[Federal Register Volume 66, Number 155 (Friday, August 10, 2001)]
[Rules and Regulations]
[Pages 42289-42291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19497]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 40


Fees for Product Review and Approval

AGENCY: Commodity Futures Trading Commission.

ACTION: Establishment of a new schedule of fees.

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SUMMARY: The Commission charges fees to designated contract markets and 
registered derivatives transaction execution facilities to recover the 
costs of its review of requests for product review and approval. The 
calculation of the fee amounts to be charged for the upcoming year is 
based on an average of actual program costs incurred in the most recent 
three full fiscal years, as explained below. The new fee schedule is 
set forth below.

EFFECTIVE DATE: August 10, 2001.

FOR FURTHER INFORMATION CONTACT: Richard A. Shilts, Acting Director, 
Division of Economic Analysis, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, 
(202) 418-5260.

SUPPLEMENTARY INFORMATION:

I. Summary of Fees

    Fees charged for processing requests for product review and 
approval:
    Single Applications:
     A single futures contract or an option on a physical--
$6,000
     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--$6,500.
    Multiple Applications:
    For multiple contract filings containing related contracts, the 
product review and approval fees are:
     A submission of multiple related futures contracts--$6,000 
for the first contract, plus $600 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--$6,500 for the first combined 
futures and option contract, plus $650 for each additional futures and 
option contract.

II. Background Information

1. General

    The Commission recalculates the fees charged each year with the 
intention of recovering the costs of operating certain programs.\1\ All 
costs are accounted for by the Commission's Management Accounting 
Structure Codes (MASC) system operated according to a government-wide 
standard established by the Office of Management and Budget. The fees 
are set each year based on direct program costs, plus an overhead 
factor.
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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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2. Overhead Rate

    The fees charged by the Commission are designed to recover program 
costs, including direct labor costs and overhead. The overhead rate is 
calculated by dividing total Commission-wide direct program labor costs 
into the total amount of the Commission-wide overhead pool. For this 
purpose, direct program labor costs are the salary costs of personnel 
working in all Commission 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): 104 percent for fiscal year 1998, 105 percent for 
fiscal year 1999, and 105 percent for fiscal year 2000. These overhead 
rates are applied to the direct labor costs to calculate the costs of 
reviewing contract approval requests.

3. Processing Requests for Contract Approval

    Calculations of the fees for processing requests for product review 
and approval have become more refined over the years as the types of 
contracts being reviewed have changed.
    On August 23, 1983, the Commission established a fee for Contract 
Market Designation (48 FR 38214). Prior to its recent amendment, the 
Commodity Exchange Act (Act) provided for ``designation'' of each new 
contract as a ``contract market.'' The Commodity Futures Modernization 
Act (CFMA) amended the Act to limit the concept of ``contract market 
designation'' to approval of certain markets or trading facilities on 
which futures and options are traded, as opposed to approval of the 
product. The Commission has adopted rules, published elsewhere in this 
edition of the Federal Register, that implement the CFMA and the 
Commission's new regulatory framework. The implementing rules charge a 
fee for product review where

[[Page 42290]]

approval has been requested by a designated contract market or 
registered derivatives transaction execution facility (DTF). No fee is 
charged for the initial designation of a contract market or 
registration of a DTF.
    The fee, as originally adopted in 1983, was based on a three-year 
moving average of the actual costs expended and the number of contracts 
reviewed by the Commission during that period. The formula for 
determining the fee was revised in 1985. At that time, most designation 
applications were for futures contracts and no separate fee was set for 
option contracts.
    In 1992, the Commission reviewed its data on the actual costs for 
reviewing 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. The Commission also determined that 
when applications for a futures contract and an option on that futures 
contract are submitted simultaneously, the cost is much lower than when 
the contracts are separately reviewed. To recognize this cost 
difference, three separate fees were established: one for futures; one 
for options; and one for combined futures and option contract 
applications (57 FR 1372, Jan. 14, 1992).
    The Commission refined its fee structure further in fiscal year 
1999 to recognize the unique processing cost characteristics of a class 
of contracts--cash-settled based on an index of non-tangible 
commodities. The Commission determined to charge a reduced fee for 
related simultaneously submitted contracts for which the terms and 
conditions of all contracts in the filing are identical, except in 
regard to a specified temporal or spatial pricing characteristic or the 
multiplier used to determine the size of each contract. Contracts on 
major currencies (defined as 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) 
(including contracts based on currency cross rates) are also eligible 
for the reduced multiple contract fees.
    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\
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    \2\ Submissions 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 analysis.
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    Contracts having 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 include short-term interest rate contracts 
having monthly maturities ranging up to one year.\3\
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    \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 require separate analysis.
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    The Commission determined that a 10 percent marginal fee for 
additional contracts in a filing is appropriate for simultaneously 
submitted contracts eligible for the multiple contract filing fee. 
Because the eligible related contracts are based on indices 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. 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 each other only with respect to a spatial or 
temporal feature that has no bearing on the characteristics of the cash 
settlement mechanism, each contract would not require a separate 
analysis to ascertain its compliance with the requirements for 
designation. Hence, the Commission's analysis of the cash settlement 
procedure in general and its review of the other material terms and 
conditions would be applicable equally to all 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, future delivery and payment involve simply the exchange of 
cash (one currency for another). Moreover, the Commission has found 
that major currencies (as defined here) 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 and it has exempted 
contracts based on major currencies from speculative limits. Therefore, 
no separate analysis is required of the manipulation potential of each 
contract based on a major currency in a multiple contract filing. 
Moreover, delivery and payment procedures and all other terms and 
conditions are identical for currency contracts; the difference is 
limited to the actual currency transferred in the delivery and payment 
process. 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 experience in reviewing new contracts 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 fee reflects the Commission's expected 
review costs for these reviews. The Commission's fee for simultaneous 
submission of such related contracts is equal to the prevailing single 
contract fee applicable to the first contract plus 10 percent for each 
additional contract in the filing. This marginal cost-based fee 
structure is an extension of the policy adopted by the Commission in 
1992 when it established reduced fees

[[Page 42291]]

for option filings and for combined futures and option filings.
    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 the terms a through c above have been met.
    The Commission also notes that the fees for futures contract 
filings apply to filings for options on physical commodities, and that 
the reduced option fee applies only to applications for options on 
existing futures contracts. The requirements for approval of an option 
on a physical commodity are substantially similar to those of futures 
and so the same fee applies to both types of filings.\4\
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    \4\ The Commission's Guideline No. 1 details the information 
that must be included in a request for approval of a contract; all 
requirements for futures contracts (physical delivery or cash 
settlement) also apply to options on physicals applications (several 
additional requirements apply only to options). 63 FR 38537 (July 
17, 1998).
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    Commission staff compiled the actual costs of processing a request 
for product review and contract approval for a futures contract for 
fiscal years 1998, 1999, and 2000, and found that the average cost over 
the three-year period was $6,000, including overhead. Review of actual 
costs of processing contract approval reviews for an option contract 
for fiscal years 1998, 1999, and 2000 reveal that the average cost over 
the period was $1,100 per contract, including overhead.
    In accordance with its regulations recodified elsewhere in this 
edition of the Federal Register as 17 CFR Part 40 Appendix B, the 
Commission has determined that the fee for approval of a futures 
contract will be set at $6,000 and the fee for approval of an option 
contract will be set at $1,100. The fee for simultaneously submitted 
futures contracts and option contracts on those futures contracts and 
the fees for filings containing multiple cash-settled indices on non-
tangible commodities have been set similarly and as indicated in the 
schedule set forth in the Summary of Fees above.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., requires 
agencies to consider the impact of rules on small business. The fees 
implemented in this release affect contract markets and registered 
DTFs. The Commission has previously determined that contract markets 
and registered DTFs are not ``small entities'' for purposes of the 
Regulatory Flexibility Act. Accordingly, the Acting Chairman, on behalf 
of the Commission, certifies pursuant to 5 U.S.C. 605(b), that the fees 
implemented here will not have a significant economic impact on a 
substantial number of small entities.

    Issued in Washington, DC on July 30, 2001 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 01-19497 Filed 8-9-01; 8:45 am]
BILLING CODE 6351-01-P