[Federal Register: June 22, 2007 (Volume 72, Number 120)]
[Proposed Rules]
[Page 34417-34419]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22jn07-19]
[[Page 34417]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 21
Special Calls
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
proposing to amend Part 21 of its regulations relating to special calls
for information. The proposed amendments would: add to the types of
information specified in Sec. 21.02, which must be furnished upon
special call, information regarding exchanges of futures for physical
commodities or for derivatives positions, and information regarding
delivery notices issued and stopped; and delegate to the Director of
the Division of Market Oversight and the Director's delegatees, the
ability to issue special calls pursuant to sections 21.01 and 21.02.
DATES: Comments must be received by July 23, 2007.
ADDRESSES: Comments should be sent to the Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,
DC 20581, attention: Office of the Secretariat. Comments may be sent by
facsimile transmission to 202-418-5521, or by e-mail to
secretary@cftc.gov. Reference should be made to ``Proposed Rules for
Special Calls.''
FOR FURTHER INFORMATION CONTACT: Don Heitman, Senior Special Counsel
(telephone 202-418-5041, e-mail dheitman@cftc.gov), Division of Market
Oversight, Commodity Futures Trading Commission, Three Lafayette
Center, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
The Commodity Exchange Act (``Act''), as amended by the Commodity
Futures Modernization Act of 2000 (``CFMA''), Pub. L. No. 106-554, is
intended, among other things, to ``deter and prevent price manipulation
or any other disruptions to market integrity.'' \1\ To that end, the
Commission, through its Division of Market Oversight (``Division''),
conducts a comprehensive program of market surveillance. A centerpiece
of this program is its large-trader reporting system, under which all
large futures and option positions are reported to the Commission. Each
day, for every active futures or option market, Division surveillance
staff monitors the activities of large traders, key price
relationships, and all relevant supply and demand factors in a
continuous review for potential market problems. An essential element
of the Commission's market surveillance program is the ability to make
special calls for information from Commission registrants and other
market participants.
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\1\ Commodity Exchange Act Sec. 3(b), 7 U.S.C. Sec. 5(b).
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II. Information To Be Furnished Upon Special Call
Part 17 of the Commission's regulations sets forth the routine
reports that futures commission merchants, members of contract markets
and foreign brokers (collectively, ``reporting firms'') are required to
submit to the Commission.\2\ These reports provide the information for
the Commission's large trader reporting system that it uses in its
market surveillance program to detect and prevent market manipulation
or other disruptions to market integrity in markets subject to
Commission oversight.
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\2\ The Commission has recently proposed amendments to its
definition of the term, ``foreign broker.'' The amended definition
would also be relocated, from its current location at Sec. 15.00(g)
to Sec. 1.3(xx). See 72 FR 15637 (April 2, 2007). If such
amendments were to be adopted, there would be no change in a foreign
broker's obligations to comply with the Commission's large trader or
special call regulations set forth in 17 CFR parts 15-21.
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By contrast, the purpose of the Commission's special call authority
in Part 21 of the Commission's regulations is to provide the Commission
with relevant information that is not routinely supplied to the
Commission, pursuant to other parts of the Commission's regulations
such as Part 17. For example, the Commission may need to know about
futures positions that are below the routine reporting levels specified
in Part 15 of the Commission's regulations. Among possible reasons for
such special needs for information may be a particular market situation
that warrants unusually close Commission market surveillance, or when
Commission staff is conducting an audit of reporting firms to ensure
complete and accurate reporting.
The proposed amendments to Part 21 would require reporting firms to
retain and make available to the Commission, upon a special call,
information similar to that which they are required to report to the
Commission pursuant to Part 17 of the Commission's regulations.
Specifically, the proposed amendments would add two additional
categories of information to the types of information specified in
Sec. 21.02, which must be furnished upon special call. The first
additional category of information that would be subject to special
call under this proposal includes information regarding futures
contracts exchanged for physical commodities (``EFPs''), as well as
futures contracts exchanged for other derivatives contracts, including
exchanges of futures for options (``EFOs'') and exchanges of futures
for swaps (``EFSs''). The second additional category of information
includes the amount of futures contracts where actual delivery of the
underlying commodity has been initiated (i.e., delivery notices have
been issued or received).
Section 21.02 applies to futures commission merchants (``FCMs''),
introducing brokers (``IBs''), members of contract markets and foreign
brokers. However, the first three of the foregoing categories are
already subject to substantial reporting and recordkeeping requirements
under Sec. 1.35 of the Commission's regulations, which, among other
things, requires FCMs, IBs and contract market members to maintain, and
produce on request, the records that are also the subject of these
proposed rules. Therefore, as a practical matter, the proposed rules
will impose new requirements only on foreign brokers (who are not
subject to Sec. 1.35).
Foreign brokers and other persons receiving a special call pursuant
to Sec. 21.02 are required by that regulation to furnish the
information requested. Since such persons cannot comply with the legal
requirement to furnish information pursuant to a special call without
maintaining records from which to generate the information requested,
it follows that persons subject to special calls under Sec. 21.02 are
required, by the Commission's regulations, to maintain such records.
Therefore, such records--including both those already listed in Sec.
21.02, and those that would be added by this proposed rule amendment--
are subject to the five-year record retention requirements of Sec.
1.31(a)(1) of the regulations, which provides in relevant part that:
All books and records required to be kept by the Act or by these
regulations shall be kept for a period of five years from the date
thereof and shall be readily accessible during the first two years
of the five-year period.
III. Delegation of Authority
For reasons of administrative efficiency, the Commission is also
proposing to delegate to the Director of the Division of Market
Oversight, and the Director's delegatees, the power to issue special
calls pursuant to sections 21.01 and 21.02. Consistent with other
delegations of authority to Commission
[[Page 34418]]
senior staff, the proposed delegation of the Part 21 special call
authority allows the Director to submit to the Commission for its
consideration any matter that has been delegated pursuant to the new
section. The proposed amendment also preserves the Commission's
ultimate authority over the special calls by providing that, ``nothing
in this section shall be deemed to prohibit the Commission, at its
election, from exercising the authority delegated * * * to the
Director.''
Ordinarily, the delegation of authority to make special calls would
not be published for comment because the Administrative Procedure Act
provides that ``a matter relating to agency management'' \3\ is not
required to be published for comment. However, because the proposed
delegation is being published as part of a larger notice that includes
other proposed amendments on which the Commission is seeking comment,
the Commission will also accept public comments regarding the proposed
delegation of authority to issue special calls from the Commission to
the Director of the Division of Market Oversight.
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\3\ 5 U.S.C. 553(a)(2).
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IV. Cost Benefit Analysis
Section 15 of the Act, as amended by section 119 of the CFMA,
requires the Commission to consider the costs and benefits of its
action before issuing a new regulation or order under the Act. By its
terms, Sec. 15(a) does not require the Commission to quantify the
costs and benefits of its action or to determine whether the benefits
of the action outweigh its costs. Rather, Sec. 15(a) simply requires
the Commission to ``consider the costs and benefits'' of the subject
rule or order.
Section 15(a) further specifies that the costs and benefits of the
proposed rule or order shall be evaluated in light of 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
may, in its discretion, give greater weight to any one of the five
enumerated areas of concern and may, in its discretion, determine that,
notwithstanding its costs, a particular rule or order is necessary or
appropriate to protect the public interest or to effectuate any of the
provisions or to accomplish any of the purposes of the Act.
The proposed amendments are intended to supplement the Commission's
rules regarding its market surveillance program. That program supports
one of the Commission's most critical statutory responsibilities,
deterring and preventing price manipulation or any other disruptions to
market integrity. Effective surveillance activities are crucial not
only to protecting market participants and the public from price
manipulation, but also to: promoting market efficiency, competitiveness
and financial integrity; protecting the futures markets' price
discovery function; and promoting sound risk management practices.
In addition, the records that would be subject to special call
under these proposed amendments are the type of basic transaction
records that any foreign broker would create as a matter of sound
business practices. Because these records would be created in any
event, independently of any regulatory requirements, the proposed rules
would impose no additional costs on foreign brokers in that area. There
would be minimal costs associated with providing the records in answer
to a special call, but such costs would be far outweighed by the
benefits of protecting the markets and the public. Finally, with
respect to the five-year record retention requirement that would apply
to these records, the cost of retaining the records would be minimal
because Commission rules allow such records to be maintained
electronically. Those minimal costs would, again, be far outweighed by
the benefits of protecting the marketplace and the public.
The Commission has considered the costs and benefits of the
proposed amendments to Part 21 regarding special calls in light of the
above-noted specific areas of concern identified in section 15. The
Commission believes that the amended rules would impose the minimum
requirements necessary to enable it to perform its oversight functions
and to carry out its mandate to protect the public interest in markets
that are free of fraud, abuse and manipulation.
After considering these factors, the Commission has determined to
propose the rule amendments set forth below.
The Commission specifically invites public comment on its
application of the criteria contained in the Act for consideration.
Commenters are also invited to submit any quantifiable data that they
may have concerning the costs and benefits of the proposed rules with
their comment letter.
V. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires federal agencies, in promulgating rules, to consider the
impact of those rules on small entities. The proposed amendment to
Sec. 21.02 would apply to FCMs, IBs, members of contract markets and
foreign brokers. However, as noted above, the first three of these
categories are already subject to substantial reporting and
recordkeeping requirements under Sec. 1.35 of the Commission's
regulations. Among other things, that section requires FCMs, IBs and
contract market members to maintain, and produce on request, the
records that are also the subject of these proposed rules. Therefore,
as a practical matter, the proposed rules will impose new requirements
only on foreign brokers (who are not subject to Sec. 1.35).
With respect to such foreign brokers, the Commission recently
published proposed rules to exempt from registration certain foreign
persons (including foreign brokers).\4\ In reviewing the applicability
of the RFA to such foreign persons, the Commission noted that it has
previously established certain definitions of ``small entities'' to be
used in evaluating the impact of its regulations on such entities in
accordance with the RFA.\5\ The Commission has previously determined
that FCMs are not small entities for purposes of the RFA because each
FCM has an underlying fiduciary relationship with its customers,
regardless of the size of the FCM.\6\ The Commission notes that the
foreign brokers affected by these proposed changes to the Commission's
regulations would be required to be registered as FCMs if not for
certain exemptions provided in Commission regulations. As such, they
would maintain a fiduciary relationship with customers similar to the
relationship maintained by each registered FCM. Therefore, in this
context foreign brokers, like FCMs, are not appropriately categorized
as 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 entities.
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\4\ 72 FR 15673 (April 2, 2007).
\5\ 47 FR 18618 at 18621 (April 30, 1982).
\6\ Id. at 18619.
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B. Paperwork Reduction Act
When publishing proposed rules, the Paperwork Reduction Act (PRA)
\7\
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imposes certain requirements on federal agencies, including the
Commission, in connection with conducting or sponsoring any collection
of information as defined by the PRA. In compliance with the PRA, the
Commission through these proposed rules solicits comments to: (1)
Evaluate whether the proposed collection of information is necessary
for the proper performance of the functions of the agency, including
the validity of the methodology and assumptions used; (2) evaluate the
accuracy of the agency's estimate of the burden of the proposed
collection of information, including the validity of the methodology
and assumptions used; (3) enhance the quality, utility, and clarity of
the information to be collected; and (4) minimize the burden of the
collection on those who are to respond, including through the use of
appropriate automated, electronic, mechanical, or other technological
collection techniques or other forms of information technology. The
Commission has submitted the proposed rules and their associated
information collection requirements to the Office of Management and
Budget (OMB). The proposed rules are part of an approved collection of
information (OMB Control No. 3038-0009). The estimated burden
associated with information to be provided pursuant to special calls is
as follows:
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\7\ Pub. L. 104-13 (May 13, 1995).
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Average burden of response: One hour.
Number of respondents: 10 per year.
Frequency of response: One response per respondent per year.
Annual reporting burden: 10 hours.
Persons wishing to comment on the information that would be
required by these proposed rules should contact the Desk Officer, CFTC,
Office of Management and Budget, Room 10202, NEOB, Washington, DC
20503, (202) 395-7340. Copies of the information collection submission
to OMB are available from the CFTC Clearance Officer, 1155 21st Street,
NW., Washington, DC 20581, (202) 418-5160. Copies of the OMB-approved
information collection package associated with the rulemaking may be
obtained from the Desk Officer, Commodity Futures Trading Commission,
Office of Management and Budget, Room 10202, NEOB, Washington, DC
20503, (202) 395-7340.
List of Subjects in 17 CFR Part 21
Commodity futures, Commodity Futures Trading Commission.
In consideration of the foregoing, and pursuant to the authority in
the Commodity Exchange Act, the Commission hereby proposes to amend
Part 21 of Title 17 of the Code of Federal Regulations as follows:
PART 21--SPECIAL CALLS
1. The authority citation for part 21 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m,
6n, 7, 7a, 12a, 19 and 21; 5 U.S.C. 552 and 552(b).
2. Section 21.02 is proposed to be amended by:
a. Removing the word ``and'' at the end of paragraph (f);
b. Redesignating paragraph (g) as paragraph (i); and
c. Adding new paragraphs (g) and (h).
The additions read as follows:
Sec. 21.02 Special calls for information on open contracts in
accounts carried or introduced by futures commission merchants, members
of contract markets, introducing brokers, and foreign brokers.
* * * * *
(g) The total number of futures contracts exchanged for commodities
or for derivatives positions;
(h) The total number of futures contracts against which delivery
notices have been issued or received; and
* * * * *
3. Section 21.04 is added to read as follows:
Sec. 21.04 Delegation of authority to the Director of the Division of
Market Oversight.
The Commission hereby delegates, until the Commission orders
otherwise, to the Director of the Division of Market Oversight, or to
the Director's delegates, the authority set forth in section 21.01 of
this Part to make special calls for information on controlled accounts
from futures commission merchants and from introducing brokers and the
authority set forth in section 21.02 of this Part to make special calls
for information on open contracts in accounts carried or introduced by
futures commission merchants, members of contract markets, introducing
brokers, and foreign brokers. The Director may submit to the Commission
for its consideration any matter that has been delegated pursuant to
this section. Nothing in this section shall be deemed to prohibit the
Commission, at its election, from exercising the authority delegated in
this section to the Director.
Issued in Washington, DC, on June 15, 2007 by the Commission.
Eileen Donovan,
Acting Secretary of the Commission.
[FR Doc. E7-11984 Filed 6-21-07; 8:45 am]
BILLING CODE 6351-01-P