[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]
[Rules and Regulations]
[Pages 30384-30386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14390]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 5


Fees for Applications for Contract Market Designation

AGENCY: Commodity Futures Trading Commission.

ACTION: Final reduction of certain designation applications fees.

-----------------------------------------------------------------------

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, as proposed on April 
22, 1999 (64 FR 19730), is establishing reduced fees for a limited 
class of simultaneously submitted multiple contract designation 
application filings.

EFFECTIVE DATE: June 8, 1999.

FOR FURTHER INFORMATION CONTACT: Richard Shilts, Division of Economic 
Analysis, (201) 418-5275, Three Lafayette Centre, 1155 21st, Street, 
NW., Washington, DC 20581. E-mail [R[email protected]].

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 
applications for both a futures contract and an option on that futures 
contract was 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 (January 14, 1992). 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

[[Page 30385]]

submit simultaneously applications for futures and options on that 
future.

A. Proposed Further Modifications to Fee Structure

    In a Federal Register notice dated April 22, 1999 (64 FR 19730), 
the Commission proposed to establish reduced fees for certain types of 
simultaneously submitted multiple contract designation applications. 
The Commission did not receive any comments in response to that notice.

II. Final Fee Structure

    The Commission has determined to modify, as proposed, its fee 
structure for the limited class of multiple designation applications 
submitted simultaneously relating to contracts: (i) which are cash 
settled based on an index representing measurements of 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 or smaller multiplier; and (iv) as to which all other times 
and conditions are the same.\1\ Commission fees for simultaneous 
submission of such multiple cash-settled contracts would be equal to 
the prevailing applicable fee for 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.
---------------------------------------------------------------------------

    \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 or 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.
---------------------------------------------------------------------------

    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 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 individual 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 must use an identical cash-
settlement procedure and all other material terms and conditions must 
be the same (except for the differentiated term or 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 the 
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 the Commission's 
Guideline on Economic and Public Interest Requirements for Contract 
Market Designation, 17 CFR Part 5, Appendix A (``Guideline No. 1'').\2\ 
However, as explained above, for the types of applications covered by 
the multiple contract filing fee, the Commission's analysis of the case 
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.
---------------------------------------------------------------------------

    \2\ Guideline No. 1 details the information that an applicant 
for contract market designation should include in order to 
demonstrate that the contract market meets the economic requirements 
for designation.
---------------------------------------------------------------------------

    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 multiple 
contract designation application fees for filings meeting the standard 
discussed above are 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 cash-
settled futures--$1,200 for the first contract, plus $140 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 reduced fee.

[[Page 30386]]

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 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 herein will not 
have a significant economic impact on a substantial number of small 
entities.

    Issued in Washington, DC on June 2, 1999, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-14390 Filed 6-7-99; 8:45 am]
BILLING CODE 6351-01-M