2012-15481

Federal Register, Volume 77 Issue 124 (Wednesday, June 27, 2012)[Federal Register Volume 77, Number 124 (Wednesday, June 27, 2012)]

[Proposed Rules]

[Pages 38229-38236]

From the Federal Register Online via the Government Printing Office [www.gpo.gov]

[FR Doc No: 2012-15481]

=======================================================================

-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 43

RIN 3038-AD84

Rules Prohibiting the Aggregation of Orders To Satisfy Minimum

Block Sizes or Cap Size Requirements, and Establishing Eligibility

Requirements for Parties to Block Trades

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Commodity Futures Trading Commission (``Commission'') is

issuing a notice of proposed rulemaking to add certain provisions to

part 43 of the Commission's regulations pertaining to block trades in

swap contracts. The provisions would: (i) Prohibit the aggregation of

orders for different trading accounts in order to satisfy the minimum

block size or cap size requirements, except for orders aggregated by

certain commodity trading advisors (``CTAs''), investment advisers and

foreign persons (as described in this release), if such person has more

than $25,000,000 in total assets under management (``AUM''); (ii)

provide that parties to a block trade must individually qualify as

eligible contract participants (``ECPs''), except where a designated

contract market allows certain CTAs, investment advisers and foreign

persons (as described in this release), to transact block trades for

customers who are not ECPs, if such CTA, investment adviser or foreign

person has more than $25,000,000 in total AUM; and (iii) require that

persons transacting block trades on behalf of customers must receive

prior written instruction or consent from the customer to do so.

DATES: Comments must be received on or before July 27, 2012.

ADDRESSES: You may submit comments, identified by RIN number [TBD], by

any of the following methods:

The agency's Web site: at http://comments.cftc.gov. Follow

the instructions for submitting comments through the Web site.

Mail: David A. Stawick, Secretary of the Commission,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street NW., Washington, DC 20581.

Hand Delivery/Courier: Same as mail above.

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

Please submit your comments using only one method.

All comments must be submitted in English, or if not, accompanied

by an English translation. Comments will be posted as received to

www.cftc.gov. You should submit only information that you wish to make

available publicly. If you wish the Commission to consider information

that you believe is exempt from disclosure under the Freedom of

Information Act, a petition for confidential treatment of the exempt

information may be submitted according to the procedures established in

Sec. 145.9 of the Commission's regulations.\1\

---------------------------------------------------------------------------

\1\ See 17 CFR 145.9.

---------------------------------------------------------------------------

Commenters to this notice of proposed rulemaking are requested to

refrain from providing comments with respect to the provisions in part

43 of the Commission's regulations that are beyond the scope of this

notice of proposed rulemaking. The Commission only plans to address

those comments that are responsive to the policies, merits and

substance of the proposed provisions set forth in this notice of

proposed rulemaking.

The Commission reserves the right, but shall have no obligation, to

review, pre-screen, filter, redact, refuse or remove any or all of your

submission from www.cftc.gov that it may deem to be inappropriate for

publication, such as obscene language. All submissions that have been

redacted or removed that contain comments on the merits of the

rulemaking will be retained in the public comment file and will be

considered as required under the Administrative Procedure Act and other

applicable laws, and may be accessible under the Freedom of Information

Act.

FOR FURTHER INFORMATION CONTACT: Nancy Markowitz, Deputy Director,

Division of Market Oversight, 202-418-5453, nmarkowitz@cftc.gov; Nadia

Zakir, Special Counsel, Division of Market Oversight, 202-418-5720,

nzakir@cftc.gov; Laurie Gussow, Attorney-Advisor, 202-418-7623,

lgussow@cftc.gov; George Pullen, Economist, Division of Market

Oversight, 202-418-6709, gpullen@cftc.gov; Esen Onur, Economist, Office

of the Chief Economist, 202-418-6146, eonur@cftc.gov; or Herminio

Castro,

[[Page 38230]]

Counsel, Office of General Counsel, 202-418-6705, hcastro@cftc.gov,

Commodity Futures Trading Commission, Three Lafayette Center, 1155 21st

Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

A. The Dodd-Frank Act

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street

Reform and Consumer Protection Act (``Dodd-Frank Act'').\2\ Title VII

of the Dodd-Frank Act \3\ amended the Commodity Exchange Act (``CEA''

or ``Act'') \4\ to establish a comprehensive, new regulatory framework

for swaps and security-based swaps. This legislation was enacted to

reduce risk, increase transparency and promote market integrity within

the financial system by, inter alia: (1) Providing for the registration

and comprehensive regulation of swap dealers (``SDs'') and major swap

participants (``MSPs''); (2) imposing mandatory clearing and trade

execution requirements on standardized derivative products; (3)

creating robust recordkeeping and real-time reporting regimes; and (4)

enhancing the Commission's rulemaking and enforcement authorities with

respect to, among others, all registered entities and intermediaries

subject to the Commission's oversight.

---------------------------------------------------------------------------

\2\ See Public Law 111-203, 124 Stat. 1376 (2010).

\3\ The short title of Title VII of the Dodd-Frank Act is the

``Wall Street Transparency and Accountability Act of 2010.''

\4\ See 7 U.S.C. 1 et seq.

---------------------------------------------------------------------------

Section 727 of the Dodd-Frank Act enacted section 2(a)(13) of the

CEA, which authorizes and requires the Commission to promulgate

regulations for the real-time public reporting of swap transaction and

pricing data.\5\ Among other things, sections 2(a)(13)(E)(ii) and (iii)

of the CEA respectively require the Commission to prescribe regulations

specifying ``the criteria for determining what constitutes a large

notional swap transaction (block trade) for particular markets and

contracts'' and ``the appropriate time delay for reporting large

notional swap transactions (block trades) to the public.'' \6\

---------------------------------------------------------------------------

\5\ See generally CEA section 2(a)(13), 7 U.S.C. 2(a)(13).

\6\ See CEA sections 2(a)(13)(E)(ii) and (iii).

---------------------------------------------------------------------------

B. The Initial Proposal

In order to implement the various statutory requirements imposed

under section 2(a)(13) of the CEA, the Commission published an initial

notice of proposed rulemaking on December 7, 2010 (the ``Initial

Proposal'').\7\ As relevant to this notice of proposed rulemaking, the

Initial Proposal proposed: (1) Definitions for the terms ``large

notional off-facility swap'' and ``block trade''; \8\ (2) a method for

determining the appropriate minimum block sizes for large notional off-

facility swaps and block trades; \9\ and (3) a framework for timely

reporting of such transactions and trades.\10\

---------------------------------------------------------------------------

\7\ See Real-Time Public Reporting of Swap Transaction Data, 75

FR 76,139 (Dec. 7, 2010), as corrected in Real-Time Public Reporting

of Swap Transaction Data Correction, 75 FR 76,930 (Dec. 10, 2010)

(``Initial Proposal'').

\8\ The Initial Proposal defined the term ``large notional

swap''. See proposed Sec. 43.2(l), 75 FR 76,171. The Adopting

Release finalized the term as ``large notional off-facility swap'',

to denote, in relevant part, that the swap is not executed pursuant

to SEF or DCM rules and procedures. See Sec. 43.2, 77 FR 1182, 1244

(Jan. 9, 2012) (``Adopting Release''). Specifically, the Adopting

Release defined the term as an ``off-facility swap that has a

notional or principal amount at or above the appropriate minimum

block size applicable to such publicly reportable swap transaction

and is not a block trade as defined in Sec. 43.2 of the

Commission's regulations.'' Id.

The final definition of ``block trade'' in the Adopting Release

is similar to how that term was defined in the Initial Proposal. See

proposed Sec. 43.2(f), 75 FR 76,171. The Adopting Release defines

the term ``block trade'' as a publicly reportable swap transaction

that: ``(1) [i]nvolves a swap that is listed on a [SEF or DCM]; (2)

[o]ccurs away from the [SEF's or DCM's] trading system or platform

and is executed pursuant to the [SEF's or DCM's] rules and

procedures; (3) has a notional or principal amount at or above the

appropriate minimum block size applicable to such swap; and (4) [i]s

reported subject to the rules and procedures of the [SEF or DCM] and

the rules described in [part 43], including the appropriate time

delay requirements set forth in Sec. 43.5.'' See Sec. 43.2, 77 FR

1,243.

\9\ See proposed Sec. 43.5, 75 FR 76174-76.

\10\ Proposed Sec. 43.5(k)(1) in the Initial Proposal provided

that the time delay for the public dissemination of data for a block

trade or large notional off-facility swap shall commence at the time

of execution of such trade or swap. See 75 FR 76,176. Proposed Sec.

43.5(k)(2) provided that the time delay for standardized block

trades and large notional off-facility swaps (i.e., swaps that fall

under CEA Section 2(a)(13)(C)(i) and (iv)) would be 15 minutes from

the time of execution. Id. The Initial Proposal did not provide

specific time delays for large notional off-facility swaps (i.e.,

swaps that fall under Section 2(a)(13)(C)(ii) and (iii)). Instead,

proposed Sec. 43.5(k)(3) provided that such swaps shall be reported

subject to a time delay that may be prescribed by the Commission.

Id.

The Adopting Release established time delays for the public

dissemination of block trades and large notional off-facility swaps

in Sec. 43.5. See 77 FR 1247-49.

---------------------------------------------------------------------------

Among other requirements contained in the Initial Proposal,

proposed Sec. 43.5(b)(1) provided that eligible parties to a block

trade (or large notional swap) must be ECPs,\11\ except that a

designated contract market (``DCM'') may allow a CTA acting in an asset

managerial capacity and registered pursuant to Section 4n of the Act,

or a principal thereof, including any investment adviser who satisfies

the criteria of Sec. 4.7(a)(2)(v), or a foreign person performing a

similar role or function and subject as such to foreign regulation, to

transact block trades for customers who are not eligible contract

participants (``non-ECPS''), if such CTA, investment adviser or foreign

person has more than $25,000,000 in total AUM. The proposed rule

further required that a person transacting a block trade on behalf of a

customer must receive written instruction or prior consent from the

customer to do so.

---------------------------------------------------------------------------

\11\ See CEA Section 1a(18).

---------------------------------------------------------------------------

Furthermore, proposed Sec. 43.5(m) of the Initial Proposal

prohibited the aggregation of orders for different trading accounts in

order to satisfy the minimum block size requirement, except if done on

a DCM by a CTA acting in an asset managerial capacity and registered

pursuant to Section 4n of the Act, or a principal thereof, including

any investment adviser who satisfies the criteria of Sec.

4.7(a)(2)(v), or a foreign person performing a similar role or function

and subject as such to foreign regulation, if such CTA, investment

adviser or foreign person has more than $25,000,000 in total AUM.

The Commission issued the Initial Proposal for public comment for a

period of 60 days, but later reopened the comment period for an

additional 45 days.\12\

---------------------------------------------------------------------------

\12\ The initial comment period for the Initial Proposal closed

on February 7, 2011. The comment periods for most proposed

rulemakings implementing the Dodd-Frank Act--including the proposed

part 43 rules--subsequently were reopened for the period of April 27

through June 2, 2011.

---------------------------------------------------------------------------

1. Comments in Response to the Initial Proposal

The Commission received four comment letters in response to the

proposed aggregation rule. The American Benefits Council and the

Committee on the Investment of Employee Benefit Assets stated that

qualified investment advisers who are not CTAs should be able to

aggregate block trade orders for different trading accounts.\13\

Tradeweb commented that the CTAs that trade on SEFs should also be

permitted to aggregate trades of behalf of their customers for purposes

of block trades.\14\ J.P. Morgan commented that the proposed rule

appears to reflect a concern that private negotiation offers less

protection to unsophisticated

[[Page 38231]]

investors than trading through the central market, and that since all

entities that transact in the OTC market already must be ECPs, the

analogous concern about customer protection in the swaps market is

already addressed.\15\ In related comments, the Wholesale Market

Brokers Association (Americas) (``WMBA'') commented that ``work-up'' or

``join-the-trade'' periods be permitted and recognized to satisfy the

block trade requirement.\16\

---------------------------------------------------------------------------

\13\ The American Benefits Council and the Committee on the

Investment of Employee Benefit Assets comment letter at 3 (Feb. 7,

2011). The comment letter specifically requested that the rule be

revised such that the words ``including any'' from the second

sentence are deleted and replaced with the word ``an.''

\14\ Tradeweb comment letter at 5 (Feb. 7, 2011).

\15\ J.P. Morgan comment letter at 9, n. 13 (Jan. 12, 2011).

\16\ WMBA comment letter at 4-5 (Feb. 7, 2011) (commenting that

``the public dissemination of incremental activity that would

otherwise constitute a block trade could jeopardize identification

of counterparties and materially reduce market liquidity.'')

---------------------------------------------------------------------------

C. The Adopting Release and Further Proposal

On January 9, 2012, the Commission issued a notice of final

rulemaking \17\ (``Adopting Release'') that finalized several

provisions that were proposed in the Initial Proposal pertaining to,

among other things, the reporting, public dissemination and

recordkeeping requirements applicable to certain swap transactions.\18\

---------------------------------------------------------------------------

\17\ Real-Time Public Reporting of Swap Transaction Data, 77 FR

1,182 (Jan. 9, 2012).

\18\ Commenters are directed to the Adopting Release for a

discussion of the issues addressed therein. See id.

---------------------------------------------------------------------------

Based on the public comments received in response to the Initial

Proposal, in the Adopting Release the Commission agreed that additional

analysis was necessary prior to issuance of final rules for appropriate

minimum block sizes, and accordingly determined not to make final its

proposed Sec. 43.5 rules specifying the criteria for determining block

trade sizes. Instead, the Commission intended to issue a separate

notice of proposed rulemaking that would specifically address the

appropriate criteria for determining appropriate minimum block trade

sizes in light of data and comments received.\19\ On March 15, 2012,

the Commission decided to further propose (``Further Proposal'')

certain other block trade provisions that were included with the

Initial Proposal.\20\

---------------------------------------------------------------------------

\19\ See id. at 1,185.

\20\ Commenters are directed to the Further Proposal for a

discussion of the issues addressed therein. See ``Procedures to

Establish Appropriate Minimum Block Sizes for Large Notional Off-

Facility Swaps and Block Trades,'' 77 FR 15,460 (Mar. 15, 2012). The

comment period for the Further Proposal ended on May 14, 2012.

---------------------------------------------------------------------------

After it issued the Further Proposal, the Commission determined

that the aggregation provision and the provision that specified the

eligible parties to a block trade, including the proposed requirement

that persons transacting block trades on behalf of customers must

receive prior written instruction or consent from the customer to do

so, were inadvertently omitted from the Further Proposal. These

provisions are the subject of this notice of proposed rulemaking.

II. Notice of Proposed Rulemaking

A. Proposed Sec. 43.6(h)(6)--Aggregation

Proposed Sec. 43.6(h)(6) would prohibit the aggregation of orders

for different trading accounts in order to satisfy the minimum block

size or cap size requirements, except that aggregation is permissible

if done on a DCM or SEF by a person who: (i)(A) is a CTA registered

pursuant to Section 4n of the Act or exempt from such registration

under the Act, or a principal thereof, and who has discretionary

trading authority or directs client accounts, (B) is an investment

adviser who has discretionary trading authority or directs client

accounts and satisfies the criteria of Sec. 4.7(a)(2)(v) of this

chapter, or (C) is a foreign person who performs a similar role or

function as the persons described in (A) or (B) and is subject as such

to foreign regulation, and (ii) has more than $25,000,000 in total AUM.

The prohibition of aggregation of orders for different trading

accounts in order to meet the minimum block size or cap size

requirements is an integral element in ensuring the integrity of block

trading principles, and in preserving the basis for the anonymity

associated with cap sizes. As defined in the Adopting Release, a block

trade is a publicly reportable transaction that: (1) Involves a swap

that is listed on a registered SEF or DCM; (2) occurs away from the

registered SEF's or DCM's trading system or platform (and is executed

pursuant to the rules of such SEF or DCM); (3) has a notional or

principal amount at or above the appropriate minimum block size

applicable to such swap; and (4) is reported subject to the rules and

procedures of the SEF or DCM and Commission regulations, including the

appropriate time delay requirements.\21\ While block transactions are

conducted pursuant to the rules of a SEF or DCM, by definition these

transactions occur away from the SEF's or DCM's trading system or

platform, where there is no pre-trade transparency. If too many trades

were permitted to be aggregated and thus executable as blocks, the CEA

objectives of increased transparency and price discovery for swaps

trading could be undermined.\22\ By prohibiting aggregation of orders

for different accounts to meet the minimum block size requirement, the

proposed rule would protect the principles of block trading, and would

help to prevent potential circumvention of exchange-trading and of the

real-time reporting obligations associated with non-block transactions.

By presumption, the aggregation of orders for different accounts to

meet the minimum block size threshold would be prohibited.

---------------------------------------------------------------------------

\21\ See 77 FR 1,243.

\22\ J.P. Morgan Comment letter at 5 (Jan. 12, 2011).

---------------------------------------------------------------------------

Indeed, in the futures market, all block trade rules approved by

the Commission have included an aggregation prohibition (with the

discrete exception of block trades done through certain CTAs).

Accordingly, in the futures market, where market participants have

engaged in block transactions for years, DCMs that permit block trading

have rules that prohibit the aggregation of orders for different

trading accounts to meet the minimum block size requirement.\23\

---------------------------------------------------------------------------

\23\ The following DCMs have rules permitting block trading:

Cantor Futures Exchange, L.P. (rule IV-16); CBOE Futures Exchange

LLC (rule 415); Chicago Board of Trade (rule 526); CME (rule 526);

ELX Futures, L.P. (rule IV-16); Eris Exchange, LLC (rule 601); Green

Exchange, LLC (rule 602); ICE Futures (rule 4.31); Nasdaq OMX

Futures Exchange, Inc. (rule E23); New York Mercantile Exchange,

Inc. (rule 526); NYSE Liffe US, LLC (rule 423); and OneChicago LLC

Futures Exchange (rule 417). Each of the aforementioned DCMs also

have rules prohibiting aggregation of orders to meet minimum block

transaction size: Cantor Futures Exchange, L.P. (rule IV-16(K));

CBOE Futures Exchange LLC (rule 415(a)(i)); Chicago Board of Trade

(rule 526A); CME (rule 526A); ELX Futures, L.P. (rule IV-16(a));

Eris Exchange, LLC (rule 601(b)(1)); Green Exchange, LLC (rule

602(a)); ICE Futures (rule 4.31(a)(ii)(B)); Nasdaq OMX Futures

Exchange, Inc. (rule E23(d)); New York Mercantile Exchange, Inc.

(rule 526A); NYSE Liffe US, LLC (rule 423(a)(1)); and OneChicago LLC

Futures Exchange (rule 418(a)(i)).

---------------------------------------------------------------------------

As proposed in this release, the rule also would prohibit

aggregation in order to meet the cap size requirements. A cap size is

defined in the Further Proposal as the maximum notional or principal

amount of a publicly reportable swap transaction that is publicly

disseminated.\24\ A transaction that meets the cap size requirement

would be eligible to mask the total size of the transaction if it

equals or exceeds the cap size for a given swap category.\25\ The

Commission adopted cap sizes in order to help to protect the anonymity

of counterparties' market positions and business transactions, and to

mitigate the potential impact that real-time public reporting of

extraordinarily large positions could have in reducing market

[[Page 38232]]

liquidity.\26\ By preventing aggregation of orders to meet the cap size

requirement, the proposed rule will help to ensure that cap sizes are

used for the specific purpose for which they are intended

(extraordinarily large positions), and will help to prevent potential

circumvention of the real-time reporting obligations.

---------------------------------------------------------------------------

\24\ 77 FR 15,516.

\25\ 77 FR 15,489-90.

\26\ Id.

---------------------------------------------------------------------------

The proposed rule further provides that aggregation of orders for

different trading accounts for purposes of the block size or cap size

requirements may be permitted on a DCM or SEF if done by a person who:

(i)(A) Is a CTA who is registered pursuant to Section 4n of the Act or

is exempt from registration under the Act, or a principal thereof, and

has discretionary trading authority or directs client accounts, (B) is

an investment adviser who has discretionary trading authority or

directs client accounts and satisfies the criteria of Sec.

4.7(a)(2)(v) of the Commission's regulations, or (C) is a foreign

person who performs a similar role or function to the persons described

in (A) or (B) and is subject as such to foreign regulation, and (ii)

has more than $25,000,000 in total AUM. As noted above, DCMs that

permit block trading in connection with futures contracts currently

prohibit aggregation of orders to meet the block size requirement, and

a majority of these DCMs have substantially similar rules that allow

aggregation in such context if done by certain CTAs, investment

advisers and foreign persons.\27\

---------------------------------------------------------------------------

\27\ A majority of DCMs currently maintain similar rules

permitting certain CTAs, investment advisors and foreign persons to

aggregate. See, e.g., CME Rulebook, rule 526 (providing an exception

for block transactions by permitting aggregation if done by a CTA

registered or exempt from registration under the Act, including

without limitation, any investment adviser registered or exempt from

registration under the Investment Adviser's Act of 1940 * * *

provided that such advisers have total AUM exceeding $25 million and

the block trade is suitable for the customers of such advisors. See

also, CBOE Futures Exchange LLC (rule 415(a(i)); Chicago Board of

Trade (rule 526I); CME (rule 526I); ELX Futures, L.P. (rule IV-

16(a)); Eris Exchange, LLC (rule 601(b)(10)); Green Exchange, LLC

(rule 602(j)); ICE Futures ((rule 4.31(a)(ii)(B)); Nasdaq OMX

Futures Exchange, Inc., (rule E23); New York Mercantile Exchange,

Inc. (rule 526I); NYSE Liffe US, LLC (rule 423(a)(i)); and

OneChicago LLC Futures Exchange (rule 417(a)(i)).

---------------------------------------------------------------------------

The Commission is seeking comments on whether this exception to the

prohibition of aggregation of orders is appropriate in the context of

the swaps market. The Commission seeks comments on whether such an

exception should be available to other categories of Commission

registrants, and if so, why? Additionally, the Commission seeks

comments on whether the $25 million AUM requirement for the specified

account controllers is appropriate in the context of block transactions

for swaps? Further, the Commission seeks comments on whether the $25

million AUM requirement should include only swaps assets, or be based

per asset class, or be different for the five asset classes of swaps?

In addition to these specific questions, the Commission requests

comments on all aspects of this notice of proposed rulemaking.

B. Proposed Sec. 43.6(i)--Eligible Block Trade Parties

The Commission is also proposing under new Sec. 43.6(i)(1) a

provision that describes the eligible parties to a block trade. The

proposed provision provides that parties to a block trade must be

``eligible contract participants,'' as that term is defined under

Section 1a(18) of the CEA and the Commission's regulations. The

proposed rule includes an exception to the ECP requirement by providing

that a DCM may allow: (i) A CTA registered pursuant to Section 4n of

the Act, or exempt from registration under the Act, or a principal

thereof, who has discretionary trading authority or directs client

accounts, (ii) an investment adviser who has discretionary trading

authority or directs client accounts and satisfies the criteria of

Sec. 4.7(a)(2)(v) of the Commission's regulations, or (iii) a foreign

person who performs a similar role or function to the persons described

in (i) or (ii) and is subject as such to foreign regulation, to

transact block trades for customers who are not ECPs, if such CTA,

investment adviser or foreign person has more than $25,000,000 in total

AUM.\28\

---------------------------------------------------------------------------

\28\ Parties that are non-ECPs may not enter into any swap

transactions, including blocks, except on or subject to the rules of

a DCM. Specifically, section 2(e) of the CEA provides that ``[i]t

shall be unlawful for any person, other than an eligible contract

participant, to enter into a swap unless the swap is entered into

on, or subject to the rules of, a board of trade designated as a

contract market under section 5.'' 7 U.S.C. 2(e).

---------------------------------------------------------------------------

In the current futures market, all DCMs require that parties to

block trades must be ECPs. A majority of these DCMs permit certain

CTAs, investment advisers and foreign persons to transact a block trade

on behalf of their non-ECP customers. The proposed rule, including the

limited exception, is currently reflected in the rulebooks of numerous

DCMs that permit block trading in the futures market.\29\

---------------------------------------------------------------------------

\29\ Most DCMs that permit block trading require that parties to

the block trade must be ECPs with a limited exception for CTAs. The

following DCMs have rules excepting CTAs from the requirement that

parties to a block trade must be ECPs: CBOE Futures Exchange LLC

(rule 415(a)(ii)); Chicago Board of Trade (rule 526I); CME (rule

526I); ELX Futures, L.P. (rule IV-16(c)); Eris Exchange, LLC (rule

601(b)(10)); Green Exchange, LLC (rule 602(a) and (j)); ICE Futures

(rule 4.31(a)(i)); Nasdaq OMX Futures Exchange, Inc., (rule E23(d));

New York Mercantile Exchange, Inc. (rule 526I); NYSE Liffe US, LLC

(rule 423(a)(ii)); and OneChicago LLC Futures Exchange (rule

417(a)(ii)).

---------------------------------------------------------------------------

Proposed Sec. 43.6(i)(2) further provides that a person

transacting a block trade on behalf of a customer must receive prior

written instruction or consent from the customer to do so. Such

instruction or consent may be provided in a power of attorney or

similar document by which the customer provides the person with

discretionary trading authority or the authority to direct the trading

in its account. This rule also is substantially similar to the block

trading rules maintained by existing DCMs.

III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') requires that agencies

consider whether the rules they propose will have a significant

economic impact on a substantial number of small entities and, if so,

provide a regulatory flexibility analysis respecting the impact.\30\

The RFA focuses on direct impact to small businesses and not on

indirect impacts on these businesses, which may be tenuous and

difficult to discern.\31\ The CFTC believes that this proposal would

not have a significant economic impact on a substantial number of small

entities.

---------------------------------------------------------------------------

\30\ See 5 U.S.C. 601 et seq.

\31\ See Whitman v. Am. Trucking Ass'ns, 531 U.S. 457 (2001);

Am. Trucking Assns. v. EPA, 175 F.3d 1027, 1043 (D.C. Cir. 1985);

Mid-Tex Elec. Coop., Inc. v. FERC, 773 F.2d 327, 340 (DC Cir. 1985).

---------------------------------------------------------------------------

1. Effect of the Proposed Rulemaking

This release proposes a rule that would prohibit the aggregation of

orders for different trading accounts in order to satisfy the minimum

block size, or cap size requirement. The proposed rule further provides

that aggregation is permissible if done on a DCM or SEF by a person

who: (i)(A) Is a CTA who is registered pursuant to Section 4n of the

Act, or is exempt from registration under the Act, or a principal

thereof, and has discretionary trading authority or directs client

accounts, (B) is an investment adviser who has discretionary trading

authority or directs client accounts and satisfies the criteria of

Sec. 4.7(a)(2)(v) of the Commission's regulations, or (C) is a foreign

person who performs a similar role or function to the persons described

in (A) or (B) and is subject as such to foreign regulation, and (ii)

has more than $ 25,000,000 in total AUM.

[[Page 38233]]

This release also proposes under new Sec. 43.6(i)(1) a provision

that describes the eligible parties to a block trade. The proposed rule

provides that parties to a block trade must be ``eligible contract

participants,'' as that term is defined under Section 1a(18) of the CEA

and the Commission's regulations. The proposed rule further provides

that a DCM may allow: (i) A CTA who is registered pursuant to Section

4n of the Act, or exempt from registration under the Act, or a

principal thereof, who has discretionary trading authority or directs

client accounts, (ii) an investment adviser who has discretionary

trading authority or directs client accounts and satisfies the criteria

of Sec. 4.7(a)(2)(v) of the Commission's regulations, or (iii) a

foreign person who performs a similar role or function to the persons

described in (i) or (ii) and is subject as such to foreign regulation,

to transact block trades on behalf of their customers who are not

eligible contract participants, if such CTA, investment adviser or

foreign person has more than $25,000,000 in total AUM.

The CFTC is of the view that this proposal may affect primarily the

following entities: DCMs, futures commission merchants (``FCMs''),

ECPs, swap dealers, major swap participants, certain CTAs, SEFs and

certain investment advisers. The majority of entities impacted by this

proposed rulemaking have been determined by the Commission not to be

small entities. To the extent that a small number of small entities may

be affected by the proposed rules, the Commission believes, as

described below, that the proposed rules would not have a significant

economic impact on a substantial number of such entities.

2. Specific Entities That May Be Small Entities

As noted above, the Commission has previously determined that DCMs,

FCMs, and ECPs are not small entities for purposes of the Regulatory

Flexibility Act.\32\ Certain other entities that may be affected by

this rulemaking, including SDs, MSPs and SEFs, have been certified by

the Commission not to be small entities in other recent rulemakings

implementing the requirements of the Dodd-Frank Act.\33\

---------------------------------------------------------------------------

\32\ See, respectively and as indicated, 47 FR 18618, 18619,

Apr. 30, 1982 (DCMs, CPOs, FCMs, and large traders); and, 66 FR

20740, 20743, Apr. 25, 2001 (ECPs).

\33\ See respectively, Registration of Swap Dealers and Major

Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (swap dealers

and major swap participants); Requirements for Derivatives Clearing

Organizations, Designated Contract Markets, and Swap Execution

Facilities Regarding the Mitigation of Conflicts of Interest, 75 FR

63732, 63746 (Oct. 18, 2010) (SEFs); Further Definition of ``Swap,''

``Security-Based Swap,'' and ``Security-Based Swap Agreement'';

Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 76 FR

29818, 29868 (May 23, 2011) (Products).

---------------------------------------------------------------------------

a. Entities affected under Sec. 43.6(h)(6): FCMs, CTAs, and

investment advisers.

As noted above, the CFTC previously has determined that registered

FCMs are not small entities for purposes of the RFA based upon, among

other things, the registration requirements that FCMs must meet,

including certain minimum financial requirements that enhance the

protection of customers' segregated funds and protect the financial

condition of FCMs generally.\34\ With respect to certain CTAs \35\ and

investment advisers who would not be permitted to aggregate under the

proposed rule, the Commission notes that the same provisions embodied

in the proposed rule are currently required by DCM rules (under rules

accepted by the Commission) and thus, such entities currently must

comply with the same aggregation prohibition. Thus, all DCMs that

permit aggregation for purposes of the block size requirement, only

permit aggregation by CTAs, investment advisers and foreign persons

that have more than $25,000,000 in total AUM. Accordingly, the

Commission believes that this rule does not impact entities that

heretofore have not been able to aggregate. To the extent that certain

CTAs and investment advisers with less than $25,000,000 AUM are not

currently permitted to aggregate, the Commission's codification of

these rules would not have any significant economic impact on a

substantial number of small entities.

---------------------------------------------------------------------------

\34\ See supra note 32.

\35\ The Commission may determine on a case-by-case basis

whether CTAs are not small entities for the purpose of the RFA based

upon a case by case determination. See 47 FR 18618, 18620 (Apr. 30,

1982).

---------------------------------------------------------------------------

b. Entities affected under Sec. 43.6(i)(1): Certain non-ECP

participants on DCMs, certain investment advisors, and FCMs.

New Sec. 43.6(i)(1) provides that parties to a block trade must be

``eligible contract participants,'' \36\ as that term is defined under

Section 1a(18) of the CEA and Sec. 1.3 of the Commission's

regulations, except for certain CTAs, investment advisers or foreign

persons performing a similar role or function having more than

$25,000,000 in total AUM, which may transact block trades for customers

who are not ECPs. As indicated above, certain CTAs and investment

advisers that have less than $25,000,000 in AUM would not be covered

under the proposed rule because the provision embodied in the proposed

rule is substantially the same as is currently required by DCM rules

(under rules accepted by the Commission). Similarly, any non-ECP

participants who trade on DCMs also would be prohibited under current

DCM rules from directly entering into a block transaction unless their

qualifying CTA, investment adviser, or foreign person acts on their

behalf. To the extent that these entities are not currently permitted

to aggregate, the Commission's codification of these rules would not

have any significant economic impact on a substantial number of small

entities. Accordingly, the Chairman, on behalf of the Commission,

hereby certifies pursuant to 5 U.S.C. 605(b) that the proposed rules

will not have a significant economic impact on a substantial number of

small businesses. Nonetheless, the Commission specifically requests

comment on the economic impact that this notice of proposed rulemaking

may have on small entities.

---------------------------------------------------------------------------

\36\ ECPs have been determined not to be small entities. See 66

FR 20740, 20743 (Apr. 25, 2001).

---------------------------------------------------------------------------

B. Paperwork Reduction Act

The purposes of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501

et seq. (``PRA'') are, among other things, to minimize the paperwork

burden to the private sector, ensure that any collection of information

by a government agency is put to the greatest possible uses, and

minimize duplicative information collections across the government.\37\

The PRA applies to all information, ``regardless of form or format,''

that a government is ``obtaining, causing to be obtained, [or]

soliciting'' and requires ``disclosure to third parties or the public,

of facts or opinions,'' when the information collection calls for

``answers to identical reporting or recordkeeping requirements imposed,

on ten or more persons[.]'' \38\ The PRA requirements have been

determined to include not only mandatory but also voluntary information

collections, and include both written and oral communications.\39\

---------------------------------------------------------------------------

\37\ See 44 U.S.C. 3501.

\38\ 44 U.S.C. 3502.3(A)(i).

\39\ See 5 CFR 1320.3(c)(1).

---------------------------------------------------------------------------

The proposed rules would not impose any new recordkeeping or

information collection requirements, or other collections of

information that require approval of the Office of Management and

Budget (``OMB'') under the PRA. The proposed rules are covered by

existing collection requirements and would not change existing

collection

[[Page 38234]]

requirements.\40\ The Commission invites public comment on the accuracy

of its estimate that no additional recordkeeping or information

collection requirements or changes to existing collection requirements

would result from the rules proposed herein.

---------------------------------------------------------------------------

\40\ See 77 FR 1182 (Jan. 9, 2012), as amended by the Further

Proposal. OMB has assigned control number 3038-0070 to the existing

collection of information, which is titled ``Part 43--Real-Time

Public Reporting.''

---------------------------------------------------------------------------

C. Cost-Benefit Considerations

Section 15(a) of the CEA \41\ requires the Commission to consider

the costs and benefits of its actions before promulgating a regulation

or issuing an order under the CEA. 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.

---------------------------------------------------------------------------

\41\ 7 U.S.C. 19(a).

---------------------------------------------------------------------------

The baseline for the Commission's assessment of costs and benefits

attributable to its discretionary actions in this rulemaking is the

costs and benefits that would otherwise exist today (i.e., post-Dodd-

Frank Act enactment) absent this Commission action. The Commission

recognizes that before the Dodd-Frank Act, swap transactions were

executed over-the-counter and were not publicly reported. One of the

implications of the Dodd-Frank Act is that most swap transactions are

required to be publicly disseminated by SDRs as soon as technologically

practicable, unless the notional value of the swap transaction meets

the minimum block trade threshold.\42\ That is the baseline for the

Commission's proposed assessment of costs and benefits in this release.

The Commission proposes that costs and benefits with respect to block

trade thresholds are already accounted for in the Further Proposal and

that this rule only considers the additional costs and benefits

relevant to proposed Sec. 43.6(h)(6) and proposed Sec. 43.6(i).

---------------------------------------------------------------------------

\42\ The Commission notes that for an initial interim period, as

outlined in Sec. 43.5 of the Adopting Release, all transactions

will be treated as block trades and will enjoy delayed reporting

temporarily.

---------------------------------------------------------------------------

1. Costs and Benefits Relevant to Proposed Sec. 43.6(h)(6)--

Aggregation

The Commission is proposing Sec. 43.6(h)(6) to specify that,

except as otherwise provided, it is impermissible to aggregate orders

for different accounts in order to satisfy minimum block trade or cap

size requirements. The proposed rule further provides that aggregation

may be permitted on a DCM or SEF if done by a person who: (i)(A) Is a

CTA who is registered pursuant to Section 4n of the Act or is exempt

from registration under the Act, or a principal thereof, and has

discretionary trading authority or directs client accounts, (B) is an

investment adviser who has discretionary trading authority or directs

client accounts and satisfies the criteria of Sec. 4.7(a)(2)(v) of the

Commission's regulations, or (C) is a foreign person who performs a

role or function similar to the persons described in (A) or (B) and is

subject as such to foreign regulation, and (ii) has more than

$25,000,000 in total AUM.

Costs

The Commission expects that there will be some incremental cost

attendant to compliance with proposed Sec. 43.6(h)(6), and seeks data

from the public in order to quantify the same. The Commission believes

that the overall benefits to the market of allowing for the aggregation

of orders under certain circumstances (i.e., if done on a designated

contract market or a swap execution facility by certain CTAs,

investment advisers or foreign persons) will mitigate costs of reduced

market liquidity that could result from execution of such transactions

away from the centralized marketplace. The Commission also expects

there to be some advisors who will be prohibited from aggregating

orders for different trading accounts in order to satisfy the minimum

block size, or cap size requirements. The Commission also proposes that

as a result of some advisors not being allowed to aggregate, there

might be some minimal unquantifiable cost associated with a decrease in

competition among such traders in the market. The Commission seeks

comment on these and any other costs that may result from this

proposal. In particular, and as noted above, the WMBA claimed in its

comment letter that ``work-up'' or ``join-the-trade'' periods be

permitted to satisfy the block trade requirements, and that ``the

public dissemination of incremental activity that would otherwise

constitute a block trade could jeopardize identification of

counterparties and materially reduce market liquidity.'' \43\ The

Commission seeks comment on the costs and benefits of the rules

proposed in this release with respect to the specific implications

claimed by WMBA.

---------------------------------------------------------------------------

\43\ WMBA comment letter at 4-5 (Feb. 7, 2011).

---------------------------------------------------------------------------

Benefits

The proposed rule is designed, in large part, to prevent

circumvention of the exchange trading requirements and of the real-time

reporting obligations associated with non-block transactions. Absent

this prohibition, the goals of the Commission's regulations regarding

block trading, namely increased transaction transparency, better price

discovery and improved competitiveness in the markets as well as better

risk management, could be frustrated by those whose trades individually

fail to meet the minimum block trade threshold (and cap size threshold

as a result), but nevertheless achieve the benefits intended for

extraordinarily large positions by aggregating those individual trades.

In other words, such entities would be able to evade the exchange-

trading and reporting obligations that are integral to price

transparency. The Commission seeks comment on these and any other

benefits that may result from this proposal.

Section 15(a) Factors

(1) Protection of market participants and the public.

The Commission believes that the proposed rule would protect market

participants from unfair practices by preventing trades that do not

meet the minimum block trade threshold from enjoying extended reporting

times. This requirement would mean that trades that are not

extraordinarily large, and hence, that do not need extra reporting time

would not qualify as block trades and would be made public as soon as

technologically practicable. Hence, the proposed rule would increase

transparency of non-block transactions, and thus, would protect market

participants by informing their trading determinations through

increased transparency and price discovery.

(2) Efficiency, competitiveness, and financial integrity of the

futures markets.

The Commission expects the prohibition of aggregation of trades to

improve efficiency and competitiveness in the markets by allowing more

trades to be reported without the time delay that is applied to

qualifying block trades. This requirement would mean that a higher

number of trades would be eligible for real time reporting, and that

[[Page 38235]]

would increase market transparency as well as promote competition in

the swap markets. The rule also would protect the integrity of the

derivatives market by ensuring that smaller trades, which do not

qualify as block transactions, are executed on the trading system where

there is pre-trade and post-trade transparency.

The Commission also recognizes that advisors who are prohibited

from aggregating orders in order to satisfy the minimum block size or

cap size requirements might not trade at the most favorable prices in

the market, which might have a negative effect on the number of such

traders in the market. While the Commission expects that competition in

the market may be negatively affected as a result of prohibiting

aggregation, the Commission anticipates that the positive effects of

the proposed rule on competition outweigh its negative effects.

(3) Price discovery.

The Commission expects the proposed rule to improve price discovery

in the swap markets by preventing aggregation of trades and as a result

promoting more trades to be publicly reported as soon as

technologically practicable. This would result in enhanced swap market

price discovery, since market participants and the public would be able

to observe real-time pricing information for a higher percentage of

transactions in the market. In addition, the Commission expects that

the rule would enhance price discovery by ensuring that smaller trades,

which do not qualify as block transactions, are executed on the trading

system where there is pre-trade and post-trade transparency and where

buyers and sellers may make informed trading decisions based on the

market's transparency.

(4) Sound risk management practices.

The Commission anticipates that the proposed criteria, if adopted,

would likely result in enhanced price discovery as discussed above.

With better and more accurate data, swap market participants would

likely be better able to measure and manage risk. The Commission

proposes that if the prohibition of aggregation of trades was not

adopted, swap transactions may not be reported to an SDR ``as soon as

technologically practicable.'' The Commission also proposes that by

preventing this delay in the reporting period of a swap transaction to

an SDR, the Commission will possess the information it needs to monitor

the transfer and positions of risk among counterparties in the swaps

market.

(5) Other public interest considerations.

The Commission has not identified any other public interest

considerations regarding the proposed rule.

2. Costs and Benefits Relevant to Proposed Sec. 43.6(i)--Eligible

Block Trade Parties

Costs

Proposed Sec. 43.6(i)(1) requires that parties to a block trade

must be eligible contract participants, as defined under the CEA and

Commission regulations, except that a DCM may allow: (i) A CTA

registered pursuant to Section 4n of the Act or exempt from

registration under the Act, or a principal thereof, and who has

discretionary trading authority or directs client accounts, (ii) an

investment adviser who has discretionary trading authority or directs

client accounts and satisfies the criteria of Sec. 4.7(a)(2)(v) of the

Commission's regulations, or (iii) a foreign person who performs a

similar role or function to the persons described in (i) or (ii) and is

subject as such to foreign regulation, to transact block trades for

customers who are not eligible contract participants, if such CTA,

investment adviser or foreign person has more than $25,000,000 in total

AUM. This proposed rule codifies, in part, the requirement under

Section 2(e) of the CEA, which requires that ``[i]t shall be unlawful

for any person, other than an eligible contract participant, to enter

into a swap unless the swap is entered into on, or subject to the rules

of * * * a designated contract market.'' In addition, the provisions

allowing certain entities (as described in this release) to enter into

block trades on behalf of their non-ECP customers on DCMs is

substantially similar to the existing DCM rules that allow block

trading in the futures market.

Proposed Sec. 43.6(i)(2) further provides that no person may

conduct a block trade on behalf of a customer unless the person

receives prior written instruction or consent to do so. The proposed

rule further provides that such instruction or consent may be provided

in the power of attorney or similar document by which the customer

provides the person with discretionary trading authority or the

authority to direct the trading in its account. The Commission is of

the view that the cost associated with the written instruction or

consent is minimal. The Commission estimates that a prior written

instruction or consent requirement would impose an initial non-

recurring burden of approximately 2 personnel hours at an approximate

cost of $155.54 for each CTA, investment adviser or foreign person.\44\

---------------------------------------------------------------------------

\44\ Using wage rate estimates based on salary information for

the securities industry compiled by the Securities Industry and

Financial Markets Association (``SIFMA''), the estimate is

calculated as follows: Compliance manager at 2 hours. A senior

programmer's adjusted hourly wage is $77.77, estimated using the

following calculations:

(1) [(2009 salary + bonus) * (salary growth per professional

type, 2009-2010)] = Estimated 2010 total annual compensation. The

most recent data provided by the SIFMA report describe the 2009

total compensation (salary + bonus) by professional type, the growth

in base salary from 2009 to 2010 for each professional type, and the

2010 base salary for each professional type; thus, the Commission

estimated the 2010 total compensation for each professional type,

but, in the absence of similarly granular data on salary growth or

compensation from 2010 to 2011 and beyond, did not estimate dollar

costs beyond 2010.

(2) [(Estimated 2010 total annual compensation)/(1,800 annual

work hours)] = Hourly wage per professional type.

(3) [(Hourly wage) * (Adjustment factor for overhead and other

benefits, which the Commission has estimated to be 1.3)] = Adjusted

hourly wage per professional type.

(4) [(Adjusted hourly wage) * (Estimated hour burden for

compliance)] = Dollar cost of compliance for each hour burden

estimate per professional type.

---------------------------------------------------------------------------

Benefits

The Commission has determined that the benefits of proposed Sec.

43.6(i) are significant. The proposed rule, if adopted, would allow

customers who are not ECPs to engage in block trade transactions

through certain entities as outlined in the rule. By permitting certain

CTAs, investment advisers and foreign persons to transact swaps on

behalf of non-ECP customers, the rule provides important safeguards for

non-ECPs when entering into block transactions in swaps. The Commission

believes that access to block trades would allow customers who are not

ECPs to diversify their risk or improve their investment strategies. In

addition, the Commission also anticipates the access to block trades

for non-ECPs to increase their participation in swap markets,

increasing liquidity in the markets for everyone.

Section 15(a) Factors

(1) Protection of market participants and the public.

The Commission does not anticipate the proposed rule to have any

significant effect on the protection of market participants and the

public.

(2) Efficiency, competitiveness, and financial integrity of the

futures markets.

The Commission expects the proposed rule to improve competitiveness

in the markets by allowing customers who are not ECPs to have access to

block trades through certain CTAs, investment advisers and

[[Page 38236]]

foreign persons. The Commission anticipates an increase in

competitiveness due to the fact that more customers would use the swap

markets as a result of this rule. An increased participation in a

market would also serve to increase liquidity, as well as competition,

in that market.

(3) Price discovery.

The Commission does not anticipate the proposed rule to have any

significant effect on price discovery in the market.

(4) Sound risk management practices.

The Commission does not anticipate the proposed rule to have any

significant effect on risk management practices.

(5) Other public interest considerations.

The Commission has not identified any other public interest

considerations regarding the proposed rule.

The Commission requests comments on its cost and benefit

considerations with respect to the proposed rule, and any alternatives.

The Commission specifically requests that commenters provide data from

which the Commission may quantify the costs or benefits of the proposed

rule.

IV. Rule Text

List of Subjects in 17 CFR Part 43

Large notional off-facility trades, Block trades, Appropriate

minimum block sizes, Real-time public reporting, Public dissemination,

Cap size, Anonymity, Swap category.

For the reasons stated in the preamble, the Commodity Futures

Trading Commission proposes to amend 17 CFR part 43 as set forth below:

PART 43--[AMENDED]

1. The authority citation for part 43 shall continue to read as

follows:

Authority: 7 U.S.C. 2(a), 12a(5) and 24a, amended by Pub. L.

111-203, 124 Stat. 1376 (2010).

2. Add section 43.6(h)(6) to part 43 to read as follows:

Sec. 43.6(h)(6) Aggregation.

Except as otherwise stated in this paragraph, the aggregation of

orders for different accounts in order to satisfy the minimum block

trade size or the cap size requirement is prohibited. Aggregation is

permissible on a designated contract market or swap execution facility

if done by a person who:

(i)(A) Is a commodity trading advisor registered pursuant to

Section 4n of the Act, or exempt from registration under the Act, or a

principal thereof, who has discretionary trading authority or directs

client accounts,

(B) Is an investment adviser who has discretionary trading

authority or directs client accounts and satisfies the criteria of

Sec. 4.7(a)(2)(v) of this chapter, or

(C) Is a foreign person who performs a similar role or function as

the persons described in subparagraphs (A) or (B) and is subject as

such to foreign regulation; and,

(ii) Has more than $25,000,000 in total assets under management.

3. Add Section 43.6(i) to part 43 to read as follows:

Sec. 43.6(i) Eligible Block Trade Parties.

(1) Parties to a block trade must be ``eligible contract

participants,'' as defined in Section 1a(18) of the Act and the

Commission's regulations. However, a designated contract market may

allow: (i) A commodity trading advisor registered pursuant to Section

4n of the Act, or exempt from registration under the Act, or a

principal thereof, who has discretionary trading authority or directs

client accounts, (ii) an investment adviser who has discretionary

trading authority or directs client accounts and satisfies the criteria

of Sec. 4.7(a)(2)(v) of this chapter, or (iii) a foreign person who

performs a similar role or function as the persons described in (i) or

(ii) of this paragraph and is subject as such to foreign regulation, to

transact block trades for customers who are not eligible contract

participants if such commodity trading advisor, investment adviser or

foreign person has more than $25,000,000 in total assets under

management.

(2) A person transacting a block trade on behalf of a customer must

receive prior written instruction or consent from the customer to do

so. Such instruction or consent may be provided in the power of

attorney or similar document by which the customer provides the person

with discretionary trading authority or the authority to direct the

trading in its account.

Issued in Washington, DC, on June 20, 2012, by the Commission.

David A. Stawick,

Secretary of the Commission.

Appendix to Rules Prohibiting the Aggregation of Orders To Satisfy

Minimum Block Sizes or Cap Size Requirements, and Establishing

Eligibility Requirements for Parties to Block Trades

Commission Voting Summary

Note: The following appendix will not appear in the Code of

Federal Regulations.

On this matter, Chairman Gensler and Commissioners Sommers,

Chilton, O'Malia and Wetjen voted in the affirmative; no

Commissioner voted in the negative.

[FR Doc. 2012-15481 Filed 6-26-12; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: June 27, 2012