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6351-01-P COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 39, 140, and 190 RIN Number 3038-AE06 Derivatives Clearing Organizations and International Standards AGENCY: Commodity Futures Trading Commission. ACTION: Final Rule. SUMMARY: The Commodity Futures Trading Commission (“Commission”) is adopting final regulations to establish additional standards for compliance with the derivatives clearing organization (“DCO”) core principles set forth in Section 5b(c)(2) of the Commodity Exchange Act (“
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   1 6351-01-P COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 39, 140, and 190 RIN Number 3038-AE06 Derivatives Clearing Organizations and International Standards AGENCY: Commodity Futures Trading Commission. ACTION: Final Rule. SUMMARY:  The Commodity Futures Trading Commission (“Commission”) is adopting final regulations to establish additional standards for compliance with the derivatives clearing organization (“DCO”) core principles set forth in Section 5b(c)(2) of the Commodity Exchange Act (“CEA”) for systemically important DCOs (“SIDCOs”) and DCOs that elect to opt-in to the SIDCO regulatory requirements (“Subpart C DCOs”). Pursuant to the new regulations, SIDCOs and Subpart C DCOs are required to comply with the requirements applicable to all DCOs, which are set forth in the Commission’s DCO regulations on compliance with core principles, to the extent those requirements are not inconsistent with the new requirements set forth herein. The new regulations include provisions concerning: procedural requirements for opting in to the regulatory regime as well as substantive requirements relating to governance, financial resources, system safeguards, special default rules and procedures for uncovered losses or shortfalls, risk management, additional disclosure requirements, efficiency, and recovery and wind-down procedures. These additional requirements are consistent with the Principles for Financial Market Infrastructures (“PFMIs”) published by the Committee on Payment and Settlement Systems and the Board of the International Organization of   2 Securities Commissions (“CPSS-IOSCO”). In addition, the Commission is adopting certain delegation provisions and certain technical clarifications. DATES:  Amended Regulation 190.09 will take effect immediately. Regulations 39.31 and 140.94 will take effect on December 13, 2013. The remaining regulations set forth herein will take effect on December 31, 2013, in accordance with the Commission’s goal of implementing DCO regulations that are consistent with the PFMIs by the end of calendar year 2013. FOR FURTHER INFORMATION CONTACT: Ananda Radhakrishnan, Director, Division of Clearing and Risk (“DCR”), at 202-418-5188 or  aradhakrishnan@cftc.gov; Robert B. Wasserman, Chief Counsel, DCR, at 202-418-5092 or rwasserman@cftc.gov; M. Laura Astrada, Associate Chief Counsel, DCR, at 202-418-7622 or lastrada@cftc.gov; Peter A. Kals, Special Counsel, DCR, at 202-418-5466 or  pkals@cftc.gov; Jocelyn Partridge, Special Counsel, DCR, at 202-418-5926 or  jpartridge@cftc.gov; or Tracey Wingate, Special Counsel, DCR, at 202-418-5319 or twingate@cftc.gov, in each case, at the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC 20581. SUPPLEMENTARY INFORMATION: TABLE OF CONTENTS I. Background A.   Regulatory Framework for Registered DCOs B.   Designation of DCOs as Systemically Important under Title VIII of the Dodd-Frank Act C.   Existing Standards for SIDCOs D.   DCO Core Principles and Regulations for Registered DCOs E.   PFMIs F.   The Role of the PFMIs in International Banking Standards G.    New Regulations Applicable to SIDCOs and Subpart C DCOs II. Discussion of Revised and New Regulations A.   Regulation 39.2 (Definitions)   3 B.   Regulation 39.30 (Scope) C.   Regulation 39.31 (Election to become subject to the provisions of Subpart C) D.   Regulation 39.32 (Governance for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations) E.   Regulation 39.33 (Financial resources requirements for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations) F.   Regulation 39.34 (System safeguards for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations) G.   Regulation 39.35 (Default rules and procedures for uncovered credit losses or liquidity shortfalls (recovery) for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations) H.   Regulation 39.36 (Risk management for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations) I.   Regulation 39.37 (Additional disclosure for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations) J.   Regulation 39.38 (Efficiency for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations) K.   Regulation 39.39 (Recovery and wind-down for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations) L.   Regulation 39.40 (Consistency with the Principles for Financial Market Infrastructures)   M.   Regulation 39.41 (Special enforcement authority for systemically important derivatives clearing organizations)  N.   Regulation 39.42 (Advance notice of material risk-related rule changes by systemically important derivatives clearing organizations) O.   Regulation 140.94 (Delegation of authority to the Director of the Division of Clearing and Risk) P.   Regulation 190.09 (Member property) III. Effective Date A. Congressional Review Act B. Administrative Procedure Act IV. Related Matters A.   Paperwork Reduction Act B.   Regulatory Flexibility Act C.   Consideration of Costs and Benefits   4 I.   Background A. Regulatory Framework for Registered DCOs On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). 1  Title VII of the Dodd-Frank Act, entitled the “Wall Street Transparency and Accountability Act of 2010,” 2  amended the Commodity Exchange Act (“CEA” or the “Act”) 3  to establish a comprehensive regulatory framework for over-the-counter (“OTC”) derivatives, including swaps. Section 725(c) of the Dodd-Frank Act amended Section 5b(c)(2) of the CEA, which sets forth core principles that a DCO must comply with in order to register and maintain registration with the Commission. In furtherance of the goals of the Dodd-Frank Act to reduce risk, increase transparency, and promote market integrity, the Commission, pursuant to the Commission’s enhanced rulemaking authority, 4  adopted regulations establishing standards for compliance with the DCO core principles. 5   1  Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the Dodd-Frank Act may be accessed at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/hr4173_enrolledbill.pdf . 2  Section 701 of the Dodd-Frank Act. 3  7 U.S.C. 1 et seq. 4  See Section 725(c)(2)(i) of the Dodd Frank Act (giving the Commission explicit authority to promulgate rules regarding the core principles pursuant to its rulemaking authority under Section 8a(5) of the CEA, 7 U.S.C. 12a(5)). 5  See Derivatives Clearing Organization General Provisions and Core Principles, 76 FR 69334 (Nov. 8, 2011). These regulations are set forth in Subpart A and Subpart B of part 39 of the Commission’s regulations (“Subpart A” and “Subpart B,” respectively).
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