[Federal Register Volume 71, Number 119 (Wednesday, June 21, 2006)]
[Notices]
[Pages 35627-35632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-9722]


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COMMODITY FUTURES TRADING COMMISSION


Comprehensive Review of the Commitments of Traders Reporting 
Program

AGENCY: Commodity Futures Trading Commission.

ACTION: Request for comments.

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SUMMARY: The Commitments of Traders (``COT'') reports are weekly 
reports, published by the Commodity Futures Trading Commission 
(``CFTC'' or ``Commission''), showing aggregate trader positions in 
certain futures and options markets. Over time, both the trading 
activity that is the subject of the COT reports, and the reports 
themselves, have continued to change and evolve. As part of its ongoing 
efforts both to maintain an information system that reflects changing 
market conditions, and to provide the public with useful information 
regarding futures and options markets, the Commission is undertaking a 
comprehensive review of the COT reporting program. This release is 
intended to: (1) Provide useful background information regarding the 
COT reports; (2) lay out various issues and questions regarding the COT 
reports; and (3) solicit public comment regarding the reports, 
including suggestions as to possible changes in the COT reporting 
system.

DATES: Responses must be received by August 21, 2006.

ADDRESSES: Written responses should be sent to Eileen Donovan, Acting 
Secretary, Commodity Futures Trading Commission, Three Lafayette 
Center, 1155 21st Street, NW., Washington, DC 20581. Responses may also 
be submitted via e-mail at [email protected]. ``COT reports'' must be 
in the subject field of responses submitted via e-mail, and clearly 
indicated in written submissions. This document is also available for 
comment at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Donald H Heitman, Senior Special 
Counsel, Division of Market Oversight, Commodity Futures Trading 
Commission, Three Lafayette Center, 1155 21st Street, NW., Washington, 
DC 20581. Telephone: 202-418-5041. E-mail: [email protected].

SUPPLEMENTARY INFORMATION:

[[Page 35628]]

I. Background

A. The COT Reports

    The COT reports provide a breakdown of each Tuesday's open interest 
\1\ for all futures and option markets in which 20 or more traders hold 
positions equal to or above the reporting levels \2\ established by the 
CFTC. The weekly reports for Futures-Only Commitments of Traders and 
for Futures-and-Options-Combined Commitments of Traders are released 
every Friday at 3:30 p.m. Eastern time. Reports are available in both a 
short and long format. The short report shows open interest separately 
by reportable and nonreportable \3\ positions. For reportable 
positions, additional data are provided for commercial and non-
commercial holdings.
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    \1\ Open interest is the total of all futures and/or option 
contracts entered into and not yet offset by a transaction, by 
delivery, by exercise, etc. The aggregate of all long open interest 
is equal to the aggregate of all short open interest. Open interest 
held or controlled by a trader is referred to as that trader's 
position. For the COT Futures & Options Combined report, option open 
interest and traders' option positions are computed on a futures-
equivalent basis using delta factors supplied by the exchanges. 
Long-call and short-put open interest are converted to long futures-
equivalent open interest. Likewise, short-call and long-put open 
interest are converted to short futures-equivalent open interest. 
For example, a trader holding a long put position of 500 contracts 
with a delta factor of 0.50 is considered to be holding a short 
futures-equivalent position of 250 contracts. A trader's long and 
short futures-equivalent positions are added to the trader's long 
and short futures positions to give ``combined-long'' and 
``combined-short'' positions. Open interest, as reported to the 
Commission and as used in the COT report, does not include open 
futures contracts against which notices of deliveries have been 
stopped by a trader or issued by the clearing organization of an 
exchange.
    \2\ Clearing members, futures commission merchants, and foreign 
brokers (collectively called ``reporting firms'') file daily reports 
with the Commission. Those reports show the futures and option 
positions of traders that hold positions above specific reporting 
levels set by CFTC regulations. These reporting levels range from 25 
contracts for new or relatively small markets to 3,000 contracts for 
three-month Eurodollar time deposit rates (See 17 CFR 15.03). If, at 
the daily market close, a reporting firm has a trader with a 
position at or above the Commission's reporting level in any single 
futures month or option expiration, it reports that trader's entire 
position in all futures and options expiration months in that 
commodity, regardless of size. The aggregate of all traders' 
positions reported to the Commission usually represents 70 to 90 
percent of the total open interest in any given market. From time to 
time, the Commission will raise or lower the reporting levels in 
specific markets to strike a balance between collecting sufficient 
information to oversee the markets and minimizing the reporting 
burden on the futures industry.
    \3\ The long and short open interest shown as ``Nonreportable 
Positions'' are derived by subtracting total long and short 
``Reportable Positions'' from the total open interest. Accordingly, 
for ``Nonreportable Positions,'' the number of traders involved and 
the commercial/non-commercial classification of each trader are 
unknown.
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    When an individual reportable trader is identified to the 
Commission, the trader is classified either as ``commercial'' or ``non-
commercial.'' All of a trader's reported futures positions in a 
commodity are classified as commercial if the trader uses futures 
contracts in that particular commodity for hedging as defined in the 
Commission's regulations (17 CFR 1.3(z)). A trading entity generally 
gets classified as a ``commercial'' by filing a statement with the 
Commission (on CFTC Form 40) that it is commercially `` * * * engaged 
in business activities hedged by the use of the futures or option 
markets.'' In order to ensure that traders are classified with accuracy 
and consistency, the Commission staff reviews this self-classification 
and may re-classify a trader if the staff has additional information 
about the trader's use of the markets. A trader may be classified as a 
commercial in some commodities and as a non-commercial in other 
commodities. A single trading entity cannot be classified as both a 
commercial and non-commercial in the same commodity. Nonetheless, a 
multi-functional organization that has more than one trading entity may 
have each trading entity classified separately in a commodity. For 
example, a financial organization trading in financial futures may have 
a banking entity whose positions are classified as commercial and have 
a separate money-management entity whose positions are classified as 
non-commercial.
    The short report also provides additional data for reportable 
positions regarding spreading,\4\ changes from the previous report,\5\ 
percent of open interest by category,\6\ and numbers of traders.\7\ The 
long report, in addition to the information in the short report, also 
groups the data by crop year,\8\ where appropriate, and shows the 
concentration of positions held by the largest four and eight 
reportable traders, without regard to whether they are classified as 
commercial or non-commercial. Current COT data are available on the 
internet at the Commission's Web site, http://www.cftc.gov.\9\
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    \4\ For the futures-only report, spreading measures the extent 
to which each non-commercial trader holds equal long and short 
futures positions. For the options-and-futures-combined report, 
spreading measures the extent to which each non-commercial trader 
holds equal combined-long and combined-short positions. For example, 
if a non-commercial trader in Eurodollar futures holds 5,000 long 
contracts and 4,500 short contracts, 500 contracts will appear in 
the ``Long'' category and 4,500 contracts will appear in the 
``Spreading'' category. These figures do not include intermarket 
spreading (e.g., spreading Eurodollar futures against Treasury Note 
futures).
    \5\ Changes in commitments from the previous report represent 
the differences between the data for the current report date and the 
data published in the previous report.
    \6\ Percents are calculated against the total open interest for 
the futures-only report and against the total futures-equivalent 
open interest for the options-and-futures-combined report. Percents 
less than 0.05 are shown as 0.0, and the percents may not add to 
exactly 100.0 due to rounding.
    \7\ To determine the total number of reportable traders in a 
market, a trader is counted only once regardless whether the trader 
appears in more than one category (non-commercial traders may be 
long or short only and may be spreading; commercial traders may be 
long and short). To determine the number of traders in each 
category, however, a trader is counted in each category in which the 
trader holds a position. Therefore, the sum of the numbers of 
traders in each category will often exceed the ``Total'' number of 
traders in that market.
    \8\ For selected commodities where there is a well-defined 
marketing season or crop year, the COT data are broken down by 
``old'' and ``other'' crop years.
    \9\ Also available at that site are historical COT data going 
back to 1986 for futures-only reports and to 1995 for option-and-
futures-combined reports.
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B. Evolution of the COT Reports and the Marketplace

    The COT reports can trace their antecedents all the way back to 
1924. In that year, the U.S. Department of Agriculture's (``USDA'') 
Grain Futures Administration, predecessor of the USDA's Commodity 
Exchange Authority, which is in turn the predecessor of the Commission, 
published its first comprehensive annual report. The report was 
published pursuant to the provisions of the Grain Futures Act of 
1922,\10\ the predecessor statute of today's Commodity Exchange Act 
(``CEA'' or ``the Act''), which was enacted in 1936.\11\
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    \10\ 42 Stat. 998, September 21, 1922.
    \11\ 49 Stat. 1491, June 15, 1936, 7 U.S.C. 1 et seq..
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    The Grain Futures Administration noted that the general objectives 
of the Grain Futures Act included ``[t]o obtain for the use of Congress 
and the enlightenment of the public authentic and comprehensive 
information regarding trading in grain futures.''\12\ To that end, that 
legislation imposed recordkeeping and reporting requirements on boards 
of trade. One requirement of the implementing regulations was that 
records should be made in such a manner as to show whether the persons 
for whom transactions were executed were ``engaged in the cash grain 
business.''\13\ The express purpose of this requirement was
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    \12\ Annual Reports of the Department of Agriculture for 1924, 
Report of the Grain Futures Administration on Administration of the 
Grain Futures Act, at 2, September 9, 1924.
    \13\ Id. at 6.


[[Page 35629]]


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    to insure that the basic records of all transactions in grain 
futures will contain information which can be utilized for 
distinguishing transactions originating with persons engaged in the 
cash grain business (and therefore presumably representing in 
considerable part ``hedging'') from transactions originating with 
persons not so engaged (and therefore presumably representing for 
the most part ``speculation'').\14\
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    \14\ Id.
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    The report characterized the distinction between hedging and 
speculation as being of ``fundamental significance from the public 
point of view'' and one that ``deserves systematic reflection in the 
records kept of transactions in grain futures.''
    Over the years, the Grain Futures Administration and, after 1936, 
its successor organization the Commodity Exchange Authority, continued 
to publish annual statistics concerning hedging versus speculative 
transactions. Beginning with the adoption of the Commodity Exchange Act 
in 1936, and as part of amendments to that Act on a number of 
subsequent occasions, the Commodity Exchange Authority's jurisdiction 
was expanded beyond grains to cover additional agricultural 
commodities. The Commodity Exchange Authority designated the exchanges 
where futures contracts in those commodities were traded as ``contract 
markets'' in such commodities.\15\ As contract markets in additional 
commodities were designated, the Authority expanded its annual reports 
of hedging and speculative positions in futures markets to include 
additional commodities.\16\
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    \15\ In this context, a ``contract market designation'' refers 
to designating an exchange where futures contracts on a particular 
commodity are traded as a ``contract market'' in that commodity. For 
example, after the 1936 Act brought a number of additional 
agricultural commodities within the Commodity Exchange Authority's 
jurisdiction, the Authority designated the New York Cotton Exchange 
as a contract market in cotton and the Chicago Mercantile Exchange 
as a contract market in butter, eggs and potatoes. As subsequent 
amendments brought additional commodities within the scope of the 
Act, further contract market designations followed, including 
soybeans (1940), soybean oil (1950), soybean meal (1951), frozen 
concentrated orange juice (1968), and livestock futures (live and 
feeder cattle, live hogs and frozen pork bellies--all in 1968). 
Under the Commodity Futures Modernization Act of 2000 (``CFMA''), 
however, a ``contract market designation'' refers to the Commission 
designating (licensing) a board of trade (exchange) as a 
``designated contract market'' (``DCM''). Once designated, a DCM can 
trade any number of commodities. A DCM can list any new product by 
filing with the Commission a copy of the rules pursuant to which the 
product will trade, along with a certification that the product 
complies with the Act and the Commission's rules thereunder.
    \16\ In addition, starting in 1942, the Commodity Exchange 
Authority began issuing ``Commodity Futures Statistics'' as a 
separate publication, distinct from the USDA annual report. The 
Commodity Futures Statistics were also expanded to include monthly 
data, but were still published only on an annual basis.
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    In 1962, the Commodity Exchange Authority took what it called 
``another step forward in the policy of providing the public with 
current and basic data on futures market operations'' by moving beyond 
an annual statistical recap and initiating the publication of monthly 
COT reports. The original COT reports were compiled on an end-of-month 
basis and published on the 11th or 12th calendar day of the following 
month. The first COT report, covering 13 agricultural commodities, was 
published on June 13, 1962.
    Over the 44 years since then, both the COT reports and the 
underlying futures markets have undergone a number of significant 
changes. With respect to the COT reports, the number of commodities 
covered in the COT reports has continued to expand. In April 1975, the 
newly formed CFTC succeeded the Commodity Exchange Authority. The 
Commission continued to publish the COT reports, but expanded the 
reports' content to include new commodities first brought under the 
Commission's jurisdiction by the Commodity Futures Trading Commission 
Act of 1974.\17\ In the years since then, scores of new futures and 
option products have been listed for trading on designated futures 
exchanges. As noted above, not all these commodities are included in 
the COT reports, since reports are published only for commodities in 
which 20 or more traders hold reportable positions. The most recent COT 
reports published cover 85 to 90 commodities trading on six different 
DCMs.\18\
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    \17\ Public Law 93-463, 88 Stat. 1389, October 23, 1974. The new 
commodities added in 1974 included coffee, sugar, cocoa, metals, 
energy products and financial products, among other things.
    \18\ The COT reports are the most frequently visited section of 
the Commission's Web site. During 2005, nearly half of the visitors 
to the Commission's Web site were there primarily to access the COT 
reports, with approximately 460,000 visitors viewing the reports.
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    In addition to covering additional commodities, the Commission has 
improved the COT reports in several other ways as well. The Commission 
has changed the publication schedule several times to provide 
information to the public more frequently--switching publication from 
monthly to twice monthly (mid-month and month-end) in 1990, to every 
two weeks in 1992, and to weekly in 2000. The Commission has also acted 
to improve the timeliness of the reports--moving publication to the 
sixth business day after the ``as of'' date in 1990, and then to the 
third business day after the ``as of'' date in 1992. The Commission has 
also expanded the scope of the information included in the reports--
adding data on the numbers of traders in each category, a crop-year 
breakout and concentration ratios in the early 1970s and adding data on 
option positions in 1992. Finally, the Commission has made the COT 
reports more widely available--moving from a paid subscription-based 
mailing list to fee-based electronic access in 1993 and, since 1995, 
making the COT data freely available on the Commission's internet 
website.

C. Issues Regarding COT Data

1. Elimination of the Series '03 Reports
    One of the historical changes in the COT reports has raised 
questions with respect to the usage of the COT data in today's market 
environment. In 1981, the Commission adopted regulations \19\ to 
eliminate the routine filing of series '03 reports by large 
traders.\20\ The purpose of these rules was to reduce paperwork burdens 
on large traders and the Commission.
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    \19\ 46 FR 59960, December 8, 1981.
    \20\ Series '03 reports were required to be filed with the 
Commission by any trader who owned or controlled a reportable 
futures position. Once traders acquired a reportable position in a 
commodity, they were required to report trades, positions, exchanges 
of futures for physicals and delivery information regarding that 
commodity on series '03 reports, and to classify how much of their 
position was speculative and how much was hedging.
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    Because the series '03 reports included both position information 
for all reportable traders and the traders' classification of how much 
of their positions was speculative and how much was hedging, the series 
'03 reports had provided the data that went to make up the COT reports. 
In its rulemaking eliminating the series '03 reports, the Commission 
stated its intention to continue publishing the COT reports using data 
from the series '01 reports and Form 102,\21\ as well as the Form 40,

[[Page 35630]]

Statement(s) of Reporting Trader.\22\ However, publication of the COT 
reports was suspended for approximately 18 months in order to implement 
computer system changes that would enable the Commission to generate 
COT data under the revised reporting system.\23\ When the COT reports 
resumed, reportable positions were no longer classified as ``hedging'' 
or ``speculative'' (the series '03 forms that required traders to make 
these classifications no longer being available). Rather, reportable 
positions were classified as ``commercial'' or ``non-commercial,'' 
based on the declarations made in the reporting traders'' Form 40 
statements.
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    \21\ Series '01 reports are reports filed by futures commission 
merchants (``FCMs''), foreign brokers and exchange clearing members 
clearing their own trades, with respect to all customer or (for the 
exchange clearing members) proprietary accounts that attain a 
reportable position. A series '01 report itemizes the account number 
and certain positions, deliveries and exchanges of futures 
(including exchanges of futures for physicals [``EFPs''], swaps 
[``EFSs''], risk [``EFRs''] and options [``EFOs''] or other 
exchanges of futures for a commodity or for a derivatives position) 
associated with each account carrying a reportable position (See 17 
CFR 17.00). The name, address and occupation of the person or 
persons who own such accounts are separately identified on Form 102 
(See 17 CFR 17.01). By aggregating the series '01 and Form 102 
information filed with respect to traders with accounts at multiple 
FCMs or foreign brokers, the Commission can determine the size of 
each reportable trader's overall position.
    \22\ Each person that holds or controls a reportable position is 
required to file a Form 40. The Form 40 requires a trader to list 
its principal business or occupation and to state whether it is 
``commercially engaged in business activities hedged by the use of 
the futures or option markets.'' If the trader answers ``yes,'' it 
is instructed to complete a separate schedule ``listing the futures 
or option contract used, the cash commodity(ies) hedged, or the risk 
exposure covered, and the marketing occupations associated with 
hedging uses.''
    \23\ The Commission notes that eliminating the series '03 forms 
as the basis for the COT reports improved the timing and accuracy of 
the COT reports because: (1) Series '03 forms were mostly mailed to 
the Commission from wherever the trader resided, in some cases 
taking several days to arrive and be processed, whereas series '01 
reports are filed electronically by the following morning; and (2) 
series '03 forms were only required to be filed when a reportable 
trader's position changed, so that a trader's delay or failure to 
file a report often led to an erroneous assumption that the position 
had not changed.
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    The Commission believes that the public perception was, and is, 
that the ``commercial vs. non-commercial'' classification in current 
COT reports is analogous (if not identical) to the ``hedging vs. 
speculation'' distinction in the pre-1982 COT reports. Over time, 
however, derivatives markets (including both exchange-traded and over-
the-counter [''OTC''] markets), as well as derivatives trading patterns 
and practices, have evolved tremendously. Changes have been 
particularly evident over the last 15 years. As a result of these 
changes in markets and trading practices, questions have been raised as 
to whether the ``commercial'' and ``non-commercial'' categories of 
today's COT reports appropriately classify trading practices that were 
not contemplated when the ``hedging vs. speculation'' categories were 
removed in 1982.
2. The Impact of Speculative Position Limit and Hedge Exemption Rules
    To protect futures markets from excessive speculation that can 
cause unreasonable or unwarranted price fluctuations, and to reduce the 
potential threat of market manipulation, the Act and Commission 
regulations require the Commission \24\ and the exchanges \25\ to 
impose limits on the size of speculative positions in futures markets. 
For certain agricultural markets, the speculative limits are determined 
by the Commission and set out in federal regulations.\26\ For all other 
markets, the speculative limits are determined as necessary by the 
exchanges according to standards established by the Commission.\27\ The 
Commission and exchanges grant exemptions from their respective 
speculative position limits for ``bona fide hedging.'' A hedge is a 
futures or option transaction or position that normally represents a 
substitute for transactions to be made or positions to be taken at a 
later time in a physical marketing channel. Hedges must be 
``economically appropriate to the reduction of risks in the conduct and 
management of a commercial enterprise'' [emphasis supplied] and must 
arise from a change in the value of a hedger's (current or anticipated) 
assets or liabilities.\28\
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    \24\ See section 4a of the Act.
    \25\ See section 5(d)(5) of the Act and 17 CFR 150.5.
    \26\ Speculative position limits for corn, oats, wheat, 
soybeans, soybean oil, soybean meal, and cotton are set out at 17 
CFR 150.2.
    \27\ Pursuant to those standards, some markets are subject to 
position accountability rules in lieu of speculative position 
limits.
    \28\ See 17 CFR 1.3(z) for the full regulatory definition of 
``bona fide hedging.''
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3. Hedge Exemptions and the COT Reports
    Because both the hedge exemption rules and the standards whereby 
positions are classified for purposes of the COT reports refer to 
``commercial'' positions, the Commission has considered the 
classification of a position as ``commercial'' under the hedge 
exemption rule as being an appropriate indicator for how the position, 
and the trader holding it, should be classified for COT purposes. In 
other words, if an entity holding a particular futures or option 
position has received a hedge exemption with respect to that position, 
the position is, by definition, held by a ``commercial enterprise.'' 
Accordingly, that position should be reported (via the series '01 
reports, Forms 102 and Forms 40) to the Commission as a ``commercial'' 
position, and it would be included within the ``commercial'' category 
on the COT reports. Entities in the same type of business, holding 
similar hedge positions (as reported on their Form 40) are likewise 
treated as commercials for purposes of the COT reports, even though the 
entities may not have sought hedge exemptions because they are trading 
below the level of the position limit so no exemption is required.
    As trading practices in the derivatives markets (both exchange and 
OTC) have continued to evolve over the past 5 years, the Commission has 
granted hedge exemptions from the Commission speculative limits for 
certain agricultural commodities to entities whose futures positions 
reflected various innovative, non-traditional risk management 
strategies. Based on their classification for hedge exemption purposes, 
positions based on these non-traditional strategies have been 
classified in the COT reports as ``commercial.'' The result is that, 
over time, the nature of the positions carried in the COT reports for 
some commodities has changed significantly, raising questions as to 
whether the COT reports should be reviewed to determine if revisions 
are needed to reflect changing market conditions.
    This issue may be illustrated by reviewing the history of hedge 
exemption requests.\29\ For example, in 1991, the Commission received a 
request from a ``large commodity merchandising firm,'' that ``engage[d] 
in commodity related swaps \30\ as a part of a commercial line of 
business.'' The firm, through an affiliate, wished to enter into an OTC 
swap transaction, with a qualified counterparty (a large pension fund), 
involving an index based on the returns afforded by investments in 
exchange-traded futures contracts on certain non-financial commodities 
meeting specified criteria. The commodities making up the index 
included wheat, corn and soybeans, all of which were (and still are) 
subject to Commission speculative position limits. As a result of the 
swap, the swap dealing firm would, in effect, be going short the index. 
In other words, it would be required to make payments to the 
counterparty if the value of the index was higher at the end of the 
swap payment period than at the beginning.

[[Page 35631]]

In order to hedge itself against this risk, the swap dealer planned to 
establish a portfolio of long futures positions in the commodities 
making up the index, in such amounts as would replicate its exposure 
under the swap transaction. By design, the index did not include 
contract months that had entered the delivery period and the swap 
dealer, in replicating the index, stated that it would not maintain 
futures positions based on index-related swap activity into the 
delivery month. The result of the hedge was that the composite return 
on the futures portfolio would offset the net payments the swap dealer 
would be required to make to the counterparty.
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    \29\ Specific requests, and the Commission's responses granting 
or denying those requests, by their very nature, include information 
regarding the nature of the requesting entity's trading activities. 
The express terms of the Act prohibit the Commission from publicly 
disclosing such information. Section 8(a)(1) of the Act provides in 
relevant part that ``the Commission may not publish data and 
information that would separately disclose the business transactions 
or market positions of any person and trade secrets or names of 
customers.'' However, it is possible, without disclosing prohibited 
information, to provide an overview of certain hedge exemption 
letters that will illustrate how the nature of the information 
included in the COT reports has changed over time.
    \30\ A swap is a privately negotiated exchange of one asset or 
cash flow for another asset or cash flow. In a commodity swap, at 
least one of the assets or cash flows is related to the price of one 
or more commodities.
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    Because the futures positions the swap dealer would have to 
establish to hedge its exposure on the swap transaction would be in 
excess of the speculative position limits on wheat, corn and soybeans, 
it requested, and was granted, a hedge exemption for those positions. 
As discussed above, when those reportable futures positions were 
incorporated into the COT reports, they were reported as ``commercial'' 
positions. Similar hedge exemptions were subsequently granted in other 
cases where the futures positions clearly offset risks related to swaps 
or similar OTC positions involving both individual commodities and 
commodity indexes. These non-traditional hedges were all subject to the 
same limitations as the original hedge exemption--that the futures 
positions must offset specific price exposure on a non-discretionary 
basis (i.e., would not over-weight or under-weight the size or mix of 
futures based upon a market outlook), would be of equal dollar value to 
the underlying risk (i.e., be unleveraged), and would not be carried 
into the delivery month.
4. The Effect on the COT Report
    The effect of the entry of these non-traditional hedgers into the 
marketplace has been to change the composition of the COT reports. 
Prior to 1991, both the long and the short side of the commercial open 
interest listed in the COT reports represented traditional hedgers 
(producers, processors, manufacturers or merchants handling the 
commodity or its products or byproducts). Since that time, though, 
trading practices have evolved to such an extent that today, a 
significant proportion of the long side open interest in a number of 
major physical commodity futures contracts is held by non-traditional 
hedgers (e.g., swap dealers), while the traditional hedgers may be 
either net long or net short (more often, the latter). This has raised 
questions as to whether the COT report can reliably be used to assess 
futures hedging activity by persons hedging exposure in the underlying 
physical commodity markets.
    It should be noted that the Commission's treatment of 
professionally managed funds\31\ in the COT reports generally does not 
raise the same issue. Professionally managed funds, although they may 
be appropriately treated as commercials with respect to markets in 
financial commodities,\32\ are usually treated as non-commercials for 
COT purposes in the markets for physical commodities (including not 
only agricultural commodities, but energy products, metals and other 
physical commodities as well).
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    \31\ For these purposes, ``professionally managed funds'' 
includes traders registered as commodity trading advisors and 
commodity pool operators, as well as funds commonly referred to as 
``hedge funds.'' A hedge fund has been described as a private 
investment fund or pool that trades and invests in various assets 
such as securities, commodities, currency, and derivatives on behalf 
of its clients.
    \32\ A professionally managed fund trading in futures markets 
for financial products (equity, debt or foreign currency) might very 
well be hedging various OTC or exchange-traded products.
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II. Alternatives in Addressing Issues Related to the COT Reports

    In view of the changes in markets and trading patterns described 
above, the Commission is now seeking public comment concerning whether 
it should adopt any changes to the way data are presented in the COT 
reports. Such action could be taken as part of the Commission's ongoing 
efforts both to maintain an information system that reflects changing 
market conditions, and to provide the public with useful information 
regarding futures and option markets. In addition, the Commission is 
seeking comment as to whether it should stop publishing the COT reports 
altogether if it is determined that either: (1) There are data 
anomalies in the reports for which no satisfactory solution can be 
found; or (2) the data in the reports provide no public benefit.\33\
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    \33\ The COT reporting program is not mandated by either the Act 
or Commission regulations. Therefore, if, after reviewing the 
comments received in response to this notice, the Commission decides 
to take any action with respect to the COT reporting program, it can 
do so without further notice or opportunity for comment.
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III. Questions

    The Commission has formulated the following questions based upon 
its initial review of issues relating to the COT reports. Responses 
from interested parties will advance the Commission's understanding of 
these issues and, it is hoped, point the way to a satisfactory 
resolution of any problems that are identified regarding the COT 
reports. Each enumerated question should be addressed individually. 
Interested parties are also welcome to address other topics or issues 
that they believe are relevant to the COT reports.
    1. What types of traders in the futures and option markets use the 
COT reports in their current form, and how are they using the COT data? 
More specifically:
    (a) How do traders use the COT information on commercial positions?
    (b) How do they use the COT information on non-commercial 
positions?
    (c) In particular, with respect to information on non-commercial 
positions, what information or insights do traders gain from the COT 
reports regarding the possible impact of futures trading on the 
underlying cash market?
    2. Are other individuals or entities (academic researchers or 
others) using the COT reports and, if so, how?
    3. Do the COT reports, in their current form, provide any 
particular segment of traders with an unfair advantage?
    4. Should the Commission continue to publish the COT reports?
    5. If the Commission continues to publish the COT reports, should 
the reports be revised to include additional categories of data--for 
example, non-traditional commercial positions, such as those held by 
swap dealers?
    6. As a general matter, would creating a separate category in the 
COT report for ``non-traditional commercials'' potentially put swap 
dealers or other non-traditional commercials at a competitive 
disadvantage (since other market participants would generally know that 
their positions are usually long, are concentrated in a single futures 
month, and are typically rolled to a deferred month on a specific 
schedule before the spot month)?
    7. More specifically, if the data in the COT reports are made 
subject to further, and finer, distinctions, such as adding a category 
for non-traditional commercials:
    (a) Would it increase the likelihood that persons reading the 
reports would be able to deduce the identity of the position holders, 
or other proprietary information, from the reports?
    (b) Could such persons use information gleaned from the reports to 
gain a trading advantage over the reported position holders?
    (c) In such case, in order to reduce the likelihood of publishing 
categories with few traders, which might provide information giving 
other traders a competitive advantage over the reported traders, should 
the Commission consider raising the threshold number of reportable 
traders needed to publish

[[Page 35632]]

data for a market from 20 traders to some larger number of traders?
    8. If the data in the COT reports are made subject to further, and 
finer, distinctions, should the reports be revised for all commodities, 
or only for those physical commodity markets in which non-traditional 
commercials participate?
    9. If a non-traditional commercial category were added to markets 
in physical commodities, what should be done with financial 
commodities, where ``non-traditional commercials'' would be essentially 
an empty category (since, in financial commodities, swap dealers would 
fall within the pre-existing ``commercial'' category)?
    10. The Commission has observed that the non-traditional 
commercials tend to be long only and tend not to shift their futures 
positions dramatically--even in the face of substantial price 
movements. If the data in the COT reports are made subject to further, 
and finer, distinctions, would issuing the additional data on a 
periodic basis, in the form of a quarterly or monthly supplement, be 
sufficient?
    11. Some reportable traders engage in both traditional (physical) 
and non-traditional (financial) commercial activity in the same 
commodity market. If the data in the COT reports are made subject to 
further, and finer, distinctions, such traders would have to break out 
their non-traditional commercial OTC hedging activity into a separate 
account. Would such a requirement represent an undue burden to those 
traders?

    Issued in Washington, DC, on June 15, 2006, by the Commission.
Eileen Donovan,
Acting Secretary of the Commission.
 [FR Doc. E6-9722 Filed 6-20-06; 8:45 am]
BILLING CODE 6351-01-P