[Federal Register Volume 67, Number 150 (Monday, August 5, 2002)]
[Proposed Rules]
[Pages 50608-50610]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19608]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 15

RIN 3038-AB91


Reporting Levels for Large Trader Reports; TRAKRS

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing to amend its regulations to establish a reporting level 
for TRAKRS futures contracts to be traded on the Chicago Mercantile 
Exchange (CME). The reporting level being proposed is 25,000 contracts.

DATES: Comments must be received by September 4, 2002.

ADDRESSES: Comments should be sent to the Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, attention: Office of the Secretariat. Comments may be sent by

[[Page 50609]]

facsimile transmission to (202) 418-5521 or by e-mail to 
[email protected]. Reference should be made to ``Reporting Levels for 
TRAKRS.''

FOR FURTHER INFORMATION CONTACT: Gary J. Martinaitis, Deputy Associate 
Director, Market Surveillance Section, Division of Market Oversight, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. Telephone: (202) 418-5260. E-mail: 
[[email protected]].

SUPPLEMENTARY INFORMATION: On December 21, 2000, the President signed 
into law the Commodity Futures Modernization Act of 2000 (CFMA), Pub. 
L. No. 106-544, which extensively revises the Commodity Exchange Act 
(Act). Among other things, the CFMA facilitated the introduction of new 
futures products by the exchanges. The CME intends to introduce a new 
product, called TRAKRS, which are low notional value futures contracts 
based on broad based indices of stocks, bonds, currencies, or other 
financial instruments. The value of the first TRAKRS futures contract, 
with is scheduled to begin regular trading sessions on August 1, 2002, 
will be less than $25 at the start of trading.\1\
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    \1\ Securities broker-dealers and their registered 
representatives may offer and sell TRAKRS futures contract pursuant 
to a no-action letter issued by Commission staff on July 11, 2001. 
See CFTC Letter 02-22, Division of Trading and Markets, CFTC (July 
11, 2001), available on the Commission website at http://www.cftc.gov.
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    TRAKRS, like all other commodities traded on Commission-designated 
markets, will be subject to the Commission's large trader reporting 
rules. Those rules require futures commission merchants, members of 
contract markets and foreign brokers to report to the Commission 
position information of the largest futures and options traders and, 
upon special call by the Commission, require the traders themselves to 
file reports with the Commission. 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.
    Based upon its experience in administering a large trader reporting 
system that is designed to provide adequate market coverage in light of 
positions traded or expected to be traded, the Commission is proposing 
to establish a reporting level for TRAKRS of 25,000 contracts. The 
Commission intends to review this level over time to determine whether 
it provides adequate coverage. Furthermore, since the proposed 
reporting level is significantly influenced by the relatively low value 
of the initial TRAKRS contract (which will be less than $25), the 
Commission intends to reconsider this reporting level if new TRAKRS 
contracts are introduced at a substantially higher price or any TRAKRS 
contract begin to trade at a substantially higher price.
    The Commission notes that the low value of TRAKRS contracts could 
result in very large positions being reported. Due to current 
limitations in the Commission's large trader record format,\2\ and 
similar limitations in the CME's own large trader reporting system, the 
Commission is proposing that TRAKRS positions be reported under Part 17 
of its rules, 17 CFR Part 17, only after they have been rounded down to 
the nearest 1000 and then divided by 1000. For example, a position of 
27, 955 contracts would be rounded down to 27,000, divided by 1000 and 
reported as 27.\3\
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    \2\ See 17 CFR 17.00(g)(1).
    \3\ Contract markets should continue to report under Part 16, 17 
CFR Part 16, the actual TRAKRS position without regard to the 
reporting convention proposed to be applied for reports under part 
17.
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    Because, in the absence of this rule amendment, the Commission's 
default reporting level of 25 contracts would apply, the Commission 
hereby is granting no-action relief to futures commission merchants, 
members of contracts markets and foreign brokers that comply with the 
requirements on this proposed rule prior to its final adoption. 
Accordingly, the Commission will not bring any enforcement action 
against any futures commission merchant, member of a contract market or 
foreign broker who complies with the rule as proposed herein. Such 
futures commission merchants, members of contract markets and foreign 
brokers will, however, be required to bring their conduct into 
compliance with the final rule to the extent that the final rule 
differs from the proposed rule.

Cost Benefit Analysis

    Section 15 of the Act requires the Commission to consider the costs 
and benefits of its action before issuing a new regulation under the 
Act. By its terms, section 15 does not require the Commission to 
quantify the costs and benefits of a new regulation or to determine 
whether the benefits of the proposed regulation outweigh its costs. 
Rather, section 15 simply requires the Commission to ``consider the 
cost and benefits'' of the subject rule.
    Section 15(a) further specifies that the costs and benefits of the 
proposed rule shall be evaluated in light of five broad areas of market 
and public concern: (1) Protection of market participants and the 
public; (2) efficiency, competitiveness, and financial integrity of 
futures markets; (3) price discovery; (4) sound risk management 
practices; and (5) other public interest considerations. The Commission 
may, in its discretion, give greater weight to any one of the five 
enumerated areas of concern and may, in its discretion, determine that, 
notwithstanding its costs, a particular rule is necessary or 
appropriate to protect the public interest or to effectuate any of the 
provisions or to accomplish any of the purposes of the Act.
    The proposed rule imposes limited costs in terms of reporting 
requirements, particularly since most entities that trade on U.S. 
futures markets already file large trader reports with the Commission. 
Moreover, to reduce the cost of reporting, the Commission will 
periodically review the reporting level for TRAKRS, as it generally 
does for reporting levels for all commodities.\4\ The countervailing 
benefits of these costs are that the Commission will have the necessary 
information to perform its market surveillance function and thus carry 
out its mandate of assuring the continued existence of competitive and 
efficient markets, protecting their price discovery function and 
protecting market participants and the public interest therein.
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    \4\ See, e.g., 65 FR 14452 (Mar. 17, 2000).
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    After considering these factors, the Commission has determined to 
propose the revision to part 15 set forth below.
    The Commission specifically invites public comment on its 
application of the criteria contained in the Act for consideration. 
Commenters are also invited to submit any quantifiable date that they 
may have concerning the costs and benefits of the proposed rule with 
their comment letters.

Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires that federal agencies, in proposing rules, consider the impact 
of those rules on small entities. The Commission has previously 
determined that large traders and FCMs are not ``small entities'' for

[[Page 50610]]

purposes of the RFA.\5\ The proposed amendment to reporting 
requirements primarily impacts FCMs. Similarly, members of contract 
markets and foreign brokers report only if carrying or holding 
reportable, i.e., large positions. Therefore, the Chairman, 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 on its operation.
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    \5\ 47 FR 18618-20 (Apr. 30, 1982).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) (PRA), 
which imposes certain requirements on federal agencies (including the 
Commission) in connection with their conducting or sponsoring any 
collection of information as fined by the PRA, does not apply to this 
rule. The Commission believes that the proposed rule amendment does not 
contain information requirements which require the approval of the 
Office of Management and Budget. The purpose of this rule is to 
establish a specific reporting level for TRAKRS.

List of Subjects in 17 CFR Part 15

    Brokers, 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, 5a and 8a 
of the Act, 7 U.S.C. 6g, 6i, 7, 7a and 12a, as amended, the Commission 
hereby proposes to amend Part 15 of Chapter I of Title 17 of the Code 
of Federal Regulations as follows:

PART 15--REPORTS--GENERAL PROVISIONS

    1. The authority section for part 15 continues to read as follows:

    Authority: U.S.C. Secs. 2, 5, 6a 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 
7a, 9, 12a, 19, and 21, as amended by the Commodity Futures 
Modernization Act of 2000, Appendix E of Pub. L. No. 106-554, 114 
Stat. 2763 (2000); 5 U.S.C. 552 and 552(b).

    2. Section 15.03 is proposed to be amended by revising paragraph 
(b) to read as follows:


Sec. 15.03  Reporting levels.

* * * * *
    (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
  No. 2 Heating Oil..........................................        250
  Crude Oil, Sweet...........................................        350
  Unleaded Gasoline..........................................        150
  Natural Gas................................................        175
Financial:
  Municipal Bond Index.......................................        300
  3-month (13-seek) 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
  Security Futures Products:
      Individual Equity Security.............................      1,000
      Narrow-Based Index of Equity Securities................        200
  TRAKRS.....................................................  \1\ 25,00
                                                                       0
All Other Commodities........................................        25
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\1\ For purposes of part 17, positions in TRAKRS should be reported by
  rounding down to the nearest 1000 and dividing by 1000.


    Issued in Washington, DC this 30th day of July, 2002, by the 
Commission.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 02-19608 Filed 8-2-02; 8:45 am]
BILLING CODE 6351-01-M