[Federal Register Volume 70, Number 145 (Friday, July 29, 2005)]
[Rules and Regulations]
[Pages 43748-43750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-15000]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 41

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-52115; File No. S7-11-01]


Technical Amendments to Rules Setting Forth the Method for 
Determining Market Capitalization and Dollar Value of Average Daily 
Trading Volume; Application of the Definition of Narrow-Based Security 
Index

AGENCIES: Commodity Futures Trading Commission and Securities and 
Exchange Commission.

ACTION: Joint technical amendment.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'') and the 
Securities and Exchange Commission (``SEC'') (collectively 
``Commissions'') are adopting technical amendments to certain 
references in rules under the

[[Page 43749]]

Commodity Exchange Act (``CEA'') and the Securities Exchange Act of 
1934 (``Exchange Act'') that set forth the method for determining 
market capitalization and dollar value of average daily trading volume, 
to reflect new terminology and rule designations that will become 
effective as a result of the adoption by the SEC of Regulation NMS. 
Specifically, the phrase ``reported securities as defined in Sec.  
240.11Ac1-1'' will be replaced with the phrase ``NMS securities as 
defined in Sec.  242.600.''

EFFECTIVE DATE: August 29, 2005.

FOR FURTHER INFORMATION CONTACT: CFTC--Elizabeth Ritter, Assistant 
General Counsel, Office of the General Counsel, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581. Telephone: (202) 418-5052. SEC--Ira Brandriss, 
Special Counsel, at (202) 551-5651; or Tim Fox, Attorney, at (202) 551-
5643, Office of Market Supervision, Division of Market Regulation, U.S. 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549.

SUPPLEMENTARY INFORMATION: The CFTC is amending Rule 41.11 under the 
CEA, 17 CFR 41.11. The SEC is amending Rule 3a55-1 under the Exchange 
Act, 17 CFR 240.3a55-1.\1\
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    \1\ Rule 41.11 of Subpart B of Rule 41 (``Narrow-Based Security 
Indexes'' ) under the CEA corresponds to Rule 3a55-1 under the 
Exchange Act.
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I. Discussion

    The Commodity Futures Modernization Act (``CFMA''),\2\ which became 
law on December 21, 2000, established a framework for the joint 
regulation of the trading of futures contracts on single securities and 
narrow-based security indexes (collectively, ``security futures 
products'') by the CFTC and the SEC. Under the CFMA, designated 
contract markets and registered derivatives transaction execution 
facilities may trade security futures products if they register with 
the SEC and comply with certain other requirements of the Exchange 
Act.\3\ Likewise, national securities exchanges and national securities 
associations may trade security futures products if they register with 
the CFTC and comply with certain other requirements of the CEA.\4\
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    \2\ Pub. L. 106-554, 114 Stat. 2763 (2000).
    \3\ 15 U.S.C. 78a et seq.
    \4\ 7 U.S.C. 1 et seq.
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    To distinguish between security futures on narrow-based security 
indexes, which are jointly regulated by the Commissions, and futures 
contracts on broad-based security indexes, which are under the 
exclusive jurisdiction of the CFTC, the CFMA also amended the CEA and 
the Exchange Act by setting forth an objective definition of ``narrow-
based security index,'' and certain exclusions from this definition.\5\
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    \5\ Section 1a(25) of the CEA, 7 U.S.C. 1a(25), and Section 
3(a)(55) of the Exchange Act, 15 U.S.C. 78c(a)(55).
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    One of the criteria that can affect the determination of whether an 
index is a narrow-based security index under the statutory definition 
relates to the dollar value of the average daily trading volume 
(``ADTV'') of component securities of the index.\6\ One of the 
exclusions from the definition depends, in part, on whether each 
component security of the index is one of the 750 securities with the 
largest market capitalization and is one of 675 securities with the 
largest dollar value of ADTV.\7\ The statutes require the Commissions, 
by rule or regulation, to jointly specify the method to be used to 
determine market capitalization and dollar value of ADTV for purposes 
of these provisions.\8\
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    \6\ See Section 1a(25)(A) of the CEA, 7 U.S.C. 1a(25)(A), and 
Section 3a(55)(B) of the Exchange Act, 15 U.S.C. 78c(a)(55)(B).
    \7\ See Section 1a(25)(B) of the CEA, 7 U.S.C. 1a(25)(B), and 
Section 3a(55)(C) of the Exchange Act, 15 U.S.C. 78c(a)(55)(C).
    \8\ See Section 1a(25)(E) of the CEA, 7 U.S.C. 1a(25)(E), and 
Section 3a(55)(F) of the Exchange Act, 15 U.S.C. 78c(a)(55)(F).
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    In fulfillment of this mandate, on August 20, 2001, the Commissions 
jointly adopted Rule 41.11 \9\ under the CEA and Rule 3a55-1 \10\ under 
the Exchange Act.\11\ These rules include references to ``reported 
securities as defined in Sec.  240.11Ac1-1.'' \12\ A new regulation 
adopted by the SEC \13\ changes the term ``reported security'' to the 
term ``NMS security,'' which is defined in new Sec.  242.600. The 
definition of ``NMS security'' under new Sec.  242.600 is identical to 
the definition of ``reported security'' under previous Sec.  240.11Ac1-
1.
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    \9\ See 17 CFR 41.11.
    \10\ See 17 CFR 240.3a55-1.
    \11\ See Securities Exchange Act Release No. 44724 (August 20, 
2001), 66 FR 44490 (August 23, 2001).
    \12\ See 17 CFR 41.11(a)(2)(ii) and (b)(2)(ii)(B) and 17 CFR 
240.3a55-1(a)(2)(ii) and (b)(2)(ii)(B).
    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (adopting Regulation NMS).
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    To reflect the change, the Commissions are adopting conforming 
changes to Rule 41.11 under the CEA and Rule 3a55-1 under the Exchange 
Act.\14\ Specifically, the phrase ``reported securities as defined in 
Sec.  240.11Ac1-1'' that appears in Rules 41.11(a)(2)(ii) and 
(b)(2)(ii)(B) under the CEA will be replaced with the phrase ``NMS 
securities, as defined in Sec.  242.600.'' The phrase ``reported 
securities as defined in Sec.  240.11Ac1-1'' that appears in Rules 
3a55-1(a)(2)(ii) and (b)(2)(ii)(B) under the Exchange Act will be 
replaced with the phrase ``NMS securities as defined in Sec.  242.600 
of this chapter.'' The amendments will take effect on August 29, 2005, 
the same day upon which Regulation NMS becomes effective.
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    \14\ The SEC proposed to make the conforming changes to Rule 
3a55-1 under the Exchange Act in the release re-proposing 
Regulations NMS. See Securities Exchange Act Release No. 50870 
(December 16, 2004), 69 FR 77424 (December 27, 2004) (File No. S7-
10-04), at note 402. To comply with Section 1a(25)(E)(ii) of the CEA 
and Section 3(a)(55)(F)(ii) of the Exchange Act, the Commissions are 
adopting, herewith the conforming changes jointly.
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II. Certain Findings

    Under the Administrative Procedure Act (``APA''), notice of 
proposed rulemaking is not required when an agency, for good cause, 
finds ``that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.'' \15\ The amendments 
described herein are non-substantive, technical changes that are 
required to update existing terminology and references in the relevant 
rules to conform to the new terminology and rule designations adopted 
by the SEC. For these reasons, the Commissions find that it is 
unnecessary to publish notice of these amendments.\16\
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    \15\ 5 U.S.C. 553(b)(3)(B).
    \16\ For similar reasons, the amendments do not require analysis 
under the Regulatory Flexibility Act or analysis of major status 
under the Small Business Regulatory Enforcement Fairness Act. See 5 
U.S.C. 601(2) (for purposes of Regulatory Flexibility Act analyses, 
the term ``rule'' means any rule for which the agency publishes a 
general notice of proposed rulemaking); 5 U.S.C. 804(3)(C) (for 
purposes of congressional review of agency rulemaking, the term 
``rule'' does not include any rule of agency organization, 
procedure, or practice that does not substantially affect the rights 
or obligations of non-agency parties).
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III. Statutory Authority

    Pursuant to the CEA and the Exchange Act and, particularly, Section 
1a(25)(E)(ii) of the CEA \17\ and Sections 3(a)(55)(F)(ii) of the 
Exchange Act,\18\ the Commissions are adopting technical amendments to 
Rule 41.11(a)(2)(ii) and (b)(2)(ii)(B) under the CEA \19\ and Rule 
3a55-1(a)(2)(ii) and (b)(2)(ii)(B) under the Exchange Act.\20\
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    \17\ 7 U.S.C. 1a(25)(E)(ii).
    \18\ 15 U.S.C. 78c(a)(55)(F)(ii).
    \19\ 17 CFR 41.11(a)(2)(ii) and (b)(2)(ii)(B).
    \20\ 17 CFR 240.3a55-1(a)(2)(ii) and (b)(2)(ii)(B).
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Text of Rules

List of Subjects

17 CFR Part 41

    Security futures products.

[[Page 43750]]

17 CFR Part 240

    Securities.

Commodity Futures Trading Commission

0
In accordance with the foregoing, Title 17, Chapter I, of the Code of 
Federal Regulations is amended as follows:

PART 41--SECURITY FUTURES PRODUCTS

0
1. The authority citation for part 41 continues to read as follows:

    Authority: Sections 206, 251, 252, Pub. L. 106-554, 114 Stat. 
2763; 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).


0
2. Section 41.11 is amended by revising paragraphs (a)(2)(ii) and 
(b)(2)(ii)(B) to read as follows:


Sec.  41.11  Method for determining market capitalization and dollar 
value of average daily trading volume; application of the definition of 
narrow-based security index.

    (a) * * *
    (2) * * *
    (ii) The 750 securities with the largest market capitalization 
shall be identified from the universe of all NMS securities as defined 
in Sec.  242.600 that are common stock or depositary shares.
    (b) * * *
    (2) * * *
    (ii) * * *
    (B) The 675 securities with the largest dollar value of ADTV shall 
be identified from the universe of all NMS securities as defined in 
Sec.  242.600 that are common stock or depositary shares.
* * * * *

    Dated: July 25, 2005.

    By the Commodity Futures Trading Commission.
Jean A. Webb,
Secretary.

Securities and Exchange Commission

0
In accordance with the foregoing, Title 17, Chapter II, of the Code of 
Federal Regulations is amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The authority citation for part 240 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.
* * * * *

0
2. Section 240.3a55-1 is amended by revising paragraphs (a)(2)(ii) and 
(b)(2)(ii)(B) to read as follows:


Sec.  240.3a55-1  Method for determining market capitalization and 
dollar value of average daily trading volume; application of the 
definition of narrow-based security index.

    (a) * * *
    (2) * * *
    (ii) The 750 securities with the largest market capitalization 
shall be identified from the universe of all NMS securities as defined 
in Sec.  242.600 of this chapter that are common stock or depositary 
shares.
    (b) * * *
    (2) * * *
    (ii) * * *
    (B) The 675 securities with the largest dollar value of ADTV shall 
be identified from the universe of all NMS securities as defined in 
Sec.  242.600 of this chapter that are common stock or depositary 
shares.
* * * * *

    Dated: July 25, 2005.

    By the Securities and Exchange Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 05-15000 Filed 7-28-05; 8:45 am]
BILLING CODE 8010-01-P; 6351-01-P