[Federal Register Volume 72, Number 169 (Friday, August 31, 2007)]
[Rules and Regulations]
[Pages 50209-50211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-17100]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 21


Special Calls

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') has 
adopted amendments to Part 21 of its regulations relating to special 
calls for information. The amendments will: 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.

EFFECTIVE DATE: August 31, 2007.

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 the 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.
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    \1\ Commodity Exchange Act Sec.  3(b), 7 U.S.C. Sec.  5(b).
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A. 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. The Commission uses 
that information in its market surveillance program to detect and 
prevent market manipulation or other disruptions to market integrity in 
markets subject to Commission oversight.
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    \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.
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    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

[[Page 50210]]

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 amendments to Part 21 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 
amendments 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 subject to 
special call under the amended rules 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 
rules. Therefore, as a practical matter, the amended rules 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 previously listed in 
Sec.  21.02, and those that are added by this 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.

B. Delegation of Authority

    The amendments adopted herein also 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 senior staff, the 
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 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.''

C. The Proposed Rules

    These amendments were published for comment at 72 FR 34417, June 
22, 2007, with a 30-day comment period. No comments were received in 
response to the notice of proposed rulemaking. Accordingly, the 
amendments have been adopted as proposed.

II. 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 amendments 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 are subject to special call under 
these 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 rules 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 applies to these records, the cost of retaining the 
records will 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 
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 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 
adopt the rule amendments set forth below.
    In the notice of proposed rulemaking, the Commission specifically 
invited

[[Page 50211]]

public comment on its application of the criteria contained in the Act. 
Commenters were also invited to submit any quantifiable data that they 
might have concerning the costs and benefits of the proposed rules with 
their comment letter. As noted above, no comments were received.

III. 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 amendment to Sec.  21.02 
applies 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 rules. Therefore, as a practical matter, the rules 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).\3\ 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.\4\ 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.\5\ The Commission notes that the 
foreign brokers affected by these amendments 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 Acting Chairman, on behalf of the 
Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the rules 
will not have a significant economic impact on a substantial number of 
small entities.
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    \3\ 72 FR 15673 (April 2, 2007).
    \4\ 47 FR 18618, at 18621 (April 30, 1982).
    \5\ Id. at 18619.
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B. Paperwork Reduction Act

    These rules contain information collection requirements. As 
required by the Paperwork Reduction Act of 1995 (``PRA''),\6\ the 
Commission submitted a copy of the rules to the Office of Management 
and Budget (``OMB'') for its review.
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    \6\ Pub. L. 104-13 (May 13, 1995).
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    The amended rules have been reviewed and approved by OMB pursuant 
to the PRA, under control number 3038-0009. An agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid control number. In the Notice of 
Proposed Rulemaking, the Commission estimated the paperwork burden that 
could be imposed by the amendments and solicited comments thereon.\7\ 
No comments were received.
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    \7\ 72 FR 34417 (June 22, 2007).
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    Copies of the information collection submission to OMB are 
available from the Commission Clearance Officer, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581, (202) 418-5160.

List of Subjects

    Commodity futures, Commodity Futures Trading Commission.


0
In consideration of the foregoing, and pursuant to the authority in the 
Commodity Exchange Act, the Commission hereby amends Part 21 of Title 
17 of the Code of Federal Regulations as follows:

PART 21--SPECIAL CALLS

0
1. The authority section 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).

0
2. Section 21.02 is amended by removing the word, ``and,'' at the end 
of paragraph (f), by redesignating paragraph (g) as paragraph (i), and 
by 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
* * * * *

0
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 August 23, 2007, by the Commission.
David Stawick,
Secretary of the Commission.
 [FR Doc. E7-17100 Filed 8-30-07; 8:45 am]
BILLING CODE 6351-01-P