluate and monitor
margin model performance on an ongoing basis, and also would provide
the Commission with the information necessary to conduct its own
analysis of margin model performance.
The Commission is also proposing to add to new appendix C to part
39 the data fields it believes would be relevant and necessary to
capture the back testing results that, if adopted, would be reported
under this provision. As previously stated, the Commission's goal is to
ensure that appendix C includes every data field that is needed to
adequately capture the new information that would be reported under the
proposal. Therefore, the Commission requests comment on each of the
proposed reporting fields in appendix C for back testing results, and
specifically, whether there are any additional fields that would be
necessary or would make the reported data more meaningful.

F. Fully Collateralized Positions--Sec. 39.19(c)(1)(ii)

The Commission previously amended Sec. 39.19(c)(1)(i) to provide
that the daily reports required by that regulation are not required for
fully collateralized positions.\23\ The Commission did not amend Sec.
39.19(c)(1)(ii), which provides that the daily reports required by
Sec. 39.19(c)(1)(i) are required for futures, options, swaps, and
certain securities positions. Although Sec. 39.19(c)(1)(ii) merely
expands on Sec. 39.19(c)(1)(i) and has no independent force or effect,
the Commission is proposing to amend Sec. 39.19(c)(1)(ii) to clarify
that it does not apply to fully collateralized positions.
---------------------------------------------------------------------------

\23\ See 85 FR 4800, 4805.
---------------------------------------------------------------------------

G. Reporting Change of Control of the DCO--Sec. 39.19(c)(4)(ix)(A)(1)

Regulation 39.19(c)(4)(ix)(A)(1) requires a DCO to report to the
Commission any anticipated change in the ownership or corporate or
organizational structure of the DCO or its parent(s) that would result
in at least a 10 percent change of ownership of the DCO. The Commission
is proposing to amend this provision to require a DCO to report any
change to the entity or person that holds a controlling interest,
either directly or indirectly, in the DCO. Because the current rule is
tied to changes in ownership of the DCO by percentage share of
ownership, DCOs are not currently required to report all instances in
which there is a change in control of the DCO. It is possible that a
change in ownership of less than 10 percent could result in a change in
control of the DCO. For example, if an entity increases its stake in
the DCO from 45 percent ownership to 51 percent, it is possible that
control of the DCO would change without any required reporting. In
addition, in some instances, a DCO is owned by a parent company, and a
change in ownership or control of the parent is not required to be
reported under the current rule despite the fact that it could change
corporate control of the DCO. The proposed changes to the rule would
ensure that the Commission has accurate knowledge of the individuals or
entities that control a DCO and its activities.

H. Reporting Changes to Credit Facility Funding and Liquidity Funding
Arrangements--Sec. 39.19(c)(4)(xii) and (xiii)

Regulations 39.19(c)(4)(xii) and (xiii), respectively, require a
DCO to report changes to credit facility funding arrangements and
liquidity funding arrangements ``it has in place.'' The Commission is
proposing to amend these provisions to clarify that the reporting
requirements include reporting new arrangements as well as changes to
existing ones. Although DCOs and the Commission have interpreted these
requirements to include reporting new arrangements, a literal
interpretation of these provisions, with a focus on the phrase ``it has
in place,'' may potentially restrict the application of the reporting
requirements only to changes in existing arrangements.

I. Reporting Issues With Credit Facility Funding Arrangements,
Liquidity Funding Arrangements, and Custodian Banks--Sec.
39.19(c)(4)(xv)

Regulation 39.19(c)(4)(xv) requires that a DCO report to the
Commission within one business day after any material issues or
concerns arise regarding the performance, stability, liquidity, or
financial resources of any settlement bank used by the DCO or approved
for use by the DCO's clearing members. The Commission is proposing to
amend Sec. 39.19(c)(4)(xv) to require that a DCO report to the
Commission within one business day after it becomes aware of any
material issues or concerns regarding the performance, stability,
liquidity, or financial resources of any credit facility funding
arrangement, liquidity funding arrangement, custodian bank, or
settlement bank used by the DCO or approved for use by the DCO's
clearing members.
As a part of the proposed amendments to Sec. 39.19(c)(4)(xv), the
Commission is proposing to change the threshold that triggers a DCO's
reporting obligations. Specifically, the Commission is proposing to
replace the current requirement that a DCO report to the Commission
within one business day after any material issues or concerns arise,
with the requirement that a DCO report to the Commission within one
business day after it becomes aware of any material issues or concerns.
Requiring a DCO to report issues or concerns when it becomes aware of
them accounts for the possibility that there may be a delay between the
time that an issue arises and when the DCO becomes aware of it.
Furthermore, although they provide different services to DCOs and
may be relied upon by DCOs in differing circumstances, credit facility
funding arrangements, liquidity funding arrangements, and custodian
banks are similar to settlement banks in that they perform functions
that are critical to the clearing process. The Commission recognizes
that if a DCO encounters an issue with a settlement bank, it could
potentially delay the DCO's ability to access its funds, which could
impact the DCO's ability to meet its obligations; the same could be
true with respect to issues with a DCO's credit facility funding
arrangements, liquidity funding arrangements, and custodian banks.
Therefore, it is important that the Commission be informed when a DCO
experiences or becomes aware of any issues.

[[Page 76705]]

J. Reporting of Updated Responses to the Disclosure Framework for
Financial Market Infrastructures--Sec. 39.19(c)(4)(xxv)

The Commission is proposing new Sec. 39.19(c)(4)(xxv), which would
set forth the requirement currently in Sec. 39.37(b)(2) that, when a
DCO updates its responses to the Disclosure Framework for Financial
Market Infrastructures published by the Committee on Payment and
Settlement Systems and the Board of the International Organization of
Securities Commissions in accordance with Sec. 39.37(b)(1), the DCO
shall provide notice of those updates to the Commission. The proposal
does not alter in any respect the substance of the reporting obligation
currently specified in Sec. 39.37(b)(2); it simply references this
requirement in Sec. 39.19 in furtherance of the goal of centralizing
DCO reporting obligations in Sec. 39.19.\24\
---------------------------------------------------------------------------

\24\ See id. at 4819.
---------------------------------------------------------------------------

VI. Proposed Amendments to Sec. 39.21(c)

Regulation 39.21 requires a DCO to publish on its website a variety
of information designed to enable market participants to make informed
decisions about using the clearing services provided by the DCO. The
Commission is proposing several amendments to these requirements to
better align a DCO's disclosure obligations with the type of clearing
services that the DCO provides.

A. Publication of Margin-Setting Methodology and Financial Resource
Package Information--Sec. 39.21(c)(3) and (4)

Regulation 39.21(c)(3) requires a DCO to publish on its website
information concerning its margin-setting methodology. Regulation
39.21(c)(4) requires a DCO to publish on its website, and update as
required, the size and composition of the financial resource package
available in the event of a clearing member default.
The Commission is proposing to amend Sec. Sec. 39.21(c)(3) and (4)
to provide that a DCO that clears only fully collateralized positions
should instead indicate on its website that it clears such positions in
satisfaction of these requirements. As the Commission has previously
recognized, fully collateralized positions are designed to have on
deposit a sufficient amount of funds, at all times, to cover the
maximum potential loss that could be incurred in connection with a
position.\25\ Therefore, the need to collect margin and maintain a
financial resource package to be used in the event of a clearing member
default is eliminated by requiring full collateralization. The
Commission has therefore provided certain carveouts for DCOs that clear
fully collateralized positions in its part 39 regulations.\26\ This
proposed change would be consistent with such carveouts.
---------------------------------------------------------------------------

\25\ See id. at 4804.
\26\ Id.
---------------------------------------------------------------------------

B. Publication of List of Clearing Members--Sec. 39.21(c)(7)

Regulation 39.21(c)(7) requires a DCO to publish on its website a
current list of its clearing members. At a typical DCO, the risk of
loss from the default of a clearing member is mutualized among the
clearing members, making it useful for each existing or prospective
clearing member to know who the others are. Publishing a list of
clearing members is less useful where the DCO clears only fully
collateralized positions and its clearing members generally do not pose
any risk to each other. However, existing or potential customers of a
futures commission merchant (FCM) may find it useful to be able to
verify whether that FCM is a clearing member at any DCO, including DCOs
that clear only fully collateralized positions. For these reasons, the
Commission is proposing to amend Sec. 39.21(c)(7) to provide that a
DCO may omit any clearing member that clears only fully collateralized
positions and is not an FCM clearing member from the list of clearing
members that the DCO must publish on its website.\27\
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\27\ The proposed amendment to Sec. 39.21(c)(7) is consistent
with the position previously taken by the Division. See, e.g., CFTC
Letter No. 19-15 (July 1, 2019) (no-action letter to Eris Clearing,
LLC, regarding several Commission regulations, including Sec.
39.21(c)(7), due to Eris Clearing, LLC's fully collateralized
clearing model). To the extent that a DCO received a no-action
letter from the Division regarding compliance with Sec.
39.21(c)(7), the change in the requirement, if adopted, would
supersede those letters.
---------------------------------------------------------------------------

VII. Proposed Amendments to Sec. 39.37(c) and (d)

Regulation 39.37 requires each systemically important DCO (SIDCO)
and each DCO that elects to comply with subpart C of part 39 of the
Commission's regulations (subpart C DCO) to disclose certain
information to the public and to the Commission. Regulations 39.37(c)
and (d) require, respectively, a SIDCO or subpart C DCO to ``disclose,
publicly, and to the Commission'' transaction data, and information
regarding the segregation and portability of customers' positions and
funds. The Commission is proposing to amend these provisions to clarify
that public disclosure of the information is sufficient and a separate
report directly to the Commission is not required. To that end, the
Commission is proposing to replace the phrase ``disclose, publicly, and
to the Commission'' with the phrase ``publicly disclose'' in Sec.
39.37(c) and (d).

VIII. Proposed Amendments to Sec. 140.94(c)(10)

Regulation 140.94(c) is a delegation of authority from the
Commission to the Director of the Division of Clearing and Risk to
perform certain specific functions. The Commission is proposing to
amend Sec. 140.94(c)(10) to delegate to the Director the authority in
existing Sec. 39.19(a) to require a DCO to provide to the Commission
the information specified in Sec. 39.19 and any other information that
the Commission determines to be necessary to conduct oversight of the
DCO, and in existing Sec. 39.19(b)(1) to specify the format and manner
in which the information required by Sec. 39.19 must be submitted to
the Commission.

IX. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) requires that agencies
consider whether the regulations they propose will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis on the impact.\28\ The
amendments proposed by the Commission will affect only DCOs. The
Commission has previously established certain definitions of ``small
entities'' to be used by the Commission in evaluating the impact of its
regulations on small entities in accordance with the RFA.\29\ The
Commission has previously determined that DCOs are not small entities
for the purpose of the RFA.\30\ Accordingly, the Chairman, on behalf of
the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the
proposed regulations will not have a significant economic impact on a
substantial number of small entities.
---------------------------------------------------------------------------

\28\ 5 U.S.C. 601 et seq.
\29\ 47 FR 18618 (Apr. 30, 1982).
\30\ See 66 FR 45604, 45609 (Aug. 29, 2001).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

The Paperwork Reduction Act (PRA) \31\ provides that Federal
agencies, including the Commission, may not conduct or sponsor, and a
person is not required to respond to, a collection of information
unless it displays a valid control number from the Office of Management
and Budget (OMB). This proposed rulemaking contains reporting

[[Page 76706]]

and recordkeeping requirements that are collections of information
within the meaning of the PRA. If adopted, responses to the collections
of information would be required to obtain a benefit. This section
addresses the impact that the proposal will have on the existing
information collection associated with part 39, ``Requirements for
Derivatives Clearing Organizations, OMB control number 3038-0076.''
---------------------------------------------------------------------------

\31\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

1. Subpart B--Requirements for Compliance With Core Principles
a. Risk Management
The Commission is proposing new Sec. 39.13(h)(5)(iii) to provide
that a DCO that clears fully collateralized positions may exclude from
the requirements of paragraphs (h)(5)(i) and (ii) those clearing
members that clear only fully collateralized positions. These
requirements would still apply in the case of clearing members that
clear fully collateralized positions but also margined products. This
change will reduce the burden for DCOs that clear fully collateralized
products, but does not affect the burden for the majority of DCOs that
are subject to daily reporting requirements, as only four of the
fifteen DCOs clear fully collateralized positions. As a result, the
Commission believes that this reduction would have a negligible impact
on the overall reporting burden for DCOs, and therefore, the Commission
is leaving the reporting burden for these reporting requirements
unchanged.
b. Treatment of Funds
The Commission is proposing to amend Sec. 39.15(b)(2), which only
applies when a DCO and its clearing members seek to commingle customer
positions in futures, options, foreign futures, foreign options, and
swaps, or any combination thereof, and any money, securities, or
property received to margin, guarantee or secure such positions, in an
account subject to the requirements of Sections 4d(a) or 4d(f) of the
CEA. The Commission proposes to consolidate paragraphs (b)(2)(i) and
(b)(2)(ii) and renumber paragraphs accordingly. These changes pertain
only to the structure and organization of the regulation and therefore
do not impact the reporting requirement. The Commission is further
proposing to amend Sec. 39.15(b)(2) to clarify that the requirement in
paragraph (b)(2)(i)(G) that a DCO discuss the systems or procedures
that the DCO has implemented to oversee its clearing members' risk
management of eligible products may be addressed by describing why
existing risk management systems and procedures are adequate, and to
add language clarifying that the requirements and standard of review of
Sec. 40.5 apply to commingling rule submissions. Because these
proposals are mere clarifications of existing requirements, they also
have no impact on the reporting burden.
Similarly, the Commission is further proposing to remove existing
paragraph (b)(2)(iii), which provides that the Commission may request
additional information in support of a rule submission filed under
existing paragraph (b)(2)(i) or (ii), and add new paragraph
(b)(2)(viii), which provides that the Commission may request
supplemental information to evaluate the DCO's submission and requires
a DCO to submit any other information necessary for the Commission to
evaluate the DCO's rule's compliance with the CEA and the Commission's
regulations. This does not impact the reporting burden because proposed
paragraph (b)(2)(viii), like existing paragraph (b)(2)(iii), would
ensure that the Commission can consider all information relevant to the
rule submission. Although existing paragraph (b)(2)(iii) does not
contain explicit language similar to new paragraph (b)(2)(viii)'s
requirement that the DCO submit any other information necessary for the
Commission to evaluate the rule's compliance with the CEA and the
Commission's regulations, the fact that existing paragraph (b)(2)(iii)
permits the Commission to request such information implies a DCO's
obligation to supply it. Simply making this implication explicit does
not impact the reporting burden.
The Commission is proposing to delete paragraphs (b)(2)(i)(C), (E),
(H), and (L) because they require a DCO to submit information the
Commission can already access or has not needed in its review of
commingling rule submissions. This proposed change would decrease the
reporting burden. In addition, the Commission is proposing to remove
existing paragraph (b)(2)(i)(I), which requires the DCO to provide
information related to its margin methodology, while adding related
paragraph (b)(2)(vii), which would require that a DCO discuss whether
it anticipates allowing portfolio margining of commingled positions,
describe and analyze any margin reductions it would apply to correlated
positions, and make an express confirmation that any portfolio
margining will be allowed only as permitted under Sec. 39.13(g)(4).
These changes would collectively decrease the reporting burden because
the requirements proposed to be removed through the deletion of
paragraph (b)(2)(i)(I) are, as a whole, more burdensome than the
requirements proposed to be added in paragraph (b)(2)(vii). Similarly,
the Commission is proposing to remove the requirement in existing
paragraph (b)(2)(i)(K) to discuss a DCO's default management procedures
generally and maintain only the requirement to address default
management procedures unique to the products eligible for commingling
and to move that requirement to paragraph (b)(2)(vi). This narrowing of
the scope of the requirement reduces the reporting burden on the
relevant DCOs.
The Commission is proposing to amend paragraph (b)(2)(i)(B), which
requires the DCO to provide an analysis of the risk characteristics of
the products that would be eligible for commingling, to specify that
the DCO should discuss any risk characteristics of products to be
commingled that are unusual in relation to the other products the DCO
clears and how the DCO plans to manage any risks identified. Because
such disclosure was not previously explicitly required, and because
DCOs that would not otherwise have addressed such issues in their
analysis of the risk characteristics of the eligible products would now
be required to do so, this would increase the reporting burden.
The Commission proposes to amend paragraph (b)(2)(i)(F) (and
renumber it as (b)(2)(iv)), which currently requires the DCO to
describe the financial, operational, and managerial standards or
requirements for clearing members that would be permitted to commingle
eligible products, to require only that the DCO describe any additional
requirements that would apply to clearing members permitted to
commingle eligible products. The Commission believes that the proposed
amendment would have no impact on the reporting burden. Although the
proposed requirement that the DCO describe any additional requirements
is broader than the current requirement to describe financial,
operational, and managerial standards or requirements, the existing
paragraph requires the DCO to report even if no additional requirements
would apply. The proposal only requires reporting when additional
requirements are, in fact, applicable.
The Commission believes that the reductions in the reporting burden
resulting from the proposed deletion of paragraphs (b)(2)(i)(C), (E),
(H), and (L) and the narrowing of the reporting burden resulting from
the proposed deletions of paragraphs (b)(2)(i)(I) and (K) (even after
giving effect to the addition of new paragraphs (b)(2)(vi)

[[Page 76707]]

and (vii)) are at least as great as the increase in the reporting
burden resulting from the proposed amendments to paragraph
(b)(2)(i)(B). Because the Commission lacks the data to fully quantify
each of these changes, it is conservatively estimating that these
changes collectively do not materially impact the reporting burden. The
Commission is of the view that to the extent that the cross-margining
program would be submitted as part of a new rule or rule amendment
filing pursuant to Sec. 40.5, the proposed changes are already covered
by OMB control number 3038-0093 and there is no change in the burden
estimates.
c. Daily Reporting
The Commission is proposing to amend Sec. 39.19(c)(1)(i)(A) to
clarify that the existing requirement to identify individual customer
accounts by LEI and internally-generated identifier was intended to
apply to all instances in Sec. 39.19(c)(1) where reporting is required
at the individual customer account level, and not only to end-of-day
positions. The Commission therefore proposes to amend Sec.
39.19(c)(1)(i)(A) to specify that when a DCO reports initial margin
requirements and initial margin on deposit by each individual customer
account as required, the DCO also must identify each individual
customer account by LEI and internally-generated identifier, where
available. The proposed clarification would not affect the burden on
DCOs because DCOs already provide this information and the impact of
this amendment is negligible on the existing burden.
The Commission also is proposing to amend Sec. 39.19(c)(1)(i)(B)
and (C), which require a DCO to report daily variation margin and cash
flow information by house origin and separately by customer origin and
by each individual customer account, to remove the requirement that a
DCO report daily variation margin and cash flows by individual customer
account. This proposed change is anticipated to result in a negligible
decrease from the current burden of 0.5 hours per report.\32\
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\32\ DCOs currently are not reporting variation margin and cash
flow information by each individual customer account because the
Division issued a no-action letter addressing compliance with the
amended requirements in Sec. 39.19(c)(1). See CFTC Letter No. 21-01
(Dec. 31, 2020); see also CFTC Letter No. 21-31 (Dec. 22, 2021). As
noted, the proposed amendments to Sec. 39.19(c)(1)(i)(B) and (C)
would eliminate the requirement for which additional time was
provided in the staff letter.
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The Commission is also proposing to add to part 39 an appendix that
would codify the existing reporting fields for the daily reporting
requirements in Sec. 39.19(c)(1). The codification of existing
reporting fields in new appendix C would not change the reporting
burden.\33\
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\33\ The current burden estimates for complying with the daily
reporting requirements in Sec. 39.19(c)(1) included in OMB Control
No. 3038-0076 take into account the burden associated with reporting
in accordance with the Reporting Guidebook.
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The Commission also is proposing to add new fields within proposed
appendix C that would further implement the existing daily reporting
requirements under Sec. 39.19(c)(1). Specifically, the Commission is
proposing to require that a DCO include in its daily reports, with
regard to interest rate swaps only, the delta ladder, gamma ladder,
vega ladder, zero rate curves, and yield curves that the DCO uses in
connection with managing risks associated with interest rate swaps
positions. The Commission also is proposing to require a DCO that
clears interest rate swaps, forward rate agreements, or inflation index
swaps to include in its daily reports the actual trade date for each
position, along with an event description. The Commission is further
proposing to require that each DCO include in its daily reports timing
information about variation margin calls and payments, and also to
include in its daily reports information that reflects that the daily
report is complete. Lastly, in connection with the proposal to add to
Sec. 39.19(c)(1)(i) a requirement that a DCO include in its daily
reports the results of its required daily margin model back testing,
the Commission is proposing to add to proposed appendix C the
additional data fields necessary to implement this requirement.
With respect to the proposal to add new fields to proposed appendix
C, and the proposal to add to Sec. 39.19(c)(1)(i) a requirement that a
DCO include in its daily reports the results of its required margin
model back testing, the Commission believes the incremental capital
investment costs associated with implementing these proposed
requirements would be negligible. In many cases, the proposed fields
are data that are already being used for DCO risk management and
operations, and in some cases are already being reported to the
Commission on a voluntary basis. Further, the Commission believes that
any capital investment implementation for the reporting of these
proposed fields would leverage the DCO's existing server architecture
that could be scaled up to meet the proposed requirements with
negligible costs. The estimated start-up costs, including programming
or coding, as well as testing, quality assurance, and compliance review
costs, are estimated \34\ to be approximately $109,574.43 per DCO.\35\
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\34\ To estimate the start-up costs, the Commission relied upon
internal subject matter experts in its Divisions of Data and
Clearing and Risk to estimate the amount of time and type of DCO
personnel necessary to complete the coding, testing, quality
assurance, and compliance review. The Commission then used data from
the Department of Labor's Bureau of Labor Statistics from May 2021
to estimate the total costs of this work. According to the May 2021
National Occupational Employment and Wage Estimates Report produced
by the U.S. Bureau of Labor Statistics, available at <a href="https://www.bls.gov/oes/current/oes_nat.htm">https://www.bls.gov/oes/current/oes_nat.htm</a>, the mean salary for a computer
systems analyst in management companies and enterprises is $103,860.
This number is divided by 1800 work hours in a year to account for
sick leave and vacations and multiplied by 2.5 to account for
retirement, health, and other benefits, as well as for office space,
computer equipment support, and human resources support, all of
which yields an hourly rate of $144.25. Similarly, a computer
programmer has a mean annual salary of $102,430, yielding an hourly
rate of $142.26; a software quality assurance analyst and tester has
a mean annual salary of $99,460, yielding an hourly rate of $138.14;
and a compliance attorney has a mean annual salary of $198,900,
yielding an hourly rate of $276.25.
\35\ The estimate of total start-up costs consists of the
following: $14,101.10 for the delta ladder, gamma ladder, vega
ladder, and the zero rate curves, based on 20 hours of systems
analyst time, 40 hours of programmer time, and 40 hours of tester
time; $7,248.61 for adding interest rate, forward rates, and end of
day position fields, based on 8 hours of systems analyst time, 4
hours of programmer time, and 40 hours of tester time; $39,907.22
for the payment file, based on 120 hours of systems analyst time,
120 hours of programmer time, and 40 hours of tester time;
$14,140.83 for the manifest file, based on 40 hours of systems
analyst time, 40 hours of programmer time, and 20 hours of tester
time; and $22,676.67 for adding the back testing fields, based on 40
hours of systems analyst time, 80 hours of programmer time, and 40
hours of tester time. The estimate of total start-up costs also
includes $11,500.00 for compliance attorney review. A DCO may choose
to employ a manifest file or alternatively a file count to the
account and end of day position files. If a DCO elects the latter,
the estimate of total start-up costs is reduced to $106,120.38,
because while adding a manifest file is estimated to cost
$14,140.83, adding file count information is estimated to cost
$10,686.78 (based on 20 hours of systems analyst time, 16 hours of
programmer time, and 40 hours of tester time). Additionally, the
Commission estimates that requiring DCOs to report pricing
information for contracts without open interest, which the
Commission is considering, would impose non-capital start-up costs
of $34,137.22 on each DCO, based on 80 hours of systems analyst
time, 120 hours of programmer time, and 40 hours of tester time. The
$34,137.22 estimate is not included in the estimated total start-up
costs of $109,574.43 per DCO because, although the Commission is
considering this requirement and is requesting comment, it has not
otherwise proposed this requirement.
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Lastly, because the Commission understands that the preparation and
submission of the daily reports required under Sec. 39.19(c)(1)(i) is
largely automated, the Commission estimates that the proposal to add
new fields to proposed appendix C, and the proposal to add to Sec.
39.19(c)(1)(i) a requirement that a DCO include in its daily reports

[[Page 76708]]

the results of the margin model back testing, will result in a
negligible increase from the current estimate of 0.5 burden hours per
report.
The aggregate burden estimate for daily reporting remains as
follows:
Estimated number of respondents: 13.
Estimated number of reports per respondent: 250.
Average number of hours per report: 0.5.
Estimated gross annual reporting burden: 1625.
d. Event-Specific Reporting
Regulation 39.19(c)(4) requires a DCO to notify the Commission of
the occurrence of certain events; Sec. 39.19(c)(4)(ix)(A)(1) requires
a DCO to report any change in the ownership or corporate or
organizational structure of the DCO or its parent(s) that would result
in at least a 10 percent change of ownership of the DCO. The Commission
is proposing to amend Sec. 39.19(c)(4)(ix)(A)(1) to require the
reporting of any change in the ownership or corporate or organizational
structure of the DCO or its parent(s) that would result in a change to
the entity or person holding a controlling interest in the DCO, whether
through an increase in direct ownership or voting interest in the DCO
or in a direct or indirect corporate parent entity of the DCO. This
increases the reporting requirement. However, the changes of control
contemplated by the proposed amendment occur infrequently. In addition,
DCOs have typically notified the Commission of such changes of control
even if not technically required by the current regulations. Finally,
although changes of control usually require the preparation of
documents such as a purchase agreement and the amendment of corporate
governance documents and organizational charts, those burdens are a
result of the change in control itself and not of the reporting
requirement. The administrative burden of notifying the Commission--
preparing a notification, attaching relevant but pre-existing
supporting documents such as the revised organizational chart, and
submitting to the Commission--is negligible. Therefore, the increase in
the reporting requirement resulting from this proposed amendment is
negligible.
Regulation 39.19(c)(4)(xii) and (xiii) require notification of
changes in a liquidity funding arrangement or settlement bank
arrangement. The Commission is proposing to amend these regulations to
clarify that the reporting requirements include reporting new
arrangements as well as changes to existing ones. The proposed
clarification would not affect the burden on DCOs because such
reporting is already implied in the regulation.
Separately, the Commission is proposing to amend Sec.
39.19(c)(4)(xv) to add credit facility funding arrangements, liquidity
funding arrangements, and custodian banks to the list of arrangements
or banks for which the DCO must report to the Commission any issues or
concerns of which the DCO becomes aware. Although this increases the
number of entities or arrangements for which reporting may be required,
given that a DCO is only required to report these issues when it
becomes aware of them, and given that these events are not very common,
any increase should be negligible.
The Commission is proposing to revise Sec. 39.18(g) to delete the
materiality threshold. Proposed changes would also require notification
of each security incident or threat that compromises or could
compromise the confidentiality, availability, or integrity of any
automated system, or any information, services, or data, including, but
not limited to, third-party information, services, or data, relied upon
by the DCO in discharging its responsibilities; as well as operator
errors that may impair the operation, reliability, security, or
capacity of an automated system. The various proposals are intended, in
part, to ensure that the Division receives notice of the full spectrum
of cyberattacks and cyberthreats that a DCO experiences, including
partial breaches, near misses, and cyberattacks and cyberthreats
affecting third-party systems that a DCO relies upon, and that the
Division receives notice when a DCO's systems or information, or
external systems or information that a DCO relies upon, are, or may be,
compromised by a security incident or threat, irrespective of whether
the incident or threat causes, or could cause, actual impairment to the
affected systems. Due to the proposed changes to Sec. 39.18(g), the
Commission anticipates some increase in the reporting burden on DCOs.
Based on recent levels of reporting, the Commission estimates that
these changes will require DCOs to file an additional 4 reports per
year, on average. The reporting burden of Sec. 39.18(g) is covered by
Sec. 39.19(c)(4)(xxii), and therefore is included in the burden
estimate for Sec. 39.19(c)(4).
Finally, the Commission is proposing to add Sec. 39.19(c)(4)(xxv)
to centralize an existing reporting obligation under Sec. 39.37(b)(2)
in Sec. 39.19. This does not create a new reporting obligation. The
Commission is also proposing to revise Sec. Sec. 39.37(c) and (d) to
remove the requirement to make certain disclosures to the Commission
while retaining a requirement to make such disclosures publicly. This
would cause a negligible decrease in costs that would not affect the
reporting burden. The reporting burden under existing Sec. 39.37 is
covered in the PRA estimate for that regulation.
The aggregate burden estimate of Sec. 39.19(c)(4) adjusted for the
changes described above is as follows:
Estimated number of respondents: 13.
Estimated number of reports per respondent: 18
Average number of hours per report: 0.5.
Estimated gross annual reporting burden: 117.
e. Public Information
The Commission is proposing to revise Sec. 39.21(c)(3) and (4) to
exclude DCOs that clear only fully collateralized positions from the
specific disclosure requirements of these paragraphs. Similarly, the
Commission is proposing to amend Sec. 39.21(c)(7), which requires a
DCO to publish on its website a current list of its clearing members,
to provide that a DCO may omit any clearing member that clears only
fully collateralized positions and is not an FCM from the list of
clearing members that it must publish on its website. Because such DCOs
are still required to report per other parts of Sec. 39.21, such as to
disclose the terms and conditions of each contract cleared, the fees it
charges its members, and daily settlement prices, volumes, and open
interest for each contract, the number of respondents would remain
unchanged. The proposed changes do not affect the burden for the
majority of DCOs that are subject to the public disclosure
requirements. For fully collateralized DCOs, the proposed changes would
result in a negligible decrease in the amount of time required per
report. The aggregate estimated burden for Sec. 39.21 remains as
follows:
Estimated number of respondents: 13.
Estimated number of reports per respondent: 4.
Average number of hours per report: 2.
Estimated gross annual reporting burden: 104.
Request for Comment. The Commission invites the public and other
Federal agencies to comment on any aspect of the proposed information
collection requirements discussed above. The Commission will consider
public comments on this proposed collection of information in:

[[Page 76709]]

(1) Evaluating whether the proposed collection of information is
necessary for the proper performance of the functions of the
Commission, including whether the information will have a practical
use;
(2) Evaluating the accuracy of the estimated burden of the proposed
collection of information, including the degree to which the
methodology and the assumptions that the Commission employed were
valid;
(3) Enhancing the quality, utility, and clarity of the information
proposed to be collected; and
(4) Minimizing the burden of the proposed information collection
requirements on registered entities, including through the use of
appropriate automated, electronic, mechanical, or other technological
information collection techniques, e.g., permitting electronic
submission of responses.
Copies of the submission from the Commission to OMB are available
from the CFTC Clearance Officer, 1155 21st Street NW, Washington, DC
20581, (202) 418-5160 or from <a href="http://RegInfo.gov">http://RegInfo.gov</a>. Organizations and
individuals desiring to submit comments on the proposed information
collection requirements should send those comments to:
<bullet> The Office of Information and Regulatory Affairs, Office
of Management and Budget, Room 10235, New Executive Office Building,
Washington, DC 20503, Attn: Desk Officer of the Commodity Futures
Trading Commission;
<bullet> (202) 395-6566 (fax); or
<bullet> <a href="/cdn-cgi/l/email-protection#f0bfb9a2b18385929d998383999f9e83b09f9d92de959f80de979f86">[email&#160;protected]</a> (email).
Please provide the Commission with a copy of submitted comments so
that comments can be summarized and addressed in the final rulemaking,
and please refer to the ADDRESSES section of this rulemaking for
instructions on submitting comments to the Commission. OMB is required
to make a decision concerning the proposed information collection
requirements between 30 and 60 days after publication of this release
in the Federal Register. Therefore, a comment to OMB is best assured of
receiving full consideration if OMB receives it within 30 calendar days
of publication of this release. Nothing in the foregoing affects the
deadline enumerated above for public comment to the Commission on the
proposed rules.

C. Cost-Benefit Considerations

1. Introduction
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders.\36\ Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
the following five broad areas of market and public concern: (1)
protection of market participants and the public; (2) efficiency,
competitiveness, and financial integrity of futures markets; (3) price
discovery; (4) sound risk management practices; and (5) other public
interest considerations. The Commission considers the costs and
benefits resulting from its discretionary determinations with respect
to the Section 15(a) factors (collectively referred to herein as
Section 15(a) factors).
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\36\ 7 U.S.C. 19(a).
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The Commission recognizes that the proposed amendments impose
costs. The Commission has endeavored to assess the anticipated costs
and benefits of the proposed amendments in quantitative terms,
including PRA-related costs, where feasible. In situations where the
Commission is unable to quantify the costs and benefits, the Commission
identifies and considers the costs and benefits of the applicable
proposed amendments in qualitative terms. The lack of data and
information to estimate those costs is attributable in part to the
nature of the proposed amendments. Additionally, any initial and
recurring compliance costs for any particular DCO will depend on the
size, existing infrastructure, level of clearing activity, practices,
and cost structure of the DCO.
The Commission generally requests comment on all aspects of its
cost-benefit considerations, including the identification and
assessment of any costs and benefits not discussed herein; data and any
other information to assist or otherwise inform the Commission's
ability to quantify or qualitatively describe the costs and benefits of
the proposed amendments; and substantiating data, statistics, and any
other information to support positions posited by commenters with
respect to the Commission's discussion. The Commission welcomes comment
on such costs, particularly from existing DCOs that can provide
quantitative cost data based on their respective experiences.
Commenters may also suggest other alternatives to the proposed
approach.
2. Baseline
The baseline for the Commission's consideration of the costs and
benefits of this proposed rulemaking is the existing statutory and
regulatory framework applicable to DCOs, including: (1) the DCO core
principles set forth in Section 5b(c)(2) of the CEA; (2) the
information requirements associated with commingling customer funds and
positions in futures and swaps in the same account under Sec.
39.15(b)(2); (3) the reporting obligations under Sec. 39.18(g) related
to a DCO's system safeguards; (4) daily reporting requirements under
Sec. 39.19(c)(1); (5) event-specific reporting requirements under
Sec. 39.19(c)(4); (6) public information requirements under Sec.
39.21(c); (7) disclosure obligations for SIDCOs and subpart C DCOs
under Sec. 39.37; and (8) delegation of authority provisions under
Sec. 140.94.
The Commission notes that this consideration is based on its
understanding that the futures and swaps market functions
internationally with: (1) transactions that involve U.S. entities
occurring across different international jurisdictions; (2) some
entities organized outside of the United States that are prospective
Commission registrants; and (3) some entities that typically operate
both within and outside the United States and that follow substantially
similar business practices wherever located. Where the Commission does
not specifically refer to matters of location, the discussion of costs
and benefits below refers to the effects of the proposed regulations on
all relevant futures and swaps activity, whether based on their actual
occurrence in the United States or on their connection with, or effect
on U.S. commerce pursuant to, Section 2(i) of the CEA.\37\
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\37\ Pursuant to Section 2(i) of the CEA, activities outside of
the United States are not subject to the swap provisions of the CEA,
including any rules prescribed or regulations promulgated
thereunder, unless those activities either have a direct and
significant connection with activities in, or effect on, commerce of
the United States; or contravene any rule or regulation established
to prevent evasion of a CEA provision enacted under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, Public Law 111-203,
124 Stat. 1376. 7 U.S.C. 2(i).
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3. Proposed Amendments to Sec. 39.13(h)(5)
a. Benefits
The Commission is proposing new Sec. 39.13(h)(5)(iii), which would
provide that a DCO that clears fully collateralized positions may
exclude from the requirements of paragraphs (h)(5)(i) and (ii) those
clearing members that clear only fully collateralized positions. These
requirements would still apply in the case of clearing members that
clear fully collateralized positions but also margined products.
Fully collateralized positions do not expose DCOs to many of the
risks that

[[Page 76710]]

traditionally margined products do. Full collateralization prevents a
DCO from being exposed to credit or default risk stemming from the
inability of a clearing member or customer of a clearing member to meet
a margin call or a call for additional capital. This limited exposure
and full collateralization of that exposure renders certain provisions
of part 39 inapplicable or unnecessary, including Sec. 39.13(h)(5).
The Commission is proposing to amend this provision in order to provide
greater clarity to DCOs and future applicants for DCO registration
regarding how Sec. 39.13(h)(5) applies to DCOs that clear fully
collateralized positions.
b. Costs
The Commission does not anticipate any costs associated with this
change, as it would codify the removal of requirements that need not
apply to fully collateralized positions.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits in light of the specific considerations
identified in Section 15(a) of the CEA. In consideration of Section
15(a)(2)(B) of the CEA, the Commission believes that the proposal may
increase operational efficiency for DCOs that clear fully
collateralized positions. The proposed amendments should not impact the
protection of market participants and the public, the financial
integrity of markets, or sound risk management practices, as the
requirements that the Commission is proposing to exclude for fully
collateralized positions do not further these factors when applied to
such positions. The Commission has considered the other Section 15(a)
factors and believes that they are not implicated by the proposed
amendments.
4. Proposed Amendments to Sec. 39.15(b)(2)
a. Benefits
The Commission is proposing to amend Sec. 39.15(b)(2) to clarify
its requirements and revise the information a DCO must provide to the
Commission when it seeks to commingle customer positions and associated
funds from different account classes. The Commission anticipates the
proposed amendments will help applicants, the Commission, and the
public to focus on those issues that are most important in considering
the submission, and will generally reduce compliance burdens on DCOs.
Based on its experience in reviewing commingling rule submissions,
the Commission believes the proposed changes to the information
requirements would improve the quality of future submissions and
enhance protection of market participants. The existing requirements
often result in rule submissions that provide information the
Commission already has and lack sufficient focus on the commingling
itself, making it difficult for both the Commission and the public to
properly assess the risks that commingling of customer funds may pose.
The amendments would improve the quality of the submissions by
providing the information needed to evaluate the risks posed to
customers by commingling products that otherwise would be held in
separate accounts.
The proposed amendments would reduce compliance burdens for DCOs by
removing existing paragraphs (b)(2)(i)(C), (E), (H), and (L),
provisions that call for submission of information the Commission can
otherwise access or has not needed in its review of commingling rule
submissions. Replacing existing paragraph (b)(2)(i)(I) and adding the
related proposed Sec. 39.15(b)(2)(vii) would focus DCO efforts on
providing the most useful information on the topic of margin
methodology, and eliminates a requirement to provide margin methodology
information with which the Commission is already familiar. Similarly,
by maintaining only that part of paragraph (b)(2)(i)(K) concerning
default management procedures unique to the products eligible for
commingling, the proposed regulation would focus the discussion of the
DCO's default management procedures on changes necessitated by the
commingling of eligible products rather than general information on
default management procedures already available to the Commission.
b. Costs
As discussed above, the Commission expects that the proposed
amendments to Sec. 39.15(b)(2) will decrease DCOs' costs associated
with seeking commingling approval. The Commission's proposal most
meaningfully reduces costs by no longer requiring a DCO to produce
certain information it was previously required to provide to the
Commission. This is partly offset by the addition of new information
requirements. Proposed paragraph (b)(2)(vii) would require information
concerning portfolio margining that is largely a subset of the margin
methodology information required by existing paragraph (b)(2)(i)(I).
The new requirement in this paragraph amounts to a one sentence
confirmation of compliance with Sec. 39.13(g)(4). Proposed paragraph
(b)(2)(viii), intended to ensure a DCO provides all information the
Commission needs to evaluate a commingling rule submission,
incorporates the requirements of existing paragraph (b)(2)(iii).
Further, the amendment to existing paragraph (b)(2)(i)(B) on risk
characteristics, in addition to focusing the discussion on unusual
characteristics, extends the analysis to include a discussion of the
DCO's management of identified risk characteristics, which is
information that should likely be readily available to DCOs. Likewise,
to the extent proposed paragraph (b)(2)(vi) on default management
procedures extends beyond the scope of existing paragraphs (b)(2)(i)(J)
or (b)(2)(i)(K), DCOs should already have this information.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposed amendments to Sec. 39.15(b)(2)
in light of the specific considerations identified in Section 15(a) of
the CEA. The Commission believes that the proposed amendments will have
a beneficial effect on the protection of market participants and on
sound risk management practices. The amendments better focus the DCO
submissions on risk management considerations that are relevant to
address the commingling of customer positions and associated funds as
proposed, and assure that DCOs provide the Commission with the
information it needs to consider the regulatory adequacy of their
efforts. These activities are ultimately directed towards protecting
market participants whose accounts are exposed to risks the commingled
positions introduce. The Commission has considered the other Section
15(a) factors and believes that they are not implicated by the proposed
amendments to Sec. 39.15(b)(2).
5. Notification of Exceptional Events--Sec. 39.18(g)
a. Benefits
The Commission is proposing to amend Sec. 39.18(g)(1) to expand
the scope of hardware or software malfunctions for which a DCO must
provide notice to the Division by proposing to delete the materiality
element from the requirement that such malfunctions materially impair,
or create a significant likelihood of material impairment of, the DCO's
automated systems. The

[[Page 76711]]

Commission also is proposing to amend Sec. 39.18(g)(1) to add a new
requirement that a DCO notify the Commission of any operator error that
impairs, or creates a significant likelihood of impairment of,
automated system operation, reliability, security, or capacity.
Additionally, the Commission is proposing to add new paragraph Sec.
39.18(g)(2) that incorporates with proposed modifications the
requirement currently in paragraph (g)(1) that a DCO notify the
Division of security incidents and threats. The proposed modifications
to paragraph (g)(2) expand the notification requirement by: (1)
eliminating the existing requirement that a DCO report only targeted
threats in favor of the proposed requirement that it report all
qualifying threats; (2) replacing the requirement that a DCO notify the
Division of security incidents and threats that impair, or could
impair, the DCO's automated systems with the requirement that a DCO
notify the Division of security incidents or threats that compromise or
could compromise the DCO's automated systems; and (3) adding the
requirement that a DCO notify the Division of security incidents or
threats that compromise or could compromise the information, services,
or data, including, but not limited to, third-party information,
services, or data, relied upon by the DCO in discharging its
responsibilities.
By removing the qualifier that events be material, the proposed
amendments to Sec. 39.18(g) will benefit DCOs by providing additional
clarity and certainty regarding their obligations to notify the
Division of hardware or software malfunctions, operator errors, or
security incidents or threats, including security incidents or threats
affecting third parties that DCOs rely upon. Additionally, removing the
qualifier that only targeted threats must be reported to the Division,
and also specifying that threats to third parties must be reported, may
enhance the ability of the Division to inform other DCOs of emerging
cyberthreats and the Commission to better assess possible emerging
threats across DCOs.
b. Costs
The Commission anticipates that the proposed amendments to Sec.
39.18(g) may impose additional costs on DCOs because DCOs may be
required to provide additional and more frequent notifications to the
Division regarding reportable events. Although it is difficult to
quantify these costs because they depend almost entirely upon the
occurrence of external events that are outside of the DCO's control,
the Commission estimates, based on recent levels of reporting, that
these changes will require DCOs to file an additional four reports per
year, on average. The Commission estimates that this additional
reporting will cost each DCO approximately $152 per year.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposed amendments to Sec. 39.18(g) in
light of the specific considerations identified in Section 15(a) of the
CEA. To the extent that the proposed amendments to Sec. 39.18(g)
reduce, through increased awareness and vigilance or through improved
information collection and dissemination, the likelihood or severity of
hardware or software malfunctions, operator errors, or security
incidents or threats, then the proposed amendments may have a
beneficial effect on the protection of market participants, and on
ensuring or enhancing sound risk management practices by DCOs. The
Commission has considered the other Section 15(a) factors and believes
that they are not implicated by the proposed amendments to Sec.
39.18(g).
6. Removing the Requirement To Report Variation Margin and Cash Flow
Information by Individual Customer Account in Sec. 39.19(c)(1)(i)(B)
and (C)
a. Benefits
The Commission is proposing to amend Sec. 39.19(c)(1)(i)(B) and
(C) to remove the requirement that DCOs report to the Commission on a
daily basis variation margin and cash flows by individual customer
account. After this requirement was adopted, the Commission learned
that the operational and technological requirements, including the
related data integrity and validation requirements, are significantly
greater than originally anticipated. Indeed, the burden of these
requirements would extend beyond DCOs and affect clearing members as
well. In removing these requirements from Sec. 39.19(c)(1)(i)(B) and
(C), the Commission anticipates benefits to DCOs and their clearing
members in that their operational, technological, and compliance
burdens would be reduced.
b. Costs
The Commission expects that DCOs and their clearing members will
not incur any costs related to the proposed amendments to Sec.
39.19(c)(1)(i)(B) and (C), as the Commission is proposing to remove
existing requirements.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposed amendments to Sec.
39.19(c)(1)(i)(B) and (C) in light of the specific considerations
identified in Section 15(a) of the CEA. The Commission believes that
the proposed amendments to Sec. 39.19(c)(1)(i)(B) and (C) would have a
moderately beneficial effect by reducing technological, operational,
and compliance burdens of DCOs, and of their clearing members. The
Commission also believes that the proposed amendments would not have
any effect on protection of market participants and the public or on
sound risk management practices because, although the Commission is
slightly reducing the amount of information that DCOs must report to
the Commission, the Commission is confident that it will continue to
receive from DCOs sufficient information to effectively and efficiently
supervise and oversee DCOs and the derivatives markets. The Commission
has considered the other Section 15(a) factors and believes that they
are not implicated by the proposed amendments to Sec.
39.19(c)(1)(i)(B) and (C).
7. Codifying the Existing Reporting Fields for the Daily Reporting
Requirements in New Appendix C to Part 39
a. Benefits
The Commission is proposing to add a new appendix C to part 39 that
would codify the existing reporting fields for the daily reporting
requirements in Sec. 39.19(c)(1). Until now, the instructions,
reporting fields, and technical specifications for daily reporting have
been contained in the Reporting Guidebook, which the Division provides
to DCOs to facilitate reporting pursuant to Sec. 39.19(c)(1). Although
this proposal will not result in material benefit to currently-
registered DCOs, the Commission believes that the proposal may benefit
prospective DCO applicants, as well as members of the industry and
general public, by providing a detailed list of DCO daily reporting
obligations, in contrast to the more general requirements in Sec.
39.19(c)(1).
b. Costs
The Commission does not expect that DCOs will incur increased costs
related to the proposal to codify the reporting fields from the
Reporting Guidebook as an appendix to part 39 DCOs have been relying on
the Reporting Guidebook for nearly a decade to satisfy their daily

[[Page 76712]]

reporting obligations under Sec. 39.19(c)(1). Codifying these
requirements into a regulatory appendix does not alter the existing
burden that DCOs have in complying with Sec. 39.19(c)(1).
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposal to codify the Reporting
Guidebook as an appendix to part 39 in light of the specific
considerations identified in Section 15(a) of the CEA. The Commission
has considered the Section 15(a) factors and believes that they are not
implicated by the proposal to add a new appendix to part 39 that
codifies the reporting fields set forth in the existing Reporting
Guidebook.
8. Additional Proposed Reporting Fields for the Daily Reporting
Requirements--Sec. 39.19(c)(1)
a. Benefits
The Commission is proposing to add several new daily reporting
fields that would be incorporated into new appendix C to part 39. The
Commission is proposing to require that DCOs that clear interest rate
swaps include in their daily reports the delta ladder, gamma ladder,
vega ladder, zero rate curves, and yield curves that those DCOs use in
connection with managing risks associated with interest rate swaps
positions. The Commission also is proposing to require that DCOs
include in their daily reports timing information about variation
margin calls and payments. Furthermore, the Commission is proposing to
require that DCOs that clear interest rate swaps, forward rate
agreements, or inflation index swaps include in their daily reports the
actual trade date for each position along with an event description.
Lastly, the Commission is proposing to require DCOs to include in their
daily reports information that reflects that the daily report is
complete.
This information would allow the Commission to conduct more
effective oversight of DCOs, particularly in connection with
identifying positions that create the most risk to the DCO and its
clearing members, thereby enhancing the protections afforded to the
markets generally. Furthermore, the Commission believes that timing
information regarding variation margin calls and payments is an
important component of understanding potential liquidity issues at
DCOs, especially in circumstances where liquidity issues involving a
single clearing member may have the potential to affect multiple DCOs.
b. Costs
The Commission expects that the proposal to require DCOs to include
in their daily reports timing information about variation margin calls
and payments could impose a significant burden on DCOs, especially to
the extent that DCOs employ systems that do not automatically affix a
timestamp to these processes, or that cannot be modified to do so at a
reasonable cost. The Commission requests comment on the burdens
associated with this aspect of the proposal, as well as any burdens
associated with the potential alternative of, in lieu of reporting the
exact time of variation margin calls and payments, reporting whether
calls and payments were made within a specified timeframe, such as
beginning, middle, or end of day.
The Commission believes that the costs associated with the
remaining aspects of the proposal to add several new daily reporting
fields that would be incorporated into new appendix C are negligible.
The Commission believes that DCOs already possess this information in
read-ready format and use it in the ordinary course of business, and
the proposal only requires that they transmit it to the Commission in a
standardized format. Despite these beliefs and out of an abundance of
caution, the Commission is estimating the cost of developing and
producing the new daily reporting fields that would be incorporated
into new appendix C.
The Commission estimates that the capital costs associated with the
proposal are negligible. The Commission also estimates that any ongoing
costs are negligible because the Commission understands that the
preparation and submission of the daily reports required pursuant to
Sec. 39.19(c)(1)(i) is largely automated. However, to the extent that
a DCO does not currently use any of the information that would be
required under the proposed new fields, or if that information is not
accessible on an automated basis, then a DCO may incur start-up costs
associated with reporting information pursuant to the proposed new
fields, specifically including costs for coding, as well as testing,
quality assurance, and compliance review. To estimate these start-up
costs, the Commission relied upon internal subject matter experts in
its Divisions of Data and Clearing and Risk to estimate the amount of
time and type of DCO personnel necessary to complete the coding,
testing, quality assurance, and compliance review. The Commission then
used data from the Department of Labor's Bureau of Labor Statistics
from May 2021 to estimate the total costs of this work.\38\ Using this
method, the Commission estimates the total start-up costs to be
approximately $109,574.43 per DCO.\39\
---------------------------------------------------------------------------

\38\ According to the May 2021 National Occupational Employment
and Wage Estimates Report produced by the U.S. Bureau of Labor
Statistics, available at <a href="https://www.bls.gov/oes/current/oes_nat.htm">https://www.bls.gov/oes/current/oes_nat.htm</a>, the mean salary for a computer systems analyst in
management companies and enterprises is $103,860. This number is
divided by 1,800 work hours in a year to account for sick leave and
vacations and multiplied by 2.5 to account for retirement, health,
and other benefits, as well as for office space, computer equipment
support, and human resources support, all of which yields an hourly
rate of $144.25. Similarly, a computer programmer has a mean annual
salary of $102,430, yielding an hourly rate of $142.26; a software
quality assurance analyst and tester has a mean annual salary of
$99,460, yielding an hourly rate of $138.14; and a compliance
attorney has a mean annual salary of $198,900, yielding an hourly
rate of $276.25.
\39\ The estimate of total start-up costs consists of the
following: $14,101.10 for the delta ladder, gamma ladder, vega
ladder, and the zero rate curves, based on 20 hours of systems
analyst time, 40 hours of programmer time, and 40 hours of tester
time; $7,248.61 for adding interest rate, forward rates, and end of
day position fields, based on 8 hours of systems analyst time, 4
hours of programmer time, and 40 hours of tester time; $39,907.22
for the payment file, based on 120 hours of systems analyst time,
120 hours of programmer time, and 40 hours of tester time;
$14,140.83 for the manifest file, based on 40 hours of systems
analyst time, 40 hours of programmer time, and 20 hours of tester
time; and $22,676.67 for adding the back testing fields, based on 40
hours of systems analyst time, 80 hours of programmer time, and 40
hours of tester time. The estimate of total start-up costs also
includes $11,500.00 for compliance attorney review. A DCO may choose
to employ a manifest file or alternatively a file count to the
account and end of day position files. If a DCO elects the latter,
the estimate of total start-up costs is reduced to $106,120.38,
because while adding a manifest file is estimated to cost
$14,140.83, adding file count information is estimated to cost
$10,686.78 (based on 20 hours of systems analyst time, 16 hours of
programmer time, and 40 hours of tester time). Additionally, the
Commission estimates that requiring DCOs to report pricing
information for contracts without open interest, which the
Commission is considering, would impose start-up costs of $34,137.22
on each DCO, based on 80 hours of systems analyst time, 120 hours of
programmer time, and 40 hours of tester time. The $34,137.22
estimate is not included in the estimated total start-up costs of
$109,574.43 per DCO because, although the Commission is considering
this requirement and is requesting comment, it has not otherwise
proposed this requirement.
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c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposal to add these daily reporting
fields to new appendix C to part 39 in light of the specific
considerations identified in Section 15(a) of the CEA. The Commission
believes that, because of its potential to provide the information
required to better understand DCO liquidity risk from clearing members,
the proposal that DCOs include in their daily reports

[[Page 76713]]

timing information about variation margin calls and payments is likely
to improve protection of market participants and the public, enhance
the financial integrity of the futures markets, and ultimately result
in improved DCO risk management practices. The proposals to require
DCOs to include in their daily reports delta ladder, gamma ladder, vega
ladder, zero rate curve, and yield curve information for interest rates
swaps, as well as trade dates for interest rate swaps, forward rate
agreements, and inflation index swaps, are expected to provide
information necessary for the Commission to improve its supervision and
oversight of DCOs and the derivatives markets, which in turn is
expected to result in improved protection of market participants and
the public, improved financial integrity of the futures markets, and
potentially improved DCO risk management practices. The Commission has
considered the other Section 15(a) factors and believes that they are
not implicated by this proposal.
9. Daily Reporting of Margin Model Back Testing--Sec. 39.19(c)(1)(i)
a. Benefits
The Commission is proposing to add to Sec. 39.19(c)(1)(i) a
requirement that DCOs include in their daily reports the results of the
margin model back testing that DCOs are required to perform daily
pursuant to Sec. 39.13(g)(7)(i). Margin model back testing results are
a crucial element of an effective risk surveillance program; obtaining
this information would allow the Commission to conduct more effective
oversight of DCOs, thereby enhancing the protections afforded to the
markets generally.
b. Costs
The Commission expects that the proposal to require DCOs to report
back testing results daily will impose only a negligible cost on DCOs
because DCOs already possess this information, and they are being
required only to transmit it to the Commission in a standardized
format. However, to the extent that a DCO does not maintain in the
required standardized format the information that would be required
under the proposal, a DCO may incur initial costs related to modifying
its systems to convert the information to the standardized format,
specifically including costs for coding, as well as testing, quality
assurance, and compliance review. An estimate of these start-up costs
is included in the discussion of the estimated costs associated with
reporting information pursuant to the proposed new fields in proposed
appendix C. The Commission notes, however, that some DCOs are already
voluntarily providing back testing information to the Commission on a
weekly or monthly basis.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposal to require DCOs to report back
testing results daily in light of the specific considerations
identified in Section 15(a) of the CEA. The proposal to require DCOs to
report back testing results daily is expected to improve the
Commission's supervision of DCO risk management and, therefore, is
expected to yield enhanced protection of market participants and the
public, improved financial integrity of the futures markets, and also
potentially improve DCO risk management practices. The Commission has
considered the other Section 15(a) factors and believes that they are
not implicated by this proposal.
10. Fully Collateralized Positions--Sec. 39.19(c)(1)(ii)
a. Benefits
The Commission is proposing to amend Sec. 39.19(c)(1)(ii) to
clarify that, as with Sec. 39.19(c)(1)(i), this regulation does not
apply to fully collateralized positions. Because Sec. 39.19(c)(1)(ii)
merely expands on Sec. 39.19(c)(1)(i) and has no independent force or
effect, this does not represent a substantive change but merely
provides greater clarity and certainty.
Clarifying the applicability of Sec. 39.19(c)(1)(ii) provides
greater certainty to DCOs, their clearing members, and their customers,
and should prevent them from having to request guidance on this matter
from the Commission or the Division in the future. Further, the
Commission believes that it may increase operational efficiency for
DCOs that clear fully collateralized positions.
b. Costs
The Commission does not anticipate any non-negligible change in
costs resulting from this proposal.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits in light of the specific considerations
identified in Section 15(a) of the CEA. In consideration of Section
15(a)(2)(B) of the CEA, the Commission believes that the proposal to
clarify Sec. 39.19(c)(1)(ii) may increase operational efficiency for
DCOs that clear fully collateralized positions. The Commission has
considered the other Section 15(a) factors and believes that they are
not implicated by the proposed amendments.
11. Reporting Change of Control of the DCO--Sec. 39.19(c)(4)(ix)(A)(1)
a. Benefits
Regulation 39.19(c)(4)(ix)(A)(1) requires a DCO to report any
change in the ownership or corporate or organizational structure of the
DCO or its parent(s) that would result in at least a 10 percent change
of ownership of the DCO. The Commission is proposing to amend Sec.
39.19(c)(4)(ix)(A)(1) to require a DCO to report any change in the
ownership or corporate or organizational structure of the DCO or its
parent(s) that would result in a change to the entity or person holding
a controlling interest in the DCO, whether through an increase in
direct ownership or voting interest in the DCO or in a direct or
indirect corporate parent entity of the DCO. This proposal would ensure
that the Commission has accurate knowledge of the individuals or
entities that control a DCO and its activities regardless of the
corporate structures of the equity holders of the DCO.
b. Costs
The Commission expects the costs related to the proposed amendments
to Sec. 39.19(c)(4)(ix)(A)(1) to be negligible. Specifically, the
Commission expects a negligible cost burden with respect to the
proposed changes, in part because the changes of control contemplated
by the proposal occur infrequently. In addition, DCOs have typically
notified the Commission of such changes of control even if not
technically required by the current regulations. The administrative
burden of notifying the Commission--preparing a notification, attaching
relevant but pre-existing supporting documents such as the revised
organizational chart, and submitting to the Commission--is negligible.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposed amendments to Sec.
39.19(c)(4)(ix)(A)(1) in light of the specific considerations
identified in Section 15(a) of the CEA. The Commission believes that
the proposed amendments may have a moderately beneficial effect on
protection of market participants and the public, as well as on the
financial integrity of the futures markets, because the proposed
amendments would provide the Commission with a better

[[Page 76714]]

understanding of the organizational structure of the DCO and its
position in the broader markets. The Commission has considered the
other Section 15(a) factors and believes that they are not implicated
by the proposed amendments to Sec. 39.19(c)(4)(ix)(A)(1).
11. Reporting Issues With Credit Facility Funding Arrangements,
Liquidity Funding Arrangements, Custodian Banks, and Settlement Banks--
Sec. 39.19(c)(4)(xv)
a. Benefits
The Commission is proposing to amend Sec. 39.19(c)(4)(xv), which
currently requires reporting of issues or concerns with regard to
settlement banks only, to require that a DCO report to the Commission
within one business day after it becomes aware of any material issues
or concerns regarding the performance, stability, liquidity, or
financial resources of any credit facility funding arrangement,
liquidity funding arrangement, custodian bank, or settlement bank used
by the DCO or approved for use by the DCO's clearing members. Requiring
the reporting of this information will promote the Commission's
awareness of material issues or concerns that may impact a DCO's
operations and its compliance with its regulatory obligations.
b. Costs
The Commission expects that the costs related to the proposed
amendments to Sec. 39.19(c)(4)(xv) will be negligible. Specifically,
because a DCO is only required to report these issues when it becomes
aware of them, and given that these events are not very common, any
cost increase is estimated to be negligible.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposed amendments to Sec.
39.19(c)(4)(xv) in light of the specific considerations identified in
Section 15(a) of the CEA. The Commission believes that the proposed
amendments to Sec. 39.19(c)(4)(xv) may potentially have a beneficial
effect on protection of market participants and the public, as well as
on the financial integrity of the futures markets, because the proposed
amendments would provide the Commission with new, additional
information that is anticipated to assist the Commission in its
supervision of DCOs and oversight of the derivatives markets.
Additionally, this information could be time-sensitive and critically
important in times of market stress or broader economic upheaval. The
Commission has considered the other Section 15(a) factors and believes
that they are not implicated by the proposed amendments to Sec.
39.19(c)(4)(xv).
12. Reporting of Updated Responses to the Disclosure Framework for
Financial Market Infrastructures--Sec. 39.19(c)(4)(xxv)
a. Benefits
The Commission is proposing new Sec. 39.19(c)(4)(xxv) to codify in
Sec. 39.19 the requirement in Sec. 39.37(b)(2) that, when a DCO
updates its responses to the Disclosure Framework for Financial Market
Infrastructures published by the Committee on Payment and Settlement
Systems and the Board of the International Organization of Securities
Commissions in accordance with Sec. 39.37(b)(1), the DCO shall provide
notice of those updates to the Commission. The proposed amendment
further centralizes within Sec. 39.19 the obligations of DCOs to
report information to the Commission, which may be of some benefit to
affected DCOs by consolidating their reporting obligations within one
location.
b. Costs
The Commission does not anticipate any costs associated with the
proposed adoption of Sec. 39.19(c)(4)(xxv) because it does not alter
the reporting obligations of DCOs.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposed adoption of Sec.
39.19(c)(4)(xxv) in light of the specific considerations identified in
Section 15(a) of the CEA. The Commission has considered the Section
15(a) factors and believes that they are not implicated by the proposed
adoption of Sec. 39.19(c)(4)(xxv).
13. Publication of Margin-Setting Methodology and Financial Resource
Package Information--Sec. 39.21(c)(3) and (4)
a. Benefits
The Commission is proposing to amend Sec. 39.21(c)(3) and (4) to
provide that a DCO that clears only fully collateralized positions is
not required to disclose its margin-setting methodology, or information
regarding the size and composition of its financial resource package
for use in a default, if instead the DCO discloses that it does not
employ a margin-setting methodology or maintain a financial resource
package because it clears only fully collateralized positions. The
Commission anticipates the public may benefit from increased clarity
regarding the risks that market participants may face at such a DCO
because the full collateralization requirement is intended to mitigate
such risk.
b. Costs
The Commission does not anticipate any costs associated with the
proposed amendment to Sec. 39.21(c)(3) and (4).
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposed amendments to Sec. 39.21(c)(3)
and (4) in light of the specific considerations identified in Section
15(a) of the CEA. The Commission believes that the proposed amendments
to Sec. 39.21(c)(3) and (4) would serve the broader public interest
due to the increased clarity regarding the risks that market
participants may face at such a DCO, as the full collateralization
requirement is intended to mitigate such risk. The Commission has
considered the other Section 15(a) factors and believes that they are
not implicated by the proposed amendments to Sec. 39.21(c)(3) and (4).
14. Excluding Eligible DCOs From the Requirement in Sec. 39.21(c)(7)
To Publish a List of Clearing Members
a. Benefits
The Commission is proposing to amend Sec. 39.21(c)(7) to provide
that a DCO may omit any non-FCM clearing member that clears only fully
collateralized positions, and therefore does not share in the
mutualized risk associated with clearing activity, from its published
list of clearing members. The Commission anticipates that the proposed
amendment would reduce operational and compliance burdens on eligible
DCOs. This is a significant benefit because, given the manner in which
they engage directly with market participants, DCOs that provide for
fully collateralized clearing may have a large number of non-FCM
clearing participants and a high volume of turnover among such
participants.
b. Costs
The Commission does not anticipate any costs associated with the
proposed amendments to Regulation 39.21(c)(7), as the proposed rule
reduces the public disclosure requirements that apply to DCOs that
provide for fully collateralized clearing.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposed amendments to Sec. 39.21(c)(7)
in light of

[[Page 76715]]

the specific considerations identified in Section 15(a) of the CEA. The
Commission believes that the proposed amendments to Sec. 39.21(c)(7)
would have a limited and rather moderately beneficial effect on the
efficiency and competitiveness of the futures markets, specifically
with regard to the operations of the eligible DCOs themselves, because
eligible DCOs would enjoy the reduced burden of being excused from
including non-FCM clearing members that clear only fully collateralized
positions in their published lists of clearing participants.
Additionally, with respect to public interest considerations, the
Commission believes that the proposed amendments to Sec. 39.21(c)(7)
would have a moderately beneficial effect on non-FCM market
participants that clear through eligible DCOs, because those market
participants would benefit from the additional privacy afforded to them
when they are not publicly listed as clearing members on the DCO's
website. The Commission has considered the other Section 15(a) factors
and believes that they are not implicated by the proposed amendments to
Sec. 39.21(c)(7).
15. Clarifying the Disclosure Obligations in Sec. 39.37
a. Benefits
The Commission is proposing to amend Sec. 39.37(c) and (d) to
clarify that public disclosure of the information described in those
paragraphs is all that is required. The proposed changes to Sec.
39.37(c) and (d) would provide a modest benefit to SIDCOs and subpart C
DCOs by clarifying that a separate report directly to the Commission of
information that the DCO discloses publicly pursuant to Sec. 39.37(c)
and (d) is not required.
b. Costs
The Commission has not identified any costs associated with the
proposed changes to Sec. 39.37(c) and (d).
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the proposed amendment of Sec. 39.37(c) and
(d) in light of the specific considerations identified in Section 15(a)
of the CEA. The Commission has considered the Section 15(a) factors and
believes that they are not implicated by the proposed changes.
16. Proposed Amendments to Sec. 140.94(c)(10)
a. Benefits
The Commission is proposing to amend Sec. 140.94(c)(10) to provide
the Director of the Division with delegated authority to request
additional information that the Commission determines to be necessary
to conduct oversight of the DCO, and to specify the format and manner
of the DCO reporting requirements. The Commission believes the proposed
delegation of authority would promote a more expedient process to
address these aspects of the reporting requirements under Sec. 39.19.
b. Costs
The Commission has not identified any costs associated with the
proposed amendments to Sec. 140.94(c)(10).
c. Section 15(a) Factors
The Commission has considered the Section 15(a) factors and
believes that they are not implicated by this proposed amendment.

D. Antitrust Considerations

Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
purposes of the CEA, in issuing any order or adopting any Commission
rule or regulation.\40\
---------------------------------------------------------------------------

\40\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

The Commission believes that the public interest to be protected by
the antitrust laws is the promotion of competition. The Commission
requests comment on whether the proposed amendments implicate any other
specific public interest to be protected by the antitrust laws. The
Commission has considered the proposed rulemaking to determine whether
it is anticompetitive and has identified no anticompetitive effects.
The Commission requests comment on whether the proposed rulemaking is
anticompetitive and, if it is, what the anticompetitive effects are.
Because the Commission has determined that the proposed rule
amendments are not anticompetitive and have no anticompetitive effects,
the Commission has not identified any less anticompetitive means of
achieving the purposes of the CEA. The Commission requests comment on
whether there are less anticompetitive means of achieving the relevant
purposes of the CEA that would otherwise be served by adopting the
proposed rule amendments.

List of Subjects in 17 CFR Part 39

Reporting and recordkeeping requirements.

For the reasons stated in the preamble, the Commodity Futures
Trading Commission proposes to amend 17 CFR chapter I as follows:

PART 39--DERIVATIVES CLEARING ORGANIZATIONS

0
1. The authority citation for part 39 continues to read as follows:

Authority: 7 U.S.C. 2, 6(c), 7a-1, and 12a(5); 12 U.S.C. 5464;
15 U.S.C. 8325; Section 752 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111-203, title VII, sec. 752, July
21, 2010, 124 Stat. 1749.

0
2. Amend Sec. 39.13 by revising paragraph (h)(5)(i)(B), removing
paragraph (C), and adding paragraph (iii), to read as follows:

Sec. 39.13 Risk management.

* * * * *
(h) * * *
(5) * * *
(i) * * *
(B) Require its clearing members to provide to the derivatives
clearing organization or the Commission, upon request, information and
documents regarding their risk management policies, procedures, and
practices, including, but not limited to, information and documents
relating to the liquidity of their financial resources and their
settlement procedures.
(ii) * * *
(iii) A derivatives clearing organization that clears fully
collateralized positions may exclude from the requirements of
paragraphs (h)(5)(i) and (ii) of this section those clearing members
that clear only fully collateralized positions.
* * * * *
0
3. Amend Sec. 39.15 by revising paragraph (b)(2) to read as follows:

Sec. 39.15 Treatment of funds.

* * * * *
(b) * * *
(2) Commingling. In order for a derivatives clearing organization
and its clearing members to commingle customer positions in futures,
options, foreign futures, foreign options, and swaps, or any
combination thereof, and any money, securities, or property received to
margin, guarantee or secure such positions, in an account subject to
the requirements of sections 4d(a) or 4d(f) of the Act, the derivatives
clearing organization shall file rules for Commission approval pursuant
to the requirements and standard of review of Sec. 40.5 of this
chapter. Such rule submission shall include, at a minimum, the
following:
(i) Identification of the products that would be commingled,
including product specifications or the criteria

[[Page 76716]]

that would be used to define eligible products;
(ii) Analysis of the risk characteristics of the eligible products,
including any characteristics that are unusual in relation to the other
products cleared by the derivatives clearing organization, and of the
derivatives clearing organization's ability to manage those risks;
(iii) Analysis of the liquidity of the respective markets for the
eligible products, the ability of clearing members and the derivatives
clearing organization to offset or mitigate the risk of such eligible
products in a timely manner, without compromising the financial
integrity of the account, and, as appropriate, proposed means for
addressing insufficient liquidity;
(iv) A description of any additional requirements that would apply
to clearing members permitted to commingle eligible products;
(v) A description of any risk management changes that the
derivatives clearing organization will implement to oversee its
clearing members' risk management of eligible products, or an analysis
of why existing risk management systems and procedures are adequate in
connection with the proposed commingling;
(vi) An analysis of the ability of the derivatives clearing
organization to manage a potential default with respect to any of the
eligible products that would be commingled, including a discussion of
any default management procedures that are unique to the products
eligible for commingling;
(vii) A discussion of the extent to which the derivatives clearing
organization anticipates allowing portfolio margining of commingled
positions, including a description and analysis of any margin reduction
applied to correlated positions and the language of any applicable
clearing rules or procedures, and an express confirmation that any
portfolio margining will be allowed only as permitted under Sec.
39.13(g)(4) of this chapter; and
(viii) Any other information necessary for the Commission to
determine the rule submission's compliance with the Act and the
Commission's regulations, which the Commission may request as
supplemental information if not provided in the initial submission. The
Commission may extend the review period for the rule submission in
accordance with Sec. 40.5(d) of this chapter in order to request and
obtain supplemental information as necessary.
* * * * *
0
4. Amend Sec. 39.18 by adding to paragraph (a) in alphabetical order
the definitions of ``Automated system'' and ``Hardware or software
malfunction'', revising paragraphs (g)(1) and (2), and adding paragraph
(g)(3) to read as follows:

Sec. 39.18 System safeguards.

(a) * * *
* * * * *
Automated system means computers, ancillary equipment, software,
firmware, and similar procedures, services (including support
services), and related resources that a derivatives clearing
organization uses in its operations.
* * * * *
Hardware or software malfunction means any circumstance where an
automated system or a manually initiated process fails to function as
designed or intended, or the output of the software produces an
inaccurate result.
* * * * *
(g) * * *
(1) Any hardware or software malfunction or operator error that
impairs, or creates a significant likelihood of impairment of,
automated system operation, reliability, security, or capacity;
(2) Any security incident or threat that compromises or could
compromise the confidentiality, availability, or integrity of any
automated system or any information, services, or data, including, but
not limited to, third-party information, services, or data, relied upon
by the derivatives clearing organization in discharging its
responsibilities; or
(3) Any activation of the derivatives clearing organization's
business continuity and disaster recovery plan.
* * * * *
0
5. Amend Sec. 39.19 by:
0
a. Revising paragraphs (c)(1)(i) and the introductory text of paragraph
(c)(1)(ii),
0
b. Adding paragraph (c)(1)(iii),
0
c. Revising paragraphs (c)(4)(ix)(A)(1), (xii), (xiii), and (xv), and
0
d. Adding paragraph (c)(4)(xxv).
The revisions and additions read as follows:

Sec. 39.19 Reporting.

* * * * *
(c) * * *
(1) * * *
(i) A derivatives clearing organization shall compile as of the end
of each trading day, and submit to the Commission by 10:00 a.m. on the
next business day, a report containing the results of the back testing
required under Sec. 39.13(g)(7)(i), and the following information
related to all positions other than fully collateralized positions:
(A) Initial margin requirements and initial margin on deposit for
each clearing member, by house origin and by each customer origin, and
by each individual customer account. The derivatives clearing
organization shall identify each individual customer account, using
both a legal entity identifier, where available, and any internally-
generated identifier, within each customer origin for each clearing
member;
(B) Daily variation margin, separately listing the mark-to-market
amount collected from or paid to each clearing member, by house origin
and by each customer origin;
(C) All other daily cash flows relating to clearing and settlement
including, but not limited to, option premiums and payments related to
swaps such as coupon amounts, collected from or paid to each clearing
member, by house origin and by each customer origin; and
(D) End-of-day positions, including as appropriate the risk
sensitivities and valuation data that the derivatives clearing
organization generates, creates, or calculates in connection with
managing the risks associated with such positions, for each clearing
member, by house origin and by each customer origin, and by each
individual customer account. The derivatives clearing organization
shall identify each individual customer account, using both a legal
entity identifier, where available, and any internally-generated
identifier, within each customer origin for each clearing member.
(ii) The report shall contain the information required by
paragraphs (c)(1)(i)(A) through (D) of this section for each of the
following, other than fully collateralized positions:
* * * * *
(iii) Notwithstanding the specific fields set forth in appendix C
to this part, a derivatives clearing organization may choose to submit,
after consultation with staff of the Division of Clearing and Risk, any
additional data fields that is necessary or appropriate to better
capture the information that is being reported.
* * * * *
(4) * * *
(ix) * * *
(A) * * *
(1) Result in at least a 10 percent change of ownership of the
derivatives clearing organization or a change to the entity or person
holding a controlling interest in the derivatives clearing
organization, whether through an increase in direct ownership or voting
interest in the derivatives clearing organization or in a direct or
indirect

[[Page 76717]]

corporate parent entity of the derivatives clearing organization;
* * * * *
(xii) Change in credit facility funding arrangement. A derivatives
clearing organization shall report to the Commission no later than one
business day after the derivatives clearing organization enters into,
terminates, or changes a credit facility funding arrangement, or is
notified that such arrangement has changed, including but not limited
to a change in lender, change in the size of the facility, change in
expiration date, or any other material changes or conditions.
(xiii) Change in liquidity funding arrangement. A derivatives
clearing organization shall report to the Commission no later than one
business day after the derivatives clearing organization enters into,
terminates, or changes a liquidity funding arrangement, or is notified
that such arrangement has changed, including but not limited to a
change in provider, change in the size of the arrangement, change in
expiration date, or any other material changes or conditions.
* * * * *
(xv) Issues with credit facility funding arrangements, liquidity
funding arrangements, custodian banks, or settlement banks. A
derivatives clearing organization shall report to the Commission no
later than one business day after it becomes aware of any material
issues or concerns regarding the performance, stability, liquidity, or
financial resources of any credit facility funding arrangement,
liquidity funding arrangement, custodian bank, or settlement bank used
by the derivatives clearing organization or approved for use by the
derivatives clearing organization's clearing members.
* * * * *
(xxv) Updates to Responses to the Disclosure Framework for
Financial Market Infrastructures. A systemically important derivatives
clearing organization or a subpart C derivatives clearing organization
that updates its responses to the Disclosure Framework for Financial
Market Infrastructures published by the Committee on Payment and
Settlement Systems and the Board of the International Organization of
Securities Commissions pursuant to Sec. 39.37(b)(1) must provide to
the Commission, within ten business days after such update, a copy of
the text of the responses that shows all deletions and additions made
to the immediately preceding version of the responses, as required by
Sec. 39.37(b)(2).
* * * * *
0
6. Amend Sec. 39.21 by revising paragraphs (c)(3), (4), and (7) to
read as follows:

Sec. 39.21 Public information.

* * * * *
(c) * * *
(3) Information concerning its margin-setting methodology, except
that a derivatives clearing organization that clears only fully
collateralized positions instead may disclose that it does not employ a
margin-setting methodology because it clears only fully collateralized
positions;
(4) The size and composition of the financial resource package
available in the event of a clearing member default, updated as of the
end of the most recent fiscal quarter or upon Commission request and
posted as promptly as practicable after submission of the report to the
Commission under Sec. 39.11(f)(1)(i)(A), except that a derivatives
clearing organization that clears only fully collateralized positions
instead may disclose that it does not maintain a financial resource
package to be used in the event of a clearing member default because it
clears only fully collateralized positions;
* * * * *
(7) A current list of all clearing members, except that a
derivatives clearing organization may omit any clearing member that
clears only fully collateralized positions and is not a futures
commission merchant;
* * * * *
0
7. Amend Sec. 39.25 by revising paragraph (c) to read as follows:

Sec. 39.25 Conflicts of interest.

* * * * *
(c) Have procedures for identifying, addressing, and managing
conflicts of interest involving members of the board of directors.
* * * * *
0
8. Amend Sec. 39.37 by revising paragraphs (c) and the introductory
text of paragraph (d) to read as follows:

Sec. 39.37 Additional disclosure for systemically important
derivatives clearing organizations and subpart C derivatives clearing
organizations.

* * * * *
(c) Publicly disclose relevant basic data on transaction volume and
values consistent with the standards set forth in the Public
Quantitative Disclosure Standards for Central Counterparties published
by the Committee on Payments and Market Infrastructures and the
International Organization of Securities Commissions;
(d) Publicly disclose rules, policies, and procedures concerning
segregation and portability of customers' positions and funds,
including whether each of:
* * * * *
0
9. Add new Appendix C to part 39 to read as follows:

Appendix C to Part 39--Daily Reporting Data Fields

A. Daily Cash Flow Reporting

----------------------------------------------------------------------------------------------------------------
Individual
Field name Description House & customer
customer origin account
----------------------------------------------------------------------------------------------------------------
Common Fields (Daily Cash Flow Reporting)
----------------------------------------------------------------------------------------------------------------
Total Message Count....................... The total number of reports M M
included in the file.
FIXML Message Type........................ FIXML account summary report type. M M
Sender ID................................. The CFTC-issued derivatives M M
clearing organization (DCO)
identifier.
To ID..................................... Indicate ``CFTC''................. M M
Message Transmit Datetime................. The date and time the file is M M
transmitted.
Report ID................................. A unique identifier assigned by M M
the CFTC to each clearing member
report.
Report Date............................... The business date of the M M
information being reported.
Base Currency............................. Base currency referenced M M
throughout report; provide
exchange rate against this
currency.
Report Time (Message Create Time)......... The report ``as of'' or M M
information cut-off time.
DCO Identifier............................ CFTC-assigned identifier for a DCO M M
Clearing Participant Identifier........... DCO-assigned identifier for a M M
particular clearing member.
Clearing Participant Name................. The name of the clearing member... M M
Fund Segregation Type..................... Clearing fund segregation type.... M M
Clearing Participant LEI.................. Legal entity identifier (LEI) for C C
a particular clearing member.

[[Page 76718]]

Clearing Participant LEI Name............. The LEI name associated with the C C
clearing member LEI.
Customer Position Identifier.............. Proprietary identifier for a C N/A
particular customer position
account. If the position is non-
disclosed, then indicate
``NONDISCLOSED''. If the position
is not in balance at end-of-day
through member underreporting
positions, then indicate
``BALANCE ACCOUNT''. If the
position is adjusted post end-of-
day, then indicate
``POSITIONDIFFERENCE''.
Customer Position Name.................... The name associated with the M N/A
customer position identifier.
Customer Position Account Type............ Type of account used for reporting C N/A
Customer LEI.............................. LEI for a particular customer; N/A C
provide if available.
Customer LEI Name......................... The LEI name associated with the N/A C
customer position LEI.
Margin Account............................ Margin account identifier......... M N/A
Customer Margin Name...................... The name associated with the N/A C
customer margin identifier. If
the position is non-disclosed,
then indicate ``NON-DISCLOSED
MARGIN''.
Unique Margin Identifier.................. A single field that uniquely M M
identifies the margin account.
This field is used to identify
associated positions.
Customer Margin Identifier................ Proprietary identifier for a N/A M
particular customer. If the
position is non-disclosed, then
indicate ``NON-DISCLOSED
MARGIN''. If the position is not
in balance at end-of-day through
member underreporting or
overreporting positions, then
indicate ``EXCESS MARGIN''. If
the position is adjusted post end-
of-day, then indicate
``POSITIONDIFFERENCE''.
Customer Margin Account Type.............. Account type indicator............ N/A M
File number and count..................... Each FIXML file should indicate M M
its sequence (e.g., ``file 1 of
10'').
----------------------------------------------------------------------------------------------------------------
Futures and Options (Daily Cash Flow Reporting)
----------------------------------------------------------------------------------------------------------------
Additional Margin......................... Any additional margin required in M N/A
excess of initial margin. For
example, this figure should
include any liquidity/
concentration charge if the
charge is not included in the
initial margin.
Concentration Risk........................ Risk factor component to capture C C
costs associated with the
liquidation of a large position.
Delivery Margin........................... Margin collected to cover delivery C N/A
risk.
Initial Margin............................ Margin requirement calculated by M M
the DCO's margin methodology.
Unless an integral part of the
margin methodology, this figure
should not include any additional
margin add-ons.
Liquidity Risk............................ Risk component to capture bid/ C C
offer costs associated with the
liquidation of a large portfolio.
Margin Calls.............................. Any outstanding margin call that M N/A
has been issued but not collected
as of the end of the trade date.
Total Margin.............................. The total margin requirement for M N/A
the origin. This margin
requirement should include the
initial margin requirement plus
any additional margin required by
the DCO.
Variation Margin.......................... Variation margin should include M N/A
the net sum of all cash flows
between the DCO and clearing
members by origin.
Market Move Risk.......................... Margin amount associated with C C
market move risk.
Margin Savings............................ The margin savings amount for the C N/A
clearing member where there is a
cross-margining agreement with
another DCO.
Collateral on Deposit..................... The collateral on deposit for an M N/A
origin. This amount should
include all collateral after all
haircuts that have been deposited
to cover the total margin
requirement.
Option Premium............................ Premium registered on the given C N/A
trading date. The amount of money
that the options buyer must pay
the options seller.
Net Option Value.......................... The credit or debit amount based C C
on the long or short options
positions.
Backdated Profit and Loss................. The profit and loss (P&L) O N/A
attributed to positions added
that were novated on a prior date.
Day Trading Profit and Loss............... The P&L attributed to the day's C N/A
trades.
Position Profit and Loss.................. The P&L of the previous day's C N/A
position with today's price
movement.
Total Profit and Loss..................... Unrealized P&L or mark-to-market M N/A
value of position(s) including
change in mark to market (Total
P&L = Position P&L + Day Trading
P&L + Backdated P&L).
Customer Margin Omnibus Parent............ The margin identifier for the N/A C
omnibus account associated with
the customer margin identifier.
(Conditional on reported customer
position being part of a
separately reported omnibus
account position.).
----------------------------------------------------------------------------------------------------------------
Commodity Swaps (Daily Cash Flow Reporting)
----------------------------------------------------------------------------------------------------------------
Additional Margin......................... Any additional margin required in M N/A
excess of initial margin. For
example, this figure should
include any liquidity/
concentration charge if the
charge is not included in the
initial margin.
Initial Margin............................ Margin requirement calculated by M M
the DCO's margin methodology.
Unless an integral part of the
margin methodology, this figure
should not include any additional
margin add-ons.
Margin Calls.............................. Any outstanding margin call that M N/A
has been issued but not collected
as of the end of the trade date.
Total Margin.............................. The total margin requirement for M M
the origin. This margin
requirement should include the
initial margin requirement plus
any additional margin required by
the DCO.
Variation Margin.......................... Variation margin should include M N/A
the net sum of all cash flows
between the DCO and clearing
members by origin.
Collateral on Deposit..................... The collateral on deposit for an M N/A
origin. This amount should
include all collateral after all
haircuts that have been deposited
to cover the total margin
requirement.
Option Premium............................ Premium registered on the given C N/A
trading date. The amount of money
that the options buyer must pay
the options seller.
Net Cash Flow............................. Net cash flow recognized on report C N/A
date (with actual settlements
occurring according to the
currency's settlement
conventions). E.g., profit/loss,
price alignment interest, cash
payments (fees, coupons, etc.).
Backdated Profit and Loss................. The P&L attributed to positions C N/A
added that were novated on a
prior date.
Day Trading Profit and Loss............... The P&L attributed to the day's C N/A
trades.
Position Profit and Loss.................. The P&L of the previous day's C N/A
position with today's price
movement.
Total Profit and Loss..................... Unrealized P&L or mark to market M N/A
value of position(s) including
change in mark to market (Total
P&L = Position P&L + Day Trading
P&L + Backdated P&L).
----------------------------------------------------------------------------------------------------------------

[[Page 76719]]

Credit Default Swaps (Daily Cash Flow Reporting)
----------------------------------------------------------------------------------------------------------------
Additional Margin......................... Any additional margin required in M N/A
excess of initial margin. For
example, this figure should
include any liquidity/
concentration charge if the
charge is not included in the
initial margin.
Concentration Risk........................ Risk factor component to capture C C
costs associated with the
liquidation of a large position.
Initial Margin............................ Margin requirement calculated by M M
the DCO's margin methodology.
Unless an integral part of the
margin methodology, this figure
should not include any additional
margin add-ons.
Liquidity Risk............................ Risk component to capture bid/ C C
offer costs associated with the
liquidation of a large portfolio.
Margin Calls.............................. Any outstanding margin call that M N/A
has been issued but not collected
as of the end of the trade date.
Total Margin.............................. The total margin requirement for M C
the origin. This margin
requirement should include the
initial margin requirement plus
any additional margin required by
the DCO.
Variation Margin.......................... Variation margin should include M N/A
the net sum of all cash flows
between the DCO and clearing
members by origin.
Spread Response Risk...................... Risk factor component associated C C
with credit spread level changes
and credit term structure shape
changes.
Systemic Risk............................. Risk factor component to capture C C
parallel shift of credit spreads.
Curve Risk................................ Risk factor that captures curve C C
shifts based on portfolio.
Index Spread Risk......................... Risk factor component associated C C
with risks due to widening/
tightening spreads of credit
default swap (CDS) indices
relative to each other.
Sector Risk............................... Risk factor component to capture C C
sector risk.
Jump to Default Risk...................... Risk factor component to capture C C
most extreme up/down move of a
reference entity.
Basis Risk................................ Risk factor component to capture C C
basis risk between index and
index constituent reference
entities.
Interest Rate Risk........................ Risk factor component associated C C
with parallel shift movements in
interest rates.
Jump to Health Risk....................... Risk factor component to capture C C
extreme narrowing of credit
spreads of a reference entity;
also known as ``idiosyncratic
risk''.
Other Risk................................ Any other risk factors included in C C
the margin model.
Recovery Rate Sensitivity Risk............ Risk factor component to capture C C
fluctuations of recovery rate
assumptions.
Wrong Way Risk............................ Risk that occurs when exposure to C C
a counterparty is adversely
correlated with the credit
quality of that counterparty. It
arises when default risk and
credit exposure increase together.
Collateral on Deposit..................... The collateral on deposit for an M N/A
origin. This amount should
include all collateral after all
haircuts that have been deposited
to cover the total margin
requirement.
Option Premium............................ Premium registered on the given C N/A
trading date. The amount of money
that the options buyer must pay
the options seller.
Initial Coupon............................ Amount of coupon premium amount O N/A
accrued from the start of the
current coupon period through the
trade date (Indicate gross pay/
collect amounts.).
Upfront Payment........................... The difference in market value O N/A
between the standard coupon and
the market spread as well as the
coupon accrued through the trade
date. (Indicate gross pay/collect
amounts).
Trade Cash Adjustment..................... Additional cash amount on trades. C N/A
(Indicate gross pay/collect
amounts).
Quarterly Coupon.......................... Regular payment of quarterly O N/A
coupon premium amounts (Indicate
gross pay/collect amounts).
Credit Event Payments..................... Cash settlement of credit events. C N/A
(Indicate gross pay/collect
amounts).
Accrued Coupon............................ Coupon obligation from the first M N/A
day of the coupon period through
the current clearing trade date.
The sum of accrued coupon for
each position in the clearing
member's portfolio (by origin).
Final Mark to Market...................... Determined by marking the end-of- M N/A
day position from par (100%) to
the end-of-day settlement price.
Backdated Profit and Loss................. The P&L attributed to positions C N/A
added that were novated on a
prior date.
Day Trading Profit and Loss............... The P&L attributed to the day's C N/A
trades.
Position Profit and Loss.................. The P&L of the previous day's C N/A
position with today's price
movement.
Total Profit and Loss..................... Unrealized P&L or mark-to-market M N/A
value of position(s) including
change in mark to market (Total
P&L = Position P&L + Day Trading
P&L + Backdated P&L).
Previous Accrued Coupon................... Previous day's accrued coupon..... M N/A
Previous Mark to Market................... Previous day's mark to market..... M N/A
Price Alignment Interest.................. To minimize the impact of daily M N/A
cash variation margin payments on
the pricing of swaps, the DCO
will charge interest on
cumulative variation margin
received and pay interest on
cumulative variation margin paid
with respect to CDS.
----------------------------------------------------------------------------------------------------------------
Foreign Exchange (Daily Cash Flow Reporting)
----------------------------------------------------------------------------------------------------------------
Additional Margin......................... Any additional margin required in M N/A
excess of initial margin. For
example, this figure should
include any liquidity/
concentration charge if the
charge is not included in the
initial margin.
Initial Margin............................ Margin requirement calculated by M M
the DCO's margin methodology.
Unless an integral part of the
margin methodology, this figure
should not include any additional
margin add-ons.
Margin Calls.............................. Any outstanding margin call that M N/A
has been issued but not collected
as of the end of the trade date.
Total Margin.............................. The total margin requirement for M M
the origin. This margin
requirement should include the
initial margin requirement plus
any additional margin required by
the DCO.
Variation Margin.......................... Variation margin should include M N/A
the net sum of all cash flows
between the DCO and clearing
members by origin.
Collateral on Deposit..................... The collateral on deposit for an M N/A
origin. This amount should
include all collateral after all
haircuts that have been deposited
to cover the total margin
requirement.
Other Payments............................ Includes any upfront and/or final/ M N/A
settlement payments made/received
for the trade date. (Indicate
gross pay/collect amounts).
Option Premium............................ Premium registered on the given C N/A
trading date. The amount of money
that the options buyer must pay
the options seller.
Price Alignment Interest.................. To minimize the impact of daily M N/A
cash variation margin payments on
the pricing of swaps, the DCO
will charge interest on
cumulative variation margin
received and pay interest on
cumulative variation margin paid
with respect to FX.
Backdated Profit and Loss................. The P&L attributed to positions C N/A
added that were novated on a
prior date.
Day Trading Profit and Loss............... The P&L attributed to the day's C N/A
trades.
Position Profit and Loss.................. The P&L of the previous day's C N/A
position with today's price
movement.
Total Profit and Loss..................... Unrealized P&L or mark-to-market M N/A
value of position(s) including
change in mark to market (Total
P&L = Position P&L + Day Trading
P&L + Backdated P&L).
----------------------------------------------------------------------------------------------------------------

[[Page 76720]]

Interest Rate Swaps (Daily Cash Flow Reporting)
----------------------------------------------------------------------------------------------------------------
Additional Margin......................... Any additional margin required in M N/A
excess of initial margin. For
example, this figure should
include any liquidity/
concentration charge if the
charge is not included in the
initial margin.
Initial Margin............................ Margin requirement calculated by M M
the DCO's margin methodology.
Unless an integral part of the
margin methodology, this figure
should not include any additional
margin add-ons resulting from
liquidity/concentration charges.
Margin Calls.............................. Any outstanding margin call that M N/A
has been issued but not collected
as of the end of the trade date.
Total Margin.............................. The total margin requirement for M M
the origin. This margin
requirement should include the
initial margin requirement plus
any additional margin required by
the DCO.
Variation Margin.......................... Variation margin should include M N/A
the net sum of all cash flows
between the DCO and clearing
members by origin.
Cross-Margined Products Profit/Loss....... P&L resulting from changes in C N/A
value due to changes in the
futures price. This P&L should
only include changes to the cross-
margined futures in the account.
Option Premium............................ Premium registered on the given C N/A
trading date. The amount of money
that the options buyer must pay
the options seller.
Collateral on Deposit..................... The collateral on deposit for an M N/A
origin. This amount should
include all collateral after all
haircuts that have been deposited
to cover the total margin
requirement.
Other Payments............................ Includes any upfront and/or final/ C N/A
settlement payments made/received
for the trade date. (Indicate
gross pay/collect amounts).
Net Coupon Payment........................ Net amount of any coupon cash M N/A
flows recognized on report date
but actually occurring on
currency's settlement convention
date. (Indicate gross pay/collect
amounts).
Net Present Value......................... Net present value (NPV) of all M N/A
positions by currency..
Net Present Value Previous................ Previous day's NPV by currency.... M N/A
PV of Other Payments...................... Includes the present value of any M N/A
upfront and/or final/settlement
payments that will be settled
after the report date. Only
include amounts that are
affecting the NPV of current
trades.
Price Alignment Interest.................. To minimize the impact of daily M N/A
cash variation margin payments on
the pricing of swaps, the DCO
will charge interest on
cumulative variation margin
received and pay interest on
cumulative variation margin paid
with respect to IRS by currency.
Accrued Coupon............................ Coupon obligation from the first M N/A
day of the coupon period through
the current clearing trade date.
The sum of accrued coupon for
each position in the clearing
member's portfolio (by origin).
Backdated Profit and Loss................. The P&L attributed to positions C N/A
added that were novated on a
prior date.
Day Trading Profit and Loss............... The P&L attributed to the day's C N/A
trades.
Position Profit and Loss.................. The P&L of the previous day's C N/A
position with today's price
movement.
Total Profit and Loss..................... Unrealized P&L or mark-to-market M N/A
value of position(s) including
change in mark to market (Total
P&L = Position P&L + Day Trading
P&L + Backdated P&L).
----------------------------------------------------------------------------------------------------------------
Equity Cross Margin (Daily Cash Flow Reporting)
----------------------------------------------------------------------------------------------------------------
Additional Margin......................... Any additional margin required in M N/A
excess of initial margin. For
example, this figure should
include any liquidity/
concentration charge if the
charge is not included in the
initial margin.
Initial Margin............................ This equity margin requirement M M
will include the initial margin
requirement without any
additional margin required by the
DCO.
Liquidity Risk............................ Risk component to capture bid/ C C
offer costs associated with the
liquidation of a large portfolio.
Margin Calls.............................. Any outstanding margin call that M N/A
has been issued but not collected
as of the end of the trade date.
Total Margin.............................. The total margin requirement for M N/A
the origin. This margin
requirement should include the
initial margin requirement plus
any additional margin required by
the DCO.
Variation Margin.......................... Variation margin should include M N/A
the net sum of all cash flows
between the DCO and clearing
members by origin.
Collateral on Deposit..................... The collateral on deposit for an M N/A
origin. This amount should
include all collateral after all
haircuts that have been deposited
to cover the total margin
requirement.
Option Premium............................ Premium registered on the given C N/A
trading date. The amount of money
that the options buyer must pay
the options seller.
Net Option Value.......................... The credit or debit amount based

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