[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]


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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.

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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.
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    \1\ FCMs, clearing members and foreign brokers are referred to 
herein collectively as ``firms.''
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    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\
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    \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.
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    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\
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    \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.
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    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\
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    \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.
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    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.
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    \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.
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    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.
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    \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.
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    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\
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    \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).
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    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:
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    \12\ Slight changes would also be made to the list of 
merchandising activities to reflect those of greater surveillance 
importance to the Commission.

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[GRAPHIC] [TIFF OMITTED] TP03FE99.053



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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