2012-16180
-
Federal Register, Volume 77 Issue 144 (Thursday, July 26, 2012)[Federal Register Volume 77, Number 144 (Thursday, July 26, 2012)]
[Proposed Rules]
[Pages 43968-44043]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16180]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 15, 17, 18, and 20
RIN 3038-AD31
Ownership and Control Reports, Forms 102/102S, 40/40S, and 71
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking (``Notice'').
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is proposing new rules and related forms to enhance its
identification of futures and swap market participants. The proposed
rules would leverage the Commission's existing position and transaction
reporting programs by requiring the electronic submission of trader
identification and market participant data on amended Forms 102 and 40,
and on new Form 71. The proposed rules also incorporate a revised
approach to the Commission's previous initiative to collect ownership
and control information, through a dedicated ownership and control
report (``OCR''), for trading accounts active on reporting markets that
are designated contract markets or swap execution facilities. The
Commission welcomes public comment on all aspects of its proposal.
DATES: Comments must be received on or before September 24, 2012.
ADDRESSES: You may submit comments, identified by RIN number 3038-AD31,
by any of the following methods:
Agency Web site, via its Comments Online process: 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.
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
http://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish the CFTC to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act, a petition
[[Page 43969]]
for confidential treatment of the exempt information may be submitted
according to the procedures established in Sec. 145.9 of the CFTC's
regulations.\1\
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\1\ 17 CFR 145.9.
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The CFTC reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse, or remove any or all of
your submission from http://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 this Notice 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: Sebastian Pujol Schott, Associate
Director, Division of Market Oversight (``DMO''), at 202-418-5641 or
sps@cftc.gov; Cody J. Alvarez, Attorney Advisor, DMO, at 202-418-5404
or calvarez@cftc.gov; Mark Schlegel, Attorney Advisor, DMO, at 202-418-
5055 or mschlegel@cftc.gov; or James Outen, Industry Economist, DMO, at
202-418-5710 or jouten@cftc.gov; Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Background
B. Benefits Derived From the Proposed Rules
II. Statutory Framework for Position Reporting and Trader and
Account Identification
III. Existing and Previously Proposed Trader and Account
Identification Programs
A. Futures Large Trader Reporting--Existing Forms 102 and 40
i. Identification of Special Accounts--Existing Form 102
ii. Statement of Reporting Trader--Existing Form 40
B. Large Trader Reporting for Physical Commodity Swaps--102S and
40S Filings
C. Proposed OCR
i. OCR Advanced Notice
ii. OCR NPRM
iii. OCR NPRM Comment Summary
IV. Forms
A. Position Triggered 102
i. Special Accounts and Reportable Positions
ii. 102A Form Requirements
iii. Timing of 102A Reporting
iv. 102A Change Updates and Refresh Updates
B. Volume Triggered 102
i. 102B Form Requirements
ii. Timing of 102B Reporting
iii. 102B Change Updates and Refresh Updates
C. 102S
i. 102S Form Requirements
ii. 102S Change Updates and Refresh Updates
D. Form 71
E. New Form 40
V. Data Submission Standards and Procedures
VI. Review and Summary of Regulatory Changes To Implement New and
Amended Forms
A. Part 15
B. Part 17
C. Part 18
D. Part 20
VII. Questions and Request for Comment
VIII. Related Matters
A. Cost Benefit Considerations
B. Regulatory Flexibility Analysis
C. Paperwork Reduction Act
i. Overview
ii. Information to be Provided
iii. Reporting and Recordkeeping Burdens
iv. Comments on Information Collection
Proposed Rules
Annex--Forms 102, 40 and 71
I. Introduction
A. Background
The CFTC's large trader reporting rules (also referred to herein as
the ``reporting rules'') are contained in parts 15 through 21 of the
Commission's regulations.\2\ The reporting rules are currently
structured to collect information with respect to positions in ``open
contracts,'' \3\ including: (1) Information necessary to identify
persons who hold or control ``reportable positions'' \4\ in open
contracts (via existing Form 40); and (2) information necessary to
identify ``special accounts'' \5\ (via existing Form 102). In this
Notice, the Commission is proposing certain amendments to the existing
reporting rules and forms as they pertain to positions in open
contracts. In addition, the Commission is proposing a revised approach
to the OCR, which previously had been proposed \6\ as a separate data
collection.\7\ Specifically, the Commission proposes to expand the
reporting rules and forms so that they may also be used to identify
``volume threshold accounts,'' defined as individual trading accounts
that trigger volume-based reporting thresholds on a reporting market
\8\ that is a registered entity under Sec. Sec. 1a(40)(A) or 1a(40)(D)
of the Commodity Exchange Act (``CEA'' or ``Act'') (i.e., a designated
contract market (``DCM'') or a swap execution facility (``SEF'')),
regardless of whether such activity results in reportable positions.
Volume threshold accounts associated with DCMs and SEFs would be
required to be reported by clearing members, as indicated in section IX
below. The Commission notes that volume threshold accounts could
reflect, without limitation, trading in futures, options on futures,
swaps, and any other products traded on or subject to the rules of a
DCM or SEF. However, the Commission also notes that the proposed rules
generally reflect the Commission's knowledge and experience with
trading practices and structures on DCMs. As a result, the Commission
specifically requests public comment throughout this Notice on any
revisions to the proposed rules that may be required to adequately
address the identification and reporting of volume threshold accounts
associated with SEFs.\9\
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\2\ 17 CFR parts 15 through 21. The rule proposals contained in
this Notice generally relate to parts 15, 17, 18 and 20 of the
Commission's regulations.
\3\ ``Open contract'' means any commodity or commodity option
position ``held by any person on or subject to the rules of a board
of trade which have not expired, been exercised, or offset.'' See
Sec. Sec. 1.3(t) and 15.00(n).
\4\ A ``reportable position'' is defined in Sec. 15.00(p) as
``any open contract position that at the close of the market on any
business day equals or exceeds the [Commission's reporting levels
specified in Sec. 15.03].''
\5\ A ``special account'' is defined in Sec. 15.00(r) as ``any
commodity futures or option account in which there is a reportable
position.''
\6\ See Commission, Notice of Proposed Rulemaking: Ownership and
Control Report, 75 FR 41775 (July 19, 2010) (``OCR NPRM'').
\7\ As discussed in further detail below, the Commission is
withdrawing the OCR NPRM contemporaneously with the publication of
this Notice in the Federal Register.
\8\ ``Reporting market'' is defined in existing Sec. 15.00(q)
as ``a designated contract market, registered entity under Sec.
1a(29) of the Act, and unless determined otherwise by the Commission
[a derivatives transaction execution facility].'' By way of this
Notice, the Commission proposes to revise Sec. 15.00(q) to define
reporting market as a ``designated contract market or a registered
entity under Sec. 1a(40) of the Act.'' This revision is technical
in nature, and serves to conform Sec. 15.00(q) with recent
amendments to the Act. See infra sections VI(A) and IX.
\9\ See section VII, below.
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The proposed amendments to the reporting rules and forms would
achieve three primary purposes. First, they would broaden the utility
of existing Form 102 through a new, expanded Form 102 (``New Form
102''), partitioned into three sections: section 102A for the
identification of position-based special accounts (``102A,'' ``Form
102A,'' or ``New Form 102A''); section 102B--the former OCR component--
for the collection of ownership and control information from clearing
members on volume threshold accounts associated with DCMs or SEFs
(``102B,'' ``Form 102B,'' or ``New Form 102B''); \10\ and section 102S
for the submission of 102S filings for swap counterparty and customer
consolidated accounts with
[[Page 43970]]
reportable positions (``102S,'' ``Form 102S,'' or ``102S filings'').
Second, the proposed amendments would enhance the Commission's
surveillance and large trader reporting programs for futures, options
on futures, and swaps by clarifying which accounts are required to be
reported on Form 102A; requiring the reporting on Form 102A of the
trading accounts that comprise each special account; requiring the
reporting of certain omnibus account information on Form 71 (``Form
71'' or ``New Form 71''); \11\ updating Form 40 (``New Form 40''); and
integrating the submission of 102S and 40S filings into the general
Form 102 and Form 40 reporting program. Finally, the proposed
amendments would provide for the electronic submission of Forms 102,
40, and 71.
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\10\ As explained below, Form 102B incorporates the previously
proposed OCR.
\11\ As explained below, information regarding the owners and
controllers of volume threshold accounts reported on Form 102B and
that are identified as omnibus accounts (``omnibus volume threshold
accounts'') would be collected by the Commission (via Form 71)
directly from originating firms.
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B. Benefits Derived From the Proposed Rules
The proposed rules would enhance the Commission's existing trade
practice and market surveillance programs for futures and options on
futures, and facilitate surveillance programs for swaps, by expanding
the information presently collected on existing Forms 102 and 40, and
introducing a new information collection for omnibus volume threshold
accounts in New Form 71. The rules would also help implement the 102S
and 40S filing requirements recently adopted in connection with the
Commission's part 20 rules addressing large trader reporting for
physical commodity swaps (discussed below).\12\ In the aggregate, the
proposed rules would help the Commission to better deter and prevent
market manipulation; deter and detect abusive or disruptive trading
practices; and better perform risk-based monitoring and surveillance
between related accounts. Ultimately, the proposed rules would
significantly enhance the Commission's ability to identify participants
in the derivatives markets and to understand relationships between
trading accounts, special accounts, reportable positions, and market
activity.
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\12\ See 17 CFR 20.5(a) and (b), the 102S and 40S filing
requirements, discussed in greater detail below. Final part 20 was
published in the Federal Register on July 22, 2011. See Commission,
Large Trader Reporting for Physical Commodity Swaps, 76 FR 43851
(July 22, 2011) (``Large Trader Reporting for Physical Commodity
Swaps'').
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The proposed rules respond, in part, to the increased dispersion
and opacity of trading in U.S. futures markets as they continue to
transition from localized, open-outcry venues to global electronic
platforms. While electronic trading has conferred important
informational benefits upon regulators, the concomitant increases in
trading volumes, products offered, and trader dispersion have created
equally important regulatory challenges. Effective market surveillance
now requires automated analysis and pattern and anomaly detection
involving millions of daily trade records \13\ and hundreds of
thousands of position records \14\ present in the surveillance data
sets received daily by the Commission.\15\
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\13\ For example, in November 2011, the Commission received an
average of 7.4 million trade records per day from electronic trading
on DCMs.
\14\ For example, in November 2011, the Commission received an
average of 617,000 position records per day from reporting firms and
exchanges.
\15\ Daily trade and position records are provided to the
Commission pursuant to Sec. Sec. 16.02 and 17.00, respectively. For
further discussion of the Commission's large trader reporting
program, see sections III(A) and (B), below.
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Commission staff utilizes two distinct data platforms to conduct
market surveillance: the Trade Surveillance System (``TSS'') and the
Integrated Surveillance System (``ISS''). Broadly speaking, TSS
captures transaction-level details of trade data, while ISS facilitates
the storage, analysis, and mining of large trader data from a position
perspective. One important component of TSS is the Trade Capture Report
(``TCR''). Trade Capture Reports contain trade and related order data
for every matched trade facilitated by an exchange, whether executed
via open-outcry, electronically, or non-competitively. Among the data
included in the TCR are trade date, product, contract month, trade
time, price, quantity, trade type (e.g., open outcry outright future,
electronic outright option, give-up, spread, block, etc.), executing
broker, clearing member, opposite broker and clearing member, customer
type indicator, trading account numbers, and numerous other data
points.
Effective market surveillance requires that surveillance data sets
received by the Commission be sufficiently comprehensive and contain
sufficient identified reference points to uncover relationships where
none appear to exist and to analyze information based on flexible
criteria. The collection of additional trader identification and market
participant data on the forms proposed in this Notice would help the
Commission to better satisfy these data requirements. For example,
elements of the proposed data collection would enable the Commission to
link ISS data (which includes large traders' names, but not their
trading account numbers) to TSS data (which includes trading account
numbers but not names).
The information proposed to be collected would also help the
Commission to better identify and categorize individual trading
accounts and market participants that triggered position or volume-
based reporting thresholds. For example, New Form 102A would, among
other changes, require reporting firms to identify the constituent
trading accounts of each reported special account. In this manner, New
Form 102A would ensure a new level of interoperability between the
Commission's large trader data and its trade data, and would permit
Commission surveillance staff to quickly reconstruct trading for any
special account. New Form 102B would, for the first time, require
identification of trading accounts based solely on their gross trading
volume. This new information collection would enhance the Commission's
trade practice surveillance program by revealing connections of
ownership or control between trading accounts that otherwise appear
unrelated in the TCR. More generally, it would facilitate Commission
efforts to deter and detect attempted market disruptions that may occur
even in the absence of large open positions. Finally, the automated
collection of such information via electronic forms, rather than
through ad-hoc, manual processes, would permit both the Commission and
market participants to administer the reporting programs and related
work more efficiently and effectively. Additional information on the
forms addressed by this Notice is provided below.
II. Statutory Framework for Position Reporting and Trader and Account
Identification
The Commission's existing reporting rules, and those proposed
herein, are primarily implemented and/or proposed by the Commission
pursuant to the authority of sections 4a, 4c(b), 4g, and 4i of the
Act.\16\ Section 4a of the Act
[[Page 43971]]
permits the Commission to set and enforce speculative position limits,
and to approve exchange-set position limits.\17\ Section 4c(b) gives
the Commission plenary authority to regulate transactions that involve
commodity options.\18\ Section 4g(a) of the Act requires, among other
things, each futures commission merchant (``FCM''), introducing broker,
floor broker, and floor trader to file such reports as the Commission
may require on its proprietary and customer transactions and positions
in commodities for future delivery on any board of trade in the United
States or elsewhere.\19\ In addition, section 4g(b) requires registered
entities to maintain daily trading records as required by the
Commission, and section 4g(c) requires floor brokers, introducing
brokers, and FCMs to maintain their own daily trading records for each
customer in such manner and form as to be identifiable with the daily
trading records maintained by registered entities. Section 4g(d)
permits the Commission to require that such daily trading records be
made available to the Commission.\20\ Lastly, section 4i of the Act
requires the filing of such reports as the Commission may require when
positions taken or obtained on designated contract markets equal or
exceed Commission-set levels.\21\ Collectively, these CEA provisions
warrant the maintenance of an effective and rigorous system of market
and financial surveillance.
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\16\ 7 U.S.C. 1 et seq. In addition, CEA Sec. 8a(5) authorizes
the Commission to promulgate such regulations as, in its judgment,
are reasonably necessary to effectuate any provision of the Act or
to accomplish any of the purposes of the Act. 7 U.S.C. 12a(5). Also,
pursuant to the purposes enumerated in CEA Sec. 3(b), the Act seeks
to ensure the financial integrity of regulated transactions and to
prevent price manipulation and other disruptions to market
integrity. 7 U.S.C. 5(b).
\17\ 7 U.S.C. 6a.
\18\ 7 U.S.C. 6c(b).
\19\ 7 U.S.C. 6g(a).
\20\ See supra section I(B) for a discussion of the trade data
transmitted daily to the Commission by registered entities.
\21\ 7 U.S.C. 6i.
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In addition to the CEA sections described above, on July 21, 2010,
President Obama signed the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act'').\22\ Title VII of the Dodd-Frank
Act \23\ amended the CEA to establish a comprehensive new regulatory
framework for swaps and security-based swaps. The legislation was
enacted to reduce risk, increase transparency, and promote market
integrity within the financial system by, among other things: (1)
Providing for the registration and comprehensive regulation of swap
dealers and major swap participants; (2) imposing 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 authority with
respect to, among others, all registered entities and intermediaries
subject to the Commission's oversight.
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\22\ See 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./
LawRegulation/OTCDERIVATIVES/index.htm.
\23\ Pursuant to Sec. 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
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As part of the Commission's rulemaking program implementing the
Dodd-Frank Act,\24\ the rule changes proposed herein also include
swaps-related considerations in connection with the Commission's new
large trader reporting rules for swaps.\25\ New CEA section 4t
authorized the Commission to establish a large trader reporting system
for significant price discovery function swaps; accordingly, the swaps-
related considerations in the rules proposed herein also rely in part
on the Commission's authority in CEA section 4t.
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\24\ See generally, http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm.
\25\ As noted supra in note 12, 17 CFR 20.5(a) and (b) contain
the 102S and 40S filing requirements, discussed in greater detail
below. Final part 20 was published in the Federal Register on July
22, 2011. See supra note 12.
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III. Existing and Previously Proposed Trader and Account Identification
Programs
A. Futures Large Trader Reporting--Existing Forms 102 and 40
Existing Sec. 17.00, in part 17 of the Commission's regulations,
forms the basis of the Commission's large trader reporting program.\26\
It requires each FCM, clearing member, and foreign broker to submit a
daily report to the Commission for each commodity futures or option
account it carries that has a reportable position (called a ``special
account''). Such ``Sec. 17.00 position reports'' must show the futures
and option positions of traders with positions at or above specific
reporting levels set by the Commission. Current reporting position
trigger levels are located in Sec. 15.03(b).\27\ The daily report is
sent to the Commission as a single data file from each reporting FCM,
clearing member, and foreign broker pursuant to technical
specifications identified in Sec. 17.00(g).\28\ The Commission's
surveillance staff uses this report to, among other things, assess
individual traders' activities and potential market power; enforce
speculative position limits; monitor for disruptions to market
integrity; and calculate statistics that the Commission publishes to
enhance market transparency (e.g., in the Commitments of Traders
reports).
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\26\ 17 CFR 17.00.
\27\ 17 CFR 15.03(b).
\28\ 17 CFR 17.00(g).
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i. Identification of Special Accounts--Existing Form 102
For each special account identified by an FCM, clearing member, or
foreign broker and reported to the Commission in a Sec. 17.00 position
report, existing Sec. 17.01 \29\ requires the FCM, clearing member, or
foreign broker to separately identify such special accounts to the
Commission on Form 102 and provide certain information with respect to
each special account.\30\ Pursuant to existing Sec. 17.02(b),\31\ Form
102 must be submitted by such parties within three days of an account
becoming a special account; a Form 102 submission may also be required
by the Commission or its designee via a special call. The text of
existing Sec. 17.01 \32\ includes both the requirement to submit the
form as well as the specific data fields that are required to be
completed on Form 102. Currently, Form 102 requires the filing of a
separate ``paper'' form for each special account. Forms are generally
transmitted to the Commission via email, facsimile, or regular mail.
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\29\ 17 CFR 17.01.
\30\ Current Form 102 is titled Identification of Special
Accounts. 17 CFR 15.02.
\31\ 17 CFR 17.02(b).
\32\ 17 CFR 17.01.
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As noted above, Form 102 identifies and provides information with
respect to special accounts carried by FCMs, clearing members, and
foreign brokers. The form provides the Commission with contact
information for the trader(s) who owns and/or controls trading in each
special account included in the daily Sec. 17.00 position reports. The
Form 102 questions, as currently detailed in Sec. 17.01(a) through
(f),\33\ require the reporting firm to provide the following: a special
account number; the name, address, and other identification information
for the owner (if also the controller), controller, or originator (if
an omnibus account) of the account; an indication whether trades and
positions in the special account are usually associated with commercial
activity of the account owner in a related cash commodity or activity;
information regarding an FCM's relationship to the account; and name
and address information for the firm submitting the Form 102.
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\33\ 17 CFR 17.01(a) through (f).
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Based on the Commission's experience in receiving, processing, and
reviewing Form 102 submissions, and as discussed below in the context
of the rules proposed herein, the Commission
[[Page 43972]]
has determined that the existing Form 102 questions would benefit from
revisions designed to: (1) Provide more meaningful information to the
Commission and (2) clarify for reporting firms the traders, accounts,
and information required to be provided on Form 102. In addition, the
Commission is also proposing (as discussed below) that the New Form 102
submission process be modernized to facilitate electronic submission so
that both the Commission and market participants may benefit from the
efficiencies of automation.
ii. Statement of Reporting Trader--Existing Form 40
For each trader holding or controlling a reportable position
(generally, persons identified on Form 102), Sec. 18.04 requires that,
after a special call of the Commission, such trader file with the
Commission a ``Statement of Reporting Trader'' on existing Form 40 at
such time and place as directed in the call.\34\ The Form 40 is most
commonly submitted to the Commission via paper submission, email
submission, or facsimile. When submitted in a timely and accurate
manner, Form 40 submissions provide the Commission with basic
information about each reportable trader in its markets.
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\34\ 17 CFR 18.04.
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As with existing Sec. 17.01 and Form 102, existing Sec. 18.04
also specifically identifies the data fields required in a Form 40
filing. Generally, Sec. 18.04 and Form 40 require every reporting
trader to provide or indicate the following: Name and address;
principal business and occupation; type of trader; registration status
with the Commission; name and address of other persons whose trading
the trader controls; name, address, and phone number for each
controller of the reporting trader's trading; name and location of
other reporting firms through which the reporting trader has accounts;
name and locations of persons guaranteeing the trading accounts of the
reporting trader or persons having a 10 percent or greater financial
interest in the reporting trader or its accounts; other identification
information regarding accounts which the reporting trader guarantees or
in which the reporting trader has a financial interest of 10 percent or
more; and whether the reporting trader has certain relationships with
or owners that are foreign governments.
Individuals completing existing Form 40 must also provide or
indicate the following, as applicable: A business telephone number;
employer and job title; description of trading activity related to
physical activity in or commercial use of a commodity; name and address
of any organization of which the reporting trader participates in the
management, if such organization holds a trading account; the name and
address of a partner and/or joint tenant on the account; and the name
and address of the partner and/or joint tenant that places orders.
Corporations and other non-individuals/non-partnerships/non-joint
tenants completing existing Form 40 must also provide or indicate the
following, as applicable: A U.S. entity indication, and if not a U.S.
entity, an indication of where organized; names and locations of parent
firms and their respective U.S. entity indication; names and locations
of all subsidiary firms that trade in commodity futures and options and
their respective U.S. entity indication; name and address of person(s)
controlling trading, by commodity and transaction type; contact
information for a contact person regarding trading; and description of
trading activity related to physical activity in, or the commercial use
of, a commodity.
As with Form 102, and based on the Commission's experience in
calling for, receiving, processing, and reviewing Form 40 submissions,
the Commission has determined that the existing Form 40 questions could
benefit from revisions designed to: (1) Provide more meaningful
information to the Commission and (2) clarify for reporting traders the
specific information required to be provided on Form 40. In addition,
the Commission is also proposing, as discussed below, that the New Form
40 submission process be modernized to facilitate Web-based electronic
form submission and achieve the efficiencies (for both the Commission
and market participants) associated with using a single Web-based
submission format.
B. Large Trader Reporting for Physical Commodity Swaps--102S and 40S
Filings
As noted above, the Commission recently adopted rules pertaining to
swaps large trader reporting as new part 20 of the Commission's
regulations.\35\ In addition to establishing a position-based reporting
scheme for swaps,\36\ the rules also require two trader identification
filings--102S and 40S. For swap counterparties with reportable
positions (as set forth in part 20), the 102S and 40S filings generally
serve an analogous function to that served by the existing Form 102 and
Form 40 for futures and option traders.
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\35\ See supra note 12.
\36\ See generally: Large Trader Reporting for Physical
Commodity Swaps: Division of Market Oversight Guidebook for part 20
Reports, available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/ltrguidebook120711.pdf (hereafter, ``Swaps
Large Trader Guidebook'').
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Specifically, pursuant to Sec. 20.5(a), 102S filings must be filed
by a part 20 reporting entity (a clearing firm or a swap dealer) for
each reportable counterparty consolidated account and ``shall consist
of the name, address, and contact information of the counterparty and a
brief description of the nature of such person's paired swaps and
swaptions market activity.'' \37\ In addition, pursuant to Sec.
20.5(b), and in conjunction with Sec. 20.6, all clearing
organizations, swap dealers, clearing members, and counterparties with
reportable positions must, after a special call of the Commission,
complete a Form 40 ``as if any references to futures or options
contracts were references to paired swaps or swaptions as defined in
Sec. 20.1'' and submit the same to the Commission as a 40S filing.\38\
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\37\ 17 CFR 20.5(a).
\38\ 17 CFR 20.5(b) and 20.6.
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Building on the approach of this Notice to modernizing Form 102 and
Form 40 submissions, the rules proposed herein would also provide for
the electronic submission of both 102S and 40S filings. In order to
provide clarity for market participants submitting these filings, the
proposed rules also include provisions indicating the specific
information required to be provided in each of these filings. In
addition, the information requested in proposed Form 102S reflects
considerations developed in the Swaps Large Trader Guidebook for
compliance with part 20.\39\ For example, in addition to requiring
information on counterparty consolidated accounts, as described above,
proposed 102S would also collect information on ``customer''
consolidated accounts.\40\ Form 102S would also ask reporting firms to
distinguish between ``house'' and ``customer'' consolidated accounts.
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\39\ See supra note 36.
\40\ As explained in the Swaps Large Trader Guidebook,
acceptable part 20 data records include ``customer,'' ``agent,''
``principal,'' and ``counterparty'' records. Clearing firms and swap
dealers submitting 102S filings would be expected to classify
principal and counterparty consolidated accounts as counterparty
accounts on Form 102S, and to classify customer consolidated
accounts as customer accounts. Agent data records would not require
a 102S filing.
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C. Proposed OCR
In addition to existing trader and account identification filings
summarized above, the Commission recently proposed to collect ownership
[[Page 43973]]
and control information for all trading accounts active on U.S. futures
exchanges and other trading venues. The Commission proposed to collect
such information via an account ownership and control report (``OCR'')
submitted periodically by reporting entities that would primarily be
DCMs. The Commission published an Advanced Notice of Proposed
Rulemaking (``OCR Advanced Notice'' or ``Advanced Notice'') \41\
soliciting public comment on the OCR in 2009, and a Notice of Proposed
Rulemaking (``OCR NPRM'') in 2010.\42\ Both notices are described in
greater detail below.
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\41\ See Commission, Advanced Notice of Proposed Rulemaking:
Ownership and Control Report, 74 FR 31642 (July 2, 2009).
\42\ See OCR NPRM supra note 6.
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i. OCR Advanced Notice
In the OCR Advanced Notice, the Commission sought public comment on
the concept of an OCR submitted periodically to the Commission by DCMs
and other trading-venue reporting entities.\43\ As the Commission
explained in the Advanced Notice, the OCR was designed to enhance
market transparency, leverage the Commission's existing surveillance
systems, and foster synergies between its market surveillance, trade
practice, enforcement, and economic research programs. The OCR Advanced
Notice provided a detailed explanation of the Commission's need and
intended uses for ownership and control information. The Commission
invited all interested parties to submit general comments regarding the
Advanced Notice within a 45-day comment window. The Commission received
a total of twelve comment letters from sixteen interested parties.
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\43\ The OCR Advanced Notice noted that ``most reporting
entities will be designated contract markets, but they could be any
registered entity that provides trade data to the Commission on a
regular basis.'' See OCR Advanced Notice supra note 41 at 31642.
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ii. OCR NPRM
After carefully considering comments received in response to the
OCR Advanced Notice, the Commission published its OCR NPRM, which was
substantively similar to the Advanced Notice. Like the Advanced Notice,
the OCR NPRM also provided for the collection of information through an
OCR submitted to the Commission by trading-venue reporting
entities.\44\ For each trading account, reporting entities were to
collect and transmit specific OCR data points, including: the trading
account number; the names and addresses of the account's owners and
controllers; the owners' and controllers' date of birth; the special
account number, if one had been assigned; an indication of whether the
account was a reportable account pursuant to large trader thresholds;
and other relevant information. The Commission understood that, to
compile their OCRs, reporting entities would need to collect
information from FCMs and introducing brokers (``IBs'') in possession
of the underlying data required by the OCR. Consequently, much of the
OCR's burden would have fallen on FCMs, IBs, and any other market
participants providing data to the reporting entities. The OCR NPRM
also proposed the form, manner, and frequency of OCR transmission by
reporting entities.\45\
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\44\ The OCR NPRM provided that reporting entities would include
DCMs, derivatives transaction execution facilities, and exempt
commercial markets with significant price discovery contracts. In
addition, the OCR NPRM provided that should the Commission adopt the
proposed rule, it would also collect ownership and control
information from foreign boards of trade operating in the U.S.
pursuant to staff direct access no-action letters, if such letters
are conditioned on the regular reporting of trade data to the
Commission. In the OCR NPRM, the Commission also noted that if given
appropriate authority it would consider collecting OCR data for
over-the-counter and exchange-traded swap transactions. See OCR NPRM
supra note 6 at 41782.
\45\ The OCR NPRM provided that the OCR be submitted weekly, in
Financial Information eXchange Markup Language (``FIXML'') via
secure file transfer protocol (``SFTP''). See OCR NPRM supra note 6
at 41784.
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The OCR NPRM sought public comment and provided for a 60-day
comment period. Commission staff also led a public roundtable to
facilitate in-person discussion between Commission staff and interested
parties.\46\ The staff-led public roundtable was held on September 16,
2010, and consisted of fifteen panelists.\47\ By the close of the OCR
NPRM comment period, the Commission received eight comment letters from
fourteen interested parties.\48\ Many of the comments presented by
roundtable panelists raised the same issues as those raised by the
comment letters responding to the Advanced Notice and the OCR NPRM.
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\46\ The comment period deadline was extended from September 17,
2010 to October 7, 2010 in order to give interested parties time to
prepare comments on matters discussed at the public roundtable. See
75 FR 54801 (September 9, 2010).
\47\ Panelists included representatives from: CME Group Inc.;
ICE Futures U.S.; Kansas City Board of Trade; Katten Muchin Rosenman
LLP; Millburn Ridgefield Corporation; National Introducing Brokers
Association; NYSE Liffe U.S.; State Street Global Markets; Woodfield
Fund Administration LLC; and an industry consultant.
\48\ All OCR NPRM comment letters (``CL''), supplemental comment
letters (``supplemental CL''), ex parte communications summaries,
and a transcript of the public roundtable are available through the
Commission's Web site at: http://comments.cftc.gov/PublicComments/CommentList.aspx?id=755. OCR NPRM comment letters were received
from: (1) Air Transport Association of America, Inc. on September
17, 2010 (``CL-ATA''); (2) CME Group Inc. on behalf of the Chicago
Mercantile Exchange, Inc.; the Board of Trade of the City of
Chicago, Inc.; the New York Mercantile Exchange, Inc.; and the
Commodity Exchange, Inc. (collectively ``CME'') on October 7, 2010
(``CL-CME''); (3) Darrell Cutshaw on September 13, 2010 (``CL-
DCT''); (4) Futures Industry Association on October 7, 2010 (``CL-
FIA''); (5) IntercontinentalExchange, Inc., ICE Futures Europe, and
ICE Futures U.S., Inc. (collectively, ``ICE'') on October 7, 2010
(``CL-ICE''); (6) International Assets Holding Corporation and
FCStone, LLC on October 7, 2010 (``CL-FCS''); (7) Kansas City Board
of Trade on October 7, 2010 (``CL-KCBT''); and (8) OneChicago, LLC
on September 27, 2010 (``CL-OCX''). OCR NPRM supplemental comment
letters were received from: (1) FIA on December 23, 2010
(``Supplemental CL-FIA I''); and (2) FIA on March 22, 2011
(``Supplemental CL-FIA II'').
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iii. OCR NPRM Comment Summary
A number of commenters found merit in the proposed OCR. For
example, IntercontinentalExchange, ICE Futures Europe, and ICE Futures
U.S. collectively stated that they ``recognize[d] the value in
collecting information regarding the identity of the owners and
controllers of accounts that actively trade on reporting entities, and
therefore suppor[t] the Commission's initiative to collect certain OCR
information.'' \49\ Similarly, the Futures Industry Association
(``FIA'') commented that it ``supports the underlying purposes of the
proposed OCR.'' \50\ The Air Transport Association of America (``ATA'')
``agree[d] that the proposed [OCR] will provide information the
Commission needs to ensure that the U.S. futures markets accurately
reflect supply and demand forces for products traded, and to ensure
that the futures markets are not tainted by fraud, abuse or excessive
speculation.'' \51\ The ATA further stated that, ``the OCR is critical
to the Commission's ability to fulfill these responsibilities in a
dynamic and evolving marketplace that has embraced new technologies.''
\52\ Finally, the Kansas City Board of Trade commented that ``Exchange
Compliance staffs will benefit greatly from the wealth of information
at their disposal regarding the identity of market participants and the
relationships that exist among them.'' \53\
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\49\ CL-ICE supra note 48 at 1.
\50\ CL-FIA supra note 48 at 2.
\51\ CL-ATA supra note 48 at 1.
\52\ Id.
\53\ CL-KCBT supra note 48 at 1.
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Commenters also suggested possible modifications to the OCR as
described in the OCR NPRM. Commenters recommended that the Commission
utilize an updated and automated Form
[[Page 43974]]
102 to collect OCR data \54\; collaborate with industry representatives
to design the OCR \55\; require the reporting of only those accounts
that exceed certain volume thresholds \56\; and require that the
Commission receive OCRs directly from clearing FCMs rather than from
DCMs and other trading venues.\57\ In a series of supplemental comment
letters, the FIA (working with a group of FCMs, U.S. exchanges and
other experts (``Working Group'')) provided a ``Proposed OCR
Alternative'' that expanded upon comments made by FIA and its members
in response to the Advanced Notice, the OCR NPRM, and the public
roundtable.\58\ The Working Group's Proposed OCR Alternative addressed,
among other things, the OCR data points to be collected, the sources
and flow of OCR data, and industry costs arising from the Commission's
proposed OCR versus the costs associated with the Working Group's
Proposed OCR Alternative.\59\ Specifically, the Working Group estimated
that the Proposed OCR Alternative ``would result in an average first-
year cost saving of approximately $18.8 million'' when compared with
the Commission's proposed OCR.\60\ The Commission found merit in many
of the commenters' recommendations and has incorporated several of
these recommendations in the proposed rules. For example, as further
described below, the proposed rules would require OCR data submissions
directly from clearing FCMs, and OCR data would only be required for
those trading accounts that exceed a specified volume threshold. Also,
in concurrence with the suggestions of commenters and as more fully
described below, the Commission anticipates collaborating with
reporting entities and other interested participants to develop the
data format and submission process.
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\54\ See CL-CME supra note 48 at 6, CL-OCX supra note 49 at 2,
and Supplemental CL-FIA I supra note 49 at 2 of Appendix A.
\55\ See CL-CME supra note 48 at 5, CL-FIA supra note 49 at 8,
CL-ICE supra note 49 at 2, and CL-KCBT supra note 49 at 4.
\56\ See CL-ICE supra note 48 at 4, CL-FIA supra note 49 at 7,
and Supplemental CL-FIA I supra note 49 at 2 of Appendix A.
\57\ See CL-KCBT supra note 48 at 2.
\58\ See generally Supplemental CL-FIA I supra note 48 and
Supplemental CL-FIA II supra note 48.
\59\ Id.
\60\ Supplemental CL-FIA I supra note 48 at 5 of Appendix A.
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Concurrent with the publication of this Notice, the Commission is
issuing a separate notice that serves to formally withdraw the OCR NPRM
and to alert the public to the rulemaking proposed herein.
IV. Forms
As noted above, this proposed rulemaking addresses three forms--New
Form 102, New Form 71, and New Form 40. New Form 102 is proposed as a
multi-function form, since the requirement to submit New Form 102 can
arise from one of three separate triggers. The data required to be
submitted on a New Form 102 is determined by the underlying triggering
mechanism. A discussion of the three New Form 102 triggering
mechanisms, the related sections of the form, and the information
required to be provided in each section, follows. New Form 71 is
proposed as a tool to be used, at the Commission's discretion, to learn
more about certain volume threshold accounts identified as omnibus
accounts on New Form 102B. New Form 40 would continue to serve its
traditional purpose as a tool to be used, at the Commission's
discretion, to learn more about traders and market participants
identified on New Form 102, as well as on New Form 71. New Form 71 and
New Form 40 are also described in detail below.
A. Position Triggered 102
i. Special Accounts and Reportable Positions
New Form 102A is the section of New Form 102 that would serve a
function most analogous to existing Form 102. New Form 102A requires an
FCM, clearing member, or foreign broker to identify and report its
special accounts. As discussed above, a special account is defined in
existing Sec. 15.00(r), and means any commodity futures or option
account in which there is a reportable position.\61\ For the purposes
of part 17, reportable position is defined in existing Sec.
15.00(p)(1), and generally includes any open contract position that at
the close of the market on any given business day equals or exceeds the
levels in existing Sec. 15.03.\62\ These proposed rules would not
amend the definition of either special account or reportable position.
The Commission notes that under existing regulations (e.g., Sec.
17.00(b), citing Sec. 150.4),\63\ reporting firms are required to
separately aggregate the positions of common owners and those of common
controllers for the purpose of identifying special accounts on a Form
102. By way of this proposed rulemaking, the Commission reiterates that
its regulations require reporting firms to separately aggregate
positions by common ownership and by common control for the purpose of
identifying and reporting special accounts.
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\61\ 17 CFR 15.00(r).
\62\ 17 CFR 15.00(p)(1) and 15.03.
\63\ 17 CFR 17.00(b) and 150.4. In this regard, the Commission
notes that upon the compliance date for part 151 of the Commission's
regulations, the aggregation rules in Sec. 150.4 will be superseded
by those in Sec. 151.7. The compliance date for part 151 is 60 days
after the term ``swap'' is further defined pursuant to Sec. 721 of
the Dodd-Frank Act (i.e., 60 days after the further definition of
``swap'' as adopted by the Commission and the Securities Exchange
Commission is published in the Federal Register). See Commission,
Position Limits for Futures and Swaps, 76 FR 71626, 71632 (November
18, 2011).
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ii. 102A Form Requirements
As compared to existing Form 102, the data fields in 102A would
include new ownership and control information fields (or, in the case
of special accounts that are omnibus accounts, omnibus account
originator information fields) for position-based special accounts.
Form 102A, as proposed, would also require reporting firms that are
clearing members to identify the trading accounts that comprise a
position-based special account and to provide ownership and control
information, as well as TCR trading account numbers, for those trading
accounts.\64\ To clarify, ``trading accounts that comprise a position-
based special account'' would include all of those trading accounts
that: (1) Are used to execute trades cleared by the clearing member
submitting the 102A; (2) are owned or controlled by the entity
identified as owning or controlling the special account reported on a
102A; and (3) execute transactions in the same commodity or commodities
in which the special account has a reportable position. The
Commission's objective in requiring reporting firms that are clearing
members to identify the trading accounts that comprise a special
account is to facilitate trade-level monitoring of the means by which
special account owners or controllers establish and unwind their
reportable positions. The Commission specifically requests comment on
this definition of ``trading accounts that comprise the special
account.'' The Commission welcomes proposals for alternative
definitions that would still permit it to achieve the objective
identified above. The Commission also requests public comment regarding
whether Form 102S filings, discussed below, should require the
identification of trading accounts that comprise a consolidated account
in the same manner that Form 102A would require the identification of
trading accounts that comprise a special account.
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\64\ See supra section I(B).
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The Commission notes that the requirement in 102A to identify a
trading account number for trading
[[Page 43975]]
accounts that comprise a special account would only be a relevant/
applicable data field for clearing members identifying trading accounts
that comprise a special account. Based on comments received in response
to the OCR NPRM, it is the Commission's understanding that non-clearing
FCMs, foreign brokers, and omnibus account originators (collectively,
``non-clearing entities'') would generally not have the ability to
match/identify a trading account number for their customers or sub-
accounts (hereafter, ``sub-accounts'') on the TCR.\65\
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\65\ See supra section I(B) for a discussion of the TCR.
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Notwithstanding these limitations, under this proposed rulemaking
non-clearing entities would continue to be required to submit a 102A
for their customers/sub-accounts that, if carried directly with a
clearing member, would otherwise be required to be reported as a
position-based special account. Existing Form 102 requires the
reporting of such special accounts, and New Form 102A would not change
that requirement.
Form 102A would also require reporting firms to indicate whether a
special account reported based on ownership or control of a reportable
position is a house or customer account of the reporting firm. This
indicator would allow the Commission to perform certain financial risk
surveillance functions in a more automated and efficient manner by
quickly identifying house positions that potentially create risk for
the reporting firm. Form 102A also requires that reporting firms
indicate whether any trading account identified on 102A has been
granted direct market access (``DMA'') to the trade matching system of
the relevant reporting market. The proposed definition of ``DMA''
appears in section IX below. Finally, 102A requires any reporting firm
that indicates on 102A that it is a foreign broker to identify its U.S.
FCM.
iii. Timing of 102A Reporting
Pursuant to the proposed regulatory revisions discussed below, this
rulemaking would require 102A submissions no later than the submission
of the corresponding Sec. 17.00(a) position report for a special
account. That is, the 102A for any particular special account would be
due at the same time as the special account's reportable position is
first sent to the Commission. The proposed rule text also includes an
``on-call'' provision, which would require a 102A to be submitted on
such other date as directed by special call of the Commission.
iv. 102A Change Updates and Refresh Updates
The proposed rules provide that if any change causes the
information filed on a 102A for a special account to no longer be
accurate, that an updated 102A shall be filed with the Commission no
later than 9:00 a.m. eastern time on the business day after such change
occurs, or on such other date as directed by special call of the
Commission (``change updates'').
In addition to change updates, proposed Sec. 17.02(b) requires
that, starting on a date specified by the Commission or its designee
and at the end of each six month increment thereafter (or such later
date specified by the Commission or its designee), each FCM, clearing
member, or foreign broker resubmit every 102A that it has submitted to
the Commission for each of its special accounts (``refresh updates'').
As with the 102B, discussed below, the goal of the refresh update
provision is to establish discreet points in time where all 102A data
is considered accurate and reliable. The Commission is proposing the
refresh update provision in an effort to maintain accurate 102A data,
and to avoid the data drift which is often associated with long-term
data collection efforts.
Both the change update and refresh update provisions of Sec.
17.02(b) include the following sunset provision: an FCM, clearing
member, or foreign broker may stop providing change updates or refresh
updates for a Form 102A that it has submitted to the Commission for any
special account upon notifying the Commission that the account in
question is no longer reportable as a special account.
B. Volume Triggered 102
New Form 102B of New Form 102 provides a new volume-based reporting
structure not found in existing 102. As background, the Commission
received several comments in response to the OCR NPRM that suggested
the Commission should only require the reporting of those trading
accounts whose trading activity exceeded a volume threshold, thereby
limiting the total number of reportable accounts, reducing reporting
costs, and preventing the reporting of non-significant accounts. The
Commission considered the comments it received regarding the
establishment of volume thresholds for the OCR, and has modified its
approach accordingly in this Notice. While existing Form 102 reporting
requirements arise when an account (or collection of related accounts)
has a reportable position, 102B reporting is triggered when an
individual trading account meets a specified trading volume level in an
individual product and, as a result, becomes a ``volume threshold
account.'' Volume threshold accounts, as defined below in proposed
Sec. 15.00(y), are trading accounts that execute, or receive via
allocation or give-up, reportable trading volume on or subject to the
rules of a reporting market, that is a DCM or an SEF.\66\ The
reportable trading volume level (``RTVL'') is defined in proposed Sec.
15.04 as 50 or more contracts in all instruments that a DCM or SEF
designates with the same product identifier (including purchases and
sales, and inclusive of all expiration months).\67\ As noted above,
volume threshold accounts could reflect, without limitation, trading in
futures, options on futures, swaps, and any other product traded on or
subject to the rules of a DCM or SEF. The Commission requests public
comment as to whether any final rule adopted by the Commission should
raise, lower or maintain the proposed RTVL. The Commission also
requests public comment regarding the suitability of the proposed RTVL,
as defined in proposed Sec. 15.04, to volume threshold accounts
associated with SEFs, and whether any changes are required to make the
proposed RTVL suitable for volume threshold accounts associated with
SEFs. Additional requests for public
[[Page 43976]]
comment with respect to the RTVL as currently proposed are in section
VII, below.
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\66\ See supra section I(A) for an explanation of the reporting
markets relevant to 102B filings, and infra sections VI(A) and IX
and note 82 for proposed amendments to the definition of ``reporting
market.''
\67\ The proposed RTVL is based on the Commission's analysis of
DCM trade data received through the TCR from a sample of DCMs during
a recent six month period. It is calibrated to yield information
with respect to those trading accounts that are responsible for a
substantial majority of trading volume, while minimizing the
proposed regulations' impact on low-volume accounts whose trading
activity does not warrant inclusion in the proposed reporting and
identification regime. Based on the sample data set used in the
Commission's analysis, the proposed RTVL would result in the
reporting and identification of approximately one-third of the
trading accounts reported in the sample data set. However, due to
the concentration of trading activity among a minority of accounts
and some accounts' tendency to be active in more than one product,
the proposed RTVL would nonetheless result in the identification of
at least 85% of the trading volume in approximately 90% of the
products in the sample data set, as measured at the conclusion of
the six-month period sampled by the Commission. The Commission notes
that any amendments it may make to the RTVL as it pertains to SEFs
may be designed to ensure that the RTVL for SEFs achieves a similar
level of identification as the RTVL for DCMs, i.e., identifying a
substantial majority of the volume in a substantial majority of
products while minimizing the impact on SEF accounts whose trading
activity is too low to merit inclusion in the reporting and
identification regime.
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i. 102B Form Requirements
As a threshold question, 102B requires that clearing members
provide, in response to question 2, the trading account number of any
trading account that meets the criteria for a volume threshold account;
any related short code(s) for such account; and the name of the
reporting market (i.e., the DCM or SEF) at which the volume threshold
account had reportable trading volume. These data points are necessary
to report and identify volume threshold accounts in TCRs received from
DCMs or similar transaction-based reports that may be received by the
Commission from SEFs, and to link the volume threshold account to
transaction records in the Commission's surveillance databases.\68\ The
data points will also assist the Commission in fulfilling its
surveillance responsibilities.
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\68\ See supra section I(B).
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Second, and as with 102A, 102B requires that clearing members
indicate, in response to question 3, whether the volume threshold
account has been granted DMA to the trade matching system of the
relevant reporting market.
Third, 102B requires that clearing members provide, in response to
question 4, the volume threshold account's associated special account
number, if applicable. In the case of DCMs, this information will
permit the Commission to more effectively and efficiently connect
position data received via the large trader reporting system and trade
data received via the TCR.
Fourth, 102B requires that clearing members indicate, in response
to question 5, whether the volume threshold account is an omnibus
account, or used to execute trades for an omnibus account. If the
account is an omnibus account or used to execute trades for an omnibus
account, question 5 requires clearing members to indicate whether the
account is a house or customer omnibus account, and to provide
information sufficient to uniquely identify and contact the originator
of the account (e.g., the originator's name, address and phone number,
among other information). More detailed information regarding ownership
and control with respect to a volume threshold account that is a
customer omnibus account will be collected separately at the
Commission's request, from the omnibus account's originating firm, via
a New Form 71, also proposed in this Notice and described below.
Fifth, 102B requires clearing members to provide information, in
response to question 6, sufficient to uniquely identify and contact
each owner of a volume threshold account that is not an omnibus account
(e.g., the owner's name, address and phone number, among other
information). For each account owner that is not a natural person,
question 6 also requests, among other identifying information, a
contact name, contact job title, and the relationship of the contact to
the account owner.
Finally, the Commission requests that clearing members provide
information, in response to question 7, sufficient to uniquely identify
and contact each volume threshold account controller of an account that
is not an omnibus account. Pursuant to proposed Sec. 15.00(dd), a
volume threshold account controller must be a natural person. The
requested information includes the account controller's name, address,
phone number and job title, together with the name of the controller's
employer and other identifying information.
The Commission requests public comment regarding the suitability of
Form 102B to volume threshold accounts associated with SEFs. The
Commission also requests comment regarding how Form 102B should be
amended, if at all, to heighten its suitability with respect to SEFs.
ii. Timing of 102B Reporting
In order to identify its volume threshold accounts and make a
timely submission of 102B, a clearing firm must tabulate the gross
trading activity of each account on its books. Once a volume threshold
account is identified, proposed Sec. 17.02(c) requires that the
clearing firm submit 102B to the Commission no later than 9:00 a.m.
eastern time on the business day following the day on which the account
in question became a volume threshold account.\69\
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\69\ Business days are Monday through Friday calendar days that
are not Federal holidays. For example, if an account becomes a
volume threshold account on a Friday, it must be reported to the
Commission by 9:00 on Monday (the next business day).
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iii. 102B Change Updates and Refresh Updates
Once a clearing firm has identified a volume threshold account on
102B, that clearing firm has an ongoing responsibility (under Sec.
17.02(c)) to ensure the information reported on 102B remains accurate.
If the clearing firm becomes aware of any changes that cause the
information reported on 102B to no longer be accurate, then an updated
102B must be filed no later than 9:00 a.m. on the business day after
the clearing firm becomes aware of such change (``change updates'').
In addition to change updates, proposed Sec. 17.02(c) requires
that, starting on a date specified by the Commission or its designee
and at the end of each six month increment thereafter (or such later
date specified by the Commission or its designee), each clearing member
shall resubmit every Form 102B that it has submitted to the Commission
for each of its volume threshold accounts (``refresh updates''). As
with Form 102A, the Commission is proposing the refresh update
provision in Sec. 17.02(c) in an effort to maintain accurate 102B data
and avoid the data drift which is often associated with long-term data
collection efforts. The goal of the refresh update provision is to
establish discrete points in time where all 102B data is considered
accurate and reliable.
Both the change update and refresh update provisions of Sec.
17.02(c) include the following sunset provision: If, during the course
of a six-month period, the subject volume threshold account executes no
trades in any product on the reporting market at which the volume
threshold account reached the reportable trading volume level, then the
relevant clearing firm is no longer required to provide either change
updates or refresh updates following the end of this six-month period.
C. 102S
i. 102S Form Requirements
Section 102S of New Form 102 is proposed to formalize and
facilitate the electronic submission of 102S filings as required in 17
CFR 20.5(a). As noted above, pursuant to Sec. 20.5(a), 102S filings
must be filed by a part 20 reporting entity (a clearing firm or a swap
dealer) for each reportable counterparty consolidated account when such
account first becomes reportable, and ``shall consist of the name,
address, and contact information of the counterparty and a brief
description of the nature of such person's paired swaps and swaptions
market activity.''\70\ By including 102S in New Form 102, the proposed
rules would enable the submission of futures and swaps large trade
reporting via a single electronic submission, enable the Commission to
integrate its analysis of the information provided on 102S filings with
that
[[Page 43977]]
provided on New Form 102A and New Form 102B submissions, and clarify
for market participants the specific information and data fields that
should be submitted in a 102S filing. As explained above, 102S would
also incorporate considerations developed in the Swaps Large Trader
Guidebook for compliance with part 20. The Commission is proposing that
these rules replace the 102S submission procedure and guidance in the
Swaps Large Trader Guidebook.\71\
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\70\ 17 CFR 20.5(a).
\71\ See Swaps Large Trader Guidebook at p. 21-23 and p. 88,
Appendix D. See also supra note 25.
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The timing for submitting 102S filings would continue to be subject
to existing Sec. 20.5(a)(3).\72\ The Commission specifically requests
comment on its proposal to retain Sec. 20.5(a)(3) as the timing
requirement for submitting 102S filings on New Form 102.
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\72\ 17 CFR 20.5(a)(3) provides: ``Reporting entities shall
submit a 102S filing within three days following the first day a
consolidated account first becomes reportable or at such time as
instructed by the Commission upon special call.''
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ii. 102S Change Updates and Refresh Updates
Section 20.5(a)(4) of the proposed rules provide that, if any
change causes the information filed on a 102S for a consolidated
account to no longer be accurate, an updated 102S shall be filed with
the Commission no later than 9:00 a.m. eastern time on the business day
after such change occurs, or on such other date as directed by special
call of the Commission (``change updates'').
In addition to change updates, proposed Sec. 20.5(a)(5) requires
that, starting on a date specified by the Commission or its designee
and at the end of each six month increment thereafter (or such later
date specified by the Commission or its designee), each clearing member
or swap dealer resubmit every 102S that it has submitted to the
Commission for each of its consolidated accounts (``refresh updates'').
As with the 102A and 102B, discussed above, the goal of the refresh
update provision is to establish discrete points in time where all 102S
data is considered accurate and reliable. The Commission is proposing
the refresh update provision in an effort to maintain accurate 102S
data, and to avoid the data drift which is often associated with long-
term data collection efforts.
Both the change update and refresh update provisions of Sec.
20.5(a) include the following sunset provision: A clearing member or
swap dealer may stop providing change updates or refresh updates for a
Form 102S that it has submitted to the Commission for any consolidated
account upon notifying the Commission that the account in question is
no longer reportable as a consolidated account.
D. Form 71
Proposed, New Form 71 (``Identification of Omnibus Accounts and
Sub-Accounts'') would be sent to omnibus account originating firms, at
the discretion of Commission staff, in the event that a volume
threshold account is identified as a customer omnibus account on Form
102B. The relevant account number and reporting market listed on the
102B will be provided on Form 71. Recipients of a Form 71 would be
required to provide information regarding any account to which the
customer omnibus account allocated trades that resulted in reportable
trading volume for the account receiving such allocations (a
``reportable sub-account'') on a specified trading date.\73\ Form 71 is
designed to permit originating firms to report the required information
directly to the Commission without requiring such firms to disclose
information regarding customers to potential competitors. If a
reportable sub-account is itself an omnibus account (an ``omnibus
reportable sub-account''), then the originating firm would be required
to (a) indicate whether the omnibus reportable sub-account is a house
or customer omnibus account and (b) identify the originator of the
omnibus reportable sub-account. Another Form 71 (and a New Form 40)
would be sent, at the discretion of Commission staff, to the originator
of a customer omnibus reportable sub-account identified on Form 71. At
its discretion, the Commission will continue to reach through layered
customer omnibus reportable sub-accounts via successive Form 71s until
reaching all reportable sub-accounts, if any, that are not omnibus sub-
accounts.
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\73\ The relevant trading date would be specified by Commission
staff on Form 71 at the time the special call is made.
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If a reportable sub-account identified on Form 71 is not an omnibus
sub-account, then the originating firm will be required to identify the
owner(s) and controller(s) of the non-omnibus reportable sub-account. A
New Form 40 will be sent at the discretion of Commission staff to such
owner(s) and controller(s). Form 71 will therefore enable the
Commission to collect the same level of information regarding owners
and controllers (via a subsequent New Form 40) that the Commission
would collect with respect to a non-omnibus volume threshold account
identified on 102B. The key data points proposed to be collected in
Form 71 are summarized below.
As a threshold question, section A of Form 71 requires the
originator of an omnibus volume threshold account or a reportable sub-
account to confirm certain identifying information regarding the
originator. Such information would have been reported to the Commission
by an omnibus account carrying firm on Form 102B or on a preceding Form
71 (e.g., the originator's name, address and phone number), and used to
auto-populate the present Form 71. The originator is prompted to update
any incorrect information provided in Section A.
Second, section B of Form 71 requires the originator to provide
certain information regarding the allocation of trades from a specified
account number, and on a specified date and reporting market, to
another account (called a ``recipient account''). Specifically, the
originator is required to indicate whether: (1) It allocated trades
from the specified account number on the specified date and reporting
market that resulted in reportable trading volume for a recipient
account; (2) it allocated trades from the specified account number on
the specified date and reporting market, but the allocations did not
sum to reportable trading volume for a recipient account on such date;
or (3) it did not allocate any trades from the specified account number
on the specified date and reporting market.
If condition (1) is met, the originator is required to indicate in
section B whether the reportable sub-account is an omnibus reportable
sub-account. If so, the originator is required to indicate whether the
omnibus reportable sub-account is a house or customer omnibus account,
and to provide information sufficient to identify and contact the
originator of the sub-account (e.g., the originator's name, address and
phone number, and a contact name, contact job title, and the
relationship of the contact to the originator). As noted above, another
Form 71 will be sent at the discretion of Commission staff to the
originator of a customer omnibus reportable sub-account identified in
response to section B of Form 71. Therefore, Form 71 may be sent to a
chain of such originators if each originator allocated trades to
another customer omnibus reportable sub-account.
If the reportable sub-account is not an omnibus sub-account, the
originator is required to provide information sufficient to identify
and contact the owner(s) and controller(s) of such non-omnibus
reportable sub-account (e.g.,
[[Page 43978]]
the name, address and phone number of the owner(s) and controller(s)).
This information will enable the Commission, in its discretion, to send
a New Form 40 to such owner(s) and controller(s).
The Commission requests public comment regarding the suitability of
Form 71 to omnibus volume threshold accounts and omnibus reportable
sub-accounts associated with SEFs. The Commission also requests comment
regarding how Form 71 should be amended, if at all, to heighten its
utility with respect to SEFs.
E. New Form 40
This Notice proposes a revised Form 40 that would be required to be
completed, on special call of the Commission, by individuals, persons,
and other entities identified on any of 102A, 102B, 102S, and Form 71.
As proposed herein, New Form 40, still referred to as the ``Statement
of Reporting Trader,'' would continue to serve the function
traditionally met by existing Form 40 by providing the Commission with
basic contact and trading activity information about those persons and
entities identified in the Commission's New Form 102 program. New Form
40 would also be the vehicle through which market participants subject
to 17 CFR 20.5(b) submit their 40S filings. As part of its
implementation plan related to this proposal, and described in more
detail below, the Commission is proposing to develop a Web-based portal
through which market participates would complete, submit, and (when
necessary) update their New Form 40--thereby curing much of the
inefficiency, inaccuracy, and uncertainty associated with the current
paper or facsimile based submission process.
Specifically, as proposed herein, New Form 40 (whether completed as
a New Form 40 or as a 40S filing) would be required to be completed on
call, as directed by Commission staff. Because the proposal anticipates
a Web-based portal and user profile system, those entities required to
complete a New Form 40 would also be under a continuing obligation, per
direction in the special call, to update and maintain the accuracy of
their profile information by periodically visiting the online New Form
40 portal to review, verify, and/or update their information.
Generally, New Form 40 would request basic information regarding
the reporting trader; contact information for the individual(s)
responsible for the reporting trader's trading activities, risk
management operations, and the information on the New Form 40; if
applicable, omnibus account information, foreign government affiliation
information, and an indication regarding the reporting trader's status
as a domestic or non-domestic entity; information regarding the
reporting entity's ownership structure in connection with its parents
and subsidiaries; information regarding the reporting trader's control
relationships with other entities; information regarding other
relationships with persons that influence or exercise authority over
the trading of the reporting trader; an indication regarding swap
dealer status and major swap participant status; and various
indications regarding the nature of the reporting trader's derivatives
trading activity. The form includes definitions of certain terms,
including parent, subsidiary, and control, to be used for the purpose
of completing New Form 40. The Commission specifically requests comment
on the appropriateness of these definitions and whether the definitions
should be changed in any way.
New Form 40 would also require reporting traders who engage in
commodity index trading (``CIT''), as defined in the new form, to
identify themselves to the Commission. New Form 40 defines CIT as: (a)
an investment strategy that consists of investing in an instrument
(e.g., a commodity index fund, exchange-traded fund for commodities, or
exchange-traded note for commodities) that enters into one or more
derivative contracts to track the performance of a published index that
is based on the price of one or more commodities, or commodities in
combination with other securities; or (b) an investment strategy that
consists of entering into one or more derivative contracts to track the
performance of a published index that is based on the price of one or
more commodities, or commodities in combination with other securities.
An example of CIT described in clause (a) is the strategy of
purchasing shares in an exchange-traded fund (ETF) that purchases
futures contracts based on the amount of funds contributed by
investors. It is typical for an ETF for commodities to track the
performance of a widely cited commodity benchmark. An example of CIT
described in clause (b) is the strategy of an investor entering into a
total-return swap with a counterparty. The counterparty would agree to
pay the investor the total return on (e.g.) a commodity index, and
would hedge the swap by buying futures contracts. Reporting traders
engaged in CIT as defined in (b) are required to indicate whether they
are, in the aggregate, pursuing long exposure or short exposure with
respect to the relevant commodities or commodity groups listed on the
Form (see question 14ii(a) in New Form 40).
The Commission requests public comment regarding the definition of
CIT in New Form 40. The Commission also requests comment on whether the
definition captures all forms of CIT present in the market, or if not,
how the definition should be modified. Finally, the Commission requests
comment regarding question 14ii(a) in New Form 40, and whether it will
adequately capture reporting traders' exposure in the commodities in
which they engage in CIT.
V. Data Submission Standards and Procedures
During the comment period, the Commission anticipates that its data
and technology staff will work with market participants and potential
reporting entities to address potential information technology
standards to be associated with the proposed rules. The Commission
encourages interested parties to share information directly or through
any industry working groups wishing to provide technical input
pertaining to relevant data fields, formats, and submission
requirements. The Commission may receive information through comment
letters submitted according to the instructions above or through on-
the-record meetings with industry participants, including staff-led
public roundtables.\74\ The Commission anticipates that this process
may also include staff visits to market participant facilities in order
to observe onsite demonstrations of existing and potential technology
capabilities, operation processes, and, more generally, to gain more
direct knowledge and understanding of what an implementation effort
will require. Based on information gathered during the comment period,
the Commission will direct its data and technology staff to develop
data requirements so that the Commission can identify and define a data
submission standard for each submission type (e.g., an XML data feed)
in preparation for the implementation of any final rules that follow
from this Notice.
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\74\ Staff-led public roundtables are included here only as a
possible means by which the Commission may choose to receive public
comments. The Commission has not yet determined whether any such
roundtable(s) will be held in connection with this Notice.
---------------------------------------------------------------------------
Specifically, the Commission anticipates creating a secure internet
portal with the proposed electronic New Form 102, New Form 40, and New
Form
[[Page 43979]]
71 for beta testing in the event that this Notice ultimately results in
final rules. Industry participants would be encouraged to review, test,
and comment on the portal and online form capabilities. Where
appropriate, the Commission may direct its staff to work with
international data standards authorities to officiate the defined
standards. As part of the completion of the data standards and online
forms, the Commission plans on publishing a data compliance guidebook
with detailed submission instructions.\75\
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\75\ For a recent example of a similar undertaking, see the
Swaps Large Trader Guidebook, linked supra at note 36.
---------------------------------------------------------------------------
It is envisioned that once the rule is effective and all technology
at the CFTC is in place, the following capabilities will be available:
FCMs (including clearing members), foreign brokers, or swap dealers
that trigger a position or volume based reporting obligation will
generate the appropriate 102A, 102B, or 102S standard file and send it
to the Commission via secure file transfer protocol (``FTP''). The
Commission will provide the necessary FTP IP address, login, and
password and will coordinate with the reporting entity to set up the
secure FTP protocol handlers. Additionally, the Commission may provide
file converters (such as CSV-to-XML) to simplify the data standard
compliance requirements for the industry. Alternatively, the 102A, 102B
and 102S data may be submitted through an electronic version of the
form which would be available on the Commission's secure Web site
portal.
New accounts identified on the New Form 102 by the reporting entity
will be evaluated by Commission staff to determine next step actions
(i.e., requesting a New Form 40 or New Form 71). If it is determined
that a New Form 40 or New Form 71 should be sent to an account
identified on a New Form 102 submission, the Commission would contact
the named account (generally via email, using the email address
provided on the New Form 102) to request and provide instructions for
the appropriate CFTC form. The instructions would include a Web site
address, login, and password to access the specific form needed. The
named account may be required to submit a completed online form upon
receiving the request.
Depending on the information provided in the Form 71, additional
reportable sub-accounts named in the form may be asked to complete a
New Form 40 or Form 71 using the same process described above.
Finally, the Commission proposes that any final rules resulting
from this Notice include separate ``effective'' and ``compliance''
dates. The effective date of any final rule would begin 60 days after
such rule's publication in the Federal Register. The Commission
proposes that any compliance date, however, would be delayed by an
additional 90 days (for a total of 150 days after a final rule's
publication in the Federal Register). Upon reaching the effective date
of any final rule, market participants and reporting entities should be
prepared to begin working with the Commission's data and technology
staff to test and implement any information technology standards or
systems associated with the final rules. Such cooperation would include
providing all test data or form filings requested by the Commission's
data and technology staff, in the form and manner requested by staff.
In the absence of any further relief by the Commission, all market
participants and reporting entities subject to final rules would be
expected to be in full compliance by the compliance date, including
having submitted complete and accurate filings using one of the two
submission methods specified above. The Commission seeks public comment
on the proposed schedule and procedures for the effective date and
compliance date of any final rule resulting from this Notice.
VI. Review and Summary of Regulatory Changes To Implement New and
Amended Forms
To implement the new and amended forms described above, the
Commission proposes to revise parts 15, 17, 18, and 20 of its
regulations as follows.
A. Part 15
Existing part 15 enumerates certain defined terms and other
provisions applicable to parts 15 through 19 and 21 of the Commission's
regulations. The Commission proposes to amend part 15 to effectuate the
enhanced market participant and account identification regime proposed
in this Notice, including new Forms 102B and 71. Specifically, the
Commission proposes to do the following: Codify twelve new defined
terms in Sec. 15.00; update the list of ``persons required to report''
in Sec. 15.01 to include persons identified on New Forms 102B and 71;
revise Sec. 15.04 to provide the ``reportable trading volume level''
for volume threshold accounts and other new account types; and make
conforming changes in Sec. Sec. 15.00(q) and 15.02.\76\ The proposed
amendments to part 15 are summarized below.
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\76\ 17 CFR 15.00, 15.01, 15.04, 15.00(q) and 15.02.
---------------------------------------------------------------------------
New Forms 102 and 71 would require the identification of a number
of account types not currently addressed in the Commission's
regulations. Accordingly, the Commission proposes to introduce the
following new defined terms in Sec. 15.00:
Sec. 15.00(w). Omnibus account, meaning any trading
account that one FCM, clearing member or foreign broker carries for
another and in which the transactions of multiple individual accounts
are combined. The identities of the holders of the individual accounts
are not generally known or disclosed to the carrying firm;
Sec. 15.00(x). Omnibus account originator, meaning any
FCM, clearing member or foreign broker that executes trades for one or
more customers via one or more accounts that are part of an omnibus
account carried by another FCM, clearing member or foreign broker;
Sec. 15.00(y). Volume threshold account, meaning any
trading account that executes, or receives via allocation or give-up,
reportable trading volume on or subject to the rules of a reporting
market that is a board of trade designated as a contract market under
Sec. 5 of the Act or a swap execution facility registered under Sec.
5h of the Act;
Sec. 15.00(z). Omnibus volume threshold account, meaning
any trading account that, on an omnibus basis, executes or receives via
allocation or give-up, reportable trading volume on or subject to the
rules of a reporting market that is a board of trade designated as a
contract market under Sec. 5 of the Act or a swap execution facility
registered under Sec. 5h of the Act;
Sec. 15.00(aa). Omnibus reportable sub-account, meaning
any trading sub-account of an omnibus volume threshold account, which
sub-account executes reportable trading volume on an omnibus basis.
Omnibus reportable sub-account also means any trading account that is
itself an omnibus account, executes reportable trading volume, and is a
sub-account of another omnibus reportable sub-account; and
Sec. 15.00(bb). Reportable sub-account, meaning any
trading sub-account of an omnibus volume threshold account or omnibus
reportable sub-account, which sub-account executes reportable trading
volume.
Volume threshold accounts, omnibus volume threshold accounts,
omnibus reportable sub-accounts, and reportable sub-accounts all
reflect accounts that execute (or receives via allocation or give-up)
``reportable trading volume.'' Accordingly, the Commission proposes
[[Page 43980]]
to codify a new Sec. 15.00(u) that defines reportable trading volume
as contract trading volume that meets or exceeds the level specified in
proposed Sec. 15.04. Section 15.04, in turn, would provide that
reportable trading volume for a trading account is trading volume of 50
or more contracts, during a single trading day, on a single reporting
market that is a board of trade designated as a contract market under
Sec. 5 of the Act or a swap execution facility registered under Sec.
5h of the Act, in all instruments that such reporting market designates
with the same product identifier (including purchases and sales, and
inclusive of all expiration months).\77\
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\77\ Section 15.04 of part 15 is currently reserved.
---------------------------------------------------------------------------
Notably, Sec. 15.04 addresses trading volume, not open positions,
and would require that purchases and sales by a trading account be
summed to determine whether such account has reached the reportable
trading volume. Section 15.04 also stipulates that reportable trading
volume should encompass all instruments that the reporting market
designates with the same product identifier. In this regard, the
Commission observes that if a reporting market utilizes the same
identifier to designate both the open-outcry and electronically-traded
variants of a product, then a clearing firm reporting on Form 102B
should sum a trading account's activity in both the open-outcry and
electronic venues to determine whether such trading account has reached
the reportable trading volume. Similarly, if a reporting market uses
the same identifier to designate the futures, options and swaps
variants of a product, then a trading account's activity in futures,
options and swaps in such product should be summed to determine whether
the trading account has reached the reportable trading volume.
Conversely, if a reporting market utilizes different product
identifiers in these circumstances, then a clearing firm reporting on
Form 102B should not sum a trading account's activity across venues or
across futures, options and swaps. The Commission anticipates that its
proposed approach, which relies on reporting markets' existing product
identification practices, would be less burdensome than an approach
which requires aggregation of the same product when traded under
different identifiers. The Commission specifically requests public
comment on its proposed account-type definitions in Sec. 15.00, and on
its definition of reportable trading volume in Sec. 15.04.
The Commission also proposes to add ``control'' to the list of
defined terms in Sec. 15.00.\78\ The Commission's proposed definition,
which would apply only to special accounts (New Form 102A) and
consolidated accounts (Form 102S), would be codified in Sec. 15.00(t),
and would define control as ``to actually direct, by power of attorney
or otherwise, the trading of a special account or a consolidated
account.'' The proposed definition specifies that special accounts and
consolidated accounts may have more than one controller. The Commission
notes that the proposed definition of ``control'' would apply solely
for the purpose of satisfying the reporting obligations under parts 15
through 19 and 21 of this chapter. The proposed definition would not
limit or alter existing law with respect to the meaning of the term
control for the purpose of enforcing other requirements under the Act
and the Commission's regulations, including those relating to position
limits or manipulation. Similarly, existing requirements regarding the
aggregation of positions in separate accounts for reporting or other
purposes under the Act and Commission regulations (e.g., Sec. Sec.
17.00(b) and 150.4) would not be altered by the definition of
``control'' proposed in Sec. 15.00(t).
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\78\ The proposed definition of ``control'' in Sec. 15.00 is
based upon the definition of ``controlled account'' in Sec. 1.3(j)
of part 1.
---------------------------------------------------------------------------
The Commission also proposes to separately define the concept of
control in the context of trading accounts, volume threshold accounts,
and reportable sub-accounts. For these accounts, ``control'' may only
be exercised by natural persons. Accordingly, the proposed definitions
in Sec. 15.00(cc), 15.00(dd), and 15.00(ee) define trading account
controllers, volume threshold account controllers, and reportable sub-
account controllers, respectively, as ``a natural person who by power
of attorney or otherwise actually directs the trading of a [trading
account, volume threshold account, or reportable sub-account].'' Each
account type may have more than one controller. The proposed
definitions in Sec. 15.00(cc), 15.00(dd), and 15.00(ee) would be
relevant to the submission of New Forms 102A (trading accounts), 102B
(volume threshold accounts), and 71 (reportable sub-accounts),
respectively.\79\ The Commission specifically requests public comment
on its proposed definition of control in Sec. 15.00(t), and on its
proposed definitions of ``trading account controller,'' ``volume
threshold account controller'' and ``reportable sub-account
controller'' in Sec. 15.00(cc), (dd) and (ee).
---------------------------------------------------------------------------
\79\ The proposed definitions also specify that volume threshold
accounts and reportable sub-accounts may have more than one
controller.
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Finally, the Commission proposes to define direct market access
(``DMA'') in a new Sec. 15.00(v). The Commission proposes to define
DMA as ``a connection method that enables a market participant to
transmit orders to a DCM's electronic trade matching system without re-
entry by another person or entity, or similar access to the trade
execution platform of a SEF.'' Pursuant to the proposed definition,
such access could be provided directly by a DCM or SEF, or by a 3rd-
party platform.
The introduction of new account and controller types in New Forms
102A, 102B, and 71 would result in a corresponding expansion in the
categories of persons required to provide New Form 40 reports.
Accordingly, the Commission proposes to amend Sec. 15.01(c), which
currently requires Form 40 reports only from persons who hold or
control reportable positions.\80\ The proposed rules would expand Sec.
15.01(c) to require New Form 40 reports from traders who own, hold, or
control reportable positions (identified via New Form 102A); volume
threshold account controllers (identified via New Form 102B); persons
who own volume threshold accounts (identified via New Form 102B);
reportable sub-account controllers (identified via New Form 71); and
persons who own reportable sub-accounts (identified via New Form 71).
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\80\ 17 CFR 15.01(c).
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Other proposed amendments to part 15 include: A revision to the
definition of ``reporting market'' in existing Sec. 15.00(q) to
replace the provision's cross-reference to Sec. 1a(29) of the Act with
a cross-reference to Sec. 1a(40); a further revision to existing Sec.
15.00(q) to remove the provision's reference to derivatives transaction
execution facilities (``DTEFs''); and the amendment of existing Sec.
15.02, which contains a list of the forms contained in parts 15 through
19, and 21.\81\ Section 15.02 would be revised to reflect the proposed
introduction of new Form 71, the renaming of Form 102, and the new OMB
control number that would be created by this rulemaking.
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\81\ 17 CFR 15.00(q) and 15.02. The Dodd-Frank Act modified
Sec. 1a of the CEA. As a result, the definition of ``registered
entity'' previously found in Sec. 1a(29) of the CEA is now in Sec.
1a(40). The Commission proposes to revise existing Sec. 15.00(q) so
that it cites to Sec. 1a(40) for the definition of registered
entity. The Commission proposes to also revise existing Sec.
15.00(q) by removing the provision's reference to DTEFs, a category
of regulated markets that was eliminated by Sec. 734 of the Dodd-
Frank Act.
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[[Page 43981]]
B. Part 17
The Commission is proposing a number of substantive, conforming and
administrative amendments to Sec. Sec. 17.01, 17.02, and 17.03 of part
17,\82\ and is also proposing new Sec. Sec. 17.02(c), 17.03(e),
17.03(f), and 17.03(g). The proposed amendments and new provisions
address: the identification of special accounts, volume threshold
accounts, and omnibus volume threshold accounts (Sec. 17.01); the
form, manner, and time of New Form 102A and 102B filings (Sec.
17.02(b) and 17.02(c), respectively); and the delegation of related
authorities from the Commission to the Director of the Division of
Market Oversight (``DMO'') or the Director of the Office of Data and
Technology (``ODT'') (Sec. 17.03).
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\82\ 17 CFR 17.01, 17.02 and 17.03.
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i. Substantive Proposed Amendments to Sec. 17.01
Existing Sec. 17.01 \83\ requires reporting entities (i.e., FCMs,
clearing members, foreign brokers, and contract markets that list
exclusively self-cleared contracts) to identify special accounts on
existing Form 102, to provide for each special account the information
required by paragraphs (a)-(f), and to comply with other requirements
in paragraphs (g)-(h). The Commission proposes to amend Sec. 17.01 by
replacing all of its existing provisions with the provisions described
below.
---------------------------------------------------------------------------
\83\ 17 CFR 17.01.
---------------------------------------------------------------------------
First, the Commission proposes to codify a new Sec. 17.01(a) that
would require reporting entities to identify special accounts on New
Form 102A (``Sec. 17.01(a) reports''), and would also refer reporting
entities directly to the new form for the required data points. Second,
the Commission proposes to introduce a new Sec. 17.01(b) that would
subject volume threshold accounts to an account identification regime
comparable to the position-based regime already existing for special
accounts.\84\ Proposed Section 17.01(b) would specifically require
clearing firms to identify volume threshold accounts on New Form 102B
(``Sec. 17.01(b) reports''). Similarly, the Commission proposes to
introduce a new Sec. 17.01(c) that would subject omnibus accounts to
their own volume-based account identification regime.\85\ Proposed
Sec. 17.01(c) would require the originator of an omnibus volume
threshold account (or the originator of an omnibus reportable sub-
account within such account) to file New Form 71 ``Identification of
Omnibus Accounts and Sub-Accounts'' upon special call by the Commission
or its designee.
---------------------------------------------------------------------------
\84\ See supra section IV(B) and infra section IX.
\85\ See supra section IV(D) and infra section IX.
---------------------------------------------------------------------------
The fourth substantive amendment proposed for Sec. 17.01 would
codify a new Sec. 17.01(d). Proposed Sec. 17.01(d) would require
reporting markets that list exclusively self-cleared contracts to file
Sec. 17.01(a) and Sec. 17.01(b) reports as if they were clearing
members. Proposed Sec. 17.01(d) reflects the requirements of existing
Sec. 17.01(g) \86\ with respect to special accounts, but also
incorporates the new volume threshold accounts proposed herein.
Finally, the Commission proposes to introduce a new Sec. 17.01(e) that
would extend the Commission's special call authority--currently
applicable to special accounts--to also include volume threshold
accounts, omnibus volume threshold accounts and reportable sub-
accounts.\87\ Responses to special calls would be due within 24 hours.
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\86\ 17 CFR 17.01(g).
\87\ The Commission's special call authority with respect to
special accounts is currently found in Sec. 17.02(b)(1), which the
Commission proposes to strike, as explained below.
---------------------------------------------------------------------------
ii. Substantive Proposed Amendments to Sec. 17.02(b); New Sec. Sec.
17.02(c), 17.03(e), 17.03(f) and 17.03(g)
Section 17.02(b) \88\ currently addresses the form, manner, and
completion date requirements of existing 102 filings. Specifically,
Sec. 17.02(b)(1) requires reporting entities to submit existing Form
102 upon special call by the Commission; in the absence of a special
call, Sec. 17.02(b)(2) requires reporting entities to submit existing
Form 102 within three business days of the first day that a special
account is reported to the Commission. The Commission proposes to
replace both provisions as described below.
---------------------------------------------------------------------------
\88\ 17 CFR 17.02(b).
---------------------------------------------------------------------------
First, as explained above, the Commission proposes to strike
existing Sec. 17.02(b)(1) and to shift its special call requirements
to proposed Sec. 17.01(e). Second, the Commission proposes to strike
existing Sec. 17.02(b)(2) and to replace its Form 102 submission
requirements with a new Sec. 17.02(b)(1)-(4) to address the form and
manner of New Form 102A filings for special accounts. Proposed Sec.
17.02(b)(1) would direct reporting entities to the Commission's Web
site (www.cftc.gov) for detailed instructions on the Form 102A filing
process. Proposed Sec. 17.02(b)(2)-(4) would address the completion
date requirements of initial Form 102A submissions, 102A change
updates, and 102A refresh updates, respectively. The proposed timing
requirements appurtenant to initial 102A filings and the change and
refresh updates are discussed in detail in section IV(A), above.
To address New Form 102B filings for volume threshold accounts, the
Commission proposes to codify a new Sec. 17.02(c). Proposed Sec.
17.02(c) would follow a structure similar to that of proposed Sec.
17.02(b), with Sec. 17.02(c)(1) directing reporting entities to
www.cftc.gov for detailed instructions on the Form 102B filing process,
and proposed Sec. 17.02(c)(2) through (4) addressing the timing of
initial Form 102B filings, 102B change updates, and 102B refresh
updates, respectively. The proposed timing requirements appurtenant to
initial 102B filings and change and refresh updates are discussed in
detail in section IV(B), above.
Finally, the Commission also proposes to codify a new Sec.
17.03(e) that would provide the Director of ODT with delegated
authority to make special calls to solicit information from omnibus
volume threshold account originators and omnibus reportable sub-account
originators on New Form 71. The Commission also proposes to codify (a)
a new Sec. 17.03(f) that would provide the Director of DMO with
delegated authority to determine the date on which each FCM, clearing
member, or foreign broker shall update or otherwise resubmit every Form
102 that it has submitted to the Commission for each of its special
accounts and (b) a new Sec. 17.03(g) that would provide the Director
of DMO with delegated authority to determine the date on which each
clearing member shall update or otherwise resubmit every Form 102 that
it has submitted to the Commission for each of its volume threshold
accounts.
iii. Conforming and Administrative Amendments to Part 17
The Commission is proposing a number of conforming and
administrative amendments to part 17. First, the Commission proposes to
revise Sec. 17.00(g)(2)(iii), which defines the ``account number''
field for position reports.\89\ The proposed revisions would eliminate
the provision's cross-references to Sec. 17.00(c), which is reserved,
and to existing Sec. 17.01(a), which the Commission proposes to
strike.\90\ Section 17.00(g)(2)(iii) would incorporate a new cross-
reference to New Form 102.
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\89\ 17 CFR 17.00(g)(2)(iii).
\90\ 17 CFR 17.00(c) and 17.01(a).
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Second, the Commission proposes to revise existing Sec. 17.03(a),
which grants the Director of DMO the authority to determine whether
FCMs, clearing
[[Page 43982]]
members and foreign brokers can report certain information on series
`01 forms, or can use some other format upon a determination that such
person is unable to report the information using the standard
transmission format.\91\ More specifically, Sec. 17.03(a) would be
revised to grant such authority to the Director of ODT, rather than the
Director of DMO.
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\91\ 17 CFR 17.03(a).
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Third, the Commission proposes to revise existing Sec. 17.03(b),
which grants the Director of DMO the authority to approve the late
submission of position reports and Form 102.\92\ Section Sec. 17.03(b)
would be revised to grant such authority to the Director of ODT, rather
than the Director of DMO. Section 17.03(b) would be further revised to:
(i) Replace the provision's cross-reference to Sec. 17.01,\93\ which
the Commission proposes to strike, with cross-references to proposed
Sec. 17.01(a) and 17.01(b); and (ii) eliminate the provision's cross-
reference to existing Sec. 17.01(g),\94\ which the Commission also
proposes to strike.
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\92\ 17 CFR 17.03(b).
\93\ 17 CFR 17.01.
\94\ 17 CFR 17.01(g).
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Fourth, the Commission proposes to revise existing Sec. 17.03(c),
which grants the Director of DMO the authority to permit reporting
entities filing Form 102 to authenticate it through a means other than
signing the form.\95\ Section 17.03(c) would be revised to grant such
authority to the Director of ODT, rather than the Director of DMO.
Section 17.03(c) would be further revised to replace the provision's
existing cross-reference to Sec. 17.01(f),\96\ which the Commission
proposes to strike, with a cross-reference to proposed Sec. 17.01, and
to address New Form 71.
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\95\ 17 CFR 17.03(c).
\96\ 17 CFR 17.01(f).
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Finally, the Commission proposes to revise existing Sec. 17.03(d),
which grants the Director of DMO the authority to approve a format and
coding structure other than that set forth in Sec. 17.00(g).\97\
Section 17.03(d) would be revised to grant such authority to the
Director of ODT, rather than the Director of DMO.
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\97\ 17 CFR 17.03(d) and 17.00(g).
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C. Part 18
Existing Sec. 18.04 (the ``Statement of Reporting Trader'')
requires every trader who holds or controls a reportable position to
file a Form 40 upon special call by the Commission or its designee and
to provide on Form 40 information required by existing Sec. 18.04(a)
thorugh (c).\98\ The Commission proposes to amend Sec. 18.04 by
striking all of its existing provisions and replacing them as described
below.
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\98\ 17 CFR 18.04(a) through (c).
---------------------------------------------------------------------------
First, and consistent with its approach to New Form 102, the
Commission proposes to transition existing Sec. 18.04(a) through (c)'s
detailed form content requirements from the regulatory text to New Form
40. Second, the Commission proposes to codify a new Sec. 18.04(a)
that, as with existing Sec. 18.04, would require every trader who
holds or controls a reportable position to file a New Form 40 upon
special call by the Commission or its designee. Finally, to accommodate
volume threshold accounts and reportable sub-accounts identified on New
Forms 102 and 71, the Commission proposes to codify a new Sec.
18.04(b) that would require volume threshold account controllers,
persons who own a volume threshold account, reportable sub-account
controllers, and persons who own a reportable sub-account to file New
Form 40 upon special call by the Commission or its designee.
Existing Sec. 18.05 requires traders who hold or control
reportable positions to maintain books and records regarding all
positions and transactions in the commodity in which they have
reportable positions.\99\ In addition, existing Sec. 18.05 requires
that the trader furnish the Commission with information concerning such
positions upon request. The Commission proposes to expand Sec. 18.05
to also impose books and records requirements upon (a) volume threshold
account controllers and owners of volume threshold accounts reported on
New Form 102B and (b) reportable sub-account controllers and persons
who own a reportable sub-account reported on New Form 71.
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\99\ 17 CFR 18.05.
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D. Part 20
As with Forms 102 and 40, the Commission proposes to transfer the
list of data points required in Form 102S data point from the relevant
regulatory text (i.e., Sec. 20.5) \100\ to the form itself. More
specifically, the Commission proposes to eliminate the data points
specified in Sec. 20.5(a)(1), and to revise Sec. 20.5(a)(1) to
provide that when a counterparty consolidated account first becomes
reportable, the reporting entity shall submit a 102S filing (``initial
102S filing''). The timing for submitting initial 102S filings would
continue to be subject to existing Sec. 20.5(a)(3).\101\ Finally, the
Commission proposes to codify new Sec. 20.5(a)(4) and 20.5(a)(5) to
require change and refresh updates for Form 102S in the same manner as
they are required for Form 102A. The Commission is also proposing a
conforming amendment to Sec. 20.5(a)(2) to eliminate the existing
instructions with respect to updating 102S filings.
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\100\ 17 CFR 20.5.
\101\ 17 CFR 20.5(a)(3). See supra section III(B).
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VII. Questions and Request for Comment
The Commission requests public comment on the proposed forms and
regulations described in this Notice, and welcomes specific
alternatives to the regulatory text proposed to be implemented and the
data points proposed to be collected herein. In addition to this
general request for comments, the Commission specifically requests
public comment on the questions below.
1. With respect to DCMs, the Commission requests public comment
regarding the RTVL proposed in Sec. 15.04, which is: 50 or more
contracts, during a single trading day, on a single reporting market
that is a board of trade designated as a contract market under Sec. 5
of the Act or a swap execution facility registered under Sec. 5h of
the Act, in all instruments that such reporting market designates with
the same product identifier (including purchases and sales, and
inclusive of all expiration months). If the RTVL or parameters proposed
in Sec. 15.04 (e.g., a RTVL measured in ``contracts'' and set at 50
contracts; a reliance on ``product identifiers;'' or the reference to
``expiration months'') are inadequate with respect to DCMs, then the
Commission requests public comment regarding how the RTVL or such
parameters should be revised in any final rule arising from this
Notice. See section IV(B), above, and section IX, below.
2. The Commission requests public comment as to whether it should
retain Sec. 20.5(a)(3) as the timing requirement for submitting
initial 102S filings on New Form 102. See section IV(C), above.
3. The Commission requests public comment on the proposed change
and refresh updates for 102A, 102B, and 102S filings, including
comments with respect to the timing, frequency, and contents of such
updates. See section IX, below.
4. The Commission requests public comment as to the appropriateness
of the definitions of ``parent'' and ``subsidiary'' in New Form 40, and
whether these definitions should be changed in any way. See section
IV(E), above.
5. The Commission requests public comment regarding the definition
of ``commodity index trading'' (CIT) in New Form 40. The Commission
also requests comment on whether the
[[Page 43983]]
definition captures all forms of CIT present in the market, or if not,
how the definition should be modified. Finally, the Commission requests
comment regarding question 14ii(a) in New Form 40, and whether it will
adequately capture reporting traders' exposure in the commodities in
which they engage in CIT. See section IV(E), above.
6. The Commission requests public comment on the schedule and
procedures proposed in section V above for the effective date and
compliance date of any final rule resulting from this Notice.
a. With respect to trading accounts associated with a DCM or a SEF
that is not yet registered on the effective date or the compliance date
proposed in section V, should the effective date or the compliance date
for the reporting of such trading accounts be delayed for a certain
period? If so, how long should the effective date or compliance date be
delayed?
7. The Commission requests public comment on whether it should
codify a definition of ``trading account'' in Sec. 15.00 of the
Commission's regulations. ``Trading accounts'' refers to accounts
identified by a reporting market in daily transaction-level TCRs
submitted to the Commission pursuant to Sec. 16.02 or any similar
reports received from a SEF.\102\ If commenters recommend that the
Commission codify a definition of ``trading account'' in Sec. 15.00,
then the Commission requests that commenters offer a proposed
definition, provided that such definition does not reference tags,
Party Roles, or other specific data fields in the TCR. The Commission
also requests public comment regarding the applicability of the
proposed trading account concept to SEFs, including any alternatives to
trading account that should be used with respect to SEFs.
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\102\ 17 CFR 16.02.
---------------------------------------------------------------------------
8. The Commission requests public comment on its proposal to
require that reporting firms that are clearing members identify, on
Form 102A, the trading accounts that comprise a special account, and
provide ownership and control information and TCR trading account
numbers for such trading accounts. The Commission also requests public
comment on the three factors offered in this Notice to determine
whether a trading account comprises part of a special account. See
section IV(A)(ii), above.
9. The Commission requests public comment on whether ``trading
account(s) that comprise a special account'' should be a defined term
in Sec. 15.00 of the Commission's regulations, and how such definition
should differ from the three factors discussed in this preamble, if at
all. See section IV(A)(ii), above.
10. The Commission intends that the definition of ``volume
threshold account'' captures all possible categories of accounts with
reportable trading volume, including give-ups and other instances in
which trades do not `execute' on a DCM or SEF (e.g., block trades). The
Commission requests public comment regarding whether the proposed
definition of ``volume threshold account'' achieves this purpose, and
if not, how the definition should be revised. See section IX, below.
11. The definition of ``omnibus reportable sub-account'' captures
``any trading sub-account, which sub-account executes reportable
trading volume on an omnibus basis,'' while the definition of
``reportable sub-account'' captures ``any trading sub-account, which
sub-account executes reportable trading volume'' (emphasis added). See
section IX, below. Is the reference to `executing' reportable trading
volume the appropriate terminology in this context? Would it be
preferable to refer instead to a sub-account that ``receives via
allocation or give-up'' reportable trading volume? Is another
terminology more appropriate?
12. With respect to SEFs, the Commission requests public comment
regarding whether proposed Sec. 15.04 contains the appropriate
parameters for defining a RTVL for volume threshold accounts associated
with a SEF (e.g., a RTVL measured in ``contracts'' and set at 50
contracts; a reliance on ``product identifiers;'' or the reference to
``expiration months''). If the RTVL or parameters proposed in Sec.
15.04 are inadequate for SEFs, then the Commission requests public
comment regarding how the RTVL or such parameters should be revised in
any final rule arising from this Notice. If commenters propose
alternative parameters for defining a RTVL for volume threshold
accounts associated with SEFs (e.g., a parameter based on a notional
value), please describe the proposed parameters in detail and indicate
which products the parameters should apply to, in addition to other
relevant criteria. The Commission also requests comment on the
benchmarks that should be used to determine the RTVL for SEFs,
including the percentage of trading accounts that should be identified
and the percentage of products in which a given percentage of volume
should be identified. In this regard, the Commission refers commenters
to the proposed RTVL in the context of DCM trading accounts, products,
and volume: an RTVL of 50 would identify approximately 33 percent of
trading accounts, and at least 85 percent of volume in approximately 90
percent of products. The Commission may determine that any alternative
RTVL for SEFs should achieve similar coverage. If commenters propose
alternative parameters for defining a RTVL for volume threshold
accounts associated with a SEF, please also describe any alternative
benchmarks that are relevant to such parameters (e.g., what the
reportable notional value for a particular product should be). See
section IV(B) and note 68, above, and section IX, below.
13. The Commission requests public comment regarding proposed
Sec. Sec. 17.01(b), 17.01(d), and 17.02(c)(2)-(4), which place certain
102B reporting obligations on clearing members. Do the proposed
regulations require any revision to adequately address 102B filings
with respect to volume threshold accounts associated with SEFs? If so,
how should proposed Sec. Sec. 17.01(b), 17.01(d), and 17.02(c)(2)-(4)
be amended? Should other reporting entities be considered, and if so,
which ones?
14. The Commission requests public comment regarding whether the
proposed constructs of ``trading account,'' ``volume threshold
account,'' ``omnibus volume threshold account,'' and ``omnibus
reportable sub-account'' are as applicable to SEFs as they are to
trading on DCMs. See section IX, below.
b. If these constructs are not applicable, then the Commission
requests specific comments on the differences between trading practices
and/or account structures at DCMs versus SEFs that would preclude their
use with respect to SEFs. The Commission also requests specific
comments on how these constructs should be amended or substituted so
that they are usable with SEFs. For example, in the context of SEFs,
should the construct of volume threshold accounts be modified to refer
to reportable trading volume associated with a particular legal entity
identifier, rather than reportable trading volume associated with a
particular trading account?
15. The Commission requests public comments on any defined terms or
other provisions of the proposed rules that would require revision to
accommodate the identification and reporting of volume threshold
accounts, omnibus volume threshold accounts, and omnibus reportable
sub-accounts associated with SEFs.
a. For example, the Commission requests public comment regarding
[[Page 43984]]
whether the omnibus account structure, as proposed, is relevant and
appropriate to SEFs. More specifically, the Commission requests public
comment with respect to proposed Sec. 15.00(w) and 15.00(x), which
define omnibus account and omnibus account originator, respectively.
The proposed definitions are based on market participants known to
carry or originate omnibus accounts on DCMs. The Commission requests
comment regarding whether other market participants should be included
in proposed Sec. 15.00(w) and 15.00(x) to account for market
participants that may carry or originate omnibus accounts on SEFs.
16. The Commission requests public comment as to whether Form 102S
should require the reporting of trading accounts that comprise a
consolidated account in the same manner that proposed 102A requires the
reporting of trading accounts that comprise a special account. If not,
why not? The Commission also requests public comment regarding: (1)
Whether the three factors used to determine whether a trading account
comprises a special account are equally applicable to consolidated
accounts; (2) whether ``trading account(s) that comprise a consolidated
account'' should be a defined term in the Commission's regulations; and
(3) the appropriate definition of ``trading account(s) that comprise a
consolidated account.'' See section IV(A)(ii), above.
17. The Commission requests public comment as to whether New Forms
102 (including, in particular, Form 102S), 71, or 40 should be provided
to swap data repositories (``SDR'') registered pursuant to part 49 of
the Commission's regulations to assist such SDRs in fulfilling any
swaps data aggregation responsibilities assigned by the Commission. If
not, then the Commission requests specific public comment regarding any
reasons why the forms should not be provided to SDRs.
a. If new Forms 102, 71, or 40 are provided to SDRs, should they be
provided directly by reporting entities or by the Commission? The
Commission specifically requests public comment regarding any reasons
why the forms should not be provided to SDRs directly by reporting
entities.
b. The Commission requests public comment regarding any additional
considerations relevant to the provision of New Forms 102, 71, or 40 to
SDRs directly by reporting entities, including:
i. the time, manner and format of submission to SDRs, including any
necessary divergence from the time, manner, and format proposed herein
for submission of the forms to the Commission;
ii. additional data points that should be contained in the forms to
heighten their utility in any data aggregation performed by SDRs; and
iii. appropriate limitations on SDRs' use of any information
received in Forms 102, 71, or 40, other than for data aggregation
purposes specified by the Commission.
VIII. Related Matters
A. Cost Benefit Considerations
Section 15(a) \103\ of the CEA requires the Commission to consider
the costs and benefits of its actions before promulgating a regulation
under the CEA or issuing an order. 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. To the extent that these proposed regulations reflect
the statutory requirements of the Dodd-Frank Act, they will not create
costs and benefits beyond those resulting from Congress's statutory
mandates in the Dodd-Frank Act. However, to the extent that the
proposed regulations reflect the Commission's own determinations
regarding implementation of the Dodd-Frank Act's provisions, such
Commission determinations may result in other costs and benefits. It is
these other costs and benefits resulting from the Commission's own
determinations pursuant to and in accordance with the Dodd-Frank Act
that the Commission considers with respect to the Section 15(a)
factors.
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\103\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
The Commission requests comment on the costs and benefits
associated with the Notice. As discussed below, the Commission has
identified certain costs and benefits associated with the Notice and
requests comment on all aspects of its proposed consideration of costs
and benefits, including identification and assessment of any costs and
benefits not discussed herein. In addition, the Commission requests
that commenters provide data and any other information or statistics
that the commenters relied on to reach any conclusions on the
Commission's proposed consideration of costs and benefits.
The Commission notes that the cost estimates provided herein for
New Forms 102A, 102B, 102S, 71, and 40 reflect estimates of: (i) The
costs associated with the reporting and identification of special and
consolidated accounts for positions reported under parts 17 and 20,
respectively, of the Commission's regulations; and (ii) the costs
associated with the reporting and identification of volume threshold
accounts associated with DCMs and SEFs. Cost estimates for these forms
are based on extrapolations from current forms and reports received
from FCMs, IBs, and foreign brokers; reporting entities pursuant to
part 20; and DCMs pursuant to Sec. 16.02.
The Commission understands that the costs and benefits of the
proposed reporting regime for trading accounts, volume threshold
accounts, omnibus volume threshold accounts, and omnibus reportable
sub-accounts associated with SEFs may differ, possibly substantially,
from the reporting regime for such accounts associated with DCMs. The
Commission therefore requests specific quantitative estimates on the
costs and benefits of Form 102B and 71 filings for volume threshold
accounts, omnibus volume threshold accounts, omnibus reportable sub-
accounts, and market participants associated with SEFs.
More generally, the Commission has requested public comment, in
section VII above, regarding the applicability of volume threshold
accounts, omnibus volume threshold accounts, and omnibus reportable
sub-accounts to SEFs. The Commission has also requested comment on the
appropriate design of a reportable trading volume level for volume
threshold accounts associated with SEFs, and on the appropriate
reporting entities for volume threshold accounts associated with SEFs.
Finally, the Commission requests comment, including specific
quantitative estimates, on the costs and benefits of associated with
the identification of trading accounts associated with consolidated
accounts.
i. Background
a. Description of the Statutory Authority
Pursuant to the authority of sections 4a, 4c(b), 4g, 4i, and 4t of
the CEA, the Commission is proposing these revisions and updates to its
large trader reporting rules and forms.\104\ These CEA
[[Page 43985]]
provisions, described more fully above,\105\ authorize the Commission
to require reporting and recordkeeping from a wide range of market
participants, including registered entities, FCMs, brokers, clearing
members, swap dealers, and traders, engaging in transactions subject to
the Commission's jurisdiction. Collectively, these CEA provisions
warrant the maintenance of an effective and vigorous system of market
and financial surveillance.
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\104\ 7 U.S.C. 1 et seq. In addition, CEA Sec. 8a(5) authorizes
the Commission to promulgate such regulations that in its judgment
are reasonably necessary to effectuate any provision of the Act or
to accomplish any of the purposes of the Act. 7 U.S.C. 12a(5). Also,
pursuant to CEA Sec. 3(b), the Act seeks to ensure the financial
integrity of regulated transactions and to prevent price
manipulation and other disruptions to market integrity. 7 U.S.C.
5(b).
\105\ See supra section II.
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b. Prior Rules; Existing Forms 102 and 40
The existing rules and forms, described more fully above,\106\
require FCMs, clearing members, and foreign brokers to identify special
account traders to the Commission on a Form 102. On special call of the
Commission, a Form 40 is then sent to each trader identified on a Form
102 submission, requiring the trader to provide the Commission with
detailed contact information and to answer other questions designed to
inquire into the nature of the trader's market activity. In both
instances, the Form 102 and Form 40 are generally submitted on paper,
via email, or via facsimile (i.e., via some manual submission process).
The questions and data points on both existing forms only relate to the
Commission's existing position-based reporting rules.
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\106\ See supra section IV.
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c. The Proposed Rules
As described in the preamble above, the Commission is proposing
amendments to the existing reporting rules and forms as they pertain to
reportable positions in Commission regulated contracts. In addition,
the Commission is proposing to expand the reporting rules and forms so
that they may also be used to identify traders and trading accounts
exceeding a volume-based reporting threshold, regardless of the
resulting positions (i.e., ``volume threshold accounts''). Finally, the
proposed amendments would provide for the electronic submission of New
Forms 102, 40, and 71.
ii. Costs and Benefits of the Proposed Rules
The Commission's consideration of costs and benefits begins with
certain general considerations applicable to all forms, followed by
specific discussions of the costs and benefits of: (1) New Form 102A,
(2) New Form 102B, (3) 102S filings, (4) New Form 71, (5) New Form 40,
and (6) 40S filings.
As a general matter, the Commission considers the incremental costs
and benefits of the proposed regulations and forms, those costs that
are above the baseline that is the Commission's existing regulations.
As described in detail above, the proposed rule and form amendments
would broaden the utility of existing forms.\107\ The proposed
amendments would also enhance the Commission's surveillance and large
trader reporting programs for futures, options on futures, and swaps by
clarifying which accounts are required to be reported on Form 102A;
requiring the reporting on Form 102A of the trading accounts that
comprise each special account; requiring the reporting of certain
omnibus account information on Form 71 in connection with omnibus
volume threshold accounts reported on Form 102B, together with the
reporting of certain reportable sub-accounts within such omnibus volume
threshold accounts; updating Form 40; and integrating the submission of
102S and 40S filings into the general Form 102 and Form 40 reporting
program.
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\107\ New Form 102 is partitioned into: section 102A for the
identification of position-based special accounts; section 102B for
the collection of ownership and control information on individual
trading accounts exceeding a volume-based reporting threshold; and
section 102S for the submission of 102S filings for swap
counterparty consolidated accounts with reportable positions.
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The Commission proposes that the costs the Notice would impose on
market participants will vary depending on various factors, including
the size and/or experience of the market participant; the scope
(whether measured by position or volume) of the market participant's
trading activity; and the number of distinct customer or proprietary
special accounts, volume threshold accounts, and other account types
required to be reported by each market participant. Given the range of
factors relative to the potential costs of the proposed rules,
reporting parties may face costs associated with one, more than one,
or, in some instances, all of the revised rules and forms. For purposes
of the Paperwork Reduction Act, the Commission has estimated the number
of hours the average market participant would spend in connection with
the information collection required by the Notice.\108\ Based on those
burden hour estimates, and as further explained in the Paperwork
Reduction Act discussion below, the Commission estimates that affected
participants would incur the following approximate costs in (i)
completing Forms 102A and 102S and any resulting Form 40s, (ii)
completing Forms 102B and 71 for volume threshold accounts associated
with DCMs and SEFs and any resulting Form 40s, and (iii) complying with
the books and records obligations arising from proposed Sec. 18.05:
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\108\ See infra the detailed discussion of costs and burdens in
section VIII(C), which has been prepared for the purpose of the
Commission's responsibilities under the Paperwork Reduction Act.FNP>
[GRAPHIC] [TIFF OMITTED] TP26JY12.000
[[Page 43986]]
The Commission's CEA Sec. 15(a) assessment of costs and benefits
includes consideration of these estimated Paperwork Reduction Act
information collection costs, as well as the range of factors that may
increase or decrease these estimates.
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\109\ The estimated total cost includes annual reporting and
recordkeeping costs, as well as annualized start-up costs and
ongoing operating and maintenance costs. The estimated total costs
for each form included in this chart are subject to the limitations
described earlier in this section. The estimated total cost for each
of New Form 102B, New Form 71 and New Form 40 in this chart
represents the estimated total cost of completing Forms 102B and 71
for volume threshold accounts associated with DCMs and SEFs and any
resulting Form 40s.
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In anticipation of a wide range of technological capabilities among
reporting entities (again, varying based on the relative size and
experience of a given reporting entity), the Commission is proposing an
implementation program that would permit multiple submission methods
for each form. By allowing reporting entities to select the submission
method most suited to their existing capabilities and business model,
reporting entities will be able to mitigate their own reporting costs.
While the Commission expects that an entity with a relatively
larger number of reporting obligations (whether for the reportable
accounts of its customers, or its own reportable accounts), would incur
larger total costs in complying with the proposed reporting rules and
submitting the related forms than a smaller firm, the Commission
anticipates that these larger absolute costs will be mitigated by lower
unit costs, and the marginal expense of reporting each additional
reportable account would likely diminish once the entity established
its data collection and reporting infrastructure. For high-volume
reporting entities, the Commission is proposing an implementation
program, to be conducted in conjunction with input from commenters,
which will permit electronic submission of the forms to the Commission
via a defined data submission standard. This transition from manual to
automated form submission should reduce costs for high-volume reporters
on a per-account basis.
In addition to evaluating these proposed rules based on the
Commission's experience and expertise in the derivatives markets, this
Notice took into account comment letters by industry participants
received in response to the OCR NPRM.\110\ In one such letter, the FIA
offered a modified approach to the OCR reporting scheme proposed in the
OCR NPRM, and offered cost estimates and projections for both the
proposal contained in the OCR NPRM and the FIA alternative. FIA
specifically expressed concerns about the implementation costs of the
Commission's proposal in the OCR NPRM, stating that it would require
firms to, among other things, re-negotiate all active customer
agreements to require customers to provide and routinely update the
necessary data points, build systems to enter the data, manually enter
the data for each active account, put in place resources and processes
to maintain the data, provide it to the reporting entity on a weekly
basis, and monitor changes daily in order to update the database. In
FIA's quantification of costs, gathered from interviews with member
institutions, FIA provided the following estimates in relation to the
proposal in the OCR NPRM:
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\110\ See supra section III(C)(ii)-(iii).
Our sample of 12 firms represents approximately 16 percent of
the approximately 70 FCMs that execute and clear customer accounts.
These firms handle in excess of $83.8 billion of customer funds, or
approximately 62 percent of customers' segregated funds (as of July
31, 2010, according to monthly financial reports filed with the
Commission). We found that the median firm would face total costs of
roughly $18.8 million per firm, including implementation costs of
roughly $13.4 million, and ongoing costs of $2.6 million annually.
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On a per account basis, the median cost would be $623 per account.
In comparison, FIA estimated that its alternative would result in
significant first year cost savings, with additional, incremental
savings following initial implementation. Accordingly, and in order to
realize potential cost savings identified by FIA, the Commission has
incorporated elements of the FIA's alternative approach into this
proposal. For example, this proposal incorporates FIA suggestions
regarding setting a threshold for determining when a volume threshold
account is reportable and integrating OCR reporting into the existing
Form 102 process. As noted in the FIA letter, and as substantiated by a
sample of their members, by incorporating these elements into this
proposal, the Commission anticipates that the relative cost impact of
these proposed rules should be significantly mitigated as compared to
the relative cost impact of the proposal in the OCR NPRM.
As stated above, the Commission anticipates potential additional
cost savings (as compared to both the existing reporting program, as
well as the OCR NRPM) will come through the proposed automated
submission of Forms 102, 40, and 71; \111\ and, to the extent
practicable, the auto-population of previously gathered information. As
noted in the FIA comment letter, ``The end result of developing the
alternative system could ultimately save the firms (and the Commission)
significant time and money by automating the current manual process for
filing out and submitting Form 102 information. * * * Once implemented,
the average cost savings associated with automating the Form 102 was
estimated to be $33,300 per firm on an annual basis.'' That is,
electronic submission will allow for increased efficiency for both
reporting firms and for the Commission. In addition, the proposed
requirement that New Form 102 submissions be updated/refreshed on a
regular basis (as proposed, on a semi-annual schedule) would use the
previous submission as a template, meaning that for the majority of
accounts there should be little or no change to prior reported
information, reducing both the update burden on firms and the risk of
potential errors in the reporting process.
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\111\ The Commission acknowledges that Form 71 is a completely
new form, and so it is not meaningful to contrast the costs of this
new Form 71 with the ``existing reporting program.'' However, Form
71 would, in effect, replace a portion of the Commission's manual
special call process. In that manner, providing for the automated
submission of Form 71 does provide a much more efficient information
gathering process for both the Commission and market participants,
as compared the current efforts required to request and receive
analogous information.
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The Commission proposes that infrastructure requirements for the
revised Forms 40 and 102 and the additional Form 71 could be
significant,\112\ but may be reduced in relationship to the ability of
many firms to leverage existing systems to meet the requirements
proposed herein. For example, reporting parties for New Form 102, which
includes new sections 102A, 102B, and 102S, can be FCMs, foreign
brokers, clearing members, and swap dealers. Many of these entities
will already have standard data maintenance systems (based on either
their own internal recordkeeping process or current reporting
obligations other than those proposed herein), and these current
systems could be leveraged for reporting purposes. However, because
some entities may not have current systems, or only a portion of the
necessary infrastructure, the Commission is proposing a phase-in period
for compliance with these proposed rules. This period is designed to
give entities a window of time for
[[Page 43987]]
systems development and to mitigate the cost burdens otherwise
associated with a short-run implementation and compliance schedule.
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\112\ See infra section VIII(C) for a detailed review of burden
and cost estimates been prepared for the purpose of the Commission's
responsibilities under the Paperwork Reduction Act.
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a. New Form 102A
(1) Costs
New Form 102A is directly analogous to the existing Form 102
currently in use, identifying owners and controllers of special
accounts with reportable positions (the other sections of the New Form
102 extend the Form to new categories of reportable traders). The
requirement to submit a 102A remains the same as that for the current
Form 102: a special account can be a position at a reporting entity
that is under common control, common ownership, or some combination of
common control and common ownership. Because reportable special
accounts would not be materially different under the proposed forms and
regulations from special accounts as they now exist, the Commission
believes the incremental cost of reporting due to account status should
be minimal. However, by re-emphasizing that entities must separately
identify special accounts under common ownership and those under common
control, the Commission may observe an increase in the number of
special accounts to be identified at any given reporting entity.
Although the definition of a special account will not change, the
level of requested information per account will increase. Proposed Form
102A requests (as applicable) information not currently collected, such
as owner and controller NFA ID, LEI, trading account numbers for
trading accounts comprising the special account, and DMA status. The
commission expects that (as noted by comment letters on the OCR NPRM)
the majority of these data points already reside with reporting
entities. Depending on the availability of this information, costs may
be higher or lower than the estimated average burden of 102A
submission.\113\
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\113\ See infra section VIII(C), which provides burden and costs
estimates in the context of a range of underlying factors.
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As noted above, the Commission anticipates that reporting for New
Form 102, including Form 102A, will be made primarily through XML data
submissions. Form 102A reporting will be triggered once an account
becomes a special account (an account ``event'') and updates will be
required on at least a semi-annual basis. Standards for the data
submission will be flexible, developed in conjunction with market
participants' and potential reporting entities' input, and will take
into consideration the diversity of reporting entities' systems. Should
this Notice lead to a final rule, the Commission will endeavor to
provide flexibility in the required information technology systems and
to avoid undue burdens for reporting entities, including those with
relatively large or relatively small numbers of special accounts.\114\
The Commission specifically requests comment on the expected costs
related to upgrading or obtaining systems to implement and comply with
the reporting requirement under the 102A aspect of the proposal in this
Notice.
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\114\ See infra section VIII(C), which provides burden and costs
estimates related to two distinct submission methods.
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(2) Benefits
As with costs associated with Form 102A, the reporting benefit is
mainly coincident with the benefits of the current reporting regime.
However, additions to the form have been made to strengthen the
robustness of the Commission's regulatory surveillance capabilities. By
collecting information like the trading account numbers comprising a
special account, the Commission will be able to compare intra-day
account activity with position data held over longer periods of time.
This will enable further market transparency and enhanced market review
over both macro and micro scales. Micro-structure analysis, the
economic analysis of account activity on a highly disaggregated level
(such as via individual transactions), was shown to be uniquely helpful
in event studies such as the Flash Crash of 2010.\115\
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\115\ See ``Findings Regarding the Market Events of May 6,
2010,'' available at: http://www.sec.gov/news/studies/2010/marketevents-report.pdf.
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System robustness is also strengthened with the regular update
schedule required for all special accounts. Updates provide additional
data verification, improving the accuracy of account information on a
standard, and sufficiently frequent, schedule. As discussed, automated
submission should mean that regular updates come at relatively minimal
cost to those reporting.
b. New Form 102B
(1) Costs
As noted above, the Commission has attempted to mitigate the cost
to the ultimate reporting entities that provide OCR data for trading
accounts (as compared to the proposal in the OCR NPRM), while retaining
similar reporting benefits. One significant revision relevant to Form
102B is the introduction of a minimum reporting threshold of 50
contracts in a given product, for any given trading day on any given
reporting market that is a DCM or a SEF, as the trigger for required
reporting (as compared to no minimum threshold in the OCR NPRM). The
Commission believes that this approach would provide sufficient data
coverage and benefits, but at a noticeably reduced cost (again, as
compared the proposal in the OCR NPRM). In this regard, the FIA comment
letter in response to the OCR NPRM noted that:
Most FCMs found that adopting a volume threshold of 250
contracts per week would decrease significantly the costs of
implementing the alternative, by reducing the amount of data
required to be processed and the associated cost of transmitting
large amounts of data to the exchanges and the Commission. The
average estimated cost of populating the OCR database using a volume
threshold of 250 contracts per week is $1,783,750. In contrast, the
estimated total cost for initially populating the OCR file based on
a volume threshold that includes all accounts (referred to in our
survey as option 1) is $2,134,375.
Even with this revision, proposed Form 102B does cover a market
category not covered under the existing reporting program and so should
be considered as an additional cost on any baseline. As with Form 102A,
since reporting entities will likely have existing data feed
capabilities, a subset of reporting firms will likely not require
significant infrastructure development. In particular, the Commission
notes that Form 102B reporting firms are limited to clearing member
firms, typically among the more technologically-sophisticated
participants in the derivatives industry. As with Form 102A, low-volume
reporters may choose to submit forms semi-manually through a web-based
portal, which will reduce start-up costs but increase costs of
individual submissions. Also, as discussed below, the incremental
number of additional accounts due to volume reporting may be large.
This may translate to significant costs for those who choose a manual
submission method. The Commission specifically requests comment on the
expected costs related to upgrading or obtaining systems to implement
and comply with the reporting requirement under the 102B aspect of the
proposal in this Notice.
(2) Benefits
The addition of volume threshold accounts to the reporting
structure will provide much needed information about a rapidly growing
market segment, that of high volume but low end-of-day position
traders. Many of these participants enter and exit a given
[[Page 43988]]
market position intraday, and so are not identified under the current
position-reporting regime. The current reporting regime, though it
captures over 90 percent of open interest in many markets, is not
specifically designed to capture high-volume traders. The Commission
anticipates that, with the introduction of volume threshold account
reporting, New Form 102B would help provide trader identification for
over 90 percent of market activity in many significant products,
mirroring the current levels of position identification in the futures
market.
In addition to increasing the set of reporting entities on an
absolute level, 102B reporting is likely to increase the types of
market participants identified to the Commission. For example, it is
expected that volume threshold accounts would identify trade ownership
and control for market participants such as high-frequency traders
(HFTs) and other algorithmic systems; in highly-liquid markets,
participants of this type can make up a meaningful percentage of market
activity. However, due to the current structure of the reporting
system, many participants in these categories do not qualify as
reportable special accounts. The 102B would expand the Commission's
reporting program to include participant groups of this nature, and
would also expand the reporting program to include trading accounts
associated with SEFs.
c. New Form 71
(1) Costs
Because the concept behind Form 71 is being introduced for the
first time in this Notice, all costs associated with Form 71 reporting
are incremental. The form identifies the ownership and control
structure of omnibus accounts, from the level of originator to that of
sub-account owners and controllers, for volume threshold accounts that
are omnibus accounts. The Commission plans to provide a web-based
portal for submission and, potentially, an XML submission standard like
New Form 102.
Because the structure of omnibus accounts is currently not known by
the Commission, it cannot accurately quantify how many additional
reports will be necessary due to the introduction of Form 71. However,
the Commission has attempted to mitigate the cost of reporting,
especially for larger institutions that may have a greater number of
relevant accounts. Many of the data fields in Form 71 will be auto-
populated with data provided to the Commission on an associated Form
102B or Form 71. This auto-population will be included in the web-based
system for the benefit of the reporting party, and is intended to help
mitigate, as much as possible, the submission burden. The Commission
specifically requests comment on the expected costs related to
upgrading or obtaining systems to implement and comply with the
reporting requirement under the Form 71 aspect of the proposal in this
Notice.
(2) Benefits
Form 71 provides further granularity regarding the ownership
hierarchy of omnibus accounts that are volume threshold accounts. Broad
collection of omnibus account information can be used to aggregate and
analyze all trading by an individual or trading entity, whether through
a single account or through a number of accounts held with one or more
intermediaries. In the absence of Form 71 information in connection
with omnibus volume threshold accounts, the Commission would lose
meaningful ownership and control information (and, therefore,
usefulness of the 102B reports), including the structure of and
dependence on intermediaries within a given market.
d. 102S filings
(1) Costs
The increased relative cost of the 102S filings required in this
proposal, as compared to existing 102S filing requirements, should be
minimal. This proposal does not amend or change the subset of traders
for which swap dealers and clearing members will be required to submit
102S filings. However, by updating existing Form 102 to include 102S
filings and by creating a new submission framework for New Form 102,
entities submitting 102S filings may encounter costs similar to those
encountered by entities filing New Form 102 for other purposes (whether
under 102A or 102B). The Commission anticipates that many 102S filing
entities will also be submitting New Form 102 in connection with their
futures trading business. In addition, the Commission is proposing to
work with potential filing entities during the comment period in order
to achieve a 102S filing submission process that leverages as much as
possible off of the existing infrastructure and practice at reporting
entities, including the resources that will be used for analogous
futures filings. The Commission specifically requests comment on the
expected costs related to upgrading or obtaining systems to implement
and comply with the reporting requirement under the 102S aspect of the
proposal in this Notice.
(2) Benefits
Form 102S, like 102B, is designed to expand the set of reporting
entities beyond those of the current Form 102. The identification of
accounts via 102S will provide trader information for participants in
swaps. For the purposes of tracking aggregated position exposure in a
product or commodity, or market activity of a specific trader, swap
reporting significantly extends the Commission's market surveillance
capabilities. The inclusion of swap activity aligns with the recently
finalized rules on real-time public and regulatory reporting of swap
trades, and provides further transparency in what are currently often
opaque and/or over-the-counter markets. As further changes arise in the
commodity swap market, such as the introduction of SEFs, special
account identification will allow universal market monitoring of
activity across traditional futures exchanges and SEFs. This can
provide quantifications of the balance of activity in a given product
across different execution platforms and changes in this balance over
time. In addition, disruptive market activity transferred across
multiple trading facilities could now be more easily, and more quickly,
identified with the information requested in 102S filings.
e. New Form 40
(1) Costs
The proposed changes to Form 40 extend the level of information
collected about account ownership and the business practices of
reporting traders. Given the new subsections of New Form 102 (i.e.,
102A, 102B, and 102S, as well as Form 71), the number of traders
required to submit a Form 40 is likely to increase. As with existing
Form 40, New Form 40 will be required from a wide range of market
participants (from individual traders up to large financial
institutions). Because of this wide range of form respondents, New Form
40, like Form 71, will be offered in a web-based format, and will be
auto-populated with the related account information provided on the
associated New Form 102 or Form 71, as applicable. Because of the more
detailed questions in New Form 40, as compared to existing Form 40, the
initial reporting burden per form is likely to increase beyond the
estimate for the current form.\116\ However, necessary updates may
occasion a
[[Page 43989]]
reduced incremental burden, given the introduction of an electronic
submission format through a portal that stores prior form submissions.
The Commission specifically requests comment on the expected costs
related to implementing and complying with the reporting requirement
under the New Form 40 aspect of the proposal in this Notice.
---------------------------------------------------------------------------
\116\ See infra section VIII(C).
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(2) Benefits
Through the expansion of Form 40, the Commission will have more
detailed data on reporting traders, including information regarding
reporting trader's control relationships with other entities and other
relationships with persons that influence or exercise authority over
the trading of a reporting trader. This data set will include an
expansion of the list of business purposes for futures and swaps
activity and requests for detailed information about the business
sector and physical commodity market participation of a given trader.
Responses to these questions can provide a broader view concerning
relationships and relative interest in related markets by business
sector, and overlaps in activity across different product groups. It
can also provide the Commission a check, or confirmation, to assess
whether market activity matches the self-reported trading goals of a
reporting trader.
f. 40S filings
(1) Costs
The increased relative cost of the 40S filings in this proposal, as
compared to existing 40S filing requirements, should be minimal. This
proposal does not amend or change the subset of traders who will be
required to submit 40S filings, and the existing 40S filings must be
completed using existing Form 40. By updating existing Form 40
questions and providing for web-based form submission, the Commission
does not anticipate any significant increase or change in costs related
to the 40S filing provisions of this Notice. The Commission
specifically requests comment on the expected costs related to
implementing and complying with the reporting requirement under the 40S
filing aspect of the proposal in this Notice.
(2) Benefits
Similar to the New Form 40 benefits discussion above, 40S filings
under this proposal would provide the Commission with a broader view
(as compared to existing Form 40 and 40S filings) concerning relative
interest in related markets by business sector, and overlaps in
activity across different product groups. It can also provide the
agency a means to check that observed market activity matches the self-
reported trading goals of the entity.
iii. Section 15(a) Factors
a. Protection of Market Participants and the Public
Although potentially costly, the Commission proposes that the data
collection under these rules and forms are necessary to assist the
Commission in protecting market participants and the public by, inter
alia: identifying as many accounts as feasible that are under common
ownership or control; identifying trading accounts whose owners or
controllers are also included in the Commission's large trader
reporting program or that demonstrate independently significant trading
activity; and identifying the entities or persons which the Commission
should contact if additional information is required, including the
owner and controller, and related contact persons, for reported
accounts and traders.
The Commission proposes that revised Form 102 will protect market
participants and the public by expanding data collection in three major
areas: (1) By providing additional information regarding special
accounts reported on 102A, including the trading accounts that comprise
a special account; (2) by increasing the number of identified futures,
options, and swaps accounts through the new volume threshold trigger in
102B; and (3) by identifying ownership and control information for a
new market sector, that of swaps.
The proposed rule will protect market participants and the public
by permitting the Commission to integrate transactions (and associated
trading accounts) identified on daily trade capture reports with
special accounts holding reportable positions; identifying traders of
all sizes whose open interest does not reach reportable levels, but
whose intra-day trading reaches significant levels and may adversely
affect markets during concentrated periods of intra-day trading;
reducing the time-consuming process of requesting and awaiting
information from outside the Commission to identify the entity
associated with a given trading account number on a trade capture
report and aggregating all identified entities that relate to a common
owner; linking traders' intra-day transactions with their end-of-day
special account positions; calculating how different categories of
traders contribute to market-wide open interest; and categorizing
market participants based on their actual trading behavior on a
contract-by-contract basis, supplementing the self-reported
classifications on Form 40.
The proposed forms will be submitted in either an XML-based data
feed or via a web-based submission. This modifies the process of form
submission from the current manual systems at both the Commission and
reporting entities. As compared to manual entry, automated systems
should decrease the possibility of transcription error or errors in
cross identification and reduce labor costs, aiding the accuracy and
efficiency of agency market monitoring and enforcement.
Additional identifiers, such as those requested in New Form 102,
will also allow for data integrity checks within and between the
Commission's databases. For example, requests for NFA and LEI numbers
provide independently assigned identifiers for ownership hierarchy
verification. Also, New Form 40 information will be a direct check on
much of the ownership and control information provided on New Form 102.
In sum, the proposed rules would greatly increase the ability of the
Commission to carry out its regulatory function and its protection of
the public in an efficient manner. By leveraging available technology,
these revisions should ultimately mitigate the long term cost to market
participants of providing the requested information.
b. Efficiency, Competitiveness, and Financial Integrity of the Markets
Collecting ownership and control information for the identified
market participants allows the Commission to aggregate positions for a
specific underlying trader across multiple products and markets and to
identify aggregate activity levels. This identification provides
additional market transparency for regulators and a clearer
quantification of risk within and across firms, aiding the surveillance
and monitoring functions of the Commission. Thus, while done at a cost,
as described above, it aids in monitoring, over longer periods of time,
risk exposure by institution, market class, or asset class. The
proposed forms also allow for easy identification of the individual, or
individuals, to be contacted if additional transaction information is
needed for further review. As noted in a comment letter from the
Petroleum Marketers Association of America (PMAA) on the OCR NRPM,
``Efficient integration of large trader and trade register data from
DCMs, ECMS, and [other markets] will improve market transparency and
ensure that no one trader, investment fund or other entity controls a
large
[[Page 43990]]
percentage of the interest on commodity futures exchanges. Increased
reporting requirements will help to identify those who possibly attempt
to corner the market by taking huge positions in the futures markets
which can move futures prices beyond what supply and demand
fundamentals dictate.'' Similarly, the Air Transport Association (ATA)
included a list of market and regulatory benefits of the ownership and
control report, including allowing staff to aggregate trading accounts
under common ownership or control, allowing large trader reports and
exchange trade registers to be linked, allowing expanded oversight of
trading by widely dispersed individuals and accounts, helping staff
link traders' intra-day transactions with end-of-day positions,
assisting investigations into intra-day manipulation and other trade
practice abuses, and, bridging gaps in current data reporting systems.
Under the proposed rules, strengthened ties between end-of-day
position and trade execution account registers received by the
Commission can allow for a more accurate and timely accounting of
market position by account. In addition, the increased depth of trader
information allows for more robust research and analytics, encompassing
a much greater segment of market volume traded on exchange platforms.
The additional information could also aid in anticipating and/or
monitoring market disruptions that can come at high costs to the
investing and general public.
c. Price Discovery
The Commission does not anticipate that the proposed rules will
have an impact on price discovery in markets regulated by the
Commission.
d. Sound Risk Management Procedures
The expansion of both requested information and reportable accounts
in the proposed forms requires firms to collect more information on
each threshold account for appropriate risk monitoring. While the
technology and personnel required for this collection will come at some
cost to both market participants and the Commission, as described
above, this collection of information is of benefit not just for
regulatory oversight but for effective internal risk management at the
level of the firm. Identification of account control and related
contact information can provide timely responses to market disruptive
events from multiple parties. It can also allow for prophylactic
classification of market categories which could provide unique risks to
market systems.
One specific area for which enhanced monitoring may be of benefit
is that of direct market access (DMA). Briefly, DMA allows a trading
entity to submit orders directly to an exchange matching engine. It is
anticipated that this decreased distance between trade entry and
ultimate execution on the exchange may carry additional transaction
risk. A recent IOSCO report \117\ notes that direct market access could
implicitly contain any of the following market risks: (1) A user may
access markets outside of the infrastructure and/or control of market
intermediaries, (2) there may be an incentive for intermediaries/
customers to gain execution advantages based on the type and geographic
location of their connectivity arrangements, and (3) algorithmic
trading through automated systems may imply issues of capacity and the
potential need for rationing bandwidth. Similarly, a CSA Report
outlined the risks associated with dealers/exchanges providing DMA to
clients/customers, including risks to market integrity and to related
technological systems.\118\ The Commission feels it is useful, from
both a market monitoring and analysis standpoint, to identify those
accounts which have been provided with this enhanced trading
capability. Highlighting potential concerns with market integrity, both
at the firm and at the exchange level, will be aided by knowledge of
non-intermediated access.
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\117\ See http://www.iosco.org/library/pubdocs/pdf/IOSCOPD332.pdf.
\118\ See http://www.osc.gov.on.ca/documents/en/Securities-Category2/ni_20110408_23-103_pro-electronic-trading.pdf.
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e. Other Public Interest Considerations
Form 40 now contains the relevant North American Industry
Classification System (NAICS) categories to aid in business sector
identification. The form includes two other selection lists: (1)
Commodity groups and individual commodities (a classification defined
by the CFTC) and (2) trading purposes that further detail the business
practices of a reporting firm. These identifications can aid in
analytical studies (developing categories of trading activity beyond
those currently used by the agency), in cross-validation of trading
intent, and in analysis of risk exposure across business sectors.
In addition, and as discussed throughout this document, the move to
electronic submission of the forms addressed by these proposed rules
will increase efficiencies for both market participants and the
Commission. Specifically, data will be more reliable, will be received
and reviewed faster, and will be capable of being updated faster than
in the current paper based submission process. By embracing available
technology to carry out its surveillance and market monitoring
functions in this manner, market participants and the public will
benefit from a more efficient and effective Commission.
The Commission specifically requests comment on its cost and
benefit considerations of the proposed rules, as discussed above, and
the proposed rule's impact (or the relative impact of any alternative
rules) on: (1) The protection of market participants and the public;
(2) the efficiency, competitiveness, and financial integrity of the
futures markets; (3) the market's price discovery functions; (4) sound
risk management practices; and (5) other public interest
considerations.
B. Regulatory Flexibility Analysis
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 regarding the impact.\119\ A
regulatory flexibility analysis or certification is typically required
for ``any rule for which the agency publishes a general notice of
proposed rulemaking'' pursuant to the notice-and-comment provisions of
the Administrative Procedure Act, 5 U.S.C. 553(b).\120\
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\119\ 5 U.S.C. 601 et seq.
\120\ 5 U.S.C. 601(2), 603, 604 and 605.
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The rules proposed in this Notice would require FCMs, clearing
members, foreign brokers, swap dealers and other reporting traders
(including natural persons) to complete New Forms 102 or 71, and to
submit them to the Commission as specified in the proposes rules or
upon special call by the Commission. The Commission has previously
determined that FCMs, clearing members, foreign brokers, swap dealers,
and natural persons are not small entities for purposes of the
RFA.\121\ Accordingly, the rules proposed in this Notice with respect
to Forms 102 and 71 would not have a significant economic impact on a
substantial number of small entities.
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\121\ See respectively and as indicated: 47 FR 18618 (April 30,
1982) (FCMs and large traders); 72 FR 34417 at 34418 (June 22, 2007)
(foreign brokers); 76 FR 71626 at 71680 (November 18, 2011) (swap
dealers); and 76 FR 71626 at 71680 (November 18, 2011) and 76 FR
43851 at 43860 (July 22, 2011) (clearing members). See also 5 U.S.C.
601(6) (natural persons are not entities for purposes of the RFA).
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The proposed rules would also require certain reporting traders to
complete and submit New Form 40
[[Page 43991]]
upon special call by the Commission. Some of these reporting traders
may be ``small entities'' under the RFA. In 2010, the Commission
required approximately 3,320 reporting traders to complete a Form 40,
from a total population of approximately 10,000 reporting traders. Of
these 3,320 Form 40s, approximately 2,500 were completed by
institutions, a portion of which could potentially be small entities
under the RFA. For example, the Commission has received comments on its
Dodd-Frank Act rulemakings indicating that certain entities that may be
required to comply with the reporting and recordkeeping requirements in
this Notice have been determined by the Small Business Administration
to be small entities. In particular, the Commission understands that
some not-for-profit electric generators, transmitters, and distributors
that may be required to comply with the proposed rules have been
determined to be small entities by the SBA, because they are
``primarily engaged in the generation, transmission, and/or
distribution of electric energy for sale and [their] total electric
output for the preceding fiscal year did not exceed 4 million megawatt
hours.'' \122\
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\122\ Small Business Administration, Table of Small Business
Size Standards (Nov. 5, 2010). See also the regulatory flexibility
analysis regarding such entities in 77 FR 1182 at 1240 (January 9,
2012), 77 FR 2136 at 2170 (January 13, 2012), and 77 FR 2613 at 2620
(January 19, 2012).
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The Commission believes that, due to the limited number of
institutions likely to receive a New Form 40 request in any given year,
as well as the limited nature of the New Form 40 reporting burden, the
rules proposed in this Notice with respect to New Form 40 would not
have a significant economic impact on a substantial number of small
entities. New Form 40 would not be required on a routine and ongoing
basis, but rather would be sent by the Commission on a discretionary
basis in response to the reporting of an account that reaches a minimum
position or volume threshold. As summarized above, in 2010 the
Commission made Form 40 requests to only 25% of all reporting traders
that could potentially be small entities; furthermore, some of these
reporting traders were not in fact small entities. As a result, New
Form 40 would be expected to affect only a small subset of the entities
that may be small entities under the RFA. In addition, New Form 40 is
not lengthy or complex, and would require reporting traders to provide
only limited information to the Commission. The Commission estimates
that a reporting trader would require only 3 hours to complete a New
Form 40.
The rules proposed in this Notice regarding revised Sec. 18.05
would also impose books and records obligations upon a new category of
market participants--specifically, certain owners (but not controllers)
of a volume threshold account or a reportable sub-account. Such owners
may be small entities under the RFA. The Commission does not believe
that the obligation to maintain books and records under revised Sec.
18.05 would impose significant costs on the additional small entities
subject to the recordkeeping requirements of such section. The
Commission expects that such account owners may largely rely on the
books and records that they maintain in the ordinary course of business
to fulfill the requirements of revised Sec. 18.05. The Commission also
expects that a portion of the account owners subject to revised Sec.
18.05 are subject to the position-based recordkeeping requirements of
current Sec. 18.05,\123\ and would not incur significant costs
expanding their recordkeeping practices to comply with revised Sec.
18.05. To the extent that certain small entities are required to modify
their practices to comply with the volume-based recordkeeping
requirements of revised Sec. 18.05, the Commission believes that this
will not impose a significant economic burden, because this requirement
would: (a) Ensure that (i) owners of volume threshold accounts and
reportable sub-accounts and (ii) owners of reportable positions are
subject to equivalent recordkeeping obligations under Sec. 18.05, and
therefore maintain books and records in a consistent format; and (b)
promote the Commission's market surveillance and investigatory
functions to better deter price manipulation and other disruptions of
market integrity.
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\123\ 17 CFR 18.05.
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Accordingly, for the reasons set forth above, the Chairman, on
behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b)
that the rules proposed in this Notice would not have a significant
economic impact on a substantial number of small entities. The
Commission invites public comment on this determination.
C. Paperwork Reduction Act
i. Overview
The Paperwork Reduction Act (``PRA'') \124\ imposes certain
requirements on Federal agencies in connection with their conducting or
sponsoring any collection of information as defined by the PRA. An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid control number. This proposed rulemaking would result in new
collection of information requirements within the meaning of the PRA.
The Commission is therefore submitting this proposal to the Office of
Management and Budget (``OMB'') for review in accordance with 44 U.S.C.
3507(d) and 5 CFR 1320.11. The title for this collection of information
is ``Trader and Account Identification Reports'' (OMB control number
3038-NEW). If adopted, responses to this collection of information
would be mandatory. The Commission would protect proprietary
information in accordance with the Freedom of Information Act and 17
CFR part 145, ``Commission Records and Information.'' In addition,
Sec. 8(a)(1) of the Act strictly prohibits the Commission, unless
specifically authorized by the Act, from making public ``data and
information that would separately disclose the business transactions or
market positions of any person and trade secrets or names of
customers.'' \125\ The Commission is also required to protect certain
information contained in a government system of records according to
the Privacy Act of 1974, 5 U.S.C. 552a.
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\124\ 44 U.S.C. 3501 et seq.
\125\ 7 U.S.C. 12(a)(1).
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The proposed rulemaking would create new information collection
requirements via proposed Sec. Sec. 17.01, 18.04, 18.05, and 20.5.
Currently, OMB control number 3038-0009 covers, among other things, the
collection requirements arising from existing Sec. Sec. 17.01, 18.04,
and 18.05.\126\ Also, OMB control number 3038-0095 covers, among other
things, the collection requirements arising from existing Sec.
20.5.\127\ Accordingly, the Commission is requesting a new OMB control
number for the purpose of consolidating the collections into a common
control number. Collection requirements arising from proposed
Sec. Sec. 17.01, 18.04, 18.05, and 20.5 would be covered by 3038-NEW.
Once the collections covered by control number 3038-NEW become
operational, OMB control number 3038-0009 would no longer cover
collection requirements arising from Sec. Sec. 17.01, 18.04, and
18.05. In addition, OMB control number 3038-0095 would no longer cover
collection requirements arising from Sec. 20.5. The remaining
collection requirements covered by
[[Page 43992]]
3038-0009 and 3038-0095 would not be affected.
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\126\ 17 CFR 17.01, 18.04 and 18.05.
\127\ 17 CFR 20.5.
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ii. Information To Be Provided
Proposed Sec. 17.01 would result in the collection of information
regarding the following types of accounts: (a) Special accounts (as
defined in existing Sec. 15.00(r)); \128\ and (b) volume threshold
accounts, omnibus volume threshold accounts, and omnibus reportable
sub-accounts (each as defined in proposed Sec. 15.00). Specifically,
proposed Sec. 17.01 would provide for the filing of New Form 102A, New
Form 102B and New Form 71, as follows:
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\128\ 17 CFR 15.00(r).
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1. Pursuant to proposed Sec. 17.01(a), FCMs, clearing members, and
foreign brokers would identify new special accounts to the Commission
on New Form 102A; \129\
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\129\ See supra sections III(A) and IV(A) for a description of
existing Form 102 and a comparison to New Form 102A.
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2. Pursuant to proposed Sec. 17.01(b), clearing members would
identify volume threshold accounts to the Commission on New Form 102B;
\130\ and
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\130\ See supra section IV(B) for a description of New Form
102B.
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3. Pursuant to proposed Sec. 17.01(c), omnibus volume threshold
account originators and omnibus reportable sub-account originators
would identify reportable sub-accounts to the Commission on New Form 71
when requested via a special call by the Commission or its
designee.\131\
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\131\ See supra section IV(D) for a description of New Form 71.
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Additional reporting requirements would arise from proposed Sec.
18.04, which would result in the collection of information from and
regarding traders who own, hold, or control reportable positions;
volume threshold account controllers; persons who own volume threshold
accounts; reportable sub-account controllers; and persons who own
reportable sub-accounts. Specifically, proposed Sec. 18.04 would
provide for the filing of New Form 40, as follows:
1. Pursuant to proposed Sec. 18.04(a), a trader who owns, holds,
or controls a reportable position would file New Form 40, when
requested via a special call by the Commission or its designee; and
2. Pursuant to proposed Sec. 18.04(b), a volume threshold account
controller, person who owns a volume threshold account, reportable sub-
account controller, and person who owns a reportable sub-account would
file New Form 40 when requested via a special call by the Commission or
its designee.\132\
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\132\ See supra sections III(A) and IV(E) for a description of
existing Form 40 and a comparison to New Form 40.
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Reporting requirements would also arise from proposed Sec.
20.5(a), which would require all reporting entities to submit 102S
filings for swap counterparty or customer consolidated accounts with
reportable positions.\133\ In addition, existing Sec. 20.5(b) requires
every person subject to books or records under existing Sec. 20.6 to
complete a 40S filing after a special call upon such person by the
Commission.\134\ However, existing Sec. 20.5(b) also provides that a
40S filing shall consist of the submission of Form 40. As discussed
above, the proposed rules provide for the creation of New Form 40,
which would expand and replace existing Form 40. Accordingly, the
proposed rules would require additional information from 40S filers.
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\133\ ``Reporting entity,'' ``counterparty,'' and ``consolidated
account'' are each defined in Sec. 20.1 of the Commission's
regulations. See supra sections III(B) and IV(C) for a description
of 102S.
\134\ 17 CFR 20.5(b) and 20.6. See supra sections III(B) and
IV(E) for a description of 40S.
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In addition to the reporting requirements summarized above,
proposed Sec. 18.05 would impose recordkeeping requirements for: (1)
Traders who own, hold, or control a reportable futures or option
position; (2) volume threshold account controllers; (3) persons who own
volume threshold accounts; (4) reportable sub-account controllers; and
(5) persons who own reportable sub-accounts. These provisions extend
the recordkeeping requirements of current Sec. 18.05, which are
applicable to traders who hold or control reportable positions in
futures contracts, to owners and controllers of accounts with
reportable trading volume.\135\
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\135\ 17 CFR 18.05.
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iii. Reporting and Recordkeeping Burdens
Set forth below is the estimated total annual industry cost for
affected participants to (i) complete Forms 102A and 102S and any
resulting Form 40s, (ii) complete Forms 102B and 71 for volume
threshold accounts associated with DCMs and SEFs and any resulting Form
40s, and (iii) comply with the books and records obligations arising
from proposed Sec. 18.05:
[GRAPHIC] [TIFF OMITTED] TP26JY12.001
\136\ The estimated total cost includes annual reporting and
recordkeeping costs, as well as annualized start-up costs and
ongoing operating and maintenance costs. The estimated total costs
for each form included in this chart are subject to the limitations
described in section VIII(A), above. The estimated total cost for
each of New Form 102B, New Form 71 and New Form 40 in this chart
represents the estimated total cost of completing Forms 102B and 71
for volume threshold accounts associated with DCMs and SEFs and any
resulting Form 40s.
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[[Page 43993]]
Total reporting and recordkeeping costs for the proposed rules
reflect the sum of estimated burdens, multiplied by the wage rate
provided below, for: (1) New Form 102A; (2) New Form 102B; (3) New Form
71; (4) New Form 40 (pursuant to 18.04(a)); \137\ (5) New Form 40
(pursuant to 18.04(b)); \138\ (6) the reporting and recordkeeping
requirements of proposed Sec. 18.05; (7) 102S filings; and (8) 40S
filings. However, the Commission notes that reporting and recordkeeping
burdens arising from each regulation and associated form were estimated
independently of the requirements of the other regulations and
associated forms, and that substantial synergies are likely to exist
across the systems and data necessary to meet the reporting
requirements. As a result, the total reporting and recordkeeping costs
for the proposed rules are likely to be substantially lower than
estimated. For example, many reporting firms filing New Form 102A would
also file New Form 102B, and would be able to leverage systems and
information necessary for filing one form to meet the requirements of
the other. Accordingly, total reporting and recordkeeping costs are
likely to be lower than the sum of the costs associated with each form
individually, as the Commission has calculated herein.
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\137\ 17 CFR 18.04(a).
\138\ 17 CFR 18.04(b).
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All burden estimates assume that information required by each form
is generally available within the reporting entity; however, in
preparing its estimates, the Commission did make an effort to account
for the added burden associated with assembling data distributed among
multiple systems and/or databases within a reporting entity.
a. Reporting Burdens
Proposed Sec. 17.01(a)--New Form 102A: The Commission estimated
the reporting burden associated with this proposed regulation by
considering the two distinct filing methods that it will accommodate
should a final rule be adopted. With two methods of submission,
reporting entities (i.e., FCMs, clearing members, and foreign brokers)
would have the flexibility to select the submission method that works
best with their existing data and technology infrastructure and the
number of filings they expect to make. In general, the Commission
believes that Method 1 would be more cost effective for reporting
entities with a large number of filings, while Method 2 would be more
cost effective for reporting entities with a small number of filings.
Method 1: This method assumes that each reporting entity would use
an automated program to submit its New Form 102As via secure FTP. Each
Method 1 submission would likely contain numerous 102A records. The
Commission estimates that the total initial development burden would
average 264 hours per reporting entity. The Commission also estimates
that the highly automated nature of this option would virtually
eliminate the marginal costs associated with each additional submission
or each additional record contained in a submission. Accordingly, the
Commission estimates that 102A change and refresh updates would not
increase a reporting entity's burden when using Method 1. The
Commission further estimates that ongoing operation and maintenance
costs would average 53 hours per year no matter how many records are
contained in a submission. The total Method 1 annualized development
burden and the ongoing operation and maintenance cost burden (total
yearly costs) would equal approximately 106 hours per reporting
entity.\139\
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\139\ All annualized development burden estimates are based on 5
year, straight line depreciation. The 106 hour figure is arrived at
by dividing 264 hours (initial development burden per reporting
entity) by 5 years, which results in an estimated annualized initial
development burden of 52.8 hours per reporting entity. 52.8 hours
plus 53 hours (annualized ongoing operation and maintenance costs
per reporting entity) equals 106 hours per reporting entity.
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A recent assessment of Commission data collection efforts
demonstrated that the Commission receives Form 102 submissions from
approximately 250 reporting entities annually. The Commission
anticipates that it would receive New Form 102A submissions from a
similar number of reporting entities. Assuming all New Form 102A
reporting entities utilize Method 1, the Commission estimates that the
total annual industry burden for New Form 102A would equal 26,500
hours. Using an estimated wage rate of $78.61 per hour,\140\ annual
costs for 102A filings made pursuant to Method 1 are estimated at
$2,083,165.\141\
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\140\ The Commission staff's estimates concerning the wage rates
are based on salary information for the securities industry compiled
by the Securities Industry and Financial Markets Association
(``SIFMA''). The $78.61 per hour is derived from figures from a
weighted average of salaries and bonuses across different
professions from the SIFMA Report on Management & Professional
Earnings in the Securities Industry 2010, modified to account for an
1800-hour work-year and multiplied by 1.3 to account for overhead
and other benefits. The wage rate is a weighted national average of
salary and bonuses for professionals with the following titles (and
their relative weight): ``programmer (senior)'' (30% weight);
``programmer'' (30% weight); ``compliance advisor (intermediate)''
(20%), ``systems analyst'' (10%), and ``assistant/associate general
counsel'' (10%).
\141\ The $2,083,165 figure is arrived at by multiplying 106
hours by 250 reporting entities (equals 26,500 hours) by $78.61
(equals $2,083,165).
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Method 2: This method assumes that each reporting entity would
complete and submit each New Form 102A online via a secure portal
provided by the Commission. The Commission estimates that the total
initial development burden would average 20 hours per New Form 102A
record. The Commission also estimates that annual ongoing costs, which
include change and refresh filings, would average 7 hours per year for
each New Form 102A record. The estimated Method 2 total annualized
development burden and the ongoing operation and maintenance cost
burden (total yearly cost) equals approximately 11 hours per New Form
102A record.\142\
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\142\ All annualized development burden estimates are based on 5
year, straight line depreciation.
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A recent assessment of Commission data collection efforts
demonstrated that the Commission receives approximately 4,700 Form 102
records annually. However, by reiterating that Commission regulations
require reporting firms to separately aggregate positions by common
ownership and by common control for the purpose of identifying and
reporting special accounts, the Commission may observe an increase in
the number of 102A filings. The Commission anticipates that the number
of annual New Form 102A records may increase by 75% to 8,225.\143\
Assuming each of the 8,225 New Form 102A records are provided via
Method 2, the Commission estimates that the total annual industry
burden for New Form 102A would equal 90,475 hours. Using an estimated
wage rate of $78.61 per hour, annual costs for 102A filings made
pursuant to Method 2 are estimated at $7,112,240.\144\
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\143\ The Commission believes that about 25% of special accounts
reported on Form 102 have the same owner and controller. In such
case, the reporting entity need only submit one New Form 102.
Accordingly, the annual number of New Form 102A records would
increase, as compared to current annual Form 102 submissions, only
to the extent that the owner and the controller of a special account
are different.
\144\ The $7,112,240 figure is arrived at by multiplying 11
hours by 8,225 records (equals 90,475 hours) by $78.61 (equals
$7,112,240).
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The Commission understands that providing filing options to the
industry should lower costs relative to failing to provide such
options. Because of this, estimated total costs to the industry for
102A filings should be lower than any cost associated with mandating
either Method 1 or Method 2. Given the cost estimates for the two
individual
[[Page 43994]]
methods discussed above, the Commission anticipates 102A filing costs
to be no more than approximately $2,083,165 (Method 1), the lower of
the two estimated filing methods. In developing this estimate, the
Commission does not make any assumptions about the behavior of an
individual reporting entity. Reporting entities, given their own
individualized needs, are assumed to make the most cost-effective
choice for them, which may be any one of the two methods.
Proposed Sec. 17.01(b)--New Form 102B: The Commission estimated
the reporting burden associated with this proposed regulation by
considering the two distinct filing methods that it will accommodate
should a final rule be adopted. With two methods of submission,
reporting entities (i.e., clearing members) will have the flexibility
to select the submission method that works best with their existing
data and technology infrastructure and the number of filings they
expect to make. In general, the Commission believes that Method 1 would
be more cost effective for reporting entities with a large number of
filings, while Method 2 would be more cost effective for reporting
entities with a small number of filings.
Method 1: This method assumes that each reporting entity would use
an automated program to submit its 102B filings via secure FTP. Each
Method 1 submission would likely contain numerous 102B records. The
Commission estimates that the total initial development burden should
average 264 hours per reporting entity. The Commission also estimates
that the highly automated nature of this option would virtually
eliminate the marginal costs associated with each additional submission
or each additional record contained in a submission. Accordingly, the
Commission estimates that 102B change and refresh updates will not
increase a reporting entity's burden when using Method 1. The
Commission further estimates that ongoing operation and maintenance
costs would average 53 hours per year no matter how many records are
contained in a submission. The total Method 1 annualized development
burden and the ongoing operation and maintenance cost burden (total
yearly costs) equals approximately 106 hours per reporting entity.\145\
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\145\ All annualized development burden estimates are based on 5
year, straight line depreciation.
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Because New Form 102B provides a new volume-based reporting
structure not found in existing Form 102, the Commission is unable to
refer to historical reporting statistics. Instead, the Commission
estimated the number of New Form 102B reporting entities by estimating
the number of clearing members associated with trading accounts that
the Commission projects will qualify as volume threshold accounts. For
volume threshold accounts associated with DCMs, the Commission
anticipates that it would receive New Form 102B submissions from
approximately 100 reporting entities annually. For volume threshold
accounts associated with SEFs, the Commission anticipates that it would
receive New Form 102B submissions from approximately 75 reporting
entities annually. Assuming that all Form 102B reporting entities for
volume threshold accounts associated with DCMs utilize Method 1, the
Commission estimates that the total annual industry burden for the
reporting of such accounts on New Form 102B would equal 10,600
hours.\146\ Assuming that all Form 102B reporting entities for volume
threshold accounts associated with SEFs utilize Method 1, the
Commission estimates that the total annual industry burden for the
reporting of such accounts on New Form 102B would equal 7,950
hours.\147\ Using an estimated wage rate of $78.61 per hour, annual
costs for DCM-related 102B filings made pursuant to Method 1 are
estimated at $833,266, while annual costs for SEF-related 102B filings
made pursuant to Method 1 are estimated at $624,950.\148\ Collectively,
annual costs for 102B filings made pursuant to Method 1 are estimated
at $1,458,216.
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\146\ The 10,600 hour figure is arrived at by multiplying 106
hours (annualized development burden and ongoing operation and
maintenance cost burden per reporting entity) by 100 reporting
entities.
\147\ The 7,950 hour figure is arrived at by multiplying 106
hours (annualized development burden and ongoing operation and
maintenance cost burden per reporting entity) by 75 reporting
entities.
\148\ The $833,266 figure is arrived at by multiplying 10,600 by
$78.61, while the $624,950 figure is arrived at by multiplying 7,950
by $78.61.
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Method 2: This method assumes that each reporting entity would
complete and submit each New Form 102B online via a secure portal
provided by the Commission. The Commission estimates that the total
initial development burden would average 20 hours per New Form 102B
record. The Commission also estimates that annual ongoing costs, which
include both change and refresh updates, would average 7 hours per year
for each New Form 102B record. The estimated Method 2 total annualized
development burden and the ongoing operation and maintenance cost
burden (total yearly cost) equals approximately 11 hours per New Form
102B record.\149\
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\149\ Id.
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Because New Form 102B provides a new volume-based reporting
structure not found in existing Form 102, the Commission is unable to
refer to historical reporting statistics to directly estimate the
number of New Form 102B records it might receive. Instead, the
Commission estimated the number of distinct volume threshold accounts
across a sample of several contract markets, and then extrapolated the
total number of volume threshold accounts across all markets. For
volume threshold accounts associated with DCMs, the Commission
anticipates that it would receive approximately 126,000 New Form 102B
records annually. For volume threshold accounts associated with SEFs,
the Commission anticipates that it would receive approximately 62,015
New Form 102B records annually. Assuming each New Form 102B record for
a volume threshold account associated with a DCM is provided via Method
2, the Commission estimates that the total annual industry burden for
the reporting of such accounts on New Form 102B would equal 1,386,000
hours. Assuming each New Form 102B record for a volume threshold
account associated with a SEF is provided via Method 2, the Commission
estimates that the total annual industry burden for the reporting of
such accounts on New Form 102B would equal 682,165 hours. Using an
estimated wage rate of $78.61 per hour, annual costs for DCM-related
102B filings made pursuant to Method 2 are estimated at $
108,953,460,\150\ while annual costs for SEF-related 102B filings made
pursuant to Method 2 are estimated at $53,624,991.\151\ Collectively,
annual costs for 102B filings made pursuant to Method 2 are estimated
at $162,578,451.
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\150\ The $108,953,460 figure is arrived at by multiplying 11
hours by 126,000 records (equals 1,386,000 records) by $78.61
(equals $108,953,460).
\151\ The $53,624,991figure is arrived at by multiplying 11
hours by 62,015 records (equals 682,165 records) by $78.61 (equals
$53,624,991).
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The Commission understands that providing filing options to the
industry should lower costs relative to failing to provide such
options. Because of this, estimated total costs to the industry for
102B filings should be lower than any cost associated with mandating
either Method 1 or Method 2. Given the cost estimates for the two
individual methods discussed above, the Commission anticipates DCM and
SEF-related 102B filing costs to be no more than approximately
$1,458,216 (Method 1), the lower of the two estimated filing
[[Page 43995]]
methods. In developing this estimate, the Commission does not make any
assumptions about the behavior of an individual reporting entity.
Reporting entities, given their own individualized needs, are assumed
to make the most cost-effective choice for them, which may be any one
of the two methods.
Proposed Sec. 17.01(c)--New Form 71: New Form 71 reporting
entities (i.e., originators of omnibus volume threshold accounts or
omnibus reportable sub-accounts) would, upon special call by the
Commission or its designee, complete and submit New Form 71 online via
a secure portal provided by the Commission. The Commission estimates
that, on average, New Form 71 would create an annual reporting burden
of 8 hours per filing. The Commission notes that New Form 71 filings do
not require change or refresh updates. Accordingly, the burdens and
costs associated with such updates in the case of other forms proposed
herein are not relevant to the calculation of burdens and costs for New
Form 71 filings. The Commission also notes that it is likely to request
the resubmission of New Form 71 filings annually.
The number of New Form 71 filings per year would vary according to
the number of special calls for the form made by the Commission. In
order to estimate the annual number of New Form 71 filings (i.e., the
number of special calls made), the Commission considered the number of
existing Form 102 omnibus special accounts and estimated that New Form
102B would capture a similar number of DCM-related omnibus volume
threshold accounts.\152\ Further, the Commission estimated that it
would require a New Form 71 for every such omnibus volume threshold
account. Commission records indicate 526 omnibus special accounts in
2010, and the Commission anticipates an equal number of DCM-related
omnibus volume threshold accounts. Because the Commission does not
presently receive filings pertaining to SEF-related omnibus volume
threshold accounts, the Commission is unable to refer to historical
reporting statistics to directly estimate the number New Form 71
filings it might require. To estimate the number of SEF-related omnibus
volume threshold accounts, the Commission assumed that SEF transactions
will likely be intermediated to a lesser extent than DCM transactions.
The Commission estimates that there may be 35 percent as many SEF-
related omnibus volume threshold accounts as DCM-related omnibus volume
threshold accounts. Accordingly, the Commission estimates that there
will be 184 SEF-related omnibus volume threshold accounts. Based on an
estimated 526 DCM-related New Form 71 filings per year, the Commission
estimates an aggregate reporting burden of 4,208 hours annually for
such filings. Based on an estimated 184 SEF-related New Form 71 filings
per year, the Commission estimates an aggregate reporting burden of
1,472 hours annually for such filings. Using an estimated wage rate of
$78.61 per hour, annual costs for DCM-related New Form 71 filings are
estimated at $330,791, while annual costs for SEF-related New Form 71
filings are estimated at $115,714. Collectively, annual costs for New
Form 71 filings are estimated at $446,505.
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\152\ The Commission is estimating the number of New Form 71
filings in this manner because New Form 71 provides for an omnibus
account reporting structure that does not currently exist, making
direct estimates unfeasible.
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Proposed Sec. 18.04(a)--New Form 40: New Form 40 reporting
entities arising from New Form 102A filings (i.e., special account
owners and controllers) would, upon special call by the Commission,
complete and submit New Form 40 online via a secure portal provided by
the Commission. The Commission's special call would typically be in the
form of an email request that would contain a URL for the portal, and a
unique login and password for access to the portal.
The number of New Form 40 filings arising from New Form 102A
filings would vary according to the number of special calls made by the
Commission. An analysis of the Commission's existing Form 40 practices
demonstrates that the Commission makes approximately 3,000 special
calls annually. However, as explained above, the Commission is
reiterating that its regulations require reporting firms to separately
aggregate positions by common ownership and by common control for the
purpose of identifying and reporting special accounts. The Commission
anticipates that the number of special calls made annually as a result
of New Form 102A filings may increase by 75 percent. The Commission
estimates that New Form 40 would result in annual filings from 5,250
reporting entities.
The Commission estimates that each filing estimated above would
require 3 hours to complete,\153\ resulting in an estimated total
annual reporting burden of 15,750 hours. Using an estimated wage rate
of $78.61 per hour, annual costs for New Form 40 filings arising from
New Form 102A filings are estimated at $1,238,108.\154\ Because the
proposed rules anticipate a web-based portal and user profile system,
those entities required to complete a New Form 40 would also be under a
continuing obligation, per direction in the special call, to update and
maintain the accuracy of their profile information by periodically
visiting the online New Form 40 portal to review, verify, and/or update
their information. However, the Commission believes that the time
required to update information contained in New Form 40 using the
online portal would be de minimis.
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\153\ The Commission's estimate of 3 hours per response reflects
an initial, one-time burden of 10 hours, annualized over a five-year
period, plus an additional hour per year for change updates.
\154\ As discussed in the introduction to this section, the
Commission is evaluating the burden associated with each regulation
and associated form separately. It should be noted that the burdens
estimated for New Form 40 filings, arising from proposed Sec.
18.04(a) and Sec. 18.04(b), are especially duplicative. For
example, many of the traders that complete New Form 40 pursuant to
18.04(a) may also be volume threshold account controllers that could
receive New Form 40 pursuant to 18.04(b). In practice, if the
Commission possesses a recent Form 40 filing from a reporting
entity, it may elect not to request a second Form 40 filing from
that same entity if the entity becomes reportable under an
additional provision of the proposed regulations and there is no
additional information to be gained.
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Proposed Sec. 18.04(b)--New Form 40: New Form 40 reporting
entities arising from New Form 102B and New Form 71 filings (i.e.,
volume threshold account controllers, persons who own volume threshold
accounts, reportable sub-account controllers, and persons who own
reportable sub-accounts) would, upon special call by the Commission,
file New Form 40 online via a secure portal provided by the Commission.
The Commission's special call would typically be in the form of an
email request that would contain a URL for the portal, and a unique
login and password for access to the portal.
The number of New Form 40 filings arising from volume threshold
accounts and reportable sub-accounts would vary according to the number
of special calls made by the Commission. An analysis of the
Commission's existing Form 40 practices demonstrates that the
Commission makes approximately 3,000 special calls annually; however,
such calls were made to special account owners and controllers
identified via existing DCM-related Form 102. The Commission estimates
there could be a much greater number of New Form 102B and New Form 71
filings. As a result, the Commission estimates that the number of
potential New Form 40 reporting entities (arising from New Form 102B
and New Form 71 filings) would increase as well. The Commission
anticipates that it would
[[Page 43996]]
receive approximately 12,000 DCM-related New Form 40 filings annually
arising from New Form 102B and approximately 1,550 SEF-related New Form
40 filings annually arising from New Form 102B, including filings
arising from control of volume threshold accounts and filings arising
from ownership of such accounts.\155\ Each filing is estimated to
require 3 hours,\156\ resulting in an estimated total annual reporting
burden of 36,000 hours for DCM-related New Form 40 filings and 4,650
hours for SEF-related New Form 40 filings. The Commission estimates
that the time required to update information contained in New Form 40
would be de minimis. Using an estimated wage rate of $78.61 per hour,
annual costs for DCM-related New Form 40 filings arising from volume
threshold accounts and reportable sub-accounts are estimated at
$2,829,960, while annual costs for SEF-related New Form 40 filings
arising from volume threshold accounts and reportable sub-accounts are
estimated at $365,537. Collectively, annual costs for New Form 40
filings are estimated at $3,195,497.
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\155\ As with 102A records, the Commission estimates that in
approximately 25 percent of filings, the owner and the controller of
a volume threshold account reported on New Form 102B will be the
same, and that accordingly, only one New Form 40 would be required.
Similarly, a number of potential New Form 40 reporting entities are
likely to own or control both DCM-related and SEF-related volume
threshold accounts, but only one New Form 40 would be required.
\156\ The Commission's estimate of 3 hours per response reflects
an initial, one-time burden of 10 hours, annualized over a five-year
period, plus an additional hour per year for change updates.
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Proposed Sec. 18.05: Existing Sec. 18.05 requires traders who
hold or control reportable positions to maintain books and records
regarding all positions and transactions in the commodity in which they
have reportable positions.\157\ In addition, existing Sec. 18.05
requires that the trader furnish the Commission with information
concerning such positions upon request. The Commission proposes to
expand Sec. 18.05 to also impose books and records requirements upon
volume threshold account controllers and owners of volume threshold
accounts, and upon reportable sub-account controllers and persons who
own reportable sub-accounts. Proposed Sec. 18.05 would likely result
in an increased reporting burden, as compared to existing Sec. 18.05.
An analysis of the Commission's special call practices demonstrates
that, in connection with existing Sec. 18.05, the Commission typically
makes 12 special calls a month to approximately 45 traders, resulting
in a total of 540 special calls.\158\ The Commission estimates that
proposed Sec. 18.05 would result in an additional six special calls to
six different traders.\159\ In total, the Commission anticipates that
it would make 546 special calls a year to 51 respondents under Sec.
18.05 and that each response would take approximately 5 hours for a
total aggregate annual reporting burden of 2,730 hours. Using an
estimated wage rate of $78.61 per hour, annual reporting costs are
estimated at $214,605.
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\157\ 17 CFR 18.05.
\158\ The Commission estimates that each response takes
approximately 5 hours. Existing Sec. 18.05 therefore results in an
annual reporting burden of approximately 2,700 hours. Using an
estimated wage rate of $78.61 per hour, annual reporting costs in
connection with existing Sec. 18.05 are approximately $212,247.
\159\ Proposed Sec. 18.05 would result in an additional annual
reporting burden of approximately 30 hours. Using an estimated wage
rate of $78.61 per hour, proposed Sec. 18.05 would result in
additional annual reporting costs of approximately $2,358.
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Proposed Sec. 20.5(a)--102S Filing: The Commission estimated the
reporting burden associated with proposed Sec. 20.5(a) by considering
the two distinct filing methods that it will accommodate should a final
rule be adopted. With two methods of submission, reporting entities
(i.e., clearing members and swap dealers) will have the flexibility to
select the submission method that works best with their existing data
and technology infrastructure and the number of filings they expect to
make.
Method 1: This method assumes that each reporting entity would use
an automated program to submit its 102Ss via secure FTP. Each Method 1
submission would likely contain numerous 102S records. The Commission
estimates that the total initial development burden would average 264
hours per reporting entity. The Commission also estimates that the
highly automated nature of this option would virtually eliminate the
marginal costs associated with each additional submission or each
additional record contained in a submission. The Commission believes
that the timing requirements for 102S filings in existing Sec.
20.5(a)(3),\160\ or any new submission procedures arising from the
Swaps Large Trader Guidebook (i.e., frequency of 102S filing
submission), would not increase a reporting entity's burden when using
Method 1. The Commission further estimates that ongoing operation and
maintenance costs would average 53 hours per year no matter how many
records are contained in a submission. The total Method 1 annualized
development burden and the ongoing operation and maintenance cost
burden (total yearly costs) would equal approximately 106 hours per
reporting entity.\161\
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\160\ 17 CFR 20.5(a)(3).
\161\ All annualized development burden estimates are based on 5
year, straight line depreciation.
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The 102S filing requirements in existing Sec. 20.5 \162\ are
nearly identical to the filing requirements proposed herein for 102S;
accordingly, the Commission used its experience to date with 102S
filings to estimate the number of 102S reporting entities. The
Commission anticipates that it would receive 102S filings from
approximately 75 \163\ reporting entities annually. Assuming 102S
reporting entities utilize Method 1, the Commission estimates that the
total annual industry burden for 102S filing would equal 7,950 hours.
Using an estimated wage rate of $78.61 per hour, annual costs for 102S
filings are estimated at $624,950.
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\162\ 17 CFR 20.5.
\163\ The Commission notes that this estimate for the number of
102S reporting entities is lower than the estimate provided in the
Commission's final rules for part 20. The lower estimate is based on
the Commission's experience with position reports pursuant to part
20 since the rules were made final.
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Method 2: This method assumes that each reporting entity would
complete and submit each New Form 102S online via a secure portal
provided by the Commission. The Commission estimates that the total
initial development burden would average 17 hours per 102S record. The
Commission also estimates that annual ongoing costs, including change
and refresh updates, would average 7 hours per year for each 102S
record. The sum of the Method 2 annualized development burden and the
ongoing operation and maintenance cost burden (total yearly cost)
equals approximately 10 hours per 102S record.\164\
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\164\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
Based on a recent assessment of expected 102S filings, the
Commission anticipates that it would receive approximately 500 102S
records annually. Assuming each of the estimated 500 102S records are
provided via Method 2, the Commission estimates that the total annual
industry burden for 102S filings would equal 5,000 hours. Using an
estimated wage rate of $78.61 per hour, annual costs for 102S filings
made pursuant to Method 2 are estimated at $393,050.
The Commission understands that providing options to the industry
should lower costs relative to failing to provide these options.
Because of this, estimated total costs to the industry for 102S filing
should be lower than any cost associated with mandating either Method 1
or Method 2. Given the cost estimates for the two individual
[[Page 43997]]
methods discussed above, the Commission anticipates 102S filing costs
to be no more than $393,050 (Method 2), the lower of the two estimated
submission costs. In developing this estimate, the Commission does not
make any assumptions about the behavior of an individual reporting
entity. Reporting entities, given their own individualized needs, are
assumed to make the most cost-effective choice for them, which may be
either of the two methods.
40S Filings: \165\ Persons that are subject to books and records
requirements under existing Sec. 20.6 \166\ and receive a special call
from the Commission, would file New Form 40 via an online portal. The
Commission's special call would likely be in the form of an email
request that would contain a URL for the portal, and a unique login and
password for access to the portal. Existing Sec. 20.5(b),\167\ which
requires the 40S filing, would not be altered by this proposed
rulemaking; as a result, the Commission estimates that a similar number
of persons would be required to submit a 40S filing. Accordingly, the
Commission anticipates that it would receive 40S submissions from
approximately 500 filers annually. Each response is estimated to
require 3 hours,\168\ resulting in an estimated total annual reporting
burden of 1,500 hours. Time required to update information contained in
40S filings would be de minimis on average. Using an estimated wage
rate of $78.61 per hour, annual costs are estimated at $117,915.
---------------------------------------------------------------------------
\165\ The proposed rulemaking does not include provisions to
revise Sec. 20.5(b); however, current Sec. 20.5(b) requires a
person, after special call by the Commission, to submit a 40S filing
which shall consist of the submission of Form 40. The proposed
rulemaking does include changes to Form 40. Accordingly, the
reporting burden associated with Sec. 20.5(b) and the 40S filing is
being recalculated to account for variations between current and New
Form 40.
\166\ 17 CFR 20.6.
\167\ 17 CFR 20.5(b).
\168\ The Commission's estimate of 3 hours per response reflects
an initial, one-time burden of 10 hours, annualized over a five-year
period, plus an additional hour per year for change updates.
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b. Recordkeeping burdens:
As discussed above, the Commission proposes to expand Sec. 18.05
\169\ to also impose books and records requirements upon volume
threshold account controllers and owners of volume threshold accounts
reported on New Form 102B, and on reportable sub-account controllers
and persons who own a reportable sub-account reported on New Form 71
(in addition to traders who hold or control reportable positions). As a
result, proposed Sec. 18.05 would likely impose a recordkeeping burden
on a larger number of persons than existing Sec. 18.05. However, any
additional persons subject to proposed Sec. 18.05 may be able to rely
on books and records already kept in the ordinary course of business to
meet the requirements of the proposed regulation. Accordingly, the
Commission believes that proposed Sec. 18.05 would not meaningfully
increase recordkeeping burdens on persons brought under its scope.
---------------------------------------------------------------------------
\169\ 17 CFR 18.05.
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iv. Comments on Information Collection
The Commission invites the public and other federal agencies to
comment on any aspect of the reporting and recordkeeping burdens
discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission
solicits comments in order to: (i) Evaluate whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information
would have practical utility; (ii) evaluate the accuracy of the
Commission's estimate of the burden of the proposed collection of
information; (iii) determine whether there are ways to enhance the
quality, utility, and clarity of the information to be collected; and
(iv) mitigate the burden of the collection of information on those who
are required to respond, including through the use of automated
collection techniques or other forms of information technology.
Comments may be submitted directly to the Office of Information and
Regulatory Affairs, by fax at (202) 395-6566 or by email at
OIRAsubmissions@omb.eop.gov. Please provide the Commission with a copy
of submitted comments so that all comments can be summarized and
addressed in the final regulation preamble. Refer to the ADDRESSES
section of this Notice for comment submission instructions to the
Commission. A copy of the supporting statements for the collections of
information discussed above may be obtained by visiting RegInfo.gov.
OMB is required to make a decision concerning the collection of
information between 30 and 60 days after publication of this Notice.
Consequently, a comment to OMB is most assured of being fully effective
if received by OMB (and the Commission) within 30 days after
publication of this Notice.
Proposed Rules
List of Subjects
17 CFR Part 15
Brokers, Commodity futures, Reporting and recordkeeping
requirements.
17 CFR Part 17
Brokers, Commodity futures, Reporting and recordkeeping
requirements.
17 CFR Part 18
Commodity futures, Reporting and recordkeeping requirements.
17 CFR Part 20
Physical commodity swaps, Swap dealers, Reporting and recordkeeping
requirements.
In consideration of the foregoing and pursuant to the authority
contained in the Act, as indicated herein, the Commission hereby
proposes to amend chapter I of title 17 of the Code of Federal
Regulations as follows:
PART 15--REPORTS--GENERAL PROVISIONS
1. The authority citation for part 15 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7,
7a, 9, 12a, 19, and 21, as amended by Title VII of the Dodd-Frank
Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124
Stat. 1376 (2010).
2. In Sec. 15.00, revise paragraph (q) and add paragraphs (t)
through (ee) to read as follows:
Sec. 15.00 Definitions of terms used in parts 15 to 19, and 21 of
this chapter.
* * * * *
(q) Reporting market means a designated contract market or a
registered entity under Sec. 1a(40) of the Act.
* * * * *
(t) Control means to actually direct, by power of attorney or
otherwise, the trading of a special account or a consolidated account.
A special account or a consolidated account may have more than one
controller.
(u) Reportable trading volume means contract trading volume that
meets or exceeds the level specified in Sec. 15.04 of this part.
(v) Direct Market Access (``DMA'') means a connection method that
enables a market participant to transmit orders to a DCM's electronic
trade matching system without re-entry by another person or entity, or
similar access to the trade execution platform of a SEF. DMA can be
provided directly by a DCM or SEF, or by a 3rd-party platform.
[[Page 43998]]
(w) Omnibus account means any trading account that one futures
commission merchant, clearing member or foreign broker carries for
another and in which the transactions of multiple individual accounts
are combined. The identities of the holders of the individual accounts
are not generally known or disclosed to the carrying firm.
(x) Omnibus account originator means any futures commission
merchant, clearing member or foreign broker that executes trades for
one or more customers via one or more accounts that are part of an
omnibus account carried by another futures commission merchant,
clearing member or foreign broker.
(y) Volume threshold account means any trading account that
executes, or receives via allocation or give-up, reportable trading
volume on or subject to the rules of a reporting market that is a board
of trade designated as a contract market under Sec. 5 of the Act or a
swap execution facility registered under Sec. 5h of the Act.
(z) Omnibus volume threshold account means any trading account
that, on an omnibus basis, executes or receives via allocation or give-
up, reportable trading volume on or subject to the rules of a reporting
market that is a board of trade designated as a contract market under
Sec. 5 of the Act or a swap execution facility registered under Sec.
5h of the Act.
(aa) Omnibus reportable sub-account means any trading sub-account
of an omnibus volume threshold account, which sub-account executes
reportable trading volume on an omnibus basis. Omnibus reportable sub-
account also means any trading account that is itself an omnibus
account, executes reportable trading volume, and is a sub-account of
another omnibus reportable sub-account.
(bb) Reportable sub-account means any trading sub-account of an
omnibus volume threshold account or omnibus reportable sub-account,
which sub-account executes reportable trading volume.
(cc) Trading account controller means, for reports specified in
Sec. 17.01(a) of this chapter, a natural person who by power of
attorney or otherwise actually directs the trading of a trading
account. A trading account may have more than one controller.
(dd) Volume threshold account controller means a natural person who
by power of attorney or otherwise actually directs the trading of a
volume threshold account. A volume threshold account may have more than
one controller.
(ee) Reportable sub-account controller means a natural person who
by power of attorney or otherwise actually directs the trading of a
reportable sub-account. A reportable sub-account may have more than one
controller.
3. Revise Sec. 15.01 (c) to read as follows:
Sec. 15.01 Persons required to report.
* * * * *
(c) As specified in part 18 of this chapter:
(1) Traders who own, hold, or control reportable positions;
(2) Volume threshold account controllers;
(3) Persons who own volume threshold accounts;
(4) Reportable sub-account controllers; and
(5) Persons who own reportable sub-accounts.
* * * * *
4. Revise Sec. 15.02 to read as follows:
Sec. 15.02 Reporting forms.
Forms on which to report may be obtained from any office of the
Commission or via the Internet (http://www.cftc.gov). Forms to be used
for the filing of reports follow, and persons required to file these
forms may be determined by referring to the rule listed in the column
opposite the form number.
[GRAPHIC] [TIFF OMITTED] TP26JY12.002
(Approved by the Office of Management and Budget under control
numbers 3038-0007, 3038-0009, and 3038-[NEW])
5. Add Sec. 15.04 to read as follows:
Sec. 15.04 Reportable trading volume level.
The volume quantity for the purpose of reports filed under parts 17
and 18 of this chapter is trading volume of 50 or more contracts,
during a single trading day, on a single reporting market that is a
board of trade designated as a contract market under section 5 of the
Act or a swap execution facility registered under section 5h of the
Act, in all instruments that such reporting market designates with the
same product identifier (including purchases and sales, and inclusive
of all expiration months).
PART 17--REPORTS BY REPORTING MARKETS, FUTURES COMMISSION
MERCHANTS, CLEARING MEMBERS, AND FOREIGN BROKERS
6. The authority citation for part 17 is revised to read as
follows:
Authority: 7 U.S.C. 2, 6a, 6c, 6d, 6f, 6g, 6i, 6t, 7, 7a, and
12a, as amended by Title VII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).
7. Revise Sec. 17.00(g)(2)(iii) to read as follows:
Sec. 17.00 Information to be furnished by futures commission
merchants, clearing members and foreign brokers.
* * * * *
(g) * * *
(2) * * *
(iii) Account Number. A unique identifier assigned by the reporting
firm to each special account. The field is zero
[[Page 43999]]
filled with the account number right-justified. Assignment of the
account number is subject to the provisions of Sec. 17.00(b) and Form
102.
* * * * *
8. Revise Sec. 17.01 to read as follows:
Sec. 17.01 Identification of special accounts, volume threshold
accounts, and omnibus accounts.
(a) Identification of special accounts. When a special account is
reported for the first time, the futures commission merchant, clearing
member, or foreign broker shall identify the special account to the
Commission on Form 102, in accordance with the form instructions and as
specified in Sec. 17.02(b).
(b) Identification of volume threshold accounts. Each clearing
member shall identify and report its volume threshold accounts to the
Commission on Form 102, in accordance with the form instructions and as
specified in Sec. 17.02(c).
(c) Identification of omnibus accounts and sub-accounts. Each
originator of an omnibus volume threshold account identified in Form
102 or an omnibus reportable sub-account identified in Form 71 shall,
after a special call upon such originator by the Commission or its
designee, file with the Commission an ``Identification of Omnibus
Accounts and Sub-Accounts'' on Form 71, to be completed in accordance
with the instructions thereto, at such time and place as directed in
the call.
(d) Exclusively self-cleared contracts. Unless determined otherwise
by the Commission, reporting markets that list exclusively self-cleared
contracts shall meet the requirements of paragraphs (a) and (b) of this
section, as they apply to trading in such contracts by all clearing
members, on behalf of all clearing members.
(e) Special call provision. Upon a call by the Commission or its
designee, the reports required to be filed by futures commission
merchants, clearing members, foreign brokers, and reporting markets
under paragraphs (a), (b), (c), and (d) of this section shall be
submitted within 24 hours of the Commission or its designee's request
in accordance with the instructions accompanying the request.
9. In Sec. 17.02, revise the introductory text and paragraph (b)
and add paragraph (c) to read as follows:
Sec. 17.02 Form, manner and time of filing reports.
Unless otherwise instructed by the Commission or its designee, the
reports required to be filed by reporting markets, futures commission
merchants, clearing members, and foreign brokers under Sec. Sec. 17.00
and 17.01 shall be filed as specified in paragraphs (a), (b), and (c)
of this section.
* * * * *
(b) Section 17.01(a) reports. For data submitted pursuant to Sec.
17.01(a) on Form 102:
(1) Form of submission. Form 102 must be submitted to the
Commission in the form and manner provided on www.cftc.gov.
(2) Time of submission. For each account that is a special account,
the futures commission merchant, clearing member, or foreign broker, as
appropriate, shall submit a completed Form 102 to the Commission, in
accordance with the instructions thereto, and in the manner specified
by the Commission or its designee. Such form shall be submitted no
later than the corresponding Sec. 17.00(a) report filed pursuant to
instructions in Sec. 17.02(a), or on such other date as directed by
special call of the Commission or its designee, and as periodically
required thereafter by Sec. 17.02(b)(3) and (4).
(3) Change updates. If any change causes the information filed by a
futures commission merchant, clearing member, or foreign broker on a
Form 102 for a special account to no longer be accurate, then such
futures commission merchant, clearing member, or foreign broker shall
file an updated Form 102 with the Commission no later than 9 a.m.
eastern time on the business day after such change occurs, or on such
other date as directed by special call of the Commission, provided
that, a futures commission merchant, clearing member, or foreign broker
may stop providing change updates for a Form 102 that it has submitted
to the Commission for any special account upon notifying the Commission
that the account in question is no longer reportable as a special
account.
(4) Refresh updates. For Special Accounts--Starting on a date
specified by the Commission or its designee and at the end of each six
month increment thereafter (or such later date specified by the
Commission or its designee), each futures commission merchant, clearing
member, or foreign broker shall resubmit every Form 102 that it has
submitted to the Commission for each of its special accounts, provided
that, a futures commission merchant, clearing member, or foreign broker
may stop providing refresh updates for a Form 102 that it has submitted
to the Commission for any special account upon notifying the Commission
that the account in question is no longer reportable as a special
account.
(c) Section 17.01(b) reports. For data submitted pursuant to Sec.
17.01(b) on Form 102:
(1) Form of submission. Form 102 must be submitted to the
Commission in the form and manner provided on www.cftc.gov.
(2) Time of submission. For each account that is a volume threshold
account, the clearing member shall submit a completed Form 102 to the
Commission, in accordance with the instructions thereto, and in the
manner specified by the Commission or its designee, no later than 9
a.m. eastern time on the business day following the day in which the
account in question becomes a volume threshold account, or on such
other date as directed by special call of the Commission or its
designee, and as periodically required thereafter by Sec. 17.02(c)(3)
and (4).
(3) Change updates. If any change causes the information filed by a
clearing member on a Form 102 for a volume threshold account to no
longer be accurate, then such clearing member shall file an updated
Form 102 with the Commission no later than 9 a.m. eastern time on the
business day after such clearing member is aware of such change, or on
such other date as directed by special call of the Commission, provided
that, a clearing member may stop providing Form 102 change updates for
a volume threshold account upon notifying the Commission that the
volume threshold account executed no trades in any product in the past
six months on the reporting market at which the volume threshold
account reached the reportable trading volume level.
(4) Refresh updates. For Volume Threshold Accounts--Starting on a
date specified by the Commission or its designee and at the end of each
six month increment thereafter (or such later date specified by the
Commission or its designee), each clearing member shall resubmit every
Form 102 that it has submitted to the Commission for each of its volume
threshold accounts, provided that, a clearing member may stop providing
refresh updates for a Form 102 that it has submitted to the Commission
for any volume threshold account upon notifying the Commission that the
volume threshold account executed no trades in any product in the past
six months on the reporting market at which the volume threshold
account reached the reportable trading volume level.
10. Revise section 17.03 to read as follows:
[[Page 44000]]
Sec. 17.03 Delegation of authority to the Director of the Office of
Data and Technology or the Director of the Division of Market
Oversight.
The Commission hereby delegates, until the Commission orders
otherwise, the authority set forth in the paragraphs below to either
the Director of the Office of Data and Technology or the Director of
the Division of Market Oversight, as indicated below, to be exercised
by such Director or by such other employee or employees of such
Director as designated from time to time by such Director. The Director
of the Office of Data and Technology or the Director of the Division of
Market Oversight may submit to the Commission for its consideration any
matter which has been delegated to such Director in this paragraph.
Nothing in this paragraph prohibits the Commission, at its election,
from exercising the authority delegated in this paragraph.
(a) Pursuant to Sec. 17.00(a) and (h), the authority shall be
designated to the Director of the Office of Data and Technology to
determine whether futures commission merchants, clearing members and
foreign brokers can report the information required under Sec.
17.00(a) and (h) on series `01 forms or using some other format upon a
determination that such person is unable to report the information
using the format, coding structure or electronic data transmission
procedures otherwise required.
(b) Pursuant to Sec. 17.02, the authority shall be designated to
the Director of the Office of Data and Technology to instruct or
approve the time at which the information required under Sec. Sec.
17.00 and 17.01(a) and (b) must be submitted by futures commission
merchants, clearing members and foreign brokers provided that such
persons are unable to meet the requirements set forth in Sec. 17.02.
(c) Pursuant to Sec. 17.01, the authority shall be designated to
the Director of the Office of Data and Technology to determine whether
to permit an authorized representative of a firm filing the Form 102 or
person filing the Form 71 to use a means of authenticating the report
other than by signing the Form 102 or Form 71 and, if so, to determine
the alternative means of authentication that shall be used.
(d) Pursuant to Sec. 17.00(a), the authority shall be designated
to the Director of the Office of Data and Technology to approve a
format and coding structure other than that set forth in Sec.
17.00(g).
(e) Pursuant to Sec. 17.01(c), the authority shall be designated
to the Director of the Office of Data and Technology to make special
calls on omnibus volume threshold account originators and omnibus
reportable sub-account originators for information as set forth in
Sec. 17.01(c).
(f) Pursuant to Sec. 17.02(b)(4), the authority shall be
designated to the Director of the Division of Market Oversight to
determine the date on which each futures commission merchant, clearing
member, or foreign broker shall update or otherwise resubmit every Form
102 that it has submitted to the Commission for each of its special
accounts.
(g) Pursuant to Sec. 17.02(c)(4), the authority shall be
designated to the Director of the Division of Market Oversight to
determine the date on which each clearing member shall update or
otherwise resubmit every Form 102 that it has submitted to the
Commission for each of its volume threshold accounts.
PART 18--REPORTS BY TRADERS
11. The authority citation for part 18 is revised to read as
follows:
Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n,
6t, 12a, and 19, as amended by Title VII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, Pub. L. 111-203, 124
Stat. 1376 (2010).
12. Revise Sec. 18.04 to read as follows:
Sec. 18.04 Statement of reporting trader.
(a) Every trader who owns, holds, or controls a reportable futures
and option position shall after a special call upon such trader by the
Commission or its designee file with the Commission a ``Statement of
Reporting Trader'' on the Form 40, to be completed in accordance with
the instructions thereto, at such time and place as directed in the
call.
(b) Every volume threshold account controller, person who owns a
volume threshold account, reportable sub-account controller, and person
who owns a reportable sub-account shall after a special call upon such
person by the Commission or its designee file with the Commission a
``Statement of Reporting Trader'' on the Form 40, to be completed in
accordance with the instructions thereto, at such time and place as
directed in the call.
13. In Sec. 18.05 revise paragraph (a) introductory text and
paragraphs (b) and (c), to read as follows:
Sec. 18.05 Maintenance of books and records.
(a) Every volume threshold account controller, person who owns a
volume threshold account, reportable sub-account controller, person who
owns a reportable sub-account, and trader who owns, holds, or controls
a reportable futures or option position, shall keep books and records
showing all details concerning all positions and transaction in the
commodity:
* * * * *
(b) Every such volume threshold account controller, person who owns
a volume threshold account, reportable sub-account controller, person
who owns a reportable sub-account, and trader who owns, holds, or
controls a reportable futures or option position shall also keep books
and records showing all details concerning all positions and
transactions in the cash commodity, its products and byproducts, and
all commercial activities that it hedges in the futures or option
contract in which it is reportable.
(c) Every volume threshold account controller, person who owns a
volume threshold account, reportable sub-account controller, person who
owns a reportable sub-account, and trader who owns, holds, or controls
a reportable futures or option position shall upon request furnish to
the Commission any pertinent information concerning such positions,
transactions, or activities in a form acceptable to the Commission.
PART 20--LARGE TRADER REPORTING FOR PHYSICAL COMMODITY SWAPS
14. The authority citation for part 20 continues to read as
follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19,
as amended by Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).
15. In Sec. 20.5, revise paragraphs (a)(1) and (2) and add
paragraphs (a)(4) and (5) to read as follows:
Sec. 20.5 Series S filings.
(a) * * *
(1) When a counterparty consolidated account first becomes
reportable, the reporting entity shall submit a 102S filing, as set
forth in Appendix A to part 17, in accordance with the form
instructions and as specified in this section, including Sec. 20.5.
(2) A reporting entity may submit a 102S filing only once for each
counterparty, even if such persons at various times have multiple
reportable positions in the same or different paired swaps or
swaptions.
* * * * *
(4) Change updates. If any change causes the information filed by a
clearing member or swap dealer on a Form 102 for a consolidated account
to no longer be accurate, then such clearing member or swap dealer
shall file an updated Form 102 with the
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Commission no later than 9 a.m. eastern time on the business day after
such change occurs, or on such other date as directed by special call
of the Commission, provided that, a clearing member or swap dealer may
stop providing change updates for a Form 102 that it has submitted to
the Commission for any consolidated account upon notifying the
Commission that the account in question is no longer reportable as a
consolidated account.
(5) Refresh updates. For Consolidated Accounts--Starting on a date
specified by the Commission or its designee and at the end of each six
month increment thereafter (or such later date specified by the
Commission or its designee), each clearing member or swap dealer shall
resubmit every Form 102 that it has submitted to the Commission for
each of its consolidated accounts, provided that, a clearing member or
swap dealer may stop providing refresh updates for a Form 102 that it
has submitted to the Commission for any consolidated account upon
notifying the Commission that the account in question is no longer
reportable as a consolidated account.
* * * * *
Issued in Washington, DC, on June 27, 2012 by the Commission.
David A. Stawick,
Secretary of the Commission.
Note: The following Annex will not appear in the Code of Federal
Regulations.
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[FR Doc. 2012-16180 Filed 7-25-12; 8:45 am]
BILLING CODE C
Last Updated: July 26, 2012
See Also:
