[Federal Register Volume 62, Number 45 (Friday, March 7, 1997)]
[Rules and Regulations]
[Pages 10427-10434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5568]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1


Final Rulemaking Concerning Contract Market Rule Review 
Procedures

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') has 
adopted amendments to Commission Regulation 1.41(c) that establish 
procedures for the Commission's review of contract market rules that do 
not relate to contract terms and conditions. The amendments shorten the 
Commission's time frame for reviewing complex rules and streamline the 
rule review process such that rule changes generally can be deemed 
approved or permitted to be put into effect without Commission 
approval.
    Specifically, all non-term and condition rule changes that meet the 
form and content requirements will be deemed approved or be permitted 
to be put into effect without approval ten days after Commission 
receipt, unless the Commission takes action to commence review of the 
proposal for a 45-day period (or a 75-day period in the case of rules 
published for comment in the Federal Register) or the contract market 
agrees to another, specified review period. At the end of the 45-day 
(or 75-day) review period, a proposed rule meeting the form and content 
requirements will be deemed approved or become effective without 
approval unless the Commission informs the submitting contract market 
of its intention to initiate disapproval proceedings, the contract 
market withdraws the proposal, or the contract market requests that the 
review period be extended to the current 180-day period.

EFFECTIVE DATE: April 7, 1997.

FOR FURTHER INFORMATION CONTACT: David P. Van Wagner, Special Counsel, 
Division of Trading and Markets, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. 
Telephone: (202) 418-5490.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On December 17, 1996, the Commission published for public comment 
in the Federal Register 1 proposed amendments to Commission 
Regulation 1.41 revising the Commission's procedures for the review of 
contract market rules that do not relate to terms and conditions.2 
The original comment period was scheduled to end on January 16, 1997, 
but was extended by the Commission until January 31, 1997.3
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    \1\ 61 FR 66241 (December 17, 1996).
    \2\ On November 22, 1996, the Commission published a separate 
proposed rulemaking establishing similar ``fast-track'' review 
procedures for contract market designation applications and proposed 
rules relating to contract terms and conditions under Regulation 
1.41(b). (61 FR 59386.) The Commission also is adopting that 
rulemaking today in a separate Federal Register release with slight 
modifications from the original proposed rulemaking (the ``fast-
track'' rulemaking). The two rulemakings establish similar rule 
review procedures and any differences between the two schemes 
generally reflect differences set forth in the statute with respect 
to term and condition rule proposals and non-term and condition rule 
proposals.
    \3\ 62 FR 2334 (January 16, 1997).

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[[Page 10428]]

II. Comments Received

    The Commission received seven comment letters. The comment letters 
were submitted by four futures exchanges (the Chicago Board of Trade 
(``CBT''), the Chicago Mercantile Exchange (``CME''), the Coffee, Sugar 
& Cocoa Exchange, Inc. (``CSC''), and the New York Mercantile Exchange 
(``NYMEX'')); two futures trade associations (the Futures Industry 
Association (``FIA'') and the Managed Futures Association (``MFA'')); 
and, a registered futures association (the National Futures Association 
(``NFA'').
    The Commission has carefully reviewed the comments received and has 
decided to issue amended Regulation 1.41(c) as final with three 
modifications from the original proposal.4 The comments and an 
explanation of the Commission's decision to adopt amended Regulation 
1.41(c) are discussed below.
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    \4\ The Commission's original proposal regarding non-term and 
condition rule changes also proposed to revise the heading to 
Commission Regulation 1.41(b) so that it expressly applied to term 
and condition rule changes. That revision has been incorporated in 
the Commission's separate fast-track rulemaking for term and 
condition rule changes.
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III. Commission Regulation 1.41(c)

A. Overview

    The following description consists of a section-by-section analysis 
of the Commission's final rulemaking. Each section describes a 
provision of the Commission's proposed rulemaking, discusses relevant 
suggestions made by the commenters, and indicates how the provision has 
been adopted in the final rulemaking.
    In addition to commenting on specific sections of proposed 
Regulation 1.41(c), several commenters questioned the necessity for 
Regulation 1.41's basic requirement that contract market rules receive 
Commission review before being put into effect. As discussed in more 
detail in the fast-track rulemaking, the Commission believes that prior 
review of proposed contract market rule changes can be essential to 
ensuring the financial integrity of the markets and to protecting the 
public interest. Contract market actions can affect the interests of a 
large number of non-member market participants and the general public. 
As self-regulatory organizations, contract markets have a 
responsibility to comply with and enforce the requirements of the Act 
and the Commission's regulations. As member organizations, however, 
contract markets may not always be cognizant of, or sensitive to, the 
impact of particular rule changes on the general public or on market 
participants who are not contract market members and who are not 
involved directly in the contract markets' formulation of such rules. 
The Commission believes that its prior review procedures help to ensure 
that contract markets meet their self-regulatory responsibilities with 
respect to all market participants and that rule changes are not 
inconsistent with the public interest.
    The Commission's prior review procedures also ensure that the 
Commission is able to solicit the views of market users, other 
regulators, and other interested parties with respect to rule 
proposals. These parties often provide valuable insights concerning the 
impact of rule proposals that are essential to the Commission's 
completing meaningful analyses of contract market submissions. The 
Commission believes such oversight also provides additional incentives 
for the contract markets to take market users' needs and the public 
interest into account in the first instance, thereby improving the 
functioning of the self-regulatory process.
    The Commission concurs with FIA's comment that Commission 
disapproval of contract market rule changes after their implementation 
is not a viable alternative to prior Commission review and approval. 
The Commission believes that this approach would be inefficient and 
could impact market users or the public adversely during the pendency 
of a disapproval proceeding by increasing uncertainty in the 
marketplace.
    Several commenters contended that the Commission's current rule 
review procedures cause unwarranted delays in the implementation of 
contract market rule changes and put the contract markets at a 
competitive disadvantage to foreign futures exchanges and over-the-
counter markets. No evidence was provided, however, to suggest that the 
time frames provided for by the proposed rulemaking would create 
competitive disadvantages. Notably, all of the commenters conceded that 
the Commission's proposed rulemaking would further the goal of 
implementing contract market rule changes more promptly. The commenters 
differed, however, on whether contract markets would be able to 
implement their rule changes promptly enough under the proposed 
rulemaking. The Commission believes that its streamlined procedures 
will allow contract markets to implement their rule proposals in an 
expeditious manner, while still ensuring that the public is protected 
from rules that are discriminatory, anti-competitive, or illegal or 
that create serious concerns with respect to financial or market 
integrity.
    NFA stated in its comment letter that the need for timely rule 
review and approval is as important to registered futures associations 
as it is to contract markets. Accordingly, NFA recommended that the 
Commission extend proposed Regulation 1.41(c)'s rule review procedures 
to cover the rule changes of registered futures associations. While the 
Commission agrees with NFA that it should adopt a streamlined rule 
review scheme for registered futures associations, it does not believe 
that it would be appropriate to include registered futures associations 
within the terms of this rulemaking. Regulation 1.41 was established 
expressly for contract market rule proposals and includes procedures 
that are inapplicable to registered futures association rules. However, 
although the Commission has determined not to make amended Regulation 
1.41(c) applicable to registered futures associations, the Commission 
will propose a rulemaking in the near future to establish similar rule 
review procedures tailored to the types of rules adopted by registered 
futures associations. In the interim, the Commission intends to follow 
Regulation 1.41(c)'s basic review procedures and deadlines when 
reviewing registered futures association rule changes.

B. Regulation 1.41(c)(1)(i)--Form and Content of Submissions

    Proposed Commission Regulation 1.41(c)(1)(i) established form and 
content requirements for all rules submitted to the Commission pursuant 
to Regulation 1.41(c). That proposal preserved the form and content 
requirements that currently apply to rules submitted to the Commission 
pursuant to Regulation 1.41(b) and Regulation 1.41(c). Proposed 
Regulation 1.41(c)(1)(i) also required that Regulation 1.41(c) 
submissions include certain other information to help expedite the 
Commission's review of such submissions.
    Under the current form and content requirements of Commission 
Regulation 1.41, contract markets must include in their rule 
submissions any substantive views expressed by their members or others 
in opposition to a proposed rule.5 As a clarification of this 
requirement, proposed amended Regulation 1.41(c)(1)(i)(E) specified 
that the views

[[Page 10429]]

of opposing governing board members also must be included in proposed 
rule submissions. In addition, proposed amended Regulation 
1.41(c)(1)(i)(E) provided that the currently-required description of 
opposing views must indicate the membership interest categories 6 
of persons who were opposed to the proposed contract market rule.
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    \5\ Current Commission Regulation 1.41(b)(5) requires that rule 
submissions ``[n]ote and briefly describe any substantive opposing 
views expressed by the members of the contract market or others with 
respect to the proposed rule.''
    \6\ See Section 5a(a)(14)(A) of the Act and Commission 
Regulation 1.64(a)(4).
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    Proposed Regulation 1.41(c)(1)(i)(F) required that contract markets 
specify in their submissions any sections of the Act or the 
Commission's regulations that relate to a proposed rule, particularly 
citing any such provisions that require Commission approval of the 
rule. To the extent a submission was potentially inconsistent with a 
provision of the Act or the Commission's regulations, the proposal 
required that the submission contain a reasoned analysis addressing 
that issue and supporting adoption of the rule. Proposed Regulation 
1.41(c)(1)(i)(G) required that contract markets indicate in their 
submissions whether they were requesting Commission approval for a 
proposed rule.
    The CBT, CME, and CSC each objected to proposed amended Regulation 
1.41(c)(1)(i)(E)'s requirement that contract market rule submissions 
identify the membership interest categories of persons who opposed a 
rule proposal. They contended that the provision intruded upon their 
internal decision making processes without providing any information 
that would be useful to the Commission in its rule review process. CME 
and CSC particularly stated that the proposal would force revisions to 
their boards' deliberative and voting procedures.
    FIA supported the proposed amendment to Commission Regulation 
1.41(c)(1)(i)(E). The FIA believed that opposing view information is 
especially important given the fact that contract market rules that are 
submitted to the Commission pursuant to Regulation 1.41(c) are rarely 
published for public comment.
    The Commission believes that information about the views and 
categories of persons who oppose rule proposals will help the 
Commission to ascertain whether others believe that a proposal raises 
important issues and to identify rules that should be published for 
comment and, thus, will generally benefit the rule review process 
overall. Upon receipt, Commission staff now often requests contract 
markets submitting rule proposals to supplement their submissions with 
information about the views and identities of persons who have 
expressed opposition to rule proposals, whether they be board members 
or members of the contract market. This information helps alert 
Commission staff to potential regulatory issues that are not apparent 
from the text of a proposed rule and, thus, helps to focus the staff's 
analysis of the proposal. In addition, this information allows the 
Commission to avoid the time-consuming process of publishing rule 
proposals for public comment, since Commission staff can contact 
representative members of the appropriate membership interest category 
to obtain their views on particular rule proposals.7
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    \7\ For example, there have been a number of occasions when 
contract market submissions have indicated that a rule proposal was 
the subject of a membership vote and that a substantial minority of 
members opposed the measure. Based on this information, Commission 
staff made further inquiries to determine the views of those 
opposing members and took those views into account while reviewing 
the rule proposal.
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    The Commission agrees with the CME's comment that board members do 
not necessarily vote on issues based upon the membership interest 
categories they represent. However, the Commission's experience has 
been that persons from the same membership interest category often have 
common business circumstances which influence their views on contract 
market regulatory matters. Accordingly, contract market directors and 
members who oppose new rule proposals often express views that reflect 
their membership interest categories. The fact that a contract market 
member might have views on rule proposals that are particular to his or 
her membership interest category is recognized in section 5a(a)(14)(A) 
of the Act and Regulation 1.64 which require that contract markets 
provide board representation for a diversity of membership interests.
    The provision will ensure that the Commission will have opposing 
view information when it initiates its review of a rule proposal, thus 
obviating the need for Commission staff to obtain such information from 
the submitting contract market during the course of a rule's review, 
which will be especially helpful to assuring that the Commission will 
meet the compressed time frames established by the proposed rulemaking.
    The CME contended that proposed amended Regulation 1.41(c)(1)(i)(E) 
will put an additional burden on contract market staffs to speak with 
each board member who votes against a proposed rule to determine the 
reasons for his or her opposition. To clarify, the proposed rulemaking 
only will require contract markets to record the views of board members 
opposing a rule proposal when such views are openly expressed during 
board deliberations. Contract market staffs will not be required to 
ascertain the views of an opposing board member when the member does 
not express any rationale for his or her opposition.
    In its comment letter, NYMEX characterized proposed amended 
Regulation 1.41(c)(1)(i) (E) through (G) as informational burdens that 
will add to the length of time expended by contract market staff to 
prepare a submission and will provide Commission staff with additional 
reasons for remitting a rule submission for failing to meet form and 
content requirements.
    As indicated above, each of these provisions will require contract 
markets to include in their initial submissions to the Commission 
information which Commission staff often requests of contract markets 
during the course of rule reviews. Including this information in 
Regulation 1.41(c)'s form and content requirements should speed up the 
rule review process considerably by reducing the need to request such 
information after a rule is submitted.
    For the reasons stated above, the Commission has determined to 
adopt amended Regulation 1.41(c)(1)(i) (A) through (E) as proposed. The 
Commission has determined, however, to adopt a revised version of 
proposed amended Regulation 1.41(c)(1)(F) and not to adopt proposed 
amended Regulation 1.41(c)(1)(i)(G).
    In its final rulemaking, the Commission has revised Regulation 
1.41(c)(1)(i)(F) to require that contract markets identify in their 
submissions any provisions of the Act or the Commission's regulations 
that may require amendment or interpretation in order to implement a 
proposed rule change. Under this requirement, contract markets must 
provide the Commission with a reasoned analysis of why such an 
amendment or interpretation is necessary. The requirement will permit 
the Commission to focus on and to address speedily rules which may 
violate provisions of the Act or regulations or require their amendment 
or interpretation. The Commission believes that this requirement not 
only will facilitate its consideration of various contract market rule 
proposals, but also will enable it, to the extent consistent with the 
Act and the public interest, to amend its regulations as needed to 
permit contract market innovation in an evolving marketplace.
    The Commission also believes that proposed amended Regulation

[[Page 10430]]

1.41(c)(1)(i)(G), which required a contract market to indicate 
expressly whether it was requesting approval of a proposed rule, is not 
necessary and may be deleted from the final rulemaking. Commission 
staff will review each rule proposal to determine whether or not it 
requires Commission approval under any provision of the Act or the 
regulations and will treat it accordingly. Of course, to the extent 
that a proposed rule does not require Commission approval, but the 
submitting contract market desires approval, the contract market must 
clearly request approval in its submission.

C. Regulation 1.41(c)(1)(ii)--Failure To Meet Form and Content 
Requirements

    Proposed Regulation 1.41(c)(1)(ii) permitted the Commission to 
remit rule proposals that did not comply with the form and content 
requirements of Regulation 1.41(c)(1)(i). This provision simply 
replicated the remittal authority set forth in current Regulation 
1.41(b) and Regulation 1.41(c). The CBT, CME, and CSC each objected to 
this provision on the grounds that the Commission uses its remittal 
authority to delay and to prevent the implementation of contract market 
rule proposals. The CBT in particular stated that Commission staff uses 
its remittal authority to raise questions that are unrelated to the 
threshold question of whether a rule proposal would violate the Act or 
the Commission's regulations.
    The Commission believes that retaining the authority to remit 
incomplete submissions is essential to its ability to make reasoned 
analyses as to whether proposed contract market rules are consistent 
with the Act and the Commission's regulations. The Commission believes 
that it is sometimes impossible to determine the operation, purpose and 
effect of proposed rules based solely on their text. Regulation 1.41's 
form and content requirements have been formulated accordingly. The 
Commission believes that reserving the authority to remit incomplete 
submissions disciplines the submission process by assuring that 
contract markets adequately explain their proposals at the outset. This 
discipline is even more essential under the proposed rulemaking's 
compressed time frames.
    As previously noted, the public comment process frequently 
identifies or focuses issues. The Commission's remittal authority also 
helps to ensure that contract markets will supplement their submissions 
where necessary to address issues identified by commenters during the 
comment process.
    For the reasons stated above, the Commission has determined to 
adopt amended Regulation 1.41(c)(1)(ii) as proposed.

D. Regulation 1.41(c)(1)(iii)--Extension of Review Period

    Proposed Regulation 1.41(c)(2) provided that proposed non-term and 
condition rule changes would be deemed approved or be allowed to go 
into effect without approval, as appropriate, ten days after their 
receipt by the Commission unless they were retained by the Commission 
for further review. Proposed Regulation 1.41(c)(1)(iii) specified that 
the Commission could extend the ten-day review period to 45 days (75 
days when a rule was published for public comment), if the Commission 
determined within ten days of receipt that the rule ``raises novel or 
complex issues which require additional time for review or is of major 
economic significance'' and so notified the submitting contract market. 
Such types of rule proposals might include:
    (1) Rules relating to the financial integrity of markets or their 
participants (e.g., CME establishment of Globex Foreign Exchange 
Facility to serve as market maker for certain CME foreign currency 
futures contracts traded through the Globex system (approved by the 
Commission on August 9, 1996)); (2) rules establishing novel trading 
procedures or providing for non-competitive trading (e.g., CME LOX 
program which substitutes an electronic order execution facility for 
open outcry execution of large lot currency contracts (approved by the 
Commission on March 18, 1993), CME rule amendment restricting exchange 
for physical transactions in Eurodollar futures contracts (approved by 
the Commission on November 29, 1995), CME rule amendment establishing 
all-or-none order-filling procedures whereby certain designated orders 
can only be executed in their entirety (approved by the Commission on 
May 2, 1996)); (3) rules providing for the differential treatment of 
different classes of market participants (e.g., broker incentive 
programs at various contract markets); (4) rules establishing linkages 
among exchanges (e.g., establishment of mutual offset system between 
CME and Singapore Monetary Exchange (approved by the Commission on 
August 28, 1989)); (5) rules relating to the application of new 
technology to the marketplace (e.g., CME's Globex trading system 
(approved by the Commission on February 8, 1989), CBT's Project A 
trading system (approved by the Commission on October 19, 1992), 
NYMEX's ACCESS trading system (approved by the Commission on December 
17, 1992)); and, (6) rules raising customer protection issues (e.g., 
CME rules allocating liability in connection with the operation of the 
Globex trading system (allowed to go into effect without approval by 
the Commission on September 27, 1991), CBT rule establishing post 
settlement trading sessions (allowed to go into effect without approval 
by the Commission on April 14, 1992)).
    CME commented that the proposed bases for extending Commission 
review of a rule proposal would not necessarily have any nexus with a 
determination of whether the proposal would violate the Act or the 
Commission's regulations. To the contrary, Commission review always is 
directed towards making such a determination. The Commission believes 
that these are the types of rules that the Commission may require 
additional time to review carefully.8 Indeed, FIA pointed out in 
its comment letter that the types of rules listed in the Commission's 
proposed rulemaking release as possibly needing more than ten days of 
review are precisely the types of rules that FIA saw as raising 
sufficiently important issues to require it to submit comments to the 
Commission in the past. Similarly, MFA commented that Commission 
retention of rule proposals that raise novel or complex issues for 
further review would be beneficial as it would enable the Commission to 
focus its inquiries, while still permitting the contract markets to 
implement rule changes in an efficient manner.
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    \8\ Of course, proposed Regulation 1.41(c)(1)(iii) would not 
mandate Commission retention of all rules that raise such novel or 
complex issues or that are of major economic significance. The 
Commission would only have the discretion to retain such rules for 
further review.
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    As the CBT pointed out in its comment letter, under section 
5a(a)(12)(A) of the Act, Commission staff may not itself extend the 
ten-day review period for non-term and condition rule changes that do 
not require approval. Absent the consent of the submitting contract 
market, the Commission may only retain such rule proposals for further 
review if ``the Commission notifies such contract market in writing of 
its determination to review such rules for approval.'' This 
determination is not delegable to Commission staff.
    For the reasons stated above, the Commission has determined to 
adopt amended Regulation 1.41(c)(1)(iii) as proposed.

[[Page 10431]]

E. Regulation 1.41(c)(2)--Action Within Ten Days

    Proposed Regulation 1.41(c)(2) provided that proposed non-term and 
condition rule changes that required approval or that could be placed 
into effect without approval would ``be deemed approved or be placed 
into effect, as appropriate, ten days after Commission receipt,'' 
unless the Commission notified the submitting contract market 
otherwise.
    NFA in its comment letter requested clarification as to the meaning 
of ``as appropriate'' in this provision. Rule changes submitted to the 
Commission pursuant to proposed Regulation 1.41(c) generally would be 
deemed approved or be allowed to go into effect without approval, as 
requested in the contract market's submission, at the conclusion of the 
ten-day review period. In those instances where a submitting contract 
market did not request particular treatment for a rule proposal or 
requested improper treatment (i.e., requested that the Commission allow 
into effect without approval a rule change that required Commission 
approval), the Commission would determine what treatment would be 
appropriate for the submission and would deem approved those rules that 
required approval and allow into effect those rules that did not 
require approval.9 The Commission's use of the term ``as 
appropriate'' in proposed Regulation 1.41(c)(2) is intended to cover 
these various possible applications.
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    \9\ Regulation 1.41(c) would apply to all non-term and condition 
rule changes. Accordingly, the provision would cover: (1) Rule 
changes that do not require Commission approval under section 
5a(a)(12)(A) of the Act and may be placed into effect ten days after 
Commission receipt; (2) rule changes that require approval under a 
provision of the Act other than section 5a(a)(12)(A); (3) rule 
changes as to which the submitting contract market requests 
approval; and (4) changes which the Commission determines to review 
for approval.
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    The Commission has determined to adopt amended Regulation 
1.41(c)(2) as proposed.

F. Regulation 1.41(c)(3)--Action Within 45 or 75 days

    Under proposed Regulation 1.41(c)(3), any proposed rule that the 
Commission retained for further review under Regulation 1.41(c)(1)(iii) 
generally would be ``deemed approved or placed into effect, as 
determined by the Commission,'' 45 days after Commission receipt (or 75 
days in the case of rules that were published for comment in the 
Federal Register).
    NFA requested clarification as to the meaning of ``as determined by 
the Commission'' in proposed Regulation 1.41(c)(3). Any rule proposal 
that was retained for the extended 45-day (or 75-day) review period 
would necessarily be considered for Commission approval.10 Under 
section 5a(a)(12)(A) of the Act, rule proposals that are being 
considered for approval must either be approved by the Commission or be 
subjected to a disapproval proceeding within 180 days of Commission 
receipt.11 If the Commission does not take either course of action 
within 180 days, the proposed rule ``may be made effective by the 
contract market until such time as the Commission disapproves such 
rule.''
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    \10\ As indicated in footnote 9 above, the Commission would 
consider two types of rules under proposed Regulation 1.41(c)--rules 
which would receive Commission approval (based upon either the 
submitter's request, the Commission's discretion, or a statutory 
requirement) and rules which could be placed into effect without 
Commission approval. Under section 5a(a)(12)(A) of the Act, the 
Commission must act upon rules which may be placed into effect 
without Commission approval within ten days of receipt. Absent the 
consent of the submitting contract market, the only way to extend 
the review period for such types of rule submissions is if the 
Commission itself decides to review the submission for approval, in 
which case the Commission has 180 days to act on the rule proposal.
    \11\ Under section 5a(a)(12)(A), the Commission must 
``institute'' disapproval proceedings within 180 days of receipt.
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    By providing the Commission with the discretion to ``determine'' 
either to approve a proposed rule or to allow it into effect at the end 
of the 45-day (or 75-day) review period, proposed Regulation 1.41(c)(3) 
would replicate the options currently available to the Commission under 
section 5a(a)(12)(A) of the Act at the end of the 180-day review 
period. The proposed rulemaking would simply compress the time frame 
for this determination from 180 to 45 (or 75) days.
    The CBT suggested in its comment letter that the Commission does 
not need to use the public comment process for exchange rule proposals 
and, therefore, the Commission's proposed rulemaking need not provide 
for an extended review period for rules published in the Federal 
Register. By contrast, FIA stated that it was essential to retain this 
process to provide an opportunity for the public to comment on rule 
proposals that raise novel or complex issues.
    The Commission notes that, under section 5a(a)(12)(A) of the Act, 
it is required to publish in the Federal Register for public comment 
any proposed rule of major economic significance. The Commission also 
publishes significant rule changes, from time to time, when it believes 
that it is in the public interest to do so.
    The Commission rarely publishes Regulation 1.41(c) proposals for 
comment.12 Nonetheless, the Commission believes that it is 
important for it to solicit the views of persons and entities that 
might be affected by significant contract market rule proposals. By 
providing a 30-day extension of the review period for rules that are 
published in the Federal Register, the proposed rulemaking would 
provide the Commission with a reasonable amount of time to review and 
analyze contract market rule proposals in light of any comments 
received. The Commission believes that the ability to extend review to 
accommodate public comment should balance the need of contract markets 
to adapt to new circumstances with the Commission's need to assure that 
the public's concerns and views are considered in appropriate cases. 
Under revised Regulation 1.41(c), the review period for proposed rules 
which are published for comment would still be considerably shorter 
than the current 180-day statutory review period.
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    \12\ Since January 1, 1995, the Commission has published only 
the following three Regulation 1.41(c) submissions for public 
comment in the Federal Register: (1) A CME proposal to revise margin 
requirements for certain CME members (60 FR 54339 (October 23, 
1995)); (2) a CME proposal to establish a wholly-owned subsidiary 
which would function as a market maker for certain CME foreign 
exchange currency futures contracts traded through the Globex system 
(61 FR 9678 (March 11, 1996)); and (3) a CME proposal to permit 
commodity trading advisors to obtain Globex terminals to trade for 
their proprietary accounts and the accounts that they manage (61 FR 
21162 (May 9, 1996)).
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    For the reasons stated above, the Commission has determined to 
adopt amended Regulation 1.41(c)(3) as proposed.

G. Regulation 1.41(c)(4)--Disapproval Proceedings

    Under proposed Regulation 1.41(c)(4), any Commission notice to a 
contract market that the Commission intended to commence disapproval 
proceedings with respect to a proposed rule change would be required to 
specify the nature of the issues raised by the proposal and the 
sections of the Act or the Commission's regulations that the rule 
appeared to violate. Under the provision, the submitting contract 
market would have 15 days from the issuance of the notification either 
to withdraw the proposal or to request that the Commission consider the 
proposal pursuant to the regular 180-day review procedures of section 
5a(a)(12)(A) of the Act. If the submitting contract market chose 
neither of these options, the Commission would commence disapproval 
proceedings no later than

[[Page 10432]]

30 days after its issuance of the notification. Thus, under the 
proposed rulemaking, disapproval proceedings would commence no later 
than 75 days after a rule's submission (or 105 days in the case of 
rules that were published for comment in the Federal Register).
    The Commission received a number of comments asking for 
clarifications of how proposed Regulation 1.41(c)(4) would be applied.
    NFA questioned whether a Commission notice to a contract market to 
institute disapproval proceedings under Regulation 1.41(c)(4) should be 
issued publicly. NFA believed that public notification at this stage 
would be inappropriate given that the submitting contract market might 
withdraw its proposal or grant the Commission additional review time. 
Under Regulation 1.41(c)(3), if the Commission decided to institute a 
disapproval proceeding for a rule proposal, it would notify the 
submitting contract market no later than 45 days after the rule's 
submission (or 75 days if the rule was published for comment). While 
the Commission would not publicize this notice in the Federal Register, 
it would be a matter of public record under Regulation 145.2 and 
Appendix A to the Part 145 Regulations, unless subject to the 
confidentiality restrictions of Regulation 145.5. If the contract 
market did not withdraw its proposal or extend the proposal's review 
period within 15 days of the issuance of such notice, the Commission 
would commence formal disapproval proceedings consistent with the 
procedures required by the Act and the Commission's regulations.13 
When commencing such proceedings, the Commission would provide the 
submitting contract market and any other possibly interested parties 
with an opportunity to present their views on the matter to the 
Commission. However, if the submitting contract market withdrew the 
rule and offered to amend it, the Commission would not commence such a 
proceeding while the contract market attempted to resolve any 
regulatory issues.
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    \13\ A contract market also could choose to amend its rule 
proposal and have it considered pursuant to the 180-day review 
procedures of section 5a(a)(12)(A) of the Act. A contract market 
could, of course, choose to withdraw its proposal and re-submit an 
amended version, thereby resetting the time for review.
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    NFA also commented that the Commission and submitting contract 
markets may want to extend any of proposed Regulation 1.41(c)(4)'s 
various deadlines for disapproval proceedings in order to reach 
compromise agreements on the disposition of rule proposals. The 
Commission agrees with NFA and believes that Regulation 1.41(c)'s 
deadlines, including disapproval proceeding deadlines, could be 
extended upon the mutual agreement of the Commission and the subject 
contract market.
    FIA asked for clarification on Regulation 1.41(c)(4)'s deadline for 
the conclusion of a disapproval proceeding. Upon the commencement of a 
disapproval proceeding under this provision, the Commission would 
follow the procedures currently mandated by section 5a(a)(12)(A) of the 
Act. That provision states that the Commission must ``conclude a 
disapproval proceeding with respect to any rule within one year after 
receipt or within such longer period as the contract market may agree 
to.'' If such a proceeding is not concluded within the prescribed time, 
the rule proposal may be deemed effective until such time as the 
Commission disapproves the rule.
    For the reasons stated above, the Commission has determined to 
adopt Regulation 1.41(c)(4) with one clarification. Under the final 
rulemaking, a contract market would have 15 days from the receipt of a 
disapproval proceedings notice to withdraw or to extend the review 
period for its proposal. Under the proposed rulemaking, a contract 
market had to respond within 15 days from the date of issuance of such 
a notice.

IV. Conclusion

    The Commission has determined to adopt Regulation 1.41(c) with 
three modifications from the original proposed rulemaking. 
Specifically, Regulation 1.41(c)(1)(i)(F) has been revised to require 
that contract markets identify any provisions of the Act or the 
Commission's regulations that may require amendment or interpretation 
in order to implement a proposed rule change. In addition, the 
Commission has deleted proposed Regulation 1.41(c)(1)(i)(G) and its 
requirement that contract markets expressly indicate in their 
submissions whether they are requesting rule approval. Finally, 
Regulation 1.41(c)(4) has been revised to clarify when contract markets 
must respond to notices to institute disapproval proceedings.
    Although Commission Regulation 1.41(c), by its own terms, applies 
only to Commission review of contract market rule proposals, the 
Commission will propose a regulation with similar rule review 
procedures for registered futures associations in the near future. In 
the interim, the Commission will abide by the requirements of 
Regulation 1.41(c) when reviewing rule proposals from registered 
futures associations.
    In formulating these new rule amendments, the Commission has 
attempted to balance the objective of meaningful review of contract 
market rule proposals under the Act with the contract markets' 
reasonable desire to implement their proposals as expeditiously as 
possible. Upon the implementation of amended Regulation 1.41(c), the 
Commission will continue to monitor the rule review process closely 
and, based upon its experience, may consider further refinements to 
these procedures in the future.
    Amended Commission Regulation 1.41(c) will become effective 30 days 
after its publication in the Federal Register. All contract market rule 
proposals submitted to the Commission after that date will be subject 
to Regulation 1.41(c)'s new review procedures. Contract market rules 
that are pending with the Commission at the time of amended Regulation 
1.41(c)'s effective date will continue to be subject to Regulation 
1.41's current review procedures.

V. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
requires that agencies, in promulgating rules, consider the impact of 
those rules on small businesses. The Commission has previously 
determined that contract markets are not ``small entities'' for 
purposes of the RFA.14 This rulemaking establishes streamlined 
procedures for the review of contract market proposed non-term and 
condition rule changes. Accordingly, the Chairperson, on behalf of the 
Commission, hereby certifies, pursuant to section 3(a) of the RFA, 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.
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    \14\ See 47 FR 18618, 18619 (April 30, 1982).
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B. Agency Information Activities: Proposed Collection; Comment Request

    The Paperwork Reduction Act of 1980 (``PRA''), 44 U.S.C. 3501 et 
seq., 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. While this rulemaking 
has no burden, the group of rules (3038-0022) of which it is a part has 
the following burden:

Average burden hours per response--3,546.26
Number of respondents--10,971.00

[[Page 10433]]

Frequency of response--On Occasion

    Copies of the information collection submission to Office of 
Management and Budget are available from Gerald P. Smith, Clearance 
Officer, Commodity Futures Trading Commission, Three Lafayette Centre, 
1155 21st Street, NW., Washington, DC 20581. Telephone: (202) 418-5160.

List of Subjects in 17 CFR Part 1

    Commodity exchanges, Contract markets, Rule review procedures.

    In consideration of the foregoing, and based on the authority 
contained in the Commodity Exchange Act and, in particular, sections 
4c, 5, 5a, 6 and 8a thereof, 7 U.S.C. 6c, 7, 7a, 8 and 12a, the 
Commission hereby amends title 17, chapter I, part 1 of the Code of 
Federal Regulations as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    1. The authority citation for part 1 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a, 6b, 6c, 6d, 6e, 6f, 
6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 8, 9, 12, 12a, 12c, 
13a, 13a-1, 16, 16a, 19, 21, 23, and 24.

    2. Section 1.41(c) is revised to read as follows:


Sec. 1.41  Contract market rules; submission of rules to the 
Commission; exemption of certain rules.

* * * * *
    (c) Rules that do not relate to terms and conditions. (1)(i) Except 
as provided in paragraphs (d) and (f) of this section (exempt or 
temporary emergency rules), each contract market shall submit to the 
Commission pursuant to section 5a(a)(12)(A) of the Act prior to the 
proposed effective dates all proposed rules that do not relate to terms 
and conditions. One copy of the rule shall be furnished to the 
Commission at its Washington, DC headquarters, and one copy shall be 
transmitted by the contract market to the regional office of the 
Commission having local jurisdiction over the contract market. Each 
such submission under this paragraph (c) shall, in the following order:
    (A) State that it is being submitted pursuant to Commission 
regulation 1.41(c);
    (B) Set forth the text of the proposed rule (in the case of any 
change in, addition to, or deletion from any current rule of the 
contact market, the current rule shall be fully set forth, with 
brackets used to indicate words to be deleted and underscoring used to 
indicate words to be added);
    (C) Describe the proposed effective date of the proposed rule and 
any action taken or anticipated to be taken to adopt the proposed rule 
by the contract market, or by the governing board thereof or any 
committee thereof, and cite the rules of the contract market which 
authorize the adoption of the proposed rule;
    (D) Explain the operation, purpose, and effect of the proposed 
rule, including, as applicable, a description of the anticipated 
benefits to market participants or others, any potential 
anticompetitive effects on market participants, or others, how the rule 
fits into the contract market's scheme of self-regulation, information 
which demonstrates that the proposed rule is not inconsistent with the 
policies and purposes of the Act, and any other information which may 
be beneficial to the Commission in analyzing the proposed rule. If a 
proposed rule affects, directly or indirectly, the application of any 
other rule of the contract market, set forth the pertinent text of any 
such rule and describe the anticipated effect;
    (E) Note and briefly describe any substantive opposing views 
expressed by governing board members, members of the contract market, 
or others with respect to the proposed rule which were not incorporated 
into the proposed rule prior to its submission to the Commission. Any 
such description also should identify the membership interest 
categories, as that term is defined by Commission regulation 
1.64(a)(4), of persons who were opposed to the proposed rule; and,
    (F) Identify any sections of the Act or the Commission's 
regulations that the Commission may need to amend or interpret in order 
to approve or allow into effect the proposed rule. To the extent that 
such an amendment or interpretation is necessary to accommodate a 
proposed rule, the contract market must provide a reasoned analysis 
supporting its submission.
    (ii) The Commission may remit to the contract market, with an 
appropriate explanation where practicable, and not accept for review 
any rule submission that does not comply with the form and content 
requirements of paragraphs (c)(1)(i) (A) through (F) of this section.
    (iii) The Commission may notify the contract market within ten days 
after receipt of a submission filed pursuant to paragraph (c)(1) of 
this section, that the proposed rule raises novel or complex issues 
which require additional time for review or is of major economic 
significance and therefore that the review period has been extended as 
specified in paragraph (c)(3) of this section. This notification will 
briefly specify the nature of the issues for which additional time for 
review is required.
    (2) All proposed contract market rules submitted for review under 
paragraph (c) of this section may be deemed approved or be placed into 
effect, as appropriate, ten days after Commission receipt (or at such 
earlier time as may be determined by the Commission) unless:
    (i) The Commission notifies the contract market that the submission 
does not comply with the form and content requirements of paragraph 
(c)(1)(i) of this section;
    (ii) The Commission notifies the contract market that the review 
period for the submission has been extended pursuant to paragraph 
(c)(1)(iii) of this section; or
    (iii) The contract market agrees to another, specified review 
period.
    (3) Any rule for which the Commission extends the review period 
pursuant to paragraph (c)(1)(iii) of this section may be deemed 
approved or be placed into effect, as determined by the Commission, 
forty-five days after Commission receipt of such rule or seventy-five 
days after Commission receipt in the case of rules that have been 
published for comment in the Federal Register (or at such earlier time 
as may be determined by the Commission) unless the Commission notifies 
the contract market that:
    (i) The submission, including any supplementary materials and in 
consideration of any comments from the public or other government 
agencies, does not comply with the form and content requirements of 
paragraph (c)(1)(i) of this section; or
    (ii) The Commission intends to institute a proceeding to disapprove 
the rule pursuant to the procedures specified in section 5a(a)(12)(A) 
of the Act.
    (4) A notice of intention to commence a disapproval proceeding 
issued pursuant to paragraph (c)(3) of this section will:
    (i) Identify the nature of the issues raised by the proposed rule 
and the specific sections of the Act or the Commission's regulations 
that the rule appears to violate; and,
    (ii) State that the Commission may commence disapproval proceedings 
for the proposed rule within thirty days after the Commission's 
issuance of the notification, unless within fifteen days of receipt of 
such notice the contract market:
    (A) Withdraws the rule, or
    (B) Requests the Commission to review the rule pursuant to the one

[[Page 10434]]

hundred and eighty day review procedures set forth in section 
5a(a)(12)(A) of the Act.
* * * * *
    Issued in Washington, D.C. on February 27, 1997, by the 
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-5568 Filed 3-6-97; 8:45 am]
BILLING CODE 6351-01-P