[Federal Register Volume 72, Number 120 (Friday, June 22, 2007)]
[Proposed Rules]
[Pages 34417-34419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-11984]



[[Page 34417]]

-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 21


Special Calls

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

-----------------------------------------------------------------------

SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
proposing to amend Part 21 of its regulations relating to special calls 
for information. The proposed amendments would: add to the types of 
information specified in Sec.  21.02, which must be furnished upon 
special call, information regarding exchanges of futures for physical 
commodities or for derivatives positions, and information regarding 
delivery notices issued and stopped; and delegate to the Director of 
the Division of Market Oversight and the Director's delegatees, the 
ability to issue special calls pursuant to sections 21.01 and 21.02.

DATES: Comments must be received by July 23, 2007.

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 
facsimile transmission to 202-418-5521, or by e-mail to 
[email protected]. Reference should be made to ``Proposed Rules for 
Special Calls.''

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

SUPPLEMENTARY INFORMATION:

I. Background

    The Commodity Exchange Act (``Act''), as amended by the Commodity 
Futures Modernization Act of 2000 (``CFMA''), Pub. L. No. 106-554, is 
intended, among other things, to ``deter and prevent price manipulation 
or any other disruptions to market integrity.'' \1\ To that end, the 
Commission, through its Division of Market Oversight (``Division''), 
conducts a comprehensive program of market surveillance. A centerpiece 
of this program is its large-trader reporting system, under which all 
large futures and option positions are reported to the Commission. Each 
day, for every active futures or option market, Division surveillance 
staff monitors the activities of large traders, key price 
relationships, and all relevant supply and demand factors in a 
continuous review for potential market problems. An essential element 
of the Commission's market surveillance program is the ability to make 
special calls for information from Commission registrants and other 
market participants.
---------------------------------------------------------------------------

    \1\ Commodity Exchange Act Sec.  3(b), 7 U.S.C. Sec.  5(b).
---------------------------------------------------------------------------

II. Information To Be Furnished Upon Special Call

    Part 17 of the Commission's regulations sets forth the routine 
reports that futures commission merchants, members of contract markets 
and foreign brokers (collectively, ``reporting firms'') are required to 
submit to the Commission.\2\ These reports provide the information for 
the Commission's large trader reporting system that it uses in its 
market surveillance program to detect and prevent market manipulation 
or other disruptions to market integrity in markets subject to 
Commission oversight.
---------------------------------------------------------------------------

    \2\ The Commission has recently proposed amendments to its 
definition of the term, ``foreign broker.'' The amended definition 
would also be relocated, from its current location at Sec.  15.00(g) 
to Sec.  1.3(xx). See 72 FR 15637 (April 2, 2007). If such 
amendments were to be adopted, there would be no change in a foreign 
broker's obligations to comply with the Commission's large trader or 
special call regulations set forth in 17 CFR parts 15-21.
---------------------------------------------------------------------------

    By contrast, the purpose of the Commission's special call authority 
in Part 21 of the Commission's regulations is to provide the Commission 
with relevant information that is not routinely supplied to the 
Commission, pursuant to other parts of the Commission's regulations 
such as Part 17. For example, the Commission may need to know about 
futures positions that are below the routine reporting levels specified 
in Part 15 of the Commission's regulations. Among possible reasons for 
such special needs for information may be a particular market situation 
that warrants unusually close Commission market surveillance, or when 
Commission staff is conducting an audit of reporting firms to ensure 
complete and accurate reporting.
    The proposed amendments to Part 21 would require reporting firms to 
retain and make available to the Commission, upon a special call, 
information similar to that which they are required to report to the 
Commission pursuant to Part 17 of the Commission's regulations. 
Specifically, the proposed amendments would add two additional 
categories of information to the types of information specified in 
Sec.  21.02, which must be furnished upon special call. The first 
additional category of information that would be subject to special 
call under this proposal includes information regarding futures 
contracts exchanged for physical commodities (``EFPs''), as well as 
futures contracts exchanged for other derivatives contracts, including 
exchanges of futures for options (``EFOs'') and exchanges of futures 
for swaps (``EFSs''). The second additional category of information 
includes the amount of futures contracts where actual delivery of the 
underlying commodity has been initiated (i.e., delivery notices have 
been issued or received).
    Section 21.02 applies to futures commission merchants (``FCMs''), 
introducing brokers (``IBs''), members of contract markets and foreign 
brokers. However, the first three of the foregoing categories are 
already subject to substantial reporting and recordkeeping requirements 
under Sec.  1.35 of the Commission's regulations, which, among other 
things, requires FCMs, IBs and contract market members to maintain, and 
produce on request, the records that are also the subject of these 
proposed rules. Therefore, as a practical matter, the proposed rules 
will impose new requirements only on foreign brokers (who are not 
subject to Sec.  1.35).
    Foreign brokers and other persons receiving a special call pursuant 
to Sec.  21.02 are required by that regulation to furnish the 
information requested. Since such persons cannot comply with the legal 
requirement to furnish information pursuant to a special call without 
maintaining records from which to generate the information requested, 
it follows that persons subject to special calls under Sec.  21.02 are 
required, by the Commission's regulations, to maintain such records. 
Therefore, such records--including both those already listed in Sec.  
21.02, and those that would be added by this proposed rule amendment--
are subject to the five-year record retention requirements of Sec.  
1.31(a)(1) of the regulations, which provides in relevant part that:

    All books and records required to be kept by the Act or by these 
regulations shall be kept for a period of five years from the date 
thereof and shall be readily accessible during the first two years 
of the five-year period.

III. Delegation of Authority

    For reasons of administrative efficiency, the Commission is also 
proposing to delegate to the Director of the Division of Market 
Oversight, and the Director's delegatees, the power to issue special 
calls pursuant to sections 21.01 and 21.02. Consistent with other 
delegations of authority to Commission

[[Page 34418]]

senior staff, the proposed delegation of the Part 21 special call 
authority allows the Director to submit to the Commission for its 
consideration any matter that has been delegated pursuant to the new 
section. The proposed amendment also preserves the Commission's 
ultimate authority over the special calls by providing that, ``nothing 
in this section shall be deemed to prohibit the Commission, at its 
election, from exercising the authority delegated * * * to the 
Director.''
    Ordinarily, the delegation of authority to make special calls would 
not be published for comment because the Administrative Procedure Act 
provides that ``a matter relating to agency management'' \3\ is not 
required to be published for comment. However, because the proposed 
delegation is being published as part of a larger notice that includes 
other proposed amendments on which the Commission is seeking comment, 
the Commission will also accept public comments regarding the proposed 
delegation of authority to issue special calls from the Commission to 
the Director of the Division of Market Oversight.
---------------------------------------------------------------------------

    \3\ 5 U.S.C. 553(a)(2).
---------------------------------------------------------------------------

IV. Cost Benefit Analysis

    Section 15 of the Act, as amended by section 119 of the CFMA, 
requires the Commission to consider the costs and benefits of its 
action before issuing a new regulation or order under the Act. By its 
terms, Sec.  15(a) does not require the Commission to quantify the 
costs and benefits of its action or to determine whether the benefits 
of the action outweigh its costs. Rather, Sec.  15(a) simply requires 
the Commission to ``consider the costs and benefits'' of the subject 
rule or order.
    Section 15(a) further specifies that the costs and benefits of the 
proposed rule or order 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 or order 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 amendments are intended to supplement the Commission's 
rules regarding its market surveillance program. That program supports 
one of the Commission's most critical statutory responsibilities, 
deterring and preventing price manipulation or any other disruptions to 
market integrity. Effective surveillance activities are crucial not 
only to protecting market participants and the public from price 
manipulation, but also to: promoting market efficiency, competitiveness 
and financial integrity; protecting the futures markets' price 
discovery function; and promoting sound risk management practices.
    In addition, the records that would be subject to special call 
under these proposed amendments are the type of basic transaction 
records that any foreign broker would create as a matter of sound 
business practices. Because these records would be created in any 
event, independently of any regulatory requirements, the proposed rules 
would impose no additional costs on foreign brokers in that area. There 
would be minimal costs associated with providing the records in answer 
to a special call, but such costs would be far outweighed by the 
benefits of protecting the markets and the public. Finally, with 
respect to the five-year record retention requirement that would apply 
to these records, the cost of retaining the records would be minimal 
because Commission rules allow such records to be maintained 
electronically. Those minimal costs would, again, be far outweighed by 
the benefits of protecting the marketplace and the public.
    The Commission has considered the costs and benefits of the 
proposed amendments to Part 21 regarding special calls in light of the 
above-noted specific areas of concern identified in section 15. The 
Commission believes that the amended rules would impose the minimum 
requirements necessary to enable it to perform its oversight functions 
and to carry out its mandate to protect the public interest in markets 
that are free of fraud, abuse and manipulation.
    After considering these factors, the Commission has determined to 
propose the rule amendments 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 data that they 
may have concerning the costs and benefits of the proposed rules with 
their comment letter.

V. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
requires federal agencies, in promulgating rules, to consider the 
impact of those rules on small entities. The proposed amendment to 
Sec.  21.02 would apply to FCMs, IBs, members of contract markets and 
foreign brokers. However, as noted above, the first three of these 
categories are already subject to substantial reporting and 
recordkeeping requirements under Sec.  1.35 of the Commission's 
regulations. Among other things, that section requires FCMs, IBs and 
contract market members to maintain, and produce on request, the 
records that are also the subject of these proposed rules. Therefore, 
as a practical matter, the proposed rules will impose new requirements 
only on foreign brokers (who are not subject to Sec.  1.35).
    With respect to such foreign brokers, the Commission recently 
published proposed rules to exempt from registration certain foreign 
persons (including foreign brokers).\4\ In reviewing the applicability 
of the RFA to such foreign persons, the Commission noted that it has 
previously established certain definitions of ``small entities'' to be 
used in evaluating the impact of its regulations on such entities in 
accordance with the RFA.\5\ The Commission has previously determined 
that FCMs are not small entities for purposes of the RFA because each 
FCM has an underlying fiduciary relationship with its customers, 
regardless of the size of the FCM.\6\ The Commission notes that the 
foreign brokers affected by these proposed changes to the Commission's 
regulations would be required to be registered as FCMs if not for 
certain exemptions provided in Commission regulations. As such, they 
would maintain a fiduciary relationship with customers similar to the 
relationship maintained by each registered FCM. Therefore, in this 
context foreign brokers, like FCMs, are not appropriately categorized 
as small entities. Accordingly, the Chairman, on behalf of the 
Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the 
proposed rules will not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \4\ 72 FR 15673 (April 2, 2007).
    \5\ 47 FR 18618 at 18621 (April 30, 1982).
    \6\ Id. at 18619.
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    When publishing proposed rules, the Paperwork Reduction Act (PRA) 
\7\

[[Page 34419]]

imposes certain requirements on federal agencies, including the 
Commission, in connection with conducting or sponsoring any collection 
of information as defined by the PRA. In compliance with the PRA, the 
Commission through these proposed rules solicits comments to: (1) 
Evaluate whether the proposed collection of information is necessary 
for the proper performance of the functions of the agency, including 
the validity of the methodology and assumptions used; (2) evaluate the 
accuracy of the agency's estimate of the burden of the proposed 
collection of information, including the validity of the methodology 
and assumptions used; (3) enhance the quality, utility, and clarity of 
the information to be collected; and (4) minimize the burden of the 
collection on those who are to respond, including through the use of 
appropriate automated, electronic, mechanical, or other technological 
collection techniques or other forms of information technology. The 
Commission has submitted the proposed rules and their associated 
information collection requirements to the Office of Management and 
Budget (OMB). The proposed rules are part of an approved collection of 
information (OMB Control No. 3038-0009). The estimated burden 
associated with information to be provided pursuant to special calls is 
as follows:
---------------------------------------------------------------------------

    \7\ Pub. L. 104-13 (May 13, 1995).
---------------------------------------------------------------------------

    Average burden of response: One hour.
    Number of respondents: 10 per year.
    Frequency of response: One response per respondent per year.
    Annual reporting burden: 10 hours.
    Persons wishing to comment on the information that would be 
required by these proposed rules should contact the Desk Officer, CFTC, 
Office of Management and Budget, Room 10202, NEOB, Washington, DC 
20503, (202) 395-7340. Copies of the information collection submission 
to OMB are available from the CFTC Clearance Officer, 1155 21st Street, 
NW., Washington, DC 20581, (202) 418-5160. Copies of the OMB-approved 
information collection package associated with the rulemaking may be 
obtained from the Desk Officer, Commodity Futures Trading Commission, 
Office of Management and Budget, Room 10202, NEOB, Washington, DC 
20503, (202) 395-7340.

List of Subjects in 17 CFR Part 21

    Commodity futures, Commodity Futures Trading Commission.

    In consideration of the foregoing, and pursuant to the authority in 
the Commodity Exchange Act, the Commission hereby proposes to amend 
Part 21 of Title 17 of the Code of Federal Regulations as follows:

PART 21--SPECIAL CALLS

    1. The authority citation for part 21 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 
6n, 7, 7a, 12a, 19 and 21; 5 U.S.C. 552 and 552(b).

    2. Section 21.02 is proposed to be amended by:
    a. Removing the word ``and'' at the end of paragraph (f);
    b. Redesignating paragraph (g) as paragraph (i); and
    c. Adding new paragraphs (g) and (h).
    The additions read as follows:


Sec.  21.02  Special calls for information on open contracts in 
accounts carried or introduced by futures commission merchants, members 
of contract markets, introducing brokers, and foreign brokers.

* * * * *
    (g) The total number of futures contracts exchanged for commodities 
or for derivatives positions;
    (h) The total number of futures contracts against which delivery 
notices have been issued or received; and
* * * * *
    3. Section 21.04 is added to read as follows:


Sec.  21.04  Delegation of authority to the Director of the Division of 
Market Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, to the Director of the Division of Market Oversight, or to 
the Director's delegates, the authority set forth in section 21.01 of 
this Part to make special calls for information on controlled accounts 
from futures commission merchants and from introducing brokers and the 
authority set forth in section 21.02 of this Part to make special calls 
for information on open contracts in accounts carried or introduced by 
futures commission merchants, members of contract markets, introducing 
brokers, and foreign brokers. The Director may submit to the Commission 
for its consideration any matter that has been delegated pursuant to 
this section. Nothing in this section shall be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated in 
this section to the Director.

    Issued in Washington, DC, on June 15, 2007 by the Commission.
Eileen Donovan,
Acting Secretary of the Commission.
 [FR Doc. E7-11984 Filed 6-21-07; 8:45 am]
BILLING CODE 6351-01-P