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Rule2023-16591

Reporting and Information Requirements for Derivatives Clearing Organizations

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Published

August 8, 2023

Effective

September 7, 2023

Issuing agencies

Commodity Futures Trading Commission

Abstract

The Commodity Futures Trading Commission (Commission) is amending certain reporting and information regulations applicable to derivatives clearing organizations (DCOs). These amendments, among other things, update information requirements associated with commingling customer funds and positions in futures and swaps in the same account, revise certain daily and event-specific reporting requirements in the regulations, and codify in an appendix the fields that a DCO is required to provide on a daily basis under the regulations. In addition, the Commission is adopting amendments to certain delegation provisions in its regulations.

Full Text

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[Federal Register Volume 88, Number 151 (Tuesday, August 8, 2023)]
[Rules and Regulations]
[Pages 53664-53702]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-16591]

[[Page 53663]]

Vol. 88

Tuesday,

No. 151

August 8, 2023

Part III

Commodity Futures Trading Commission

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17 CFR Parts 39 and 140

Reporting and Information Requirements for Derivatives Clearing
Organizations; Final Rule

Federal Register / Vol. 88 , No. 151 / Tuesday, August 8, 2023 /
Rules and Regulations

[[Page 53664]]

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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: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission) is
amending certain reporting and information regulations applicable to
derivatives clearing organizations (DCOs). These amendments, among
other things, update information requirements associated with
commingling customer funds and positions in futures and swaps in the
same account, revise certain daily and event-specific reporting
requirements in the regulations, and codify in an appendix the fields
that a DCO is required to provide on a daily basis under the
regulations. In addition, the Commission is adopting amendments to
certain delegation provisions in its regulations.

DATES:
Effective date: The effective date for this final rule is September
7, 2023.
Compliance date: DCOs must comply with the amendments to Sec.
39.19 and appendix C by February 10, 2025; DCOs must comply with the
amendments to all other rules by September 7, 2023.

FOR FURTHER INFORMATION CONTACT: Eileen A. Donovan, Deputy Director,
(202) 418-5096, <a href="/cdn-cgi/l/email-protection#3b5e5f5455544d5a557b585d4f58155c544d">[email&#160;protected]</a>; Parisa Nouri, Associate Director,
(202) 418-6620, <a href="/cdn-cgi/l/email-protection#cfbfa1a0babda68faca9bbace1a8a0b9">[email&#160;protected]</a>; August A. Imholtz III, Special
Counsel, (202) 418-5140, <a href="/cdn-cgi/l/email-protection#f5949c989d9a99818fb596938196db929a83">[email&#160;protected]</a>; or Gavin Young, Special
Counsel, (202) 418-5976, <a href="/cdn-cgi/l/email-protection#395e40564c575e795a5f4d5a175e564f">[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#e397938c8f8f869aa380859780cd848c95">[email&#160;protected]</a>; or Elizabeth
Arumilli, Special Counsel, (312) 596-0632, <a href="/cdn-cgi/l/email-protection#3451554641595d58585d74575240571a535b42">[email&#160;protected]</a>; Division
of Clearing and Risk, Commodity Futures Trading Commission, 77 West
Jackson Boulevard, Suite 800, Chicago, Illinois 60604.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Amendments to Sec. 39.13(h)(5)
III. Amendments to Sec. 39.15(b)(2)
IV. Amendments to Sec. 39.18
V. 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 Reporting Fields for the Daily Reporting
Requirements--Sec. 39.19(c)(1)
D. Non-Substantive and Technical Edits to Appendix C to Part 39
E. Individual Customer Account Identification Requirements--
Sec. 39.19(c)(1)(i)(A) and (D)
F. Daily Reporting of Margin Model Backtesting--Sec.
39.19(c)(1)(i)
G. Fully Collateralized Positions--Sec. 39.19(c)(1)(ii)
H. Voluntary Reporting--Sec. 39.19(c)(1)(iii)
I. Reporting Change of Control of the DCO--Sec.
39.19(c)(4)(ix)(A)(1)
J. Reporting Changes to Credit Facility Funding and Liquidity
Funding Arrangements--Sec. 39.19(c)(4)(xii) and (xiii)
K. Reporting Issues With Credit Facility Funding Arrangements,
Liquidity Funding Arrangements, and Custodian Banks--Sec.
39.19(c)(4)(xv)
L. Reporting of Updated Responses to the Disclosure Framework
for Financial Market Infrastructures--Sec. 39.19(c)(4)(xxv)
VI. Amendments to Sec. 39.21(c)
VII. Amendments to Sec. 39.37(c) and (d)
VIII. 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

In January 2020, the Commission adopted amendments to its part 39
regulations in order to, among other things, update DCO reporting
requirements.\1\ The Commission subsequently became aware of issues
with the amended regulations that would benefit from further change or
clarification. Thus, in November 2022, the Commission proposed to amend
certain reporting and information regulations applicable to DCOs to
address those issues.\2\
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\1\ 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>.
\2\ Reporting and Information Requirements for Derivatives
Clearing Organizations, 87 FR 76698 (Dec. 15, 2022), available at
<a href="https://www.federalregister.gov/documents/2022/12/15/2022-26849/reporting-and-information-requirements-for-derivatives-clearing-organizations">https://www.federalregister.gov/documents/2022/12/15/2022-26849/reporting-and-information-requirements-for-derivatives-clearing-organizations</a>.
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The Commission received a total of 11 substantive comment letters
in response to the proposal.\3\ After considering the comments, the
Commission is largely adopting the rules as proposed, although there
are some proposed changes that the Commission has determined to either
revise or decline to adopt.
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\3\ The Commission received comment letters submitted by the
following: Better Markets; Chris Barnard; CME Group, Inc. (CME);
Eurex Clearing AG (Eurex); Futures Industry Association (FIA); The
Global Association of Central Counterparties (CCP12); Google Cloud
(Google); Intercontinental Exchange, Inc. (ICE); Nodal Clear, LLC
(Nodal); The Options Clearing Corporation (OCC); and World
Federation of Exchanges (WFE). All comments referred to herein are
available on the Commission's website, at <a href="https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7343">https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7343</a>.
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In the discussion below, the Commission highlights topics of
particular interest to commenters and discusses comment letters that
are representative of the views expressed on those topics. The
discussion does not explicitly respond to every comment submitted;
rather, it addresses the most significant issues raised by the proposed
rulemaking and analyzes those issues in the context of specific
comments.

II. Amendments to Sec. 39.13(h)(5)

Regulation Sec. 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 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 amendments to part 39 to address fully collateralized
positions,\4\ the Commission proposed 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

[[Page 53665]]

positions.\5\ The requirements would still apply to clearing members
that clear fully collateralized positions but also clear margined
products.\6\ The Commission did not receive any comments on the
proposed changes to Sec. 39.13(h)(5), and is therefore adopting the
changes as proposed.
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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 also proposed 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. Amendments to Sec. 39.15(b)(2)

Regulation Sec. 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. The Commission
proposed several amendments to Sec. 39.15(b)(2) to better reflect the
information that the Commission needs to evaluate such a request.
OCC, Eurex, ICE, and Better Markets supported the proposal. OCC
stated that the changes appear reasonably calibrated to achieve the
Commission's policy objectives while providing useful guidance to DCOs
on the required contents of a request. Eurex added that the proposed
changes appropriately streamline the procedures and will help focus
both DCOs seeking such relief, and the Commission in its review of such
request for relief, on the information most relevant to a DCO's
request.
Furthermore, recognizing that futures and swaps are typically
commingled to allow for portfolio margining, the Commission proposed to
add new Sec. 39.15(b)(2)(vii) to require that a DCO 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.'' Although ICE generally
supported the proposed changes to Sec. 39.15(b)(2), ICE stated that
the express confirmation under proposed new Sec. 39.15(b)(2)(vii) is
unnecessary, as Sec. 40.5 already requires that a DCO analyze its
proposal for compliance with the Commodity Exchange Act (CEA) and
Commission regulations. The Commission notes, however, that because the
DCO's submission would address commingling but not necessarily
portfolio margining, the DCO's analysis may not take Sec. 39.13(g)(4)
into account. Thus, the Commission does not want approval of the
submission to be misinterpreted as approval of the DCO's portfolio
margining as well. Because a submission under Sec. 40.5 is deemed
approved by the Commission without any written form of approval,
requiring the DCO to provide the express confirmation in Sec.
39.15(b)(2)(vii) is meant to address that.
In response to the Commission's request for 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, ICE does not believe that the Commission should require
disclosure of additional information. ICE stated that the information
already required, as proposed to be modified, will provide market
participants with sufficient information to evaluate a commingling
proposal.
In general, Better Markets believes the proposal would strengthen
the existing requirements by requiring a DCO to provide not only an
analysis of the risk characteristics of the products but also an
analysis of any risk characteristics of products to be commingled that
are unusual in relation to the other products the DCO clears, as well
as how it plans to manage any identified risks. Better Markets stated
that it supports this aspect of the proposal because adding the phrase
``unusual in relation to'' in Sec. 39.15(b)(2)(ii) will allow the
Commission and the public to better understand any increased risk posed
to the DCO or its customers by the commingling of products that
otherwise would be held in separate accounts. Better Markets further
stated that this additional requirement will better enable the
Commission to understand the DCO's ability to manage those risks. In
response to a request for comment as to whether there is a better way
to articulate this concept, Better Markets argued that the Commission
should go a step further and specify that the analysis should cover
products with margining, liquidity, default management, pricing, and
volatility characteristics that differ from those currently cleared by
the DCO. Better Markets believes this discussion is critical in the
ever-changing derivatives markets, where new derivatives products are
constantly being introduced. Better Markets urged the Commission to be
forward-looking in its approach to receiving as much information as
possible from a DCO's ``unusual in relation to'' analysis to determine
whether to allow a DCO to commingle products in a single customer
account. The Commission is persuaded that this provision should be more
specific, and is therefore adding to Sec. 39.15(b)(2)(ii) the
requirement that a DCO's analysis address any characteristics that are
unusual in relation to the other products cleared by the DCO, ``such as
margining, liquidity, default management, pricing, or other risk
characteristics.'' The Commission believes that this information would
better assist the Commission in evaluating a DCO's request to commingle
customer positions and its ability to manage any identified risks. The
Commission is otherwise adopting the amendments to Sec. 39.15(b)(2) as
proposed, without any changes.\7\
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\7\ For a description of the proposed amendments to Sec.
39.15(b)(2), see Reporting and Information Requirements for
Derivatives Clearing Organizations (Dec. 15, 2022), supra note 2, at
76699-76700.
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IV. Amendments to Sec. 39.18

Regulation Sec. 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 proposed to amend Sec. 39.18(g)(1) to
eliminate the materiality threshold, requiring DCOs to report all such
events regardless of their magnitude. Better Markets supported the
proposal to remove the materiality threshold, stating that both the
Commission and DCOs would benefit from expanded reporting of such
incidents. CME, OCC, ICE, Eurex, Nodal, CCP12, Google, and WFE opposed
the proposal.
CCP12, CME, Eurex, ICE, Nodal, OCC, and WFE stated that the removal
of the materiality threshold would lead to a significant increase in
the number of reportable events, including events which have little or
no impact on a DCO's operations or on market participants, or which are
mitigated well before any impact, and thus of little or no value as the
subject of a required notification. CCP12, CME, Eurex, Google, ICE,
Nodal, OCC, and WFE commented that such an increase in reportable
incidents would burden both DCOs and the Commission, and would

[[Page 53666]]

divert attention and resources away from incidents that deserve greater
focus and planning, with little corresponding benefit to the
Commission, the protection of market participants, or the risk
management practices of DCOs. CCP12, CME, Google, and OCC further
asserted that the proposal is inconsistent with notification regimes in
analogous contexts, including similar Commission rules and reporting
obligations to other agencies and authorities.
CCP12, CME, Eurex, ICE, Nodal, and OCC further stated that the
Commission underestimated the increase in reporting obligations as a
result of the proposal to eliminate the materiality threshold; CCP12,
CME, and OCC similarly stated that the Commission underestimated the
costs of such notifications. Such underestimates would, according to
commenters, distort the Commission's cost-benefit considerations. The
Commission received additional comments in opposition to the proposed
removal of the materiality threshold, including statements regarding
the costs and impacts on third-party contracts, the value of allowing
DCOs to use their expertise to determine which events are material, and
a request to alternatively allow for quarterly submission of reports
for incidents deemed not material.
After considering the comments received, the Commission recognizes
the concerns raised therein and declines at this time to adopt the
proposal to remove the materiality threshold for the reporting of
exceptional events under Sec. 39.18(g). Better Markets supported the
removal of the materiality threshold, stating that events might be
material even when they do not have any effect on measurements often
used to determine materiality, and that both the Commission and DCOs
would benefit from clear reporting standards which would promote
consistency in reporting across DCOs. However, given the rationale of
comments opposed to the removal of the materiality threshold as
described above, including arguments regarding increased cost, lack of
informational benefit, and the volume of reports which would be
required if the threshold were removed, and the lack of opportunity to
solicit comment on potentially less costly or voluminous alternatives
suggested by commenters, the Commission declines to move forward with
the proposal at this time. The Commission understands that removing the
materiality threshold altogether could result in a significant increase
in the number of reportable events, including events which have little
or no impact on a DCO's operations, or which are mitigated well before
any impact, and thus could be of little or no value as the subject of a
required notification. The Commission will continue to evaluate the
effectiveness of the existing reporting standard in generating uniform
and timely notification regarding events where notification would be of
value to the Commission and will provide additional guidance, or
further modify the standard, as appropriate. Better Markets also
commented that the requirement in Sec. 39.18(g) that notice of
exceptional events be given ``promptly'' is vague and should be amended
to a more specific timeframe in order to avoid undue delay in
reporting. The Commission notes, however, that it did not propose to
amend this requirement, as Commission staff has not had any issues with
the timing of the notices that are made.
The Commission also proposed to amend Sec. 39.18(g)(1) by adding
``operator error'' to the list of events that would require prompt
notification to the Division. Better Markets expressed support for the
addition of ``operator error'' to the list of potentially reportable
events, and WFE, CME, OCC, and Nodal expressed opposition. Better
Markets stated that ``operator error'' is appropriately included as an
additional subject of reporting because such errors may impact or
potentially impact the operation, reliability, security, or capacity of
a DCO's automated systems. WFE, CME, OCC, CCP12, and Nodal expressed
concern about the potential breadth of the term ``operator error,''
which is not defined in the regulation and which might be read to
include de minimis, routine errors which would require reporting of
events that have little or no impact on clearing and settlement
functions and for which effective procedures are already in place to
mitigate any potential impacts. OCC further stated that ``operator
error'' might be read to include actions of clearing members or their
agents and employees because they are responsible for providing
information via applications, and OCC suggested adding certainty to the
term ``operator error'' by providing examples.
After considering the comments received, the Commission recognizes
the concerns raised therein and declines to adopt the proposal to
include ``operator error'' to the list of events that would require
prompt notification to the Division under Sec. 39.18(g)(1). The
Commission acknowledges that, as described by Better Markets, operator
errors may impact a DCO's operations in the same way as other events
described in Sec. 39.18(g)(1). However, the Commission believes that
such operator errors are already required to be reported under Sec.
39.18(g)(1) as a ``security incident,'' which, as defined by Sec.
39.18(a), is a cybersecurity or physical security event that actually
jeopardizes or has a significant likelihood of jeopardizing automated
system operation, reliability, security, or capacity, or the
availability, confidentiality or integrity of data. The proposed
addition of ``operator error'' was intended to specify this obligation
more clearly. In light of comments which indicate that the proposal
would result in confusion, particularly as to scope, the Commission
will not adopt the proposal but will consider providing guidance, or
further modifying Sec. 39.18(g)(1), as appropriate.
The Commission further proposed to redesignate existing paragraph
(g)(2) of Sec. 39.18 as new paragraph (g)(3) (without any further
revisions), and to move from existing paragraph (g)(1) to paragraph
(g)(2) the requirement to report security incidents or threats (and not
just ``targeted'' threats). Thus, as proposed, new Sec. 39.18(g)(2)
would 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.
Among comments received regarding this proposed amendment, OCC,
Google, and ICE expressed opposition, and Better Markets commented in
favor. Better Markets stated that non-targeted cyber attacks can be
just as destructive as targeted attacks, and thus the reporting of non-
targeted attacks may enhance the ability of the CFTC to assess emerging
threats and alert DCOs. OCC, Google, and ICE stated that the inclusion
of the language ``could compromise'' is overly broad and ambiguous and
would dramatically increase the reach and burdens of the rule without
providing regulatory benefit. OCC recommended removing ``could
compromise'' from the proposal and stated that, as proposed, Sec.
39.18(g)(2) would increase a DCO's costs of obtaining third-party
services and may lead to termination of existing third-party
relationships because of the additional costs and potential liability
facing third parties as a result of the proposal. Google also expressed
opposition to the removal of the ``targeted'' qualifier for threats,
stating that it would result in overbroad and inefficient reporting.
Google

[[Page 53667]]

additionally recommended that paragraph (g)(2) also incorporate a
probabilistic reporting trigger by, for example, replacing ``could''
with ``reasonably likely to'' in order to exclude speculative
incidents. After considering the comments received, and in light of the
broad scope of attacks which comments indicate would be required to be
reported under the proposal, the Commission recognizes the concerns
raised therein and declines to adopt new Sec. 39.18(g)(2) as proposed
but will consider providing guidance, or further modifying Sec.
39.18(g), as appropriate.
Finally, in connection with the proposed amendments to Sec.
39.18(g), the Commission proposed to amend Sec. 39.18(a) to define
``hardware or software malfunction'' and ``automated system.'' WFE,
CME, OCC, and CCP12 expressed opposition to the proposed definition of
``automated system,'' and OCC, CCP12, Eurex and Nodal expressed
opposition to the proposed definition of ``hardware or software
malfunction.'' WFE, CME, OCC, and CCP12 stated that the definition of
``automated system'' is broad and overinclusive, and that most of a
DCO's ancillary support systems would fall within the definition,
resulting in a significant increase in reporting obligations under
Sec. 39.18(g) that are not related to a DCO's core clearing and
settlement functions. OCC, CCP12, Eurex, and Nodal expressed opposition
to the definition of ``hardware or software malfunction,'' stating that
it is overly broad and would result in a significant increase in reach
and burden of reporting requirements with little corresponding
regulatory value to the Commission. OCC recommended that both
definitions be refined to avoid reporting of incidents that pose no
significant risk to a DCO's core functions and which do not impact or
narrowly impact market participants. OCC further recommended limiting
the definitions to systems or events that impact a DCO's market
activities that are subject to the Commission's jurisdiction. After
considering the comments received, the Commission recognizes the
concerns raised therein and declines to adopt the proposed definitions
for ``hardware or software malfunction'' and ``automated system'' but
will consider providing guidance defining these terms, or further
modifying Sec. 39.18(g), as appropriate.
Based on the concerns raised in the comments received, the
Commission is not adopting any of the proposed changes to Sec.
39.18(g). Although the Commission continues to believe that the
considerations that motivated the initial proposal are valid, it also
recognizes the concerns and alternatives raised by commenters as
requiring additional analysis that precludes adopting the proposal at
this time. To that end, the Commission may choose to instead provide
guidance to address these considerations, or to propose new
modifications to Sec. 39.18(g) reflecting both the motivations for the
proposed rule and the concerns raised by commenters.

V. Amendments to Sec. 39.19(c)

A. Daily Reporting of Variation Margin and Cash Flows--Sec.
39.19(c)(1)(i)(B) and (C)

Regulation Sec. 39.19(c)(1) requires a DCO to report to the
Commission on a daily basis initial margin, variation margin (VM), cash
flow, and position information for each clearing member, by house
origin, by each customer origin, and by individual customer account.
The Commission proposed to amend Sec. 39.19(c)(1)(i)(B) and (C) to
remove the requirement that a DCO report daily VM and cash flows by
individual customer account.\8\
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\8\ DCOs currently are not reporting VM 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); CFTC
Letter No. 22-20 (Dec. 19, 2022). The amendments to Sec.
39.19(c)(1)(i)(B) and (C) eliminate the requirement for which
additional time was provided in the staff letter.
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FIA, CCP12, Eurex, OCC, and ICE supported the proposal; no
commenters opposed it. CCP12 and ICE stated that many DCOs do not
possess VM and cash flow information at the customer level. OCC
confirmed that it does not collect VM and cash flow information at the
individual customer account level in the ordinary course of business.
FIA stated that DCOs would need to develop and implement new systems,
processes, and controls, at significant cost, to accurately report
customer level VM and cash flow information. FIA stated that because
clearing members that are futures commission merchants (FCMs) currently
do not provide DCOs with daily customer level VM and cash flow
information, FCM clearing members would incur substantial upfront and
ongoing costs to provide this information to DCOs. OCC stated that
collecting this information would impose significant costs on OCC and
its clearing members. FIA stated that daily reporting of customer VM
and cash flow information would not be of meaningful benefit to the
Commission, DCOs, clearing members or market participants, particularly
when weighed against the associated costs. OCC believes that because it
engages in VM netting at the customer origin level, VM and cash flow
information at the individual customer account level would not
necessarily reflect OCC's actual exposure to its clearing members.
In response to the Commission's request for comment on whether
there are certain products or market segments where it may be
appropriate to retain customer-level reporting requirements, FIA and
ICE stated that there is no basis to differentiate between product
categories, with FIA emphasizing the cost to DCOs and FCMs of
developing new reporting processes to report VM and cash flow
information by individual customer account, and the limited marginal
benefit of reporting such information. Because many DCOs currently do
not receive VM and cash flow information at the customer level, and a
requirement to collect this information would impose significant costs
on DCOs, the Commission is removing this requirement by adopting the
amendments to Sec. 39.19(c)(1)(i)(B) and (C) as proposed.

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

The Commission proposed 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).\9\ The Commission proposed 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.\10\ The Commission did not propose
to codify the non-substantive technical and procedural aspects of the
Reporting Guidebook that address the

[[Page 53668]]

format and manner in which DCOs provide this information.\11\
---------------------------------------------------------------------------

\9\ Commodity Futures Trading Commission Guidebook for Part 39
Daily Reports, Version 1.0.1, Dec. 10, 2021 (Reporting Guidebook).
\10\ 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.
\11\ The Division will issue a new version of the Reporting
Guidebook that will contain only the non-substantive technical and
procedural aspects to facilitate daily reporting by DCOs.
---------------------------------------------------------------------------

Eurex, ICE, CCP12, and OCC supported the proposal to codify the
existing daily reporting fields in new appendix C to part 39. Better
Markets opposed the proposal, arguing that codifying the Reporting
Guidebook will make it more difficult for the Commission to quickly
update the reporting fields in response to new products or other
financial innovations. In response to Better Markets, the Commission
notes that it has drawn on its experience of more than a decade since
Sec. 39.19(c)(1) was first adopted to make certain it will receive the
data it intended to be provided under this provision. However, in the
unlikely event that the Commission identifies additional data it needs,
the Commission could, if necessary, request from a DCO ``information
related to its business as a clearing organization, including
information relating to trade and clearing details'' pursuant to Sec.
39.19(c)(5)(i). The Commission is therefore adopting the proposal to
add new appendix C to part 39 of the Commission's regulations, to
codify the existing reporting fields in the Reporting Guidebook, which
includes both required and optional fields.\12\
---------------------------------------------------------------------------

\12\ The Commission is adding to Sec. 39.19(c)(1)(i) a
reference to appendix C to specify that daily reports are required
to be submitted in accordance with the data fields set forth in the
appendix.
---------------------------------------------------------------------------

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

The Commission proposed 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). Eurex generally supported the proposal, while CME opposed
it, stating that the Commission severely underestimated the time and
costs associated with adding the proposed new fields, and that the
costs to DCOs substantially outweigh the benefits that additional
reporting provides to the Commission. The new fields and comments
received are discussed in greater detail below.
1. Risk Metrics
The Commission proposed to include in appendix C a series of new
fields applicable only to interest rate swaps, including the delta
ladder, gamma ladder, vega ladder, zero rate curves, and yield curves
that a DCO uses in connection with managing risks associated with
interest rate swap positions. The Commission did not receive any
comments on this proposal and therefore is adopting these fields as
proposed. However, the Commission is amending the title of this section
of appendix C to change it from ``Greek Ladder Reporting'' to ``Risk
Metric Ladder Reporting'', which better reflects the contents of the
section, since rate and yield curves technically are not ``Greeks,''
and to account for the possible addition of other non-Greek risk
metrics in the future.
2. Timing of Variation Margin Calls and Payments
The Commission proposed to require a DCO to report timing
information about VM calls and payments, including the time and amount
of each VM call to each clearing member, the time and amount that VM is
received from each clearing member, and the time and amount that VM is
paid to each clearing member. There were no comments in support of the
proposal.
CME, ICE, and OCC opposed the proposal, arguing that it would
impose costs on DCOs and settlement banks because they would need to
build systems for daily automated reporting of payment flow timestamps.
ICE and OCC stated that the manner in which DCOs make and collect a
margin call is unique to each DCO based on its own processes and, as a
result, the information that would be reported under these proposed
fields only would reflect individual DCOs' practices, with the
information being too bespoke to be useful for surveillance. OCC
further stated that clearing member payments to or from OCC at
settlement times are made on a net basis, taking into account multiple
categories of pay or collect obligations, in addition to the mark-to-
market amounts. CME stated that not all settlement banks communicate
with DCOs in automated and digestible file formats that can be used for
daily reporting. Echoing comments by CME, CCP12 recommended that the
Commission consider whether this proposal would require settlement
banks to develop and deploy automated systems to communicate timestamps
to DCOs, which could make compliance with this requirement
unnecessarily complex. CME also stated that the information would not
be useful for the Commission in real-time monitoring of DCO liquidity
issues because it would be reported one day later, and because the
timing of payments can vary from day to day for reasons unrelated to
liquidity issues or other risks to DCOs or their clearing members. ICE
stated that specific timing information is generally irrelevant, so
long as the amounts are paid before the applicable DCO's deadline, and
that the exact timing of payments is not indicative of the DCO's
liquidity position or its ability to manage liquidity risks.
As an alternative to the proposal, CME recommended that the
Commission require DCOs to report when clearing members are
sufficiently late making VM payments that it results in an impactful
delay to the completion of the settlement cycle. ICE stated that
because the proposal does not account for different approaches to the
payment and netting of VM, the proposed fields would need to be revised
to reflect the variety of ways that DCOs deal with VM payments. CCP12
commented that reporting VM calls and payment as of the beginning,
middle, and end of the day would avoid confusion that may accompany
reporting of individual cash flows, and would simplify DCOs' reporting
obligations.
The Commission understands that compliance with this requirement
would be unnecessarily complex, given that the manner in which DCOs
make and collect a margin call is unique to each DCO based on its own
processes. The Commission is therefore persuaded by the comments that
the timing information would not be particularly useful to it and
therefore has determined not to require DCOs to report this information
at this time.
3. Trade Date
The Commission proposed 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. CCP12 supported the proposal, but requested that the
Commission clarify whether the term ``actual trade date'' refers to the
economically agreed date or the execution date. CME opposed the
proposal, stating that the proposed requirement is duplicative of the
recent amendments to part 45 of the Commission's regulations, under
which DCOs already provide this information to the Commission. CME also
stated that numerous dates for these products exist in the over-the-
counter registers, and requested clarification as to which date should
be reported. The Commission is adopting the proposal, albeit with one
change. In response to commenters' requests for clarification, the
Commission is modifying the description of ``trade date'' to read, the
``[d]ate a transaction was originally executed, resulting in the
generation of

[[Page 53669]]

a new USI [unique swap identifier]. For clearing swaps, the date when
the DCO accepts the original swap.'' In response to CME's comment
regarding part 45 reporting, the Commission acknowledges some overlap
between the information DCOs report pursuant to part 45 and the
information reported pursuant to Sec. 39.19(c)(1), but notes that the
two data streams have different albeit complimentary regulatory and
supervisory uses within the Commission,\13\ and are reported using
different underlying technical specifications, sometimes with nuanced
differences between substantive or technical definitions of individual
data points, which then can affect whether and how the data changes in
response to events, such as a compression exercise for swaps.
---------------------------------------------------------------------------

\13\ The information reported under Sec. 39.19(c)(1) is
intended to ensure that the Division is informed regarding both the
risks that are present at each DCO as well as the DCO's management
of those risks, which pursuant to Sec. 39.19(c)(1)(ii) includes
information about the risks associated the futures, options, swaps,
and securities positions cleared at the DCO, in contrast with the
part 45 data, which includes highly granular trade data related to
both cleared and uncleared swaps.
---------------------------------------------------------------------------

4. File Completeness
The Commission proposed to require a DCO to include in its daily
reports information that reflects that the daily report is complete,
with completeness information 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
Financial Information eXchange Markup Language (FIXML) file would
indicate its position in the sequence of files submitted that day,
e.g., file 1 of 10. No commenters opposed the proposal. Eurex and Nodal
supported the proposal that file completeness be reflected in a
manifest file and opposed the proposal that files be sequentially
numbered to indicate completeness. Eurex and Nodal both explained that
submitting a manifest file is more efficient operationally.
Specifically, Eurex noted that when files are sequentially numbered to
reflect completeness, all of the files would need to be renumbered and
resubmitted any time a file is added or removed. Nodal made a similar
observation, and also noted that a manifest file can be submitted after
the DCO ensures that its reporting for the day is complete and the DCO
confirms internally that there will be no changes. OCC stated that
sequential file numbering to indicate completeness is preferable to
requiring a manifest file, because the former is more efficient given
the manner in which OCC submits its daily reports. OCC requested that
the Commission provide DCOs with the flexibility to use either a
manifest file or sequential file numbering to indicate completeness, so
that DCOs could use the method that works best with their processes.
Although the Commission acknowledges that for some DCOs, such as
OCC, sequential file numbering to indicate completeness may be
preferable, the Commission agrees with Eurex and Nodal that submitting
a manifest file is operationally more efficient, especially for those
DCOs that submit more complex or voluminous reports. Similarly, to
ensure consistency and uniformity across all reports received, the
Commission declines to provide DCOs with the option to choose between
sequential file numbering and a manifest file to indicate completeness.
Therefore, the Commission is adopting the proposal to require a DCO to
include in its daily reports a manifest file that reflects that the
daily report is complete.
5. Settlement Information for Contracts With No Open Interest
The Commission requested comment on whether it should require that
a DCO provide the current settlement prices and related information
published by DCMs for futures and options contracts with no open
interest. No commenters supported this proposal.
CCP12, Nodal, OCC, ICE, and CME opposed the proposal. CCP12 stated
that DCOs already calculate and report settlement prices for contracts
with no open interest where they believe those prices provide a benefit
to DCOs themselves or the marketplace, and requiring DCOs to report
such data for all contracts with no open interest would be of
questionable value for analytical or regulatory purposes. CCP12
recommended that DCOs continue to be afforded the discretion to choose
to report such information on a voluntary basis. Nodal stated that, in
addition to being impractical, the proposal would duplicate information
that DCMs are required to report pursuant to part 16 of the
Commission's regulations. CME argued that reporting data that is unused
and not based on observed open interest would not help the risk
surveillance process because it does not represent an actual
transaction, and ICE argued that the information would not be reliable
because it is not based on actual trading activity. OCC and ICE stated
that this information would be of limited utility, with OCC adding that
this information relates to contracts that do not impact the DCO's risk
profile. CME stated that exchanges and DCOs list new products daily and
that this reporting requirement would add complexity to the listing
process. CME also questioned whether the Commission has the authority
to require this information if it is not clear that this information is
necessary to conduct oversight of the DCO since it does not reflect
actual trades that are settled or cleared. Similarly, OCC argued that a
requirement to report such information could be inconsistent with the
scope of reporting required by DCO Core Principle L, which requires a
DCO to disclose publicly and to the Commission daily settlement prices,
volume, and open interest for each contract settled or cleared by the
DCO. CME noted that an alternative would be to require reporting of
contracts with no open interest, but without requiring pricing
information.
The Commission is persuaded by the comments that settlement
information for contracts with no open interest would not be
particularly useful to it, given that it does not impact a DCO's risk
profile, among other things. Therefore, the Commission has determined
not to adopt the proposed requirement at this time.

D. Non-Substantive and Technical Edits to Appendix C to Part 39

The Commission has made a variety of non-substantive and technical
edits to appendix C to part 39. Some of the edits are intended to
ensure that, to the extent that a requirement appears in multiples
places in appendix C, its title and description are uniform throughout.
Other edits include the deletion of duplicate fields, the deletion of
surplus language, formatting instructions, or technical instructions,
or the replacement of abbreviations with complete words. Other edits
rename fields or clarify, simplify, or rephrase descriptions. For
example, the ``Universal Product Identifier'' field is being renamed
``Unique Product Identifier'' (UPI), and its description is being
changed from ``Uniquely identifies the product of a security using ISO
4914 standard, Unique Product Identifier'' to ``[a] unique set of
characters that represents a particular swap. The Commission will
designate a UPI pursuant to 17 CFR 45.7.'' Another example is that the
description for the Implied Volatility field is being changed from
``implied volatility'' to ``[t]he implied volatility and quotation
style for the contract, typically in natural log percent or index
points.''

[[Page 53670]]

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

Regulation Sec. 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. In
January 2020, the Commission 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.\14\ 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 (c)(1)(i)(D)
addresses only the reporting of end-of-day positions. Therefore, the
Commission proposed to amend Sec. 39.19(c)(1)(i)(A) 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 (c)(1)(i)(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. Furthermore, the Commission also proposed a technical change 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, only if the DCO has the information
associated with an account.
---------------------------------------------------------------------------

\14\ 85 FR 4800, 4817.
---------------------------------------------------------------------------

CCP12, OCC, CME, and Eurex supported this proposal. Eurex noted
that in Europe there is no requirement that LEIs be provided to DCOs
and that, consequently, not all Multilateral Trading Facilities or
Approved Trade Sources transmit LEIs to DCOs. On the other hand, CME
observed that LEI reporting to DCOs has become more routine. ICE
opposed the requirement that a DCO identify each individual customer
account by LEI because extensive systems changes would be required to
add identifiers to the reportable data, and since DCOs are unlikely to
have customer-level LEI information, the costs associated with
implementing this requirement outweigh the benefits. In response to
ICE's comment, the Commission further emphasizes 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, only
when the DCO has the information associated with an account, and the
information is both maintained and associated with the account in a
reportable format, such that reporting will not impose a significant
additional burden on the DCO.

F. Daily Reporting of Margin Model Backtesting--Sec. 39.19(c)(1)(i)

The Commission proposed 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 backtesting that a DCO is required to perform daily
pursuant to Sec. 39.13(g)(7)(i). The Commission also proposed to add
to new appendix C to part 39 the data fields it believes would be
relevant and necessary to capture the backtesting results that would
have to be reported under this provision. The Commission is adopting as
proposed the amendment to Sec. 39.19(c)(1)(i) to require that a DCO
include in its daily reports its margin model backtesting results. As
explained below, in response to concerns expressed by commenters, the
Commission is modifying certain of the proposed data fields in new
appendix C for reporting margin model backtesting results.\15\
---------------------------------------------------------------------------

\15\ The Commission is also changing the term ``back testing''
to ``backtesting'' in all places that this term, or a variation
thereof, appears in part 39 of the Commission's regulations.
---------------------------------------------------------------------------

Chris Barnard supported the proposal, stating that daily reporting
of backtesting results will improve the Commission's oversight of DCOs
and should work to increase the accuracy, relevance, and effectiveness
of DCOs' margin calculations. Nodal generally supported requiring DCOs
to provide the Commission with daily backtesting results, noting that
it already provides such information to the Commission on a voluntary
basis. CME requested that the Commission provide DCOs with ample time,
preferably 18 months, to test and implement daily reporting of
backtesting results. OCC stated that it has no objection to reporting
its margin model backtesting results.
ICE opposed the proposal. ICE argued that the manner in which the
Commission currently supervises DCO margin models, including the
requirement in Sec. 39.13(g)(3) that margin models be independently
validated, and the requirement in Sec. 39.19(c)(4)(xxiii) that a DCO
report to the Commission regarding material issues with its margin
model, is sufficient for the Commission to supervise margin model
performance over time.
Nodal and Eurex argued that the Commission should collaborate with
DCOs to determine the specific information needed and the data fields
via which it should be reported to ensure that the Commission is
receiving the data and information it needs, in a manner that is
consistent across all DCOs, to provide effective oversight of the
performance of DCOs' margin models.
Commenters expressed concern regarding the new fields that the
Commission proposed to add to new appendix C for the purpose of
reporting backtesting results, with commenters focusing on the fields
for reporting detailed information related to margin model breaches.
The Commission had proposed that breach details be reported using three
fields: initial margin; VM; and breach amount, which was defined as the
difference between the initial margin and VM. ICE, OCC, and Eurex
argued that the proposed fields would not provide the Commission with
meaningful information regarding margin model breaches. ICE stated that
because initial margin requirements and VM payments may not be
associated with the same set of positions, ``from a formal statistical
(hypothesis testing) point of view, the backtesting of the initial
margin model should consider fixed positions over the implemented
margin period of risk.'' Similarly, OCC argued that the VM field should
be replaced with a field titled ``Static Portfolio Profit/Loss,'' which
would reflect ``profit or loss on the same portfolio against which the
initial margin was assessed.'' OCC also argued that the Breach Amount
field description be revised to delete the reference to VM and instead
reflect the ``difference between the initial margin and static
portfolio profit/loss.'' Along the same lines, Eurex argued that VM
should be replaced as a measure for backtesting by a more general
backtesting profit/loss, which would include further mandatory fields
detailing how backtesting profit/loss is calculated (including profit/
loss horizon, ``clean'' vs. ``dirty'' profit/loss, mark-to-market vs.
mark-to-model profit/loss). Lastly, both Eurex and ICE emphasized the
importance of the margin period of risk as a component of evaluating
backtesting results.
In response to these comments, the Commission is amending the
fields for reporting margin model backtesting results. The Commission
is replacing the VM field with a new field titled

[[Page 53671]]

``Backtesting Metric,'' which provides DCOs with the flexibility to
designate the type of profit and loss calculation used for backtesting:
VM; static portfolio profit and loss (also known as clean profit and
loss); dirty profit and loss; mark to market profit and loss; or mark
to model profit and loss. In connection with that change, the
Commission is amending the Breach Amount field description to be the
``difference between the Initial Margin and Backtesting Metric
Amount.'' Lastly, the Commission is adding a field titled ``Margin
Period of Risk'', which is defined as the ``holding period for which
the Backtesting Metric is calculated in days.''

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

The Commission proposed to amend Sec. 39.19(c)(1)(ii) to clarify
that the daily reporting requirements of Sec. 39.19(c)(1)(i) do not
apply to fully collateralized positions. The Commission did not receive
any comments on the proposal. The Commission is adopting the amendments
to Sec. 39.19(c)(1)(ii) as proposed.

H. Voluntary Reporting--Sec. 39.19(c)(1)(iii)

The Commission proposed 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 daily reporting data fields it believes would be
necessary or appropriate. OCC supported the proposal. OCC recommended
that the Commission remove the phrase ``consultation with'' and replace
it with ``notification to,'' given the potential timing issues
attendant to daily reporting generally, potential ambiguity regarding
the extent and nature of the ``consultation'' required in the proposal,
and to provide DCOs with greater flexibility. OCC also recommended that
the Commission clarify that voluntarily reporting of additional
information does not create an obligation to continue reporting the
information, unless agreed to in writing by the DCO and Commission
staff. No commenters opposed the proposal.
The Commission agrees with OCC that, absent any agreement to the
contrary, voluntary reporting by a DCO of additional information does
not create an obligation to continue reporting that information. As for
the mechanics of how a DCO should proceed with voluntarily reporting
additional information, the Commission believes that the best approach
is for the DCO to coordinate with Division staff to ensure that any
necessary accommodations are in place so that the Division has the
ability to receive the additional information and to incorporate it
into its analytics. The Commission therefore disagrees with OCC because
it believes that the collaborative approach encompassed within the
phrase ``consultation with'' is preferable to the unilateral approach
described in the phrase ``notification to.'' The Commission is adopting
new Sec. 39.19(c)(1)(iii) as proposed.

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

The Commission proposed to amend Sec. 39.19(c)(4)(ix)(A)(1) 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. Eurex
supported the proposal. OCC also supported the proposal, but requested
that the Commission clarify whether the phrase the ``entity . . .
holding a controlling interest'' refers to the specific corporate
entity holding an ownership interest in the DCO, or whether it refers
to any parent entity of one or more owners that collectively own more
than 50 percent of the DCO. Better Markets opposed the proposal,
asserting that the Commission instead should reinstate the 2011
versions of this regulation and Sec. 39.3(f) because, unlike the
current requirements, the 2011 version referenced Sec. 39.3(f), which
required Commission approval of the transfer of a DCO registration in
connection with any corporate change involving the transfer of all or
substantially all of a DCO's assets to another legal entity.
In response to OCC's request for clarification, the Commission
notes that the phrase the ``entity . . . holding a controlling
interest'' is intended to refer to both the specific corporate entity
holding an ownership interest in the DCO, as well as to any parent
entity of one or more owners that collectively own more than 50 percent
of the DCO. With respect to the comments from Better Markets, the
Commission initially notes that the comments do not address the merits
of the proposal, but instead focus on changes the Commission made to a
different regulation in a different rulemaking.\16\ In any event, the
Commission does not believe that it is necessary to reconsider its 2020
amendment of Sec. 39.3(f).\17\ The Commission is adopting the
amendments to Sec. 39.19(c)(4)(ix)(A)(1) as proposed.
---------------------------------------------------------------------------

\16\ 85 FR 4800, 4802-4803.
\17\ In the 2020 amendment of this regulation, Sec. 39.3(f) was
renumbered as Sec. 39.3(g), and was revised to provide that a DCO
seeking to transfer its open interest would be required to submit
rules for Commission approval pursuant to Sec. 40.5, rather than
submitting a request for a Commission order. The 2020 amendments
were intended to, among other things, simplify the requirements for
a DCO to request a transfer of open interest and to separate the
process from the procedures used to report a change to a DCO's
corporate structure or ownership. 85 FR 4800, 4802-4803.
---------------------------------------------------------------------------

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

The Commission proposed to amend Sec. 39.19(c)(4)(xii) and (xiii),
which require a DCO to report changes to credit facility funding
arrangements and liquidity funding arrangements, respectively, to
clarify that the reporting requirements include reporting new
arrangements as well as changes to existing ones. Eurex and OCC
supported both proposals, with OCC noting that they are consistent with
its interpretation of the existing regulations. No commenters opposed
the proposals. The Commission is adopting the amendments to Sec.
39.19(c)(4)(xii) and (xiii) as proposed.

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

The Commission proposed 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. The Commission proposed to extend the reporting
requirement, which previously applied only to any settlement bank used
by the DCO or approved for use by the DCO's clearing members, to apply
as well to any credit facility funding arrangement, liquidity funding
arrangement, or custodian bank used by the DCO or approved for use by
the DCO's clearing members. The Commission also proposed to change the
threshold that triggers a DCO's reporting obligations by replacing the
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.
Eurex, OCC, and ICE supported the proposal. OCC observed that the
proposal properly addresses the variety

[[Page 53672]]

of arrangements that DCOs use to meet their ongoing and situational
funding requirements, and OCC also stated that DCOs should not be
subject to potential enforcement action for not reporting an issue of
which they are not even aware. With regard to the requirement to report
material issues or concerns related to credit facility funding
arrangements, ICE supported the proposal, but believes, as a technical
matter, that it would be more accurate to refer to the provider of the
arrangement, as opposed to the arrangement itself. No commenters
opposed the proposal. Better Markets recommended that the Commission
remove the materiality standard from the proposed requirement that DCOs
report to the Commission regarding material issues with credit facility
funding arrangements, liquidity funding arrangements, and custodian
banks. Better Markets argued that because the subjective nature of
materiality would result in inconsistent and inadequate reporting, the
Commission instead should require DCOs to report whenever there are any
issues or concerns.
With respect to ICE's comment that Sec. 39.19(c)(4)(xv) should
specify that a DCO must report material issues or concerns related to
the provider of a credit facility funding arrangement, as opposed to
reporting issues or concerns related to the arrangement itself, the
Commission intends that the amended regulation apply to issues or
concerns related to the provider as well as to the arrangement itself.
The amended regulation is intended to ensure that the Division receives
notice when a DCO learns that it may not be able to obtain the
resources from the provider pursuant to the arrangement. The Commission
disagrees with the suggestion from Better Markets that DCOs be required
to report all 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. Although Better Markets correctly noted the
subjectivity inherent in a materiality standard, the Commission does
not believe that it would be useful for it to be notified of all issues
or concerns, especially since, in connection with its supervision of
DCOs and engagement with DCO staff regarding reporting of issues or
concerns related to settlement banks, Division staff has not found that
the materiality standard impedes necessary reporting. Because the
Commission believes that the threshold for reporting is properly
calibrated, the Commission is adopting Sec. 39.19(c)(4)(xv) as
proposed.

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

The Commission proposed 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. Eurex and OCC supported the
proposal, with OCC noting that it is a non-substantive change to
existing DCO reporting obligations. No commenters opposed the proposal.
ICE recommended that, to be consistent with Sec. 39.37(b)(2), the
Commission should state explicitly that the proposed reporting
requirement only applies to material changes that a DCO makes to its
disclosures under the PFMI Disclosure Framework. The Commission does
not believe that such clarification is necessary, given that new Sec.
39.19(c)(4)(xxv) simply references the reporting requirements in Sec.
39.37(b)(2) without altering the substance of those requirements. The
Commission is adopting new Sec. 39.19(c)(4)(xxv) as proposed.

VI. Amendments to Sec. 39.21(c)

Regulation Sec. 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 proposed several amendments to these requirements
to better align a DCO's disclosure obligations with the type of
clearing services that the DCO provides. Specifically, the Commission
proposed 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. Additionally, the Commission
proposed 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 did not receive any comments on these proposed
changes, and is therefore adopting them as proposed.

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

Regulation Sec. 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. Regulation Sec.
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 proposed 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. OCC
supports and appreciates the proposal, stating that it would relieve
DCOs of duplicative requirements to report this information both
publicly and to the Commission. The Commission is adopting this
amendment as proposed.

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

Regulation Sec. 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 proposed 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.
OCC generally supported the proposed changes to Sec.
140.94(c)(10), as OCC agreed that the proposed delegations would
appropriately empower Commission staff to facilitate efficient
administration of part 39, and ensure that the Commission and its staff
can obtain relevant information in a timely manner. OCC stated that
changes to a DCO's reporting obligations can pose significant technical
or logistical challenges, and necessitate substantial investment of
time and resources to effect compliance. Therefore, while OCC supported
the proposed changes, it urged the Division to continue to engage

[[Page 53673]]

in open dialogue with DCOs prior to exercising the delegated authority
to seek additional information pursuant to Sec. 39.19 or to change the
format or manner of any required reporting. The Commission takes notes
of this comment, and expects that information collection or any changes
to the format and manner of required reporting would continue to
involve engagement with DCOs. The Commission is adopting these changes
as proposed.

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.\18\ The final
rule adopted 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.\19\ The Commission has
previously determined that DCOs are not small entities for the purpose
of the RFA.\20\ Accordingly, the Chairman, on behalf of the Commission,
hereby certifies pursuant to 5 U.S.C. 605(b) that the rule adopted
herein will not have a significant economic impact on a substantial
number of small entities.
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\18\ 5 U.S.C. 601 et seq.
\19\ 47 FR 18618 (Apr. 30, 1982).
\20\ See 66 FR 45604, 45609 (Aug. 29, 2001).
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B. Paperwork Reduction Act

The Paperwork Reduction Act (PRA) \21\ 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 final rulemaking contains reporting and
recordkeeping requirements that are collections of information within
the meaning of the PRA. Responses to the collections of information are
required to obtain a benefit.
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\21\ 44 U.S.C. 3501 et seq.
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This final rulemaking modifies the existing information collection
associated with part 39, ``Requirements for Derivatives Clearing
Organizations, OMB control number 3038-0076.'' In accordance with the
PRA, 44 U.S.C. 3507(d), the Commission has submitted these information
collection requirements to OMB for its review.
1. Subpart B--Requirements for Compliance with Core Principles
a. Risk Management
The Commission is adopting as proposed 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. The
requirements would still apply to clearing members that clear fully
collateralized positions but also clear 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 currently registered DCOs clear fully collateralized positions.
As a result, the Commission believes that this reduction will 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 amending Sec. 39.15(b)(2), which 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
is consolidating paragraphs (b)(2)(i) and (ii) and renumbering
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 amending 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 changes are mere clarifications of
existing requirements, they also have no impact on the reporting
burden.
Similarly, the Commission is removing 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 adding 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 new 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 deleting 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 change will decrease the reporting burden. In
addition, the Commission is removing 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 will
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 will collectively
decrease the reporting burden because the requirements being removed
through the deletion of paragraph (b)(2)(i)(I) are, as a whole, more
burdensome than the requirements being added in paragraph (b)(2)(vii).
Similarly, the Commission is removing the requirement in existing
paragraph (b)(2)(i)(K) to discuss a DCO's default management procedures
generally and maintaining only the requirement to address default
management procedures unique to the products eligible for commingling
and moving that requirement to paragraph (b)(2)(vi). This narrowing of
the scope of

[[Page 53674]]

the requirement reduces the reporting burden on the relevant DCOs.
The Commission is amending paragraph (b)(2)(i)(B) (renumbered as
paragraph (b)(2)(ii)), 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 address any risk
characteristics of products to be commingled that are unusual in
relation to the other products the DCO clears, such as margining,
liquidity, default management, pricing, or other risk characteristics,
and how the DCO plans to manage any risks identified. Because such
analysis 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 will now be required to
do so, this will increase the reporting burden. However, the Commission
expects this increase to be negligible, as this provision would only
apply when a DCO is considering a new commingling of customer positions
in various products, and only when the risk characteristics of products
to be commingled are unusual in relation to other products the DCO
clears.
The Commission is amending paragraph (b)(2)(i)(F) (and renumbering
it as paragraph (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 this
amendment will have no impact on the reporting burden. Although the new
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 amendment only requires reporting when additional
requirements are, in fact, applicable.
The Commission believes that the reductions in the reporting burden
resulting from the deletion of paragraphs (b)(2)(i)(C), (E), (H), and
(L) and the narrowing of the reporting burden resulting from the
deletions of paragraphs (b)(2)(i)(I) and (K) (even after giving effect
to the addition of new paragraphs (b)(2)(vi) and (vii)) are at least as
great as the increase in the reporting burden resulting from the
amendments to paragraph (b)(2)(i)(B) (renumbered as paragraph
(b)(2)(ii)). Because the Commission lacks the data to fully quantify
each of these changes, it is conservatively estimating that these
changes collectively do not alter 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 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 adopting the proposed amendments to Sec.
39.19(c)(1)(i)(A) that 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 is
amending 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 clarification will not affect the
burden on DCOs because DCOs already provide this information and the
impact of this amendment on the existing burden is negligible.
The Commission also is amending 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 change is anticipated to result in a negligible decrease
from the current burden of 0.5 burden hours per report.\22\
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\22\ 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 also is adopting new Sec. 39.19(c)(1)(iii), as
proposed, which will give a DCO the ability, after consultation with
the Division, to voluntarily submit any additional data field in its
daily reports that is necessary or appropriate to better capture the
information that is being reported. The Commission believes that adding
this provision to Sec. 39.19(c)(1) does not affect the existing burden
estimates for daily reporting. Although it is unclear at this time
whether any DCOs will decide to voluntarily submit additional data
fields in their daily reports and how frequently they will do so, the
Commission believes that the impact of this new provision on the
existing daily reporting burden is negligible. The Commission does not
anticipate that DCOs will add information to their daily reports if
doing so is a burden. The Commission instead anticipates that voluntary
reporting by DCOs likely will consist only of data that already is
maintained in reportable format and that can be included in the daily
reports with minimal effort.
The Commission is also adding to part 39 an appendix that will
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 will not change the reporting
burden.\23\
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\23\ 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 is adding new fields within new appendix C that
would further implement the existing daily reporting requirements under
Sec. 39.19(c)(1). Specifically, the Commission is adopting a
requirement 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 adopting a requirement that 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 not
adopting a proposed requirement that each DCO include in its daily
reports timing information about variation margin calls and payments,
but is adopting a proposed requirement to include in its daily reports
information that reflects that the daily report is complete. Lastly, in
connection with adopting a new requirement in Sec. 39.19(c)(1)(i) that
a DCO include in its daily reports the results of its required daily
margin model backtesting, the Commission also is adding to new appendix
C amended versions of the additional data fields necessary to implement
this requirement.

[[Page 53675]]

With respect to adding new fields to new appendix C, and adding to
Sec. 39.19(c)(1)(i) a requirement that a DCO include in its daily
reports the results of its required margin model backtesting, the
Commission believes that the incremental capital investment costs
associated with implementing these requirements would be negligible. In
many cases, the new 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 fields would leverage the DCO's existing server
architecture that could be scaled up to meet these requirements with
negligible costs. However, to the extent that a DCO does not currently
use any of the information that would be required under the 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 new fields, specifically including costs for coding, as
well as testing, quality assurance, and compliance review. As explained
below in connection with its discussion of cost-benefit considerations,
the Commission has estimated \24\ that DCOs may incur other start-up
costs of approximately $69,667.21 per DCO.\25\ CME commented that it
believes the time required to implement the proposed changes would be
``an order of magnitude greater than predicted,'' which would add to
the costs. However, CME did not quantify the amount by which it
believes that costs would be increased, and as a result, the Commission
is reluctant to adjust its estimates based on this comment.
Furthermore, the Commission is not adopting all of the new fields that
were proposed, which would reduce the costs that may be incurred by
DCOs to implement the required changes relative to the initial
proposal. Accordingly, the Commission believes that retaining its
initial estimates of these costs in the proposal (excluding estimates
of any proposals not being adopted in the final rule) addresses CME's
concern that the Commission's initial estimates of the costs of
implementation were not adequate, while accounting for the fact that
costs were reduced by the Commission's decision not to adopt all of the
relevant proposals.
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\24\ 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.
\25\ 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; $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 backtesting 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. The amount that was
estimated for the payment file in the proposal, $39,907.22, is not
being included here, because the Commission did not adopt the
proposal for the payment file.
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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 adding the new fields
to new appendix C, and adding to Sec. 39.19(c)(1)(i) a requirement
that a DCO include in its daily reports the results of the margin model
backtesting, will result in a negligible increase to the current
estimate of 0.5 burden hours per report. Accordingly, the Commission
retains its existing estimate for the burden associated with daily
reporting under Sec. 39.19(c)(1).
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: 1,625.
d. Event-Specific Reporting
Regulation Sec. 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 amending 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 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 amendment is negligible.
Regulation Sec. 39.19(c)(4)(xii) and (xiii) require notification
of changes in a liquidity funding arrangement or settlement bank
arrangement. The Commission is amending these regulations to clarify
that the reporting requirements include reporting new arrangements as
well as changes to existing ones. The clarification will not affect the
burden on DCOs because such reporting is already implied in the
regulation.
Separately, the Commission is amending 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 proposed to revise Sec. 39.18(g) to delete the
materiality threshold. Proposed changes would also

[[Page 53676]]

have required 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 Commission estimated
that these changes would require DCOs to file an additional four
reports per year, on average. The Commission received several comments
stating that this estimate is too low. The Commission is not adopting
these changes, however, and is therefore removing the proposed
additional four reports per year from the reporting burden.
The Commission proposed modifying the reporting obligations under
Sec. 39.18(g)(1) and new Sec. 39.18(g)(2) to specify that only events
that impact, or potentially impact, a DCO's clearing operations must be
reported under each subsection. The Commission is not adopting these
changes.
Finally, the Commission is adding 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 revising 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 will
cause a negligible decrease in costs that will 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: 14.
Average number of hours per report: 0.5.
Estimated gross annual reporting burden: 91.
e. Public Information
The Commission is revising 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 amending 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 will remain unchanged. The
changes do not affect the burden for the majority of DCOs that are
subject to the public disclosure requirements. For fully collateralized
DCOs, the 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.

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.\26\ 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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\26\ 7 U.S.C. 19(a).
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The Commission recognizes that the final rule may impose costs. The
Commission has endeavored to assess the expected costs and benefits of
the final rule in quantitative terms, including PRA-related costs,
where possible. 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 rules in qualitative
terms. The lack of data and information to estimate those costs is
attributable in part to the nature of the final rule. Additionally, any
initial and recurring compliance costs for any particular DCO will
depend on the size, existing infrastructure, practices, and cost
structure of the DCO.
To further the Commission's consideration of the costs and benefits
imposed by the proposal, the Commission invited comments from the
public on all aspects of its cost-benefit considerations, including the
identification and assessment of any costs and benefits not discussed
by the Commission; 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. To the extent that the Commission received comments
specific to the costs and benefits of the proposed changes, those
comments are discussed in the relevant sections below.
2. Baseline
The baseline for the Commission's consideration of the costs and
benefits of this final rule is: (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 of costs and benefits
is based on its understanding that the derivatives market regulated by
the Commission 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 registered with the Commission; 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
final rule on all relevant derivatives activity, whether based on their
actual occurrence in the United

[[Page 53677]]

States or on their connection with, or effect on U.S. commerce.\27\
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\27\ See, e.g., 7 U.S.C. 2(i).
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3. Amendments to Sec. 39.13(h)(5)
a. Benefits
The Commission is adopting new Sec. 39.13(h)(5)(iii), which
provides that a DCO that clears fully collateralized positions may
exclude from the requirements of paragraphs (h)(5)(i) and (ii), which
concern clearing members' risk management policies and procedures,
those clearing members that clear only fully collateralized positions.
The requirements would still apply to clearing members that clear fully
collateralized positions but also clear margined products.
Fully collateralized positions do not expose DCOs to many of the
risks that 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 adopting 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. Furthermore, the Commission believes
that this amendment will provide a benefit to DCOs that clear fully
collateralized positions, as they will no longer need to meet a
requirement that does not apply to their clearing model.
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 Sec.
39.13(h)(5)(iii) may increase operational efficiency for DCOs that
clear fully collateralized positions. The provision 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 this provision.
4. Amendments to Sec. 39.15(b)(2)
a. Benefits
The Commission is amending 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 that
the amendments will help DCOs, 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 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 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 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 and moving that
requirement to paragraph (b)(2)(vi), the amended 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 amendments to
Sec. 39.15(b)(2) will decrease DCOs' costs associated with seeking
commingling approval. These changes most meaningfully reduce 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. Paragraph (b)(2)(vii),
as amended, 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). 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 (renumbered as Sec. 39.15(b)(2)(ii)), 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. The Commission is adding to Sec.
39.15(b)(2)(ii) the requirement that a DCO's analysis address any
characteristics that are unusual in relation to the other products
cleared by the DCO, such as margining, liquidity, default management,
pricing, or other risk characteristics. The Commission believes that a
DCO may incur additional minor costs, but only to the extent that the
products do in fact have margining, liquidity, default management,
pricing, or other risk characteristics that are unusual in relation to
those currently cleared by the DCO. Lastly, to the extent paragraph
(b)(2)(vi) on default management procedures extends beyond the scope of
existing paragraph (b)(2)(i)(J) or (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 amendments to

[[Page 53678]]

Sec. 39.15(b)(2) in light of the specific considerations identified in
section 15(a) of the CEA. The Commission believes that the 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, 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 amendments to Sec. 39.15(b)(2).
5. Notification of Exceptional Events--Sec. 39.18(g)
a. Benefits
For reasons discussed in greater detail above, the Commission is
declining to adopt the proposal 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 deleting the materiality element from
the requirement to report malfunctions that materially impair, or
create a significant likelihood of material impairment of, the DCO's
automated systems. Similarly, the Commission is also declining to adopt
the remaining proposed changes to Sec. 39.18(g), including the
elimination of the materiality threshold for reporting of other
exceptional events, the addition of new language regarding reporting
for operator error, the addition of untargeted threats as a reporting
event, and definitions for ``hardware or software malfunction'' and
``automated system.'' The retention of the current regulatory
framework, including the reporting threshold which affords discretion
to DCOs to report only material events, will benefit DCOs by allowing
the expenditure of less time and fewer resources to report events of no
significance, the knowledge of which would provide little or no
informational value to the Division.
b. Costs
Commenters stated that the Commission underestimated the increase
in reporting obligations as a result of the proposal to eliminate the
materiality threshold for the reporting of exceptional events under
Sec. 39.18(g) (estimated at four reports per DCO per year) as well as
the costs of such notifications (estimated at $152 per year). The
Commission is not adopting the proposal to remove the materiality
threshold or any of the other proposed changes to Sec. 39.18(g).
c. Section 15(a) Factors
As the Commission is not adopting the proposed amendments to Sec.
39.18(g), a consideration of costs and benefits under section 15(a) is
not applicable for this subsection.
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 amending 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.
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. The Commission did not receive any comments on the costs or
benefits associated with these changes.
b. Costs
The Commission expects that DCOs and their clearing members will
not incur any costs related to the amendments to Sec.
39.19(c)(1)(i)(B) and (C), as the Commission is eliminating the
existing requirement that DCOs report to the Commission on a daily
basis variation margin and cash flows by individual customer account.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of the 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 amendments to Sec.
39.19(c)(1)(i)(B) and (C) will 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
amendments will 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
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 adding a new appendix C to part 39 that codifies
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 codifying the
Reporting Guidebook will not result in material benefit to currently
registered DCOs, the Commission believes that it likely will 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). The Commission did not receive any comments on the costs
or benefits associated with these changes.
b. Costs
The Commission does not expect that DCOs will incur increased costs
related to codifying the reporting fields from the Reporting Guidebook
in new appendix C to part 39. DCOs have been relying on the Reporting
Guidebook for nearly a decade to satisfy their daily 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 codifying the Reporting Guidebook as appendix
C 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 adding new appendix C to part 39 to
codify the reporting fields set forth in the existing Reporting
Guidebook does not implicate the section 15(a) factors.

[[Page 53679]]

8. Additional Reporting Fields for the Daily Reporting Requirements--
Sec. 39.19(c)(1)
a. Benefits
The Commission is adding several new reporting fields that will be
incorporated into new appendix C to part 39.\28\ The Commission is
requiring 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.
Additionally, the Commission is requiring DCOs that clear interest rate
swaps, forward rate agreements, or inflation index swaps to include in
their daily reports the actual trade date for each position along with
an event description. Additionally, the Commission is requiring DCOs to
include in their daily reports information that reflects that the daily
report is complete. Lastly, in connection the new requirement in Sec.
39.19(c)(1)(i) that a DCO include in its daily reports the results of
its required daily margin model backtesting, the Commission also is
adding to new appendix C amended versions of the additional data fields
necessary to implement this requirement.\29\ This information,
separately and in the aggregate, is expected to assist the Commission
in conducting more effective oversight of DCOs, thereby enhancing the
protections afforded to the markets generally. The Commission did not
receive any comments on the benefits associated with these changes.
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\28\ As noted previously, the Commission is not adopting the
proposal that each DCO include in its daily reports timing
information about VM calls and payments.
\29\ Although the costs, benefits, and section 15(a) factors
associated with the requirement in Sec. 39.19(c)(1)(i) that a DCO
include backtesting results in its daily report are addressed
separately below, the costs associated with the implementation of
this requirement via the amended new daily reporting fields in
appendix C are addressed in this section.
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b. Costs
The Commission believes that the costs associated with adding these
new daily reporting fields to 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
regulation 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
addition of new daily reporting fields in new appendix C, and the
requirement that DCOs include information on their backtesting results
in their daily reports 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 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 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.\30\ Using this method, the Commission estimates the total start-
up costs to be approximately $69,667.21 per DCO.\31\
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\30\ 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.
\31\ 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; $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 backtesting 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. The amount that was
estimated for the payment file in the proposal, $39,907.22, is not
being included here, because the Commission did not adopt the
proposal for the payment file.
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CME commented on the cost-benefit considerations related to the
addition of these new daily reporting fields, arguing that the
Commission severely underestimated the amount of time that would be
required to comply with the requirement. Specifically, CME commented
that it believes the time required to implement the proposed changes
would be ``an order of magnitude greater than predicted,'' which would
add to the costs. However, CME did not quantify the amount by which it
believes that costs would be increased, and as a result, the Commission
is reluctant to adjust its estimates based on this comment.
Furthermore, the Commission is not adopting all of the new fields that
were proposed, which would reduce the costs that may be incurred by
DCOs to implement the required changes. Accordingly, the Commission
believes that retaining its initial estimates of these costs in the
proposal (excluding estimates of any proposals not being adopted in the
final rule) addresses CME's concern that the Commission's initial
estimates of the costs of implementation were not adequate, while
accounting for the fact that costs were reduced by the Commission's
decision not to adopt all of the relevant proposals.
c. Section 15(a) Factors
In addition to the discussion above, the Commission has evaluated
the costs and benefits of adding 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. Requiring 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

[[Page 53680]]

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 change.
9. Daily Reporting of Margin Model Backtesting--Sec. 39.19(c)(1)(i)
a. Benefits
The Commission is adding to Sec. 39.19(c)(1)(i) a requirement that
DCOs include in their daily reports the results of the margin model
backtesting that DCOs are required to perform daily pursuant to Sec.
39.13(g)(7)(i). Because margin model backtesting results are a crucial
element of an effective risk surveillance program, obtaining this
information will allow the Commission to conduct more effective
oversight of DCOs, thereby enhancing the protections afforded to the
markets generally. The Commission did not receive any comments on the
costs or benefits associated with these changes.
b. Costs
The Commission expects that requiring DCOs to report backtesting
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. Additionally,
the Commission has revised the fields in new appendix C to part 39 for
reporting backtesting results to address concerns expressed by
commenters and better align those fields with the manner in which DCOs
calculate their backtesting results, since DCOs do not perform
backtesting and calculate the results in a uniform manner. However, to
the extent that a DCO does not maintain the required information in the
required standardized format, 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 new fields in appendix C.
The Commission notes, however, that some DCOs are already voluntarily
providing backtesting 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 requiring DCOs to report backtesting results
daily in light of the specific considerations identified in section
15(a) of the CEA. Requiring DCOs to report backtesting 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 adding to Sec.
39.19(c)(1)(i) a requirement that DCOs include in their daily reports
the results of their daily margin model backtesting.
10. Fully Collateralized Positions--Sec. 39.19(c)(1)(ii)
a. Benefits
The Commission is amending Sec. 39.19(c)(1)(ii) to clarify that
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),
which already does not apply to fully collateralized positions, and
therefore has no independent force or effect, this amendment does not
represent a substantive change. Making this change to Sec.
39.19(c)(1)(ii) provides greater certainty to DCOs, their clearing
members, and their customers, and may prevent them from having to
request guidance on this matter from the Commission or the Division in
the future. Further, the Commission believes that this amendment may
increase operational efficiency for DCOs that clear fully
collateralized positions. The Commission did not receive any comments
on the costs or benefits associated with these changes.
b. Costs
The Commission does not anticipate any non-negligible change in
costs resulting from amending Sec. 39.19(c)(1)(ii) to clarify that it
does 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 of amending Sec. 39.19(c)(1)(ii) to clarify
that this regulation does not apply to fully collateralized positions
in light of the specific considerations identified in section 15(a) of
the CEA. The Commission believes that this amendment may increase
operational efficiency for DCOs that clear fully collateralized
positions, which is in the public interest. The Commission has
considered the other section 15(a) factors and believes that they are
not implicated by the amendment.
11. Reporting Change of Control of the DCO--Sec. 39.19(c)(4)(ix)(A)(1)
a. Benefits
Regulation 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 amending 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 amendment will ensure
that the Commission has accurate knowledge of the individuals or
entities that directly or indirectly control a DCO regardless of the
corporate structures of the equity holders of the DCO. The Commission
did not receive any comments on the costs or benefits associated with
these changes.
b. Costs
The Commission expects the costs related to the amendment to Sec.
39.19(c)(4)(ix)(A)(1) to be negligible. Specifically, the Commission
expects a negligible cost burden with respect to the changes, in part
because the changes of control contemplated by the 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. 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 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 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 amendments are anticipated to provide the
Commission with a better understanding of the

[[Page 53681]]

organizational structure of the ownership of the DCO, potentially
illuminating whether any individuals or entities that directly or
indirectly control a DCO also have ownership stakes in other
registrants or registered entities. The Commission has considered the
other section 15(a) factors and believes that they are not implicated
by the amendments to Sec. 39.19(c)(4)(ix)(A)(1).
12. 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 amending 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. This amendment expands the reporting requirement,
which previously applied only to any settlement bank used by the DCO or
approved for use by the DCO's clearing members, to apply as well to any
credit facility funding arrangement, liquidity funding arrangement, or
custodian bank used by the DCO or approved for use by the DCO's
clearing members. This amendment also changes the threshold that
triggers a DCO's reporting obligations by replacing the 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. Given the importance of credit
facility funding arrangements, liquidity funding arrangements,
custodian banks, and settlement banks to both DCOs and clearing
members, it is imperative that the Commission be informed of any known
issues or concerns regarding these entities or arrangements, especially
considering the broader impact that problems with these entities or
arrangements could have on DCOs and clearing members, as well as the
derivatives markets as a whole. As such, the reporting of this
information is expected to improve the Commission's oversight and
supervision of DCOs, clearing members, and the derivatives markets
generally. The Commission did not receive any comments on the costs or
benefits associated with these changes.
b. Costs
The Commission expects that the costs related to the 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 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 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 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
amendments to Sec. 39.19(c)(4)(xv).
13. Reporting of Updated Responses to the Disclosure Framework for
Financial Market Infrastructures--Sec. 39.19(c)(4)(xxv)
a. Benefits
The Commission is adopting 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. This amendment further
centralizes within Sec. 39.19 the obligations of DCOs to report
information to the Commission, which benefits affected DCOs by
consolidating their reporting obligations within one location. The
Commission did not receive any comments on the costs or benefits
associated with these changes.
b. Costs
The Commission does not anticipate any costs associated with the
adoption of Sec. 39.19(c)(4)(xxv) because it does not alter the
existing 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 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 adoption of Sec.
39.19(c)(4)(xxv).
14. Publication of Margin-Setting Methodology and Financial Resource
Package Information--Sec. 39.21(c)(3) and (4)
a. Benefits
The Commission is amending 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
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 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 amendments to Sec.
39.21(c)(3) and (4) 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
amendments to Sec. 39.21(c)(3) and (4).

[[Page 53682]]

15. Excluding Eligible DCOs From the Requirement in Sec. 39.21(c)(7)
To Publish a List of Clearing Members
a. Benefits
The Commission is amending 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 amendment
will 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
amendments to Sec. 39.21(c)(7), as the 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 amendments to Sec. 39.21(c)(7) in light
of the specific considerations identified in section 15(a) of the CEA.
The Commission believes that the amendments to Sec. 39.21(c)(7) will
have a limited and rather moderately beneficial effect on 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 amendments to Sec. 39.21(c)(7) will 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
amendments to Sec. 39.21(c)(7).
16. Clarifying the Disclosure Obligations in Sec. 39.37
a. Benefits
The Commission is amending Sec. 39.37(c) and (d) to clarify that
public disclosure of the information described in those paragraphs is
all that is required. The changes to Sec. 39.37(c) and (d) will
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
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 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 changes.
17. Amendments to Sec. 140.94(c)(10)
a. Benefits
The Commission is amending 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 delegation of
authority will 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
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 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.\32\
---------------------------------------------------------------------------

\32\ 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. In the proposal,
the Commission requested comment on whether: (1) the proposed
rulemaking implicates any other specific public interest to be
protected by the antitrust laws; (2) the proposed rulemaking is
anticompetitive and, if it is, what the anticompetitive effects are;
and (3) 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. The Commission did not receive any
comments in response.
The Commission has considered the final rule to determine whether
it is anticompetitive and has identified no anticompetitive effects.
Because the Commission has determined that the rules are not
anticompetitive and have no anticompetitive effects, the Commission has
not identified any less anticompetitive means of achieving the purposes
of the CEA.

List of Subjects

17 CFR Part 39

Reporting and recordkeeping requirements.

17 CFR Part 140

Authority delegations (Government agencies).

For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 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.

Sec. 39.2 [Amended]

0
2. Amend Sec. 39.2 by removing ``Back test'' and adding in its place
``Backtest''.

Sec. 39.5 [Amended]

0
3. Amend Sec. 39.5 in paragraph (b)(3)(vi) by removing ``back
testing'' and adding in its place ``backtesting''.

0
4. Amend Sec. 39.13 as follows:
0
a. In paragraph (g)(7), remove ``Back tests'' and ``back tests''
wherever they appear and add in their places ``Backtests'' and
``backtests'', respectively.

[[Page 53683]]

0
b. In paragraph (h)(5)(i)(A), add the word ``and'' at the end of the
paragraph;
0
c. Revise paragraph (h)(5)(i)(B);
0
d. Remove paragraph (h)(5)(i)(C); and
0
e. Add paragraph (h)(5)(iii).
The revision and addition 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.
* * * * *
(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
5. Amend 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 that would be used to
define eligible products;
(ii) Analysis of the risk characteristics of the eligible products
and of the derivatives clearing organization's ability to manage those
risks, addressing any characteristics that are unusual in relation to
the other products cleared by the derivatives clearing organization,
such as margining, liquidity, default management, pricing, or other
risk characteristics;
(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); and
(viii) Any other information necessary for the Commission to
determine the rule submission's compliance with the Act and the
Commission's regulations in this chapter, 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
6. Amend Sec. 39.19 as follows:
0
a. Revise paragraph (c)(1)(i) and the introductory text of paragraph
(c)(1)(ii);
0
b. Add paragraph (c)(1)(iii);
0
c. Revise paragraphs (c)(4)(ix)(A)(1) and (c)(4)(xii), (xiii), and
(xv); and
0
d. Add 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 a.m. on the
next business day, a report containing the results of the backtesting
required under Sec. 39.13(g)(7)(i), and the following information
related to all positions, other than fully collateralized positions, in
accordance with the data fields set forth in appendix C to this part:
(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 field that is necessary or appropriate to better

[[Page 53684]]

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 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
7. 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
8. 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
9. Amend Sec. 39.37 by revising paragraph (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
10. Add appendix C to part 39 to read as follows:

Appendix C to Part 39--Daily Reporting Data Fields

A. Daily Cash Flow Reporting

----------------------------------------------------------------------------------------------------------------
House & Individual
Field name Description customer customer
origin account
----------------------------------------------------------------------------------------------------------------
Common Fields (Daily Cash Flow Reporting)
----------------------------------------------------------------------------------------------------------------
Total Message Count.......................... The total number of reports included M M
in the file.
FIXML Message Type........................... Financial Information eXchange Markup M M
Language (FIXML) account summary
report type.
Sender ID.................................... The CFTC-issued derivatives clearing M M
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 the M M
Commodity Futures Trading Commission
(CFTC) to each clearing member
report.
Report Date.................................. The business date of the information M M
being reported.
Base Currency................................ Base currency referenced throughout M M
report; provide exchange rate
against this currency.
Report Time (Message Create Time)............ The report ``as of'' or information M M
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.

[[Page 53685]]

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 a C C
particular clearing member per
International Organization for
Standardization (ISO) 17442.
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.
Customer Position Name....................... The name associated with the customer M N/A
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 customer N/A C
margin identifier.
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.
Customer Margin Account Type................. Account type indicator............... N/A M
----------------------------------------------------------------------------------------------------------------
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 the M M
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/offer C C
costs associated with the
liquidation of a large portfolio..
Margin Calls................................. Any outstanding margin call that has M N/A
been issued but not collected as of
the end of the trade date.
Total Margin................................. The total margin requirement for the M N/A
origin. This margin requirement
should include the initial margin
requirement plus any additional
margin required by the DCO.
Variation Margin............................. Variation margin should include the M N/A
net sum of all cash flows between
the DCO and clearing members by
origin.
Market Move Risk............................. Margin amount associated with market C C
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 C
trading date. The amount of money
that the options buyer must pay the
options seller.
Net Option Value............................. The credit or debit amount based on C C
the long or short options positions.
Backdated Profit and Loss.................... The profit and loss (P&L) attributed O N/A
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 omnibus N/A C
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 the M M
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 has M N/A
been issued but not collected as of
the end of the trade date.
Total Margin................................. The total margin requirement for the M M
origin. This margin requirement
should include the initial margin
requirement plus any additional
margin required by the DCO.
Variation Margin............................. Variation margin should include the M N/A
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 added C N/A
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).
----------------------------------------------------------------------------------------------------------------
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 the M M
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/offer C C
costs associated with the
liquidation of a large portfolio..

[[Page 53686]]

Margin Calls................................. Any outstanding margin call that has M N/A
been issued but not collected as of
the end of the trade date.
Total Margin................................. The total margin requirement for the M C
origin. This margin requirement
should include the initial margin
requirement plus any additional
margin required by the DCO.
Variation Margin............................. Variation margin should include the M N/A
net sum of all cash flows between
the DCO and clearing members by
origin.
Spread Response Risk......................... Risk factor component associated with C C
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 with C C
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 most C C
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 with C C
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 a C C
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 coupon O N/A
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 day M N/A
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-day M N/A
position from par (100%) to the end-
of-day settlement price.
Backdated Profit and Loss.................... The P&L attributed to positions added C N/A
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 cash M N/A
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.
----------------------------------------------------------------------------------------------------------------
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 the M M
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 has M N/A
been issued but not collected as of
the end of the trade date.
Total Margin................................. The total margin requirement for the M M
origin. This margin requirement
should include the initial margin
requirement plus any additional
margin required by the DCO.
Variation Margin............................. Variation margin should include the M N/A
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 cash M N/A
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.
Backdated Profit and Loss.................... The P&L attributed to positions added C N/A
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).
----------------------------------------------------------------------------------------------------------------
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.

[[Page 53687]]

Initial Margin............................... Margin requirement calculated by the M M
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 has M N/A
been issued but not collected as of
the end of the trade date.
Total Margin................................. The total margin requirement for the M M
origin. This margin requirement
should include the initial margin
requirement plus any additional
margin required by the DCO.
Variation Margin............................. Variation margin should include the M N/A
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 value C N/A
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 flows M N/A
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 cash M N/A
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.
Accrued Coupon............................... Coupon obligation from the first day M N/A
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 added C N/A
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 wi

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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.