[Federal Register: August 31, 2007 (Volume 72, Number 169)]
[Rules and Regulations]
[Page 50209-50211]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31au07-4]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 21
Special Calls
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rules.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'') has
adopted amendments to Part 21 of its regulations relating to special
calls for information. The amendments will: Add to the types of
information specified in Sec. 21.02, which must be furnished upon
special call, information regarding exchanges of futures for physical
commodities or for derivatives positions, and information regarding
delivery notices issued and stopped; and delegate to the Director of
the Division of Market Oversight and the Director's delegatees, the
ability to issue special calls pursuant to sections 21.01 and 21.02.
EFFECTIVE DATE: August 31, 2007.
FOR FURTHER INFORMATION CONTACT: Don Heitman, Senior Special Counsel
(telephone 202-418-5041, e-mail dheitman@cftc.gov), Division of Market
Oversight, Commodity Futures Trading Commission, Three Lafayette
Center, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
The Commodity Exchange Act (``Act''), as amended by the Commodity
Futures Modernization Act of 2000 (``CFMA''), Pub. L. No. 106-554, is
intended, among other things, to ``deter and prevent price manipulation
or any other disruptions to market integrity.'' \1\ To that end, the
Commission, through its Division of Market Oversight (``Division''),
conducts a comprehensive program of market surveillance. A centerpiece
of this program is the large-trader reporting system, under which all
large futures and option positions are reported to the Commission. Each
day, for every active futures or option market, Division surveillance
staff monitors the activities of large traders, key price
relationships, and all relevant supply and demand factors in a
continuous review for potential market problems. An essential element
of the Commission's market surveillance program is the ability to make
special calls for information from Commission registrants and other
market participants.
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\1\ Commodity Exchange Act Sec. 3(b), 7 U.S.C. Sec. 5(b).
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A. Information To Be Furnished Upon Special Call
Part 17 of the Commission's regulations sets forth the routine
reports that futures commission merchants, members of contract markets
and foreign brokers (collectively, ``reporting firms'') are required to
submit to the Commission.\2\ These reports provide the information for
the Commission's large trader reporting system. The Commission uses
that information in its market surveillance program to detect and
prevent market manipulation or other disruptions to market integrity in
markets subject to Commission oversight.
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\2\ The Commission has recently proposed amendments to its
definition of the term, ``foreign broker.'' The amended definition
would also be relocated, from its current location at Sec. 15.00(g)
to Sec. 1.3(xx). See 72 FR 15637 (April 2, 2007). If such
amendments were to be adopted, there would be no change in a foreign
broker's obligations to comply with the Commission's large trader or
special call regulations set forth in 17 CFR Parts 15-21.
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By contrast, the purpose of the Commission's special call authority
in Part 21 of the Commission's regulations is to provide the Commission
with relevant information that is not routinely supplied to the
Commission pursuant to other parts of the
[[Page 50210]]
Commission's regulations such as Part 17. For example, the Commission
may need to know about futures positions that are below the routine
reporting levels specified in Part 15 of the Commission's regulations.
Among possible reasons for such special needs for information may be a
particular market situation that warrants unusually close Commission
market surveillance, or when Commission staff is conducting an audit of
reporting firms to ensure complete and accurate reporting.
The amendments to Part 21 require reporting firms to retain and
make available to the Commission, upon a special call, information
similar to that which they are required to report to the Commission
pursuant to Part 17 of the Commission's regulations. Specifically, the
amendments add two additional categories of information to the types of
information specified in Sec. 21.02, which must be furnished upon
special call. The first additional category of information subject to
special call under the amended rules includes information regarding
futures contracts exchanged for physical commodities (``EFPs''), as
well as futures contracts exchanged for other derivatives contracts,
including exchanges of futures for options (``EFOs'') and exchanges of
futures for swaps (``EFSs''). The second additional category of
information includes the amount of futures contracts where actual
delivery of the underlying commodity has been initiated (i.e., delivery
notices have been issued or received).
Section 21.02 applies to futures commission merchants (``FCMs''),
introducing brokers (``IBs''), members of contract markets and foreign
brokers. However, the first three of the foregoing categories are
already subject to substantial reporting and recordkeeping requirements
under Sec. 1.35 of the Commission's regulations, which, among other
things, requires FCMs, IBs and contract market members to maintain, and
produce on request, the records that are also the subject of these
rules. Therefore, as a practical matter, the amended rules impose new
requirements only on foreign brokers (who are not subject to Sec.
1.35).
Foreign brokers and other persons receiving a special call pursuant
to Sec. 21.02 are required by that regulation to furnish the
information requested. Since such persons cannot comply with the legal
requirement to furnish information pursuant to a special call without
maintaining records from which to generate the information requested,
it follows that persons subject to special calls under Sec. 21.02 are
required, by the Commission's regulations, to maintain such records.
Therefore, such records--including both those previously listed in
Sec. 21.02, and those that are added by this rule amendment--are
subject to the five-year record retention requirements of Sec.
1.31(a)(1) of the regulations, which provides in relevant part that:
All books and records required to be kept by the Act or by these
regulations shall be kept for a period of five years from the date
thereof and shall be readily accessible during the first two years of
the five-year period.
B. Delegation of Authority
The amendments adopted herein also delegate to the Director of the
Division of Market Oversight, and the Director's delegatees, the power
to issue special calls pursuant to sections 21.01 and 21.02. Consistent
with other delegations of authority to Commission senior staff, the
delegation of the Part 21 special call authority allows the Director to
submit to the Commission for its consideration any matter that has been
delegated pursuant to the new section. The amendment also preserves the
Commission's ultimate authority over the special calls by providing
that, ``nothing in this section shall be deemed to prohibit the
Commission, at its election, from exercising the authority delegated *
* * to the Director.''
C. The Proposed Rules
These amendments were published for comment at 72 FR 34417, June
22, 2007, with a 30-day comment period. No comments were received in
response to the notice of proposed rulemaking. Accordingly, the
amendments have been adopted as proposed.
II. Cost Benefit Analysis
Section 15 of the Act, as amended by section 119 of the CFMA,
requires the Commission to consider the costs and benefits of its
action before issuing a new regulation or order under the Act. By its
terms, Sec. 15(a) does not require the Commission to quantify the
costs and benefits of its action or to determine whether the benefits
of the action outweigh its costs. Rather, Sec. 15(a) simply requires
the Commission to ``consider the costs and benefits'' of the subject
rule or order.
Section 15(a) further specifies that the costs and benefits of the
proposed rule or order shall be evaluated in light of five broad areas
of market and public concern: (1) Protection of market participants and
the public; (2) efficiency, competitiveness, and financial integrity of
futures markets; (3) price discovery; (4) sound risk management
practices; and (5) other public interest considerations. The Commission
may, in its discretion, give greater weight to any one of the five
enumerated areas of concern and may, in its discretion, determine that,
notwithstanding its costs, a particular rule or order is necessary or
appropriate to protect the public interest or to effectuate any of the
provisions or to accomplish any of the purposes of the Act.
The amendments supplement the Commission's rules regarding its
market surveillance program. That program supports one of the
Commission's most critical statutory responsibilities, deterring and
preventing price manipulation or any other disruptions to market
integrity. Effective surveillance activities are crucial not only to
protecting market participants and the public from price manipulation,
but also to: Promoting market efficiency, competitiveness and financial
integrity; protecting the futures markets' price discovery function;
and promoting sound risk management practices.
In addition, the records that are subject to special call under
these amendments are the type of basic transaction records that any
foreign broker would create as a matter of sound business practices.
Because these records would be created in any event, independently of
any regulatory requirements, the rules impose no additional costs on
foreign brokers in that area. There would be minimal costs associated
with providing the records in answer to a special call, but such costs
would be far outweighed by the benefits of protecting the markets and
the public. Finally, with respect to the five-year record retention
requirement that applies to these records, the cost of retaining the
records will be minimal because Commission rules allow such records to
be maintained electronically. Those minimal costs would, again, be far
outweighed by the benefits of protecting the marketplace and the
public.
The Commission has considered the costs and benefits of the
amendments to Part 21 regarding special calls in light of the above-
noted specific areas of concern identified in section 15. The
Commission believes that the amended rules impose the minimum
requirements necessary to enable it to perform its oversight functions
and to carry out its mandate to protect the public interest in markets
that are free of fraud, abuse and manipulation.
After considering these factors, the Commission has determined to
adopt the rule amendments set forth below.
In the notice of proposed rulemaking, the Commission specifically
invited
[[Page 50211]]
public comment on its application of the criteria contained in the Act.
Commenters were also invited to submit any quantifiable data that they
might have concerning the costs and benefits of the proposed rules with
their comment letter. As noted above, no comments were received.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires federal agencies, in promulgating rules, to consider the
impact of those rules on small entities. The amendment to Sec. 21.02
applies to FCMs, IBs, members of contract markets and foreign brokers.
However, as noted above, the first three of these categories are
already subject to substantial reporting and recordkeeping requirements
under Sec. 1.35 of the Commission's regulations. Among other things,
that section requires FCMs, IBs and contract market members to
maintain, and produce on request, the records that are also the subject
of these rules. Therefore, as a practical matter, the rules impose new
requirements only on foreign brokers (who are not subject to Sec.
1.35).
With respect to such foreign brokers, the Commission recently
published proposed rules to exempt from registration certain foreign
persons (including foreign brokers).\3\ In reviewing the applicability
of the RFA to such foreign persons, the Commission noted that it has
previously established certain definitions of ``small entities'' to be
used in evaluating the impact of its regulations on such entities in
accordance with the RFA.\4\ The Commission has previously determined
that FCMs are not small entities for purposes of the RFA because each
FCM has an underlying fiduciary relationship with its customers,
regardless of the size of the FCM.\5\ The Commission notes that the
foreign brokers affected by these amendments to the Commission's
regulations would be required to be registered as FCMs if not for
certain exemptions provided in Commission regulations. As such, they
would maintain a fiduciary relationship with customers similar to the
relationship maintained by each registered FCM. Therefore, in this
context foreign brokers, like FCMs, are not appropriately categorized
as small entities. Accordingly, the Acting Chairman, on behalf of the
Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the rules
will not have a significant economic impact on a substantial number of
small entities.
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\3\ 72 FR 15673 (April 2, 2007).
\4\ 47 FR 18618, at 18621 (April 30, 1982).
\5\ Id. at 18619.
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B. Paperwork Reduction Act
These rules contain information collection requirements. As
required by the Paperwork Reduction Act of 1995 (``PRA''),\6\ the
Commission submitted a copy of the rules to the Office of Management
and Budget (``OMB'') for its review.
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\6\ Pub. L. 104-13 (May 13, 1995).
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The amended rules have been reviewed and approved by OMB pursuant
to the PRA, under control number 3038-0009. An agency may not conduct
or sponsor, and a person is not required to respond to, a collection of
information unless it displays a valid control number. In the Notice of
Proposed Rulemaking, the Commission estimated the paperwork burden that
could be imposed by the amendments and solicited comments thereon.\7\
No comments were received.
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\7\ 72 FR 34417 (June 22, 2007).
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Copies of the information collection submission to OMB are
available from the Commission Clearance Officer, Three Lafayette
Centre, 1155 21st Street, NW., Washington, DC 20581, (202) 418-5160.
List of Subjects
Commodity futures, Commodity Futures Trading Commission.
0
In consideration of the foregoing, and pursuant to the authority in the
Commodity Exchange Act, the Commission hereby amends Part 21 of Title
17 of the Code of Federal Regulations as follows:
PART 21--SPECIAL CALLS
0
1. The authority section for Part 21 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m,
6n, 7, 7a, 12a, 19 and 21; 5 U.S.C. 552 and 552(b).
0
2. Section 21.02 is amended by removing the word, ``and,'' at the end
of paragraph (f), by redesignating paragraph (g) as paragraph (i), and
by adding new paragraphs (g) and (h).
The additions read as follows:
Sec. 21.02 Special calls for information on open contracts in
accounts carried or introduced by futures commission merchants, members
of contract markets, introducing brokers, and foreign brokers.
* * * * *
(g) The total number of futures contracts exchanged for commodities
or for derivatives positions;
(h) The total number of futures contracts against which delivery
notices have been issued or received; and
* * * * *
0
3. Section 21.04 is added to read as follows:
Sec. 21.04 Delegation of authority to the Director of the Division of
Market Oversight.
The Commission hereby delegates, until the Commission orders
otherwise, to the Director of the Division of Market Oversight, or to
the Director's delegates, the authority set forth in section 21.01 of
this Part to make special calls for information on controlled accounts
from futures commission merchants and from introducing brokers and the
authority set forth in section 21.02 of this Part to make special calls
for information on open contracts in accounts carried or introduced by
futures commission merchants, members of contract markets, introducing
brokers, and foreign brokers. The Director may submit to the Commission
for its consideration any matter that has been delegated pursuant to
this section. Nothing in this section shall be deemed to prohibit the
Commission, at its election, from exercising the authority delegated in
this section to the Director.
Issued in Washington, DC, on August 23, 2007, by the Commission.
David Stawick,
Secretary of the Commission.
[FR Doc. E7-17100 Filed 8-30-07; 8:45 am]
BILLING CODE 6351-01-P