[Federal Register Volume 64, Number 77 (Thursday, April 22, 1999)]
[Proposed Rules]
[Pages 19730-19732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9940]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 5


Fees for Applications for Contract Market Designation

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed reduction of schedule of fees.

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SUMMARY: The staff reviews periodically the Commission's actual costs 
of processing applications for contract market designation (17 CFR Part 
5, Appendix B) and adjusts its schedule of fees accordingly. As a 
result of the most recent review, the Commission is proposing to 
establish reduced fees for a limited class of simultaneously submitted 
multiple contract designation application filings.

DATES: Comments must be received by May 24, 1999.

ADDRESSES: Interested persons should submit their views and comments to 
Jean A., Webb, Secretary of the Commission, Commodity Futures Trading 
Commission, 1155 21st Street, N.W., Washington, D.C. 20581. In 
addition, comments may be sent by facsimile transmission to facsimile 
number (202) 418-5521, or by electronic mail to [email protected]. 
Reference should be made to Designation Fee Proposal.

FOR FURTHER INFORMATION CONTACT: Richard Shilts, Division of Economic 
Analysis, (201) 418-5275, Three Lafayette Centre, 1155 21st Street, 
N.W., Washington, D.C. 20581.

SUPPLEMENTARY INFORMATION:

I. History

    On August 23, 1983, the Commission established a fee for contract 
market designation (48 FR 38214). The fee was based upon a three-year 
moving average of the actual costs and the number of contracts reviewed 
by the Commission during that period of time. The formula for 
determining the fee was revised in 1985. At that time, most of the 
designation applications were for futures contracts rather than option 
contracts, and the same fee was applied to both futures and option 
designation applications.
    In 1992, the Commission reviewed its data on the actual costs for 
reviewing designation applications for both futures and option 
contracts and determined that the cost of reviewing a futures contract 
designation application was much higher than the cost of reviewing an 
option contract designation. It also determined that, when designation

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applications for both a futures contract and an option on that futures 
contract are submitted simultaneously, the cost for reviewing both 
together was lower than for reviewing the contracts separately. Based 
on that finding, three separate fees were established--one for futures 
alone, one for options alone, and one for combined futures and option 
contract applications (57 FR 1372). The combined futures/option 
designation application fee is set at a level that is less than the 
aggregate fee for separate futures and option applications to reflect 
the fact that the cost for review of an option is lower when submitted 
simultaneously with the underlying future and to create an incentive 
for contract markets to submit simultaneously applications for futures 
and options on that future.

II. Proposed Further Modifications to Fee Structure

    The Commission is proposing to further modify its fees structure 
for a limited class of multiple designation applications submitted 
simultaneously relating to contracts: (i) which are cash settled based 
on an index representing measurements to physical properties or 
financial characteristics which are not traded per se in the cash 
market; (ii) which use the same procedures for determining the cash-
settlement values for all contracts in the filing; (iii) as to which 
the procedure for determining the values which vary for the individual 
cash settlement prices is objective and the individual contract values 
represent a spatial or other variant of that procedure or a larger of 
smaller multiplier; and (iv) as to which all other terms and conditions 
are the same.\1\ Commission fees for simultaneous submission of such 
multiple cash-settled contracts would be equal to the prevailing fee 
for the the first contract plus 10 percent of that fee for each 
additional contract in the filing. This fee structure represents an 
extension of the policy adopted by the Commission in 1992 when it 
established reduced fees for option applications and for combined 
futures and option applications and would be consistent with the 
Commission's responsibility under the Independent Offices 
Appropriations Act (31 U.S.C. 9107 (1982)) to base fees on the costs to 
the Government.
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    \1\ In this regard, contracts having differentiated spatial 
features include contracts that are identical in all respects 
including the cash settlement mechanism but which may be based on 
the application of differing objectively determined values for 
different geographical areas. These may include contracts on 
weather-related data or vacancy rates for rental properties, where 
each individual contract is based on the value--temperature, local 
vacancy rate, etc.--for a specific city. To be eligible for the 
multiple contract filing fee, each contract must be cash-settled 
based on the same underlying data source and derived under identical 
calculation procedures such that the integrity of the cash 
settlement mechanism is not dependent on the individual contract 
specifications and that values which vary are derived objectively 
using the same source of type of data. Thus, for example, 
applications containing a number of similar cash-settled contracts 
based on indexes of government debt of different foreign countries 
would not be eligible for the reduced fee since the manipulation 
potential of each contract would be related to the liquidity of the 
underlying instruments and the individual trading practices and 
governmental oversight in each specific country, requiring separate 
analyses.
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    The Commission believes that a 10 percent marginal fee for 
additional contracts in a filing is appropriate for applications 
submitted simultaneously that are eligible for the proposed multiple-
contract filing fee. Because the multiple-contract filing fee applies 
only to cash-settled contracts based on objectively determined index 
values such that each separate contract represents only a spatial or 
other variant of that process and because the index is a measurement of 
a physical property or a financial characteristic which is not traded 
per se in the cash market, the Commission's review likely will not 
require a separate detailed analysis of each of the contracts in the 
filing. Moreover, for contracts meeting the standard for the multiple 
contract filing fee, the Commission's review of the cash settlement 
mechanism would involve a single analysis of the nature of the index 
and the process by which the underlying index values are determined. 
Separate comprehensive evaluations for each individuals index would not 
be required since the same calculations apply to each. Since the 
underlying instruments are not traded in the cash market, the 
Commission need not conduct separate reviews of the underlying cash 
markets or the reliability or transparency of prices for the individual 
commodities. Because each contract much use an identical case-
settlement procedure and all other material terms and conditions must 
be the same (except for the differentiated term of the specified 
contract multiplier), the analysis of the cash settlement procedure for 
one contract would apply in large part to each of the additional 
contracts. Finally, because each contract in a filing must be 
differentiated only with respect to a single term or contract size 
feature that is not likely to affect the integrity of the cash 
settlement mechanism, each separate contract would not require a 
separate comprehensive analysis to ascertain its compliance with 
requirements for designation.
    The Commission notes that, regardless of the fee assessed for 
designation applications, the Commission will continue to conduct the 
same comprehensive review to ensure that each proposed contract meets 
all requirements for designation set forth in Guideline No. 1. However, 
as explained above, for the types of applications covered by the 
multiple contract filing fee, the Commission's analysis of the cash 
settlement procedure in general and its review of the other material 
terms and conditions likely would be applicable to each contract in the 
filing. Only a limited incremental analysis would be required to assess 
whether each additional contract in such a filing meets the designation 
requirements of Guideline No. 1, resulting in a much higher degree of 
efficiency in reviewing the applications and substantially reducing the 
marginal cost for reviewing and processing the additional contracts. 
The Commission's extensive experience in reviewing new contract 
designation applications indicates that, for simultaneously submitted 
multiple contract filings meeting the specified standards, a fee for 
each additional contract equal to 10 percent of the single contract 
application fee would reflect the Commission's expected review costs 
for these types of applications. To the extent the Commission finds 
otherwise, this fee will be adjusted in subsequent years.
    The Commission wishes to make clear that the reduced option fee for 
the limited class of multiple-designation applications applies only to 
options on futures applications and not to options on physicals 
applications.
    Under the new procedures noted above, the Commission's proposed 
multiple contract designation application fees for filings meeting the 
standard discussed above would be as follows: For filings involving 
multiple cash-settled futures--$6,800 for the first contract, plus $680 
for each additional contract; for filings involving multiple options on 
case-settled futures--$1,200 for the first contract, plus $120 for each 
additional contract; and for filings involving multiple combined cash-
settled futures and options on those futures--$7,500 for the first 
futures and option contract, plus $750 for each additional futures and 
option contract. To be eligible for the reduced fees, contract markets 
must label the submission as a multiple contract filing and identify 
the cash settlement procedure to be used and the nature of the 
differentiated term or the different contract size specifications and 
justify why the application qualifies for this

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reduced fee. The Commission is seeking comment on this multi-contract 
designation application fee proposal.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
requires agencies, in proposing rules, to consider the impact of those 
rules on small businesses. The fees implemented in this release affect 
contract markets (also referred to as ``exchanges'') and a registered 
futures association. The Commission has previously determined that 
contract markets and registered futures associations are not ``small 
entities'' for purposes of the Regulatory Flexibility Act, 5 U.S.C. 601 
et seq., 47 FR 18618 (April 30, 1982). Therefore, the Chairperson, on 
behalf of the Commission, certifies, pursuant to 5 U.S.C. 605(b), that 
the fees proposed herein will not have a significant economic impact on 
a substantial number of small entities.

    Issued in Washington, D.C. on April 15, 1999, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-9940 Filed 4-21-99; 8:45 am]
BILLING CODE 6351-01-M