[Federal Register Volume 65, Number 147 (Monday, July 31, 2000)]
[Rules and Regulations]
[Pages 46578-46581]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18729]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1 and 5

RIN 3038-ZA00


Fees for Applications for Contract Market Designation, and 
Reviews of the Rule Enforcement Programs of Contract Markets and 
Registered Futures Associations

AGENCY: Commodity Futures Trading Commission.

ACTION: Establish a new schedule of fees.

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SUMMARY: The Commission charges fees to the contract markets and the 
National Futures Association (``NFA'') to recover the costs incurred by 
the Commission in the operation of two programs that provide a service 
to these entities. The fees are charged for the Commission's review of 
applications for contract designation submitted by the contracts 
markets and for the Commission's conduct of its program of oversight 
over self-regulatory (``SRO'') rule enforcement programs. (NFA and the 
contract markets are collectively referred to herein as the ``SROs''.) 
The calculation of the new amounts to be charged for the upcoming year 
is based upon an average of actual program costs incurred in the most 
recent three full fiscal years, as explained in SUPPLEMENTARY 
INFORMATION.

EFFECTIVE DATES: The fee schedule for processing of the contracts 
submitted by contract markets for designation by the Commission is 
effective on July 31, 2000 and must be paid at the time of submission 
to the Commission for processing. The fees for Commission oversight of 
each SRO rule enforcement program must be paid by each of the named 
SROs in the amount specified by no later than September 29, 2000.

FOR FURTHER INFORMATION CONTACT: Donald L. Tendick, Acting Executive 
Director, Office of the Executive Director, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, 202-418-5160.

SUPPLEMENTARY INFORMATION:

I. General

    The Commission re-calculated the fees charged each year with the 
intention of recovering the costs of operating the two Commission 
programs.\1\ All costs are accounted for by the Commission's Management 
Accounting Structure Codes (MASC) system which is operated according to 
a government-wide standard established by the Office of Management and 
Budget. Both types of fees are set each year based upon direct program 
costs plus an overhead factor, as explained in sections II., III. and 
IV. below.
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    \1\ See Section 237 of the Futures Trading Act of 1982, 7 U.S.C. 
16a and 31 U.S.C. 9701. For a broader discussion of the history of 
Commission fees, see 52 FR 46070 (Dec. 4, 1987).
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    The Commission previously had proposed to eliminate fees for 
contract market designation applications in connection with the 
Commission's adoption of Rule 5.3 which allows exchanges to list new 
contracts by certification (64 FR 66432, November 26, 1999). Since 
then, the Commission has embarked on a program of regulatory reform and 
has proposed a new regulatory framework for multilateral transaction 
execution facilities, which includes, among other things, alternative 
procedures for listing new products (65 FR 38985, June 22, ``A New 
Regulatory Framework for Multilateral Transaction Execution Facilities, 
Intermediaries and Clearing Organizations''). As a result, the 
Commission at this time is deferring any final determination whether to 
remove designation fees.
    The new fee schedules are set forth below and information is 
provided on the effective date of the fees and the due date for 
payment:
    A. Fees charged to contract markets for processing applications for 
designation of futures and option contracts: 
    1. For futures contracts and options on futures contracts which do 
not meet the multiple contract filing criteria set forth in 2 below:
     A single futures contract or an option on a physical--
$6,300;
     A single option on a previously approved futures 
contract--$1,100;
     A combined submission of a futures contract and an option 
on the same futures contract--$7,000;

[[Page 46579]]

    2. Reduced fees for simultaneous submission of certain multiple 
cash-settled index contracts and multiple contracts on the following 
major currencies--the Australian dollar; British pound; Euro (and its 
component Currencies); Japanese yen; Canadian dollar; Swiss franc; New 
Zealand dollar; Swedish krona; and the Norwegian krone. The 
Commission's reduced fees for simultaneous submission of multiple, 
related cash-settled or major-currency contracts is equal to the 
applicable fee listed above for the first contract plus 10 percent of 
that fee for each additional contract in the filing. For multiple, 
simultaneously submitted, major-currency or cash-settled contract 
filings to be eligible for the reduced fees, the contracts in the 
filing must meet the following criteria:
    a. Each contract must be based on a major currency or be cash-
settled based on an index representing measurements of physical 
properties or financial characteristics which are not traded per se in 
the cash market, except in regard to the specified currency or the 
temporal or spatial pricing characteristics of the cash settlement 
price or the multiplier used to determine the size of each contract;
    b. The currency delivery procedures or the cash-settlement 
procedure must be the same for each contract in the filing;
    c. All other terms and conditions of the contracts must be the same 
in all respects; and
    d. The filing must contain a claim for the reduced fee and a 
representation that terms a.-c. are met. For multiple contract filings 
containing related contracts, the designation fees are:
     A submission of multiple related futures contracts--$6,300 
for the first contract, plus $630 for each additional contract;
     A submission of multiple related options on futures 
contracts $1,100 for the first contract, plus $110 for each additional 
contract;
     A combined submission of multiple futures contracts and 
options on those futures contracts--$7,000 for the first combined 
futures and option contract, plus $700 for each additional futures and 
option contract.
    B. Fees for the Commission's review of the rule enforcement 
programs at the registered futures associations and contract markets 
regulated by the Commission are:

------------------------------------------------------------------------
                           Entity                             Fee amount
------------------------------------------------------------------------
Chicago Board of Trade.....................................     $207,586
Chicago Mercantile Exchange................................      283,444
New York Mercantile Exchange/COMEX.........................      184,499
New York Board of Trade....................................       98,468
Kansas City Board of Trade.................................        6,779
Minneapolis Grain Exchange.................................        3,531
Philadelphia Board of Trade................................  ...........
National Futures Association...............................      233,222
                                                            ------------
  Total....................................................    1,017,528
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II. Overhead Rate

    The fees charged by the Commission to the SROs are designed to 
recover program costs, including direct labor costs and overhead. The 
overhead rate is calculated by dividing total Commission-wide direct 
labor program costs into the total amount of the Commission-wide 
overhead pool. In this connection, direct program labor costs are the 
salary costs of personnel working in all of the Commission's programs. 
Overhead costs consist generally of the following Commission wide 
costs: indirect personnel costs (leave and benefits), rent, 
communications, contract services, utilities, equipment, and supplies. 
This formula has resulted in the following overhead rates for the most 
recent three years (rounded to the nearest whole percent): 91 % for 
fiscal year 1997, 104% for fiscal year 1998 and 105% for fiscal year 
1999. These are the overhead rates applied to the direct labor costs in 
calculating the costs of reviewing contract designations and oversight 
of SRO rule enforcement programs, as described below.

III. Processing Applications for Designation of Contracts

    The calculation of the fees for processing applications for 
designation of contracts has become more refined over the years in 
response to changes in the types of contracts being designated.
    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 expended 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 designation 
applications were for futures contracts, as opposed to option 
contracts, and no separate fee was set for option contracts.
    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 percentage of applications pertaining 
to options had increased and that the cost of reviewing a futures 
contract designation application was much higher than the cost of 
reviewing an application for an option contract. It was also determined 
that, when designation 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. Therefore, in the interest of recognizing the cost 
differences to the Commission of the different combinations of contract 
submission, 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).
    Effective during fiscal year 1999, the Commission further refined 
its fee structure in order to recognize the unique processing cost 
characteristics of a class of contracts which are cash-settled based on 
a index of non-tangible commodities. In this connection the Commission 
determined to charge a reduced fee for ``related'' simultaneously 
submitted contracts for which the cash settlement procedure is 
identical, except in regard to a specified temporal or spatial pricing 
characteristic or the multiplier used to determine the size of each 
contract, and all other terms and conditions of the contracts in the 
filing are the same. The Commission also is including contracts on 
major currencies (including contracts based on currency cross rates) as 
contracts eligible for the reduced multiple contract fees. For this 
purpose, major currencies are defined as the Australian dollar; British 
pound; Euro (and its component currencies); Japanese yen; Canadian 
dollar; Swiss franc; New Zealand dollar; Swedish krona; and Norwegian 
krone.
    Contracts having differentiated spatial features include contracts 
which are identical in all respects, including the cash settlement 
mechanism, but which may be based on 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 spatial 
specifications.\2\ Contracts having

[[Page 46580]]

differentiated temporal features include contracts that are the same in 
all respects except for the time to maturity of the individual 
underlying instruments. This may include cash-settled interest rate 
futures contracts within a specific segment of the yield curve, 
provided that for each contract the cash settlement mechanism and 
derivation procedure is identical, and the integrity of the cash 
settlement mechanism is not dependent on the individual temporal 
specifications. Examples are, short-term interest rate contracts having 
monthly maturities ranging up to one year.\3\
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    \2\ Thus, for example, applications containing a number of 
similar cash-settled contracts based on the 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 require separate analyses.
    \3\ Cash-settled contracts covering various segments of the 
yield curve would not be eligible for the reduced fee, since the 
underlying instruments may be priced differently and have different 
trading characteristics, and the manipulation potential of each 
contract would be related to the liquidity of the underlying 
instruments and would, therefore, require separate analyses.
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    The Commission stated that a 10-percent marginal fee for additional 
contracts in a filing is appropriate for those simultaneously submitted 
applications eligible for the multiple-contract filing fee. Because the 
eligible, related contracts are based on indexes of non-tangible 
commodities not traded in the cash market, the Commission's review need 
not require a separate analysis of the different contracts in a filing 
related to the liquidity of the underlying cash markets or the 
reliability or transparency of prices for the individual commodities. 
Also, because each contract must use an identical cash-settlement 
procedure and all other material terms and conditions must be identical 
(except for the differentiated spatial or temporal term or the 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 all of the contracts in a related group are 
differentiated from one another only with respect to a spatial or 
temporal feature that has no bearing upon the characteristics of the 
cash settlement mechanism, each separate contract would not require a 
separate analysis to ascertain its compliance with the requirements for 
designation. Thus, the Commission's analysis of the cash settlement 
procedure in general and its review of the other material terms and 
conditions would be equally applicable to all of the related contracts 
in the filing. Only a limited supplemental analysis is required for 
each additional contract in such a filing, resulting in a substantially 
reduced marginal cost for reviewing and processing the additional 
contracts.
    Multiple contract filings of related futures and option contracts 
on major currencies are eligible for the multiple contract fees for the 
same reasons that reduced fees are appropriate for multiple, related 
cash settled contract filings. While currency contracts may not be cash 
settled, per se, issues related to physical delivery contracts do not 
arise for currencies since, like contracts providing for cash 
settlement, futures delivery and payment simply involves the exchange 
of cash (one currency for another). Moreover, the Commission previously 
has found that major currencies (as defined herein) have nearly 
inexhaustible deliverable supplies, exhibit extremely deep and liquid 
markets, are not subject to convertibility or delivery restrictions and 
are easily arbitraged between cash and futures markets; thus, it has 
exempted contracts based on them from speculative limits. In view of 
this, no separate analysis is required of the manipulation potential of 
each contract based on a major currency in a multiple contract filing. 
Also, the delivery and payment procedures and all other terms and 
conditions are identical for currency contracts, as the only difference 
is the actual currencies being transferred in the delivery and payment 
process. Accordingly, since only an incremental analysis is needed for 
each additional contract in a multiple contract filing, lower fees are 
more in line with actual processing costs.
    The Commission's extensive experience in reviewing new contract 
designation applications indicates that, for simultaneous submission of 
multiple, related major-currency or cash-settled contracts, 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. Thus, the Commission's fees for 
simultaneous submission of these types of related contracts is set to 
be equal to the prevailing, single contract applicable fee for the 
first contract plus 10 percent of that fee for each additional contract 
in the filing. This marginal-cost-based 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.
    Separately, the Commission notes that the fees for futures contract 
applications also applies to applications for options on physical 
commodities, and that the reduced option fee applies only to 
applications for options on existing futures contracts. Because the 
requirements for designation of an option on a physical commodity are 
substantially identical to those of futures, the same fee will apply to 
both types of filings.\4\
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    \4\ In this regard, under the Commission's Guideline No. 1, 
which details the information an application for contract market 
designation must include, all of the requirements for futures 
contract applications (whether providing for physical delivery or 
cash settlement) also apply to options on physicals applications, 
plus several additional requirements that apply uniquely to options. 
See, for example, 63 FR 38537, July 17, 1998.
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    The Commission staff compiled the actual costs of processing 
applications for contract market designation for a futures contract for 
fiscal years 1997, 1998 and 1999 and found that the average cost over 
the three-year period was $6,300 per contract. The review of actual 
costs of processing applications for contract market designation for an 
option contract for fiscal years 1997, 1998 and 1999 revealed that the 
average costs over the same three-year period was $1,116 per contract, 
including overhead applied. Accordingly, the Commission has determined 
that the fee for applications for contract market designation for a 
futures contract will be set at $6,300 and the fee for applications for 
contract market designation as an option contract will be set at 
$1,100, in accordance with the Commission's regulations (17 CFR Part 5, 
Appendix B). In addition, by reference to the above cost analysis, the 
combined fee for contract markets simultaneously submitting designation 
applications for a futures contract and an option contract on that 
futures contract and fees for filings containing multiple cash-settled 
indexes on nontangible commodities have been set on a similar basis, as 
indicated in the schedule appearing above in the Summary section.

IV. Conduct of SRO Rule Enforcement Reviews

    Under the formula adopted in 1993 (58 FR 42643, August 11, 1993, 
which appears in 17 CFR Part 1, Appendix B), the Commission calculates 
the fee to recover the costs of its review of rule enforcement 
programs, based on a 3-year average of the actual cost of performing 
reviews at each SRO. The cost of operation of the Commission's program 
of SRO oversight varies from SRO to SRO, according to the size and 
complexity of each SRO's program. The 3-year averaging is performed to 
smooth out some variations in year-to-year costs which can be large. In 
particular, the costs may vary year-to-year depending upon the timing 
of the reviews. This is

[[Page 46581]]

because the conduct of a review may span two fiscal years and, also, 
reviews at each SRO are not usually conducted each and every year. An 
adjustment to actual costs may be made in order to relieve burden upon 
SROs with a disproportionately large share of program costs. That is, 
the Commission's formula provides for a reduction in the fee assessed 
if an SRO has a smaller percentage of U.S. industry contract volume 
than its percentage of overall Commission oversight program costs, as 
described below. The adjustment made is to reduce one-half of the costs 
so that, as a percentage of total Commission SRO oversight program 
costs, the costs are in line (in percentage terms) with the pro-rata 
percentage for that SRO of U.S. industry-wide contract volume. 
Following is a detailed description of the calculation:
    The fee required to be paid to the Commission by each contract 
market is equal to the lesser of: actual costs based upon the three-
year historical average of costs for that contract market or: (i) One-
half of average costs incurred by the Commission pertaining to each 
contract market for the most recent three-years, plus (ii) a pro-rata 
share (based upon average trading volume for the most recent three 
years) of the aggregate of average annual costs of all the contract 
markets for the most recent three years. The formula for calculating 
the second factor mentioned above is: 0.5a + 0.5vt = current fee. In 
the formula, ``a'' equals the average annual costs, ``v'' equals the 
percentage of total volume across exchanges over the last three years 
and ``t'' equals the average annual cost for all exchanges. (The one 
registered futures association regulated by the Commission, the 
National Futures Association (NFA), has no contracts traded and, thus, 
the NFA's fee is based simply on costs for the most recent three fiscal 
years.)
    Following is a summary of data used in the calculations and the 
resultant fee for each entity:

----------------------------------------------------------------------------------------------------------------
                                                                              3-year average
                                                           3-year average     percentage of     2000 fee amount
                                                            actual costs    volume  (percent)
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Chicago Board of Trade.................................           $207,586            44.6820           $207,586
Chicago Mercantile Exchange............................            283,444            35.3012            283,444
NYMEX/COMEX............................................            226,295            15.8933            184,499
New York Board of Trade................................            165,269             3.5269             94,468
Kansas City Board of Trade.............................              9,989             0.3975              6,779
Minneapolis Grain Exchange.............................              5,295             0.1967              3,531
Philadelphia Board of Trade............................                  0             0.0024                  0
                                                        --------------------------------------------------------
Sub-total..............................................            897,887           100.0000            784,306
National Futures Association...........................            233,222                N/A            233,222
                                                        --------------------------------------------------------
    Total..............................................          1,131,099           100.0000         $1,017,528
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    Below is an example of how the fee was calculated for one exchange, 
the Minneapolis Grain Exchange:
    (i) Actual 3-year average costs are $5,295;
    (ii) Alternative computation is;

(.5)($5,295) + (.5)(.1967%)($897,877) = 3,531

    (iii) The fee is the lesser of (i) or (ii) = $3,531.
    As noted above, the alternative calculation, which is based upon 
contracts traded, is not applicable to the NFA because it is not a 
contract market and, thus, has no contracts traded. The Commission's 
average annual cost for conducting oversight review of the NFA rule 
enforcement program during fiscal years 1997 through 1999 was $233,222 
(\1/3\ of $699,666). Therefore, the fee to be paid by the NFA for the 
current fiscal year is $233,222.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
requires agencies to consider the impact of rules on small businesses. 
The fees implemented in this release affect contract markets (also 
referred to as ``exchanges'') and registered futures associations. 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). Registered futures 
associations also are not considered ``small entities'' by the 
Commission. Therefore, the requirements of the Regulatory Flexibility 
Act do not apply to contract markets or registered futures 
associations. Accordingly, the Chairman, on behalf of the Commission, 
certifies that the fees implemented herein do not have a significant 
economic impact on a substantial number of small entities.

    Issued in Washington, DC on July 19, 2000, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 00-18729 Filed 7-28-00; 8:45 am]
BILLING CODE 6351-01-P