[Federal Register Volume 64, Number 22 (Wednesday, February 3, 1999)]
[Proposed Rules]
[Pages 5200-5206]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2435]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 15 and 17
Changes in Reporting Levels for Large Trader Reports
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed Rulemaking.
-----------------------------------------------------------------------
SUMMARY: As part of its regulatory reform initiative, the Commodity
Futures Trading Commission (Commission or CFTC) is proposing to amend
Parts 15 and 17 of its rules, 17 CFR Parts 15 and 17. The proposed
amendments to Part 15 would raise the reporting levels at which futures
commission merchants (FCMs), clearing members, foreign brokers,\1\ and
traders must file large trader reports in certain commodities. The
Commission is also proposing to delete the requirement that where an
independent account controller trades for a number of commodity pools,
the carrying firm must identify separately each such commodity pool. In
addition, the proposed amendments would delete current reporting Rule
17.01(c) under which a reporting firm must identify the number and name
of other accounts not included in the special account that are
controlled or owned by the trader.
---------------------------------------------------------------------------
\1\ FCMs, clearing members and foreign brokers are referred to
herein collectively as ``firms.''
---------------------------------------------------------------------------
The Commission is also proposing to reorganize the identifying
information reported by large traders on CFTC Form 40 ``Statement of
Reporting Trader'' to obtain and present data more useful to the
Commission's market surveillance activities. The proposed amendments
would streamline the reporting process and would substantially lessen
the burden on persons reporting, as well as the processing workload of
the Commission, without compromising the integrity of the Commission's
large trader reporting system, its market surveillance activities or
its oversight responsibilities.
DATES: Comments on this proposed rulemaking should be submitted on or
before April 5, 1999.
ADDRESSES: Comments should be mailed to the Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington,
D.C. 20581, attention:
[[Page 5201]]
Office of the Secretariat; transmitted by facsimile at (202) 418-5521;
or transmitted electronically at [[email protected]]. Reference should
be made to ``Large Trader Reporting Rules.''
FOR FURTHER INFORMATION CONTACT: Lamont L. Reese, or Kimberly A.
Browning, Attorney/Advisor, Division of Economic Analysis, Three
Lafayette Centre, 1155 21st Street, NW, Washington, D.C. 20581,
telephone (202) 418-5600, or electronically [[email protected]] or
[[email protected]].
SUPPLEMENTARY INFORMATION:
I. Background
Over the past two years, the Commission has implemented a program
of regulatory reform and modernization to reduce unnecessary burdens on
the futures industry while maintaining the important public protections
embodied in the Commodity Exchange Act. In particular, the Commission
has eliminated duplicative regulatory requirements, reduced unnecessary
paperwork burdens and updated its regulatory scheme to reflect changes
in the market place. In doing so, the Commission has sought to maintain
the regulatory safeguards relied upon by the public. The rule reform
initiatives have included a fast-track procedure for Commission review
and approval of new contract market designations and exchange rule
amendments, 62 FR 10434 (March 7, 1997). The Commission is also
considering a proposal to streamline designation applications and to
modify its speculative position limits. See, 63 FR 38537 (July 17,
1998) and 63 FR 38525 (July 17, 1998), respectively. As part of its
regulatory reform program, the Commission has re-examined its rules
regarding its large-trader reporting system. The Commission's large-
trader reporting system is an important Commission oversight tool.
These rules require FCMs to report to the Commission position
information of the largest futures and options traders and require the
traders themselves to provide certain identifying information.
Reporting levels are set in the designated futures and option markets
under the authority of sections 4i and 4c of the Act to ensure that the
Commission receives adequate information to carry out its market
surveillance programs. These market surveillance programs are designed
to detect and to prevent market congestion and price manipulation and
to enforce speculative position limits. They also provide information
regarding the overall hedging and speculative use of, and foreign
participation in, the futures markets and other matters of public
interest. Generally, large trader reports are filed by the firm
carrying the reportable trader's position.\2\
---------------------------------------------------------------------------
\2\ Specifically, Parts 17 and 18 of the regulations require
reports from firms and traders, respectively, when a trader holds a
``reportable position.'' A reportable position is any open contract
position that at the close of the market on any business day equals
or exceeds the quantity specified in Commission Rule 15.03 in
either: (1) Any one future of any commodity on any one contract
market, excluding futures contracts against which notices of
delivery have been stopped by a trader or issued by the clearing
organization of a contract market; or (2) Long or short put or call
options that exercise into the same future of any commodity on any
one contract market. 17 CFR 15.00 and Part 150.
The firms which carry accounts for traders holding ``reportable
positions'' are required to identify those accounts by filing a CFTC
Form 102, discussed infra, and to report all reportable positions in
the accounts to the Commission. The individual trader who holds or
controls the reportable position, however, is required to report to
the Commission only in response to a special call.
---------------------------------------------------------------------------
The Commission periodically reviews information concerning trading
volume, open interest, and the number and position sizes of individual
traders relative to the reporting levels for each market to determine
if coverage of open interest is adequate for effective market
surveillance. In this regard, the Commission also is mindful of the
paperwork burden associated with these reporting requirements and
reviews them with an eye to streamlining that burden to the extent
compatible with its responsibilities for rigorous surveillance of the
futures and option markets. The Commission's most recent review of
reporting levels indicates that the size of trading volume, open
interest, and position of individual traders would enable the
Commission to raise reporting levels as follows: (1) Lean Hogs from 50
to 100 contracts, (2) Rough Rice from 25 to 50 contracts, (3) Goldman
Sachs Commodity Index from 25 to 100 contracts, (4) Soybean Oil from
175 to 200 contracts, (5) Soybean Meal from 175 to 200 contracts, (6)
1-Month LIBOR from 100 to 300 contracts, (7) 30-Day Fed Funds from 100
to 300 contracts, (8) 3-Month Eurodollars from 850 to 1000 contracts,
(9) 3-Month Euroyen from 25 to 100 contracts, (10) 2-Year US Treasury
Notes from 200 to 500 contracts, (11) 5-Year US Treasury Notes from 300
to 800 contracts, (12) 10-Year US Treasury Notes from 500 to 1000
contracts, (13) 30-Year US Treasury Bonds from 500 to 1000 contracts,
(14) Municipal Bond Index from 100 to 300 contracts, (15) Dow Jones
Industrial Average Index from 25 to 100 contracts, (16) NASDAQ 100
Stock Index from 25 to 100 contracts, (17) NIKKEI Stock Average from 50
to 100 contracts, (18) Russell 2000 Stock Index from 25 to 100
contracts, (19) S&P 400 Midcap Stock Index from 25 to 100 contracts,
(20) S&P 500 Stock Index from 600 to 1000 contracts, (21) Crude Oil
from 300 to 350 contracts, (22) Natural Gas from 100 to 175 contracts,
and (23) Sugar 11 from 300 to 400 contracts.\3\
---------------------------------------------------------------------------
\3\ The Commission also is proposing to delete Rule 15.03's
separate reference to ``GNMA,'' a contract that is now currently
dormant. See, 17 CFR 5.2(a). Under this proposal, if trading in
GNMAs were to be reactivated, the reporting level would be 25
contracts.
---------------------------------------------------------------------------
Reporting levels for foreign currencies would also be modified.
Currently, Commission Rule 15.03 does not distinguish among foreign
currencies, setting a uniform standard for all. However, surveillance
of contracts on currencies of the major economies requires fewer large
trader reports than for contracts on the currencies of the emerging
markets. Accordingly, the Commission is proposing to amend Rule 15.03
to classify the European currency unit (and its successor, the Euro)
and the currencies of Japan, Germany, the UK, France, Italy, Canada,
Australia, Switzerland, Sweden, Belgium, and the Netherlands as ``Major
Foreign Currencies'' and to raise the reporting level applicable to
them to 400 from the current level of 200 contracts.
In addition, the Commission is proposing to lower the reporting
level for all other foreign currencies \4\ to 100 contracts in order to
obtain needed information in surveilling these contracts.\5\ In
addition, the Commission is proposing a 100 contract reporting level
for any contract having one of the other foreign currencies as a
constituent part of a crossrate contract.\6\
---------------------------------------------------------------------------
\4\ Futures contracts classified in ``Other Foreign Currencies''
with open interest during the first two weeks in December 1998
included the Mexican Peso, Russian Ruble, Brazilian Real, New
Zealand Dollar and the South African Rand. All currencies had
positions reportable at the current, 200-contract level.
\5\ Because exchange large trader reporting levels for these
currencies presently are either at or below 100 contracts, the
Commission anticipates that there will be a small additional cost to
reporting firms to provide the information to the Commission. The
Commission specifically invites comments from interested persons on
the extent of this additional reporting burden.
\6\ Cross-rate contracts which are composed of two major
currencies would also be considered to be a major currency.
---------------------------------------------------------------------------
The Commission is also proposing to list the reporting levels for
the grains and soybeans in terms of contracts rather than bushels.
Prior to January 1998, it was industry practice to express open
interest and volume data, as well as required position reports, for the
[[Page 5202]]
grain and soybean futures contracts, in terms of thousands of bushels.
Beginning in 1998, however, industry practice for the grains and
soybean contracts changed to express data for these contracts in
contract units, which is consistent with the data for all other futures
and option contracts. The Commission is proposing to conform its
reporting levels to this practice.
The Commission's long-standing administrative practice has been to
set reporting levels by commodity and not by individual contract
market. Consistent with this long-standing policy, although contracts
on the MidAmerica Commodity Exchange (MACE) are smaller in size than
those traded on other exchanges,\7\ the Commission is not proposing to
adjust the reporting level for MACE contracts to compensate for the
smaller bushel-size of its contracts. This will result in a MACE
trader's reporting level being set at a lower absolute number of
bushels than the number of bushels underlying a reportable position on
the exchanges that trade larger-sized contracts.\8\ Although the number
of reporting traders on MACE contracts may increase by expressing the
reporting level in contracts rather than bushels, existing data cannot
precisely gauge whether, or to what degree, the reporting burden will
be changed as a result. Of course, the Commission would propose to
amend these reporting levels if, based upon actual experience after
their adoption, the proposed MACE levels resulted in too many or too
few reports. The Commission specifically invites comments on this
matter from interested persons.
---------------------------------------------------------------------------
\7\ Specifically, for example, the contract size for wheat,
corn, oats and soybean futures contracts traded on MACE is 1,000
bushels, rather than the 5,000 bushel size contract traded on other
exchanges.
\8\ The current convention of expressing reporting levels for
all of the contract markets in bushels does not raise this issue.
---------------------------------------------------------------------------
The Commission estimates that these proposed amendments to adjust
reporting levels will decrease the number of daily position reports
(i.e., CFTC Series '01 Reports and CFTC Form 102s) required to be filed
by reporting firms by about 14 percent. (The number of CFTC Form 40s
required to be filed by large traders will also decrease). However, the
percent of total market open interest reported through the large trader
system would remain at the level deemed sufficient for rigorous market
surveillance based upon the Commission's administrative experience.
Not all reporting firms may elect to avail themselves of this
relief. In this regard, the exchanges also maintain large trader
reporting systems that are similar in most respects to the
Commission's. The exchanges set their own reporting level, which for
particular contracts may vary from Commission levels. When exchange
levels are lower than the Commission's, firms may report to the
Commission at the lower exchange level, thereby saving any cost
associated with reprogramming their reporting systems to reflect the
proposed increases to the Commission's levels. The Commission, however,
accepts information on CFTC Forms 40 and 102 only for positions that
exceed its levels. Since these forms are filed manually, raising the
reporting levels will always result in reducing firm costs by reducing
the amount of paperwork firms must generate.
II. Proposed Amendments to Special Account Information (CFTC Form
102)
In addition to the daily large trade position data discussed above,
Part 17 of the Commission's regulations requires that firms report to
the Commission when an account first becomes reportable. When a trade
first exceeds a reporting level, the firm labels the account a
``special account.'' \9\ The firm must also file with the Commission
Form 102.\10\ CFTC Form 102 identifies persons who have a financial
interest in or trading control of a special account, informs the
Commission of the type of account that is being reported and gives
preliminary information whether positions and transactions are
commercial or noncommercial in nature. Certain information included on
the Form 102 no longer is needed for the operation of the Commission's
surveillance data systems or by routine report from firms.
---------------------------------------------------------------------------
\9\ The firm assigns a reporting number to the special account
and reports all information to the Commission using this number.
\10\ Commission Rule 17.01, 17 CFR 17.01. The CFTC Form 102 must
also be updated when information concerning financial interest in,
or control of, the special account changes. 17 CFR 17.02.
---------------------------------------------------------------------------
Specifically, Commission Rule 17.01(b)(3) provides that a firm
identify on Form 102 each pool, the pool's account number and name, as
well as the name and location of the commodity pool for which the
account controller trades. In addition, Commission Rule 17.01(c)
requires that a trader identify on a Form 102 the names and account
numbers of all other separate accounts that the reporting trader
controls or in which the trader has a ten percent or greater financial
interest. (``other accounts'').\11\
---------------------------------------------------------------------------
\11\ For example, when an individual shares control of and has a
financial interest in an account with one or more persons, and that
individual also has his or her own account that he or she solely
controls, these accounts would not be reported as a single account
for special account/Form 102 reporting purposes. See, Commission
Rule 17.00(b)(ii).
---------------------------------------------------------------------------
These requirements are duplicative of more complete information on
account ownership and control filed by the traders themselves on CFTC
Form 40, as required by Commission rule Sec. 18.04. Based upon the
information reported on the Form 40, the Commission's compliance
programs are able to make the necessary account aggregations without
the need for firms to furnish the above information, as well. Because
neither of these categories of information, as reported routinely by
firms, any longer facilitates the Commission's market surveillance
program in any significant respect, and their deletion may
substantially reduce the over all burden of the firm's required
reporting on the Form 102, the Commission is proposing to streamline
the reporting process by deleting the requirements under 17.01(b)(3)
and (c) as described above. Of course, the proposed deletion of these
routine requirements will not in any way affect the Commission's
authority to obtain complete account information from either or both
the firm and the individual trader in those individual cases where
additional information is necessary to the Commission's conduct of
market surveillance or to the enforcement of its rules. Nor does it
affect the manner in which accounts are aggregated for calculation of
compliance with speculative position limits and for other compliance
purposes. Accordingly, the Commission is proposing that Sec. 17.01 be
amended by deleting those sections of the rule requiring that special
account data reflected on Form 102s must include specific information
on commodity pools and pool operators, as well as ``other account''
data required by Sec. 17.01(c). The Commission believes that these
proposed amendments to streamline Sec. 17.01 would reduce the reporting
burden on the public and the processing workload of the Commission.
III. Proposed Changes to Statement of Reporting Trader (CFTC Form
40)
Under Part 18 of the Commission's regulations, traders who own or
control reportable positions are required to file a CFTC Form 40 on
call by the Commission or its delegee disclosing information about the
ownership or
[[Page 5203]]
control of their futures and option positions.
The Commission is proposing to reorganize the Form 40 to present
data in a more useful manner. In particular, the commission is
proposing to redesign ``Schedule 1'' to clarify information regarding
the reporting trader's hedging activities. This information includes
the types of futures or options contracts used to hedge, the commercial
occupations or merchandising activities of traders and the futures or
option markets used for hedging. Although the information required
would remain essentially the same, the Commission is proposing that the
data reflected on Schedule 1 be reorganized to emphasize occupations
and merchandising activities of the traders rather than the markets in
which they trade.\12\ In addition, the Commission is proposing to
divide the Schedule 1 ``Investment Groups'' category, which currently
includes all professionally managed funds, into distinct, more
descriptive subcategories. These subcategories would include hedge
funds, college endowments, managed accounts and commodity pools,
trusts, foundations, pension funds, mutual funds and insurance
companies. This proposed reorganization would provide information of
greater use for surveillance activities. The proposed Schedule 1 is
included below and the Commission invites comments from the public
regarding its readability and overall structure:
---------------------------------------------------------------------------
\12\ Slight changes would also be made to the list of
merchandising activities to reflect those of greater surveillance
importance to the Commission.
BILLING CODE 6351-01-M
[[Page 5204]]
[GRAPHIC] [TIFF OMITTED] TP03FE99.053
BILLING CODE 6351-01-C
[[Page 5205]]
IV. Related Matters
A. The Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires that agencies, in proposing rules, consider the impact of
those rules on small businesses. The Commission has previously
determined that large traders and FCMs are not ``small entities'' for
purposes of the RFA. 47 FR 18618-18621 (April 30, 1982). The proposed
amendments to reporting requirements fall mainly upon FCMs. Similarly,
foreign brokers and foreign traders report only if carrying or holding
reportable, i.e., large positions. In addition, these proposed
amendments relieve a regulatory burden. Therefore, the Chairperson, on
behalf of the Commission, hereby certifies, pursuant to 5 U.S.C.
605(b), that the action taken herein will not have a significant
economic impact on a substantial number of small entities. The
Commission invites comments from any firm believing that these rules
would have a significant economic impact upon its operations.
B. Paperwork Reduction Act
When publicizing proposed rules, the Paperwork Reduction Act (PRA)
of 1995 (Pub. L. 104-13 (May 13, 1995)) imposes certain requirements on
Federal agencies (including the Commission) in connection with their
conducting or sponsoring any collection of information as defined by
the PRA. In compliance with the PRA, the Commission through these rule
proposals solicits comments to:
(1) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including the validity of the methodology and assumptions used; (2)
evaluate the accuracy of the agency's estimate of the burden of the
proposed collection of information including the validity of the
methodology and assumptions used; (3) enhance the quality, utility, and
clarity of the information to be collected; and (4) minimize the burden
of the collection on those who are to respond, including through the
use of appropriate automated, electronic, mechanical, or other
technological collection techniques or other forms of information
technology, e.g., permitting electronic submission responses.
The Commission has submitted these proposed rules and their
associated information collection requirements to the Office of
Management and Budget. The burdens associated with this entire
collection (3038-0009), including these proposed rules, is as follows:
Average Burden Hours Per Response: 0.35
Number of Respondents: 5391
Frequency of Response: Daily
Persons wishing to comment on the information which would be
required by these proposed rules should contact the Desk Officer, CFTC,
Office of Management and Budget, Room 10202, NEOB, Washington, DC
20503, (202) 395-7340. Copies of the information collection submission
to OMB are available from the CFTC Clearance Officer, 1155 21st Street,
NW, Washington, DC 20581, (202) 418-5160.
Copies of the OMB-approved information collection package
associated with the rulemaking may be obtained from the Desk Officer,
Commodity Futures Trading Commission, Office of Management and Budget,
Room 10202, NEOB, Washington, DC 20503, (202) 395-7340.
List of Subjects
17 CFR Part 15
Brokers, Reporting and recordkeeping requirements.
17 CFR Part 17
Brokers, Commodity futures, Reporting and recordkeeping
requirements.
In consideration of the foregoing, and pursuant to the authority
contained in the act, and, in particular, sections 4g, 4i, 5 and 8a of
the Act, 7 U.S.C. 6g, 6i, 7 and 12a (1994), the Commission hereby
proposes to amend Parts 15 and 17 of 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, 4, 5, 6a, 6c, (a)-(d), 6f, 6g, 6i, 6k,
6m, 6n, 7, 9, 12a, 19 and 21; 5 U.S.C. 552 and 552(b).
2. Section 15.03 is revised to read as follows:
Sec. 15.03 Reporting Levels.
(a) Definitions. For purposes of this section, the term major
foreign currency means the currencies and cross-rates between the
currencies of Japan, Germany, the U.K., France, Italy, Canada,
Australia, Switzerland, Sweden, Belgium, and the Netherlands and the
Euro.
(b) The quantities for the purpose of reports filed under Parts 17
and 18 of this chapter are as follows:
------------------------------------------------------------------------
Number of
Commodity contracts
------------------------------------------------------------------------
Agricultural:
Wheat............................................... 100
Corn................................................ 150
Oats................................................ 60
Soybeans............................................ 100
Soybean Oil......................................... 200
Soybean Meal........................................ 200
Cotton.............................................. 50
Frozen Concentrated Orange Juice.................... 50
Rough Rice.......................................... 50
Live Cattle......................................... 100
Feeder Cattle....................................... 50
Lean Hogs........................................... 100
Sugar No. 11........................................ 400
Sugar No. 14........................................ 100
Cocoa............................................... 100
Coffee.............................................. 50
Natural Resources:
Copper.............................................. 100
Gold................................................ 200
Silver Bullion...................................... 150
Platinum............................................ 50
[[Page 5206]]
No. 2 Heating Oil................................... 250
Crude Oil, Sweet.................................... 350
Unleaded Gasoline................................... 150
Natural Gas......................................... 175
Financial:
Municipal Bond Index................................ 300
3-month (13-Week) U.S. Treasury Bills............... 150
30-Year U.S. Treasury Bonds......................... 1,000
10-Year U.S. Treasury Notes......................... 1,000
5-Year U.S. Treasury Notes.......................... 800
2-Year U.S. Treasury Notes.......................... 500
3-Month Eurodollar Time Deposit Rates............... 1,000
30-Day Fed Funds.................................... 300
1-month LIBOR Rates................................. 300
3-month Euroyen..................................... 100
Major-Foreign Currencies............................ 400
Other Foreign Currencies............................ 100
U.S. Dollar Index................................... 50
S&P 500 Stock Price Index........................... 1,000
E-Mini S&P Stock Price Index........................ 300
S&P 400 Midcap Stock Index.......................... 100
Dow Jones Industrial Average Index.................. 100
New York Stock Exchange Composite Index............. 50
Amex Major Market Index, Maxi....................... 100
NASDAQ 100 Stock Index.............................. 100
Russell 2000 Stock Index............................ 100
Value Line Average Index............................ 50
NIKKEI Stock Index.................................. 100
Goldman Sachs Commodity Index....................... 100
All Other Commodities................................... 25
------------------------------------------------------------------------
PART 17--REPORTS BY FUTURES COMMISSION MERCHANTS, MEMBERS OF
CONTRACT MARKETS AND FOREIGN BROKERS
3. The authority citation for part 17 continues to read as follows:
Authority: 7 U.S.C. 6a, 6c, 6d, 6f, 6g, 6i, 7 and 12a unless
otherwise noted.
4. Section 17.01 is proposed to be amended by removing and
reserving paragraphs (b)(3)(ii) and (c) and by revising paragraph
(b)(3)(iii) to read as follows:
Sec. 17.01 Special account designation and identification.
* * * * *
(b) * * *
(3) * * *
(iii) If fewer than ten accounts are under control of the
independent advisor, for each account the account number and the name
and location of each person having a ten percent or more financial
interest in the account; and
* * * * *
Issued in Washington, D.C., this 28th day of January, 1999 by
the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-2435 Filed 2-2-99; 8:45 am]
BILLING CODE 6351-01-M