2013-26789
Federal Register, Volume 78 Issue 222 (Monday, November 18, 2013)[Federal Register Volume 78, Number 222 (Monday, November 18, 2013)]
[Rules and Regulations]
[Pages 69177-69266]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-26789]
[[Page 69177]]
Vol. 78
Monday,
No. 222
November 18, 2013
Part II
Commodity Futures Trading Commission
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17 CFR Parts 15, 17, 18, et al.
Ownership and Control Reports, Forms 102/102S, 40/40S, and 71; Final
Rule
Federal Register / Vol. 78 , No. 222 / Monday, November 18, 2013 /
Rules and Regulations
[[Page 69178]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 15, 17, 18, and 20
RIN 3038-AD31
Ownership and Control Reports, Forms 102/102S, 40/40S, and 71
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is adopting new rules and related forms to enhance its
identification of futures and swap market participants. These final
rules will leverage the Commission's current position and transaction
reporting programs by requiring the electronic submission of trader
identification and market participant data on amended Forms 102 and 40,
and on new Form 71. The new and amended forms require the reporting of
certain trading accounts active on reporting markets that are
designated contract markets or swap execution facilities. Among other
information, the forms collect ownership and control information with
respect to both position-based special accounts and trading accounts
that meet specified volume-based reporting levels.
DATES: Effective date: February 18, 2014.
Compliance date: The compliance date will be delayed by an
additional 180 days, with the result that the compliance date of these
final rules will be August 15, 2014.
FOR FURTHER INFORMATION CONTACT: Sebastian Pujol Schott, Associate
Director, Division of Market Oversight (``DMO''), at 202-418-5641 or
[email protected]; Mark Schlegel, Special Counsel, DMO, at 202-418-5055 or
[email protected]; Brian Robinson, Attorney Advisor, DMO, at 202-418-
5385 or [email protected]; or James Outen, Industry Economist, DMO, at
202-418-5710 or [email protected]; Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Overview of Final Rules
B. Benefits Derived From Final Rule
II. Statutory Framework for Position Reporting and Trader and
Account Identification
III. Current Trader and Account Identification Programs
A. Futures Large Trader Reporting--Current Forms 102 and 40
i. Identification of Special Accounts--Current Form 102
ii. Statement of Reporting Trader--Current Form 40
B. Large Trader Reporting for Physical Commodity Swaps--102S and
40S Filings
IV. Summary of 2010 and 2012 NPRMs
V. Summary of New and Amended Forms Adopted in These Final Rules
A. Position-Triggered Form 102A (Special Accounts)
i. Special Accounts and Reportable Positions
ii. 102A Form Requirements
iii. Timing of 102A Reporting
iv. Timing of 102A Change Updates and Refresh Updates
B. Volume-Triggered Form 102B (Volume Threshold Accounts)
i. Volume Threshold Accounts and Reportable Trading Volume Level
ii. 102B Form Requirements
iii. Timing of 102B Reporting
iv. Timing of 102B Change Updates and Refresh Updates
C. Position-Triggered Form 102S (Consolidated Accounts)
i. 102S Form Requirements
ii. Timing of 102S Reporting, Change Updates and Refresh Updates
D. Form 71 (Omnibus Accounts and Sub-Accounts)
E. New Form 40 (Reporting Traders)
VI. Data Submission Standards and Procedures
A. Overview
B. Schedule of Effective Date and Compliance Date
VII. Review of NPRM and Summary of Final Rules
A. Part 15
i. Sec. 15.00(q)--Reporting Market
ii. Sec. 15.00(t)--Control
iii. Sec. 15.00(u)--Reportable Trading Volume
iv. Sec. 15.00(v)--Direct Market Access
v. Sec. 15.00(v)--Omnibus Account
vi. Sec. 15.00(w)--Omnibus Account Originator
vii. Sec. 15.00(x)--Volume Threshold Account
viii. Sec. 15.00(y)--Omnibus Volume Threshold Account
ix. Sec. 15.00(z)--Omnibus Reportable Sub-Account
x. Sec. 15.00(aa)--Reportable Sub-Account
xi. Sec. 15.00(bb)--Trading Account Controller; Sec.
15.00(cc)--Volume Threshold Account Controller; Sec. 15.00(dd)--
Reportable Sub-Account Controller
xii. Sec. 15.01(c)--Persons Required To Report
xiii. Sec. 15.02--Reporting Forms
xiv. Sec. 15.04--Reportable Trading Volume Level
B. Part 17
i. Sec. 17.01(a)--Identification of Special Accounts (via 102A)
ii. Sec. 17.01(b)--Identification of Volume Threshold Accounts
(via 102B)
iii. Sec. 17.01(c)--Identification of Omnibus Accounts and Sub-
Accounts (via 71)
iv. Sec. 17.01(d)--Exclusively Self-Cleared Contracts
v. Sec. 17.01(e)--Identification of Omnibus Accounts and Sub-
Accounts
vi. Sec. 17.02(b)--Section 17.01(a) Reports (via 102A)
vii. Sec. 17.02(c)--Section 17.01(b) Reports (via 102B)
viii. Sec. 17.03(a)-(g)--Delegation of Authority to the
Director of the Office of Data and Technology or the Director of the
Division of Market Oversight
C. Part 18
i. Sec. 18.04--Statement of Reporting Trader
ii. Sec. 18.05--Maintenance of Books and Records
D. Part 20
i. Sec. 20.5--Series S Filings
VIII. Related Matters
A. Paperwork Reduction Act
i. Overview
ii. Information To Be Provided
iii. Total Reporting and Recordkeeping Costs; Methodology Used
To Estimate Costs
iv. Reporting Burdens--New and Revised Forms
v. Recordkeeping Burdens--Revised Sec. 18.05
B. Consideration of Costs and Benefits
i. Background
ii. The Statutory Requirement for the Commission To Consider the
Costs and Benefits of Its Actions
iii. Commission Request for Comments Regarding Cost and Benefit
Estimates
iv. Methodology Used To Estimate Costs
v. Costs and Benefits of Individual Reporting Forms and
Reporting and Recordkeeping Requirements
vi. Comments Regarding Costs and Benefits
vii. Consideration of Alternatives
viii. Reporting on Form 102S
ix. Consolidation Form Proposed by FIA
x. Section 15(a) Factors
C. Regulatory Flexibility Act
I. Background
A. Overview of Final Rules
The CFTC's large trader reporting rules (also referred to herein as
the ``reporting rules'') are contained in parts 15 through 21 of the
Commission's regulations.\1\ The reporting rules are currently
structured to collect information with respect to positions in ``open
contracts,'' \2\ including: (1) Information necessary to identify
persons who hold or control ``reportable positions'' \3\ in open
contracts (via current Form 40); and (2) information necessary to
identify ``special accounts'' \4\ (via current Form 102). These final
rules modify the current
[[Page 69179]]
reporting rules and forms as they pertain to positions in open
contracts. Specifically, the Commission is expanding the reporting
rules and forms so that they may also be used to identify ``volume
threshold accounts,'' defined as individual trading accounts that
trigger volume-based reporting thresholds on a reporting market \5\
that is a registered entity under sections 1a(40)(A) or 1a(40)(D) of
the Commodity Exchange Act (``CEA'' or ``Act'') (i.e., a designated
contract market (``DCM'') or a swap execution facility (``SEF'')),
regardless of whether such activity results in reportable positions.\6\
Volume threshold accounts associated with DCMs and SEFs will be
required to be reported by clearing members, as discussed in sections
V(B) and VII below. The Commission notes that volume threshold accounts
could reflect, without limitation, trading in futures, options on
futures, swaps, and any other products traded on or subject to the
rules of a DCM or SEF.
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\1\ 17 CFR parts 15 through 21. These final rules generally
relate to parts 15, 17, 18 and 20 of the Commission's regulations.
\2\ ``Open contract'' means any commodity or commodity option
position held by any person on or subject to the rules of a board of
trade which have not expired, been exercised, or offset. See
Sec. Sec. 1.3(t) and 15.00(n).
\3\ A ``reportable position'' is defined in Sec. 15.00(p) as
any open contract position that at the close of the market on any
business day equals or exceeds the Commission's reporting levels
specified in Sec. 15.03.
\4\ A ``special account'' is defined in Sec. 15.00(r) as any
commodity futures or option account in which there is a reportable
position.
\5\ ``Reporting market'' is defined in current Sec. 15.00(q) as
a designated contract market, registered entity under section 1a(29)
of the Act, and unless determined otherwise by the Commission, a
derivatives transaction execution facility. By way of these final
rules, the Commission is revising Sec. 15.00(q) to define reporting
market as a designated contract market or a registered entity under
section 1a(40) of the Act. This revision is technical in nature, and
serves to conform Sec. 15.00(q) with recent amendments to the Act.
See infra sections VII and IX.
\6\ See infra section VII and IX for a discussion of the
definition of volume threshold account.
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The amendments to the reporting rules and forms will achieve three
primary purposes. First, they will expand and subdivide current Form
102 into a new Form 102 (``New Form 102''), partitioned into three
sections: Section 102A for the identification of position-based special
accounts (``102A,'' ``Form 102A,'' or ``New Form 102A''); section 102B
for the collection of ownership and control information from clearing
members on volume threshold accounts associated with DCMs or SEFs
(``102B,'' ``Form 102B,'' or ``New Form 102B''); and section 102S for
the submission of 102S filings for swap counterparty and customer
consolidated accounts with reportable positions (``102S,'' ``Form
102S,'' or ``102S filings''). Second, the amendments will enhance the
Commission's surveillance and large trader reporting programs for
futures, options on futures, and swaps through a variety of
enhancements, including: Requiring the reporting on Form 102A of the
trading accounts that comprise each special account; requiring the
reporting of certain omnibus account information on Form 71 (``Form
71'' or ``New Form 71'') upon special call by the Commission; \7\
updating Form 40 (``New Form 40''); and integrating the submission of
102S and 40S filings into the general Form 102 and Form 40 reporting
program. Finally, these rules will provide for the electronic
submission of Forms 102, 40, and 71 through either a web portal or
secure FTP transmission.
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\7\ As explained below, information regarding the owners and
controllers of volume threshold accounts reported on Form 102B and
that are identified as omnibus accounts (``omnibus volume threshold
accounts'') will be collected by the Commission directly from
originating firms, via Form 71.
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B. Benefits Derived From Final Rules
The benefits of reporting through a dedicated ownership and control
report (``OCR'') were discussed in proposed rulemakings that preceded
these final rules--specifically, the Advanced Notice of Proposed
Rulemaking published in July 2009 \8\ (the ``2009 Advanced NPRM''), the
Notice of Proposed Rulemaking published in July 2010 \9\ (the ``2010
OCR NPRM'') and the subsequent Notice of Proposed Rulemaking published
in July 2012 \10\ (the ``NPRM''). Section IV below discusses the
history of certain previous OCR rulemakings in more detail. As
discussed in the NPRM, the final rules will enhance the Commission's
current trade practice and market surveillance programs for futures and
options on futures, and facilitate surveillance programs for swaps, by
expanding the information presently collected on current Forms 102 and
40, and introducing a new information collection for omnibus volume
threshold accounts in New Form 71.\11\ The rules will also help
implement the 102S and 40S filing requirements adopted in connection
with the Commission's part 20 rules addressing large trader reporting
for physical commodity swaps (discussed below).\12\ Ultimately, the
final rules will significantly enhance the Commission's ability to
identify participants in the derivatives markets and to understand
relationships between trading accounts, special accounts, reportable
positions, and market activity. This will enable the Commission to
better deter and prevent market manipulation; deter and detect abusive
or disruptive practices (such as marking the close, ``wash trading,''
or money passing); and better perform risk-based monitoring and
surveillance between related accounts.
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\8\ See Commission, Advanced Notice of Proposed Rulemaking:
Ownership and Control Report, 74 FR 31642 (July 2, 2009).
\9\ See Commission, Notice of Proposed Rulemaking: Ownership and
Control Report, 75 FR 41775 (July 19, 2010).
\10\ See Commission, Notice of Proposed Rulemaking: Ownership
and Control Reports, Forms 102/102S, 40/40S, and 71, 77 FR 43968
(July 26, 2012).
\11\ See id. at 43970. See infra section V for a discussion of
New Form 71 and omnibus volume threshold accounts.
\12\ See infra section V for a discussion of the 102S and 40S
filing requirements. See also 17 CFR 20.5(a) and (b). Final part 20
was published in the Federal Register on July 22, 2011. See
Commission, Large Trader Reporting for Physical Commodity Swaps, 76
FR 43851 (July 22, 2011) (``Large Trader Reporting for Physical
Commodity Swaps'').
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As discussed in the NPRM, the final rules respond, in part, to the
increased dispersion and complexity of trading in U.S. futures markets
following their transition from localized, open-outcry venues to global
electronic platforms.\13\ Although electronic trading has conferred
important informational benefits upon regulators, the resulting
increases in trading volumes, products offered, and trader dispersion
have created equally important regulatory challenges. Effective
surveillance now requires automated analysis and pattern and anomaly
detection involving millions of daily trade records \14\ and hundreds
of thousands of position records \15\ present in the surveillance data
sets received daily by the Commission.\16\ Although the final rules are
partly driven by these developments in the U.S. futures markets, as
discussed above, the rules will also facilitate the creation of a
robust surveillance program for swaps that adequately captures
information with respect to swap market participants.
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\13\ See NPRM supra note 10 at 43970.
\14\ For example, in November 2011, the Commission received an
average of 7.4 million trade records per day from electronic trading
on DCMs.
\15\ For example, in November 2011, the Commission received an
average of 617,000 position records per day from reporting firms and
exchanges.
\16\ Daily trade and position records are provided to the
Commission pursuant to Sec. Sec. 16.02 and 17.00, respectively. For
further discussion of the Commission's large trader reporting
program, see sections III(A) and (B), below.
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In order to perform effective surveillance, the Commission must
receive data sets that contain a sufficient number of reference points
for the Commission to uncover relationships between related accounts,
and analyze information based on surveillance criteria that are
frequently evolving in response to market events. The collection of
additional information regarding trading accounts and traders will
enable the Commission to perform more efficient and effective
surveillance. In particular, the OCR data collection will enable the
Commission to link transaction-level data that it receives (which
includes trading account numbers, but not traders'
[[Page 69180]]
names) to position-based data (which includes large traders' names, but
not their trading account numbers), as explained below.
As noted in the NPRM, ``Commission staff utilizes two distinct data
platforms to conduct market surveillance: The Trade Surveillance System
(`TSS') and the Integrated Surveillance System (`ISS'). Broadly
speaking, TSS captures transaction-level details of trade data, while
ISS facilitates the storage, analysis, and mining of large trader data
from a position perspective. One important component of TSS is the
Trade Capture Report (`TCR'). Trade Capture Reports contain trade and
related order data for every matched trade facilitated by an exchange,
whether executed via open-outcry, electronically, or non-competitively.
Among the data included in the TCR are trade date, product, contract
month, trade time, price, quantity, trade type (e.g., open outcry
outright future, electronic outright option, give-up, spread, block,
etc.), executing broker, clearing member, opposite broker and clearing
member, customer type indicator, trading account numbers, and numerous
other data points.'' \17\ The OCR data collection will address a gap in
the current system by providing common reference points between TSS and
ISS data. New Form 102A, for example, is structured to collect special
account numbers,\18\ trading account numbers that comprise the special
account, and the names of owners and controllers of both special
accounts and such trading accounts, thereby linking TSS data to ISS
data.\19\
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\17\ See NPRM supra note 10 at 43970.
\18\ As discussed in section III(A) below, a special account is
a commodity futures or option account that has a reportable
position, based on reporting levels set by the Commission. A special
account number is a unique account identifier assigned by an FCM,
clearing member, or foreign broker to a special account. See 17 CFR
17.00(g)(2)(iii) and 17 CFR 17.01(a). Special account numbers are
included in ISS data. The special account number does not correspond
to the trading account number reported on the Trade Capture Report.
Accordingly, the special account number is not sufficient to link
TSS data to ISS data.
\19\ The final rules do not amend the current reporting
requirements with respect to ownership information, in connection
with both position reporting pursuant to Sec. 17.00 and Form 102
reporting pursuant to Sec. 17.01. For a complete discussion of the
reporting requirements with respect to ownership information, see
section V(A)(i) below.
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The data collection will also help the Commission to better
identify and categorize individual trading accounts and market
participants that trigger position or newly-created volume-based
reporting thresholds. For example, New Form 102A will require reporting
firms to identify the constituent trading accounts of each reported
special account. In this manner, New Form 102A will ensure a new level
of interoperability between the Commission's TSS trade data and ISS
large trader data, and will permit Commission staff to quickly
reconstruct trading for any special account. In addition to linking the
two databases, New Form 102A will identify both the owners and
controllers of such constituent trading accounts, thereby providing the
Commission with a new lens through which to identify and surveil market
activity that might otherwise appear unrelated to the Commission's
surveillance programs.
New Form 102B will, for the first time, require identification of
trading accounts based solely on their total trading volume during a
single trading day. This new information collection will enhance the
Commission's trade practice surveillance program by revealing
connections of ownership or control between trading accounts that
otherwise appear unrelated in the TCR. More generally, it will
facilitate Commission efforts to detect and deter attempted market
disruptions that may occur even in the absence of large open positions
that are reportable on New Form 102A. Finally, the automated collection
of OCR information via electronic forms, rather than through ad-hoc,
manual processes, will permit both the Commission and market
participants to administer the reporting programs more efficiently and
effectively. Additional information on the forms addressed by these
final rules is provided in section V below.
II. Statutory Framework for Position Reporting and Trader and Account
Identification
The Commission's current reporting rules, and those adopted herein,
are primarily implemented by the Commission pursuant to the authority
of sections 4a, 4c(b), 4g, and 4i of the Act.\20\ Section 4a of the
Act, as amended by the Dodd-Frank Act, requires the Commission to set
and enforce speculative position limits with respect to both futures
and swaps.\21\ Section 4c(b) gives the Commission plenary authority to
regulate transactions that involve commodity options.\22\ Section 4g(a)
of the Act requires, among other things, each futures commission
merchant (``FCM''), introducing broker, floor broker, and floor trader
to file such reports as the Commission may require on proprietary and
customer transactions and positions in commodities for future delivery
on any board of trade in the United States or elsewhere.\23\ In
addition, section 4g(b) requires registered entities to maintain daily
trading records as required by the Commission, and section 4g(c)
requires floor brokers, introducing brokers, and FCMs to maintain their
own daily trading records for each customer in such manner and form as
to be identifiable with the daily trading records maintained by
registered entities. Section 4g(d) permits the Commission to require
that such daily trading records be made available to the
Commission.\24\ Lastly, section 4i of the Act requires the filing of
such reports as the Commission may require when positions taken or
obtained on designated contract markets equal or exceed Commission-set
levels.\25\ Collectively, these CEA provisions warrant the maintenance
of an effective and rigorous system of market and financial
surveillance.
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\20\ 7 U.S.C. 1 et seq. In addition, CEA section 8a(5)
authorizes the Commission to promulgate such regulations as, in its
judgment, are reasonably necessary to effectuate any provision of
the Act or to accomplish any of the purposes of the Act. 7 U.S.C.
12a(5). These final rules are also consistent with the purposes
enumerated in CEA section 3(b), which states that the Act seeks to
ensure the financial integrity of regulated transactions and to
prevent price manipulation and other disruptions to market
integrity. 7 U.S.C. 5(b).
\21\ 7 U.S.C. 6a. See NPRM supra note 10 at 43970. See infra
note 26 for a discussion of the Dodd-Frank Act.
\22\ 7 U.S.C. 6c(b).
\23\ 7 U.S.C. 6g(a).
\24\ See supra section I(B) for a discussion of the trade data
transmitted daily to the Commission by registered entities.
\25\ 7 U.S.C. 6i.
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As further discussed in the NPRM, in addition to the CEA sections
described above, on July 21, 2010, President Obama signed the Dodd-
Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank
Act'').\26\ Title VII of the Dodd-Frank Act \27\ amended the CEA to
establish a comprehensive new regulatory framework for swaps and
security-based swaps. The legislation was enacted to reduce risk,
increase transparency, and promote market integrity within the
financial system by, among other things: (1) Providing for the
registration and comprehensive regulation of swap dealers and major
swap participants; (2) imposing clearing and trade execution
requirements on standardized derivative products; (3) creating robust
recordkeeping and real-
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time reporting regimes; and (4) enhancing the Commission's rulemaking
and enforcement authority with respect to, among other parties, all
registered entities and intermediaries subject to the Commission's
oversight.
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\26\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm. See NPRM supra note 10 at
43971.
\27\ Pursuant to section 701 of the Dodd-Frank Act, Title VII
may be cited as the ``Wall Street Transparency and Accountability
Act of 2010.''
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As part of the Commission's rulemaking program implementing the
Dodd-Frank Act,\28\ the rule changes adopted herein also include swaps-
related considerations in connection with the Commission's large trader
reporting rules for swaps, enacted in 2011.\29\ New CEA section 4t
acknowledges the Commission's authority to establish a large trader
reporting system for swaps that the Commission has determined perform a
significant price discovery function; accordingly, the swaps-related
considerations in the rules adopted herein also rely in part on the
Commission's authority in CEA section 4t. Similarly, new CEA section
4s(f) requires swap dealers and major swap participants to make such
reports as required by the Commission by rule or regulation regarding
the transactions and positions of the registered swap dealer or major
swap participant.\30\ In addition, new CEA section 5h(f)(10) requires
SEFs to report to the Commission, in a form and manner acceptable to
the Commission, information that the Commission determines to be
necessary or appropriate for the Commission to perform its duties under
the CEA.\31\
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\28\ See generally, http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm.
\29\ As noted supra in note 12, 17 CFR 20.5(a) and (b) contain
the 102S and 40S filing requirements, discussed in greater detail
below. Final part 20 was published in the Federal Register on July
22, 2011.
\30\ 7 U.S.C. 6s(f).
\31\ 7 U.S.C. 7b-3(f)(10).
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III. Current Trader and Account Identification Programs
Section III below summarizes the current trader and account
identification program under Forms 102 and 40, which is also discussed
in detail in Section III of the NPRM.\32\
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\32\ See NPRM supra note 10 at 43971.
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A. Futures Large Trader Reporting--Current Forms 102 and 40
Current Sec. 17.00, in part 17 of the Commission's regulations,
forms the basis of the Commission's large trader reporting program.\33\
It requires each FCM, clearing member, and foreign broker to submit a
daily report to the Commission for each ``special account'' it
carries--i.e., a commodity futures or option account that has a
reportable position. Such ``Sec. 17.00 position reports'' show the
futures and option positions of traders with positions at or above
specific reporting levels set by the Commission. Current reporting
position trigger levels are located in Sec. 15.03(b).\34\ The daily
report is sent to the Commission as a single data file from each
reporting party pursuant to technical specifications identified in
Sec. 17.00(g).\35\ The Commission's surveillance staff uses this
report to, among other things: Assess individual traders' activities
and potential market power; enforce speculative position limits;
monitor for disruptions to market integrity; and calculate statistics
that the Commission publishes to enhance market transparency (e.g., in
the Commitments of Traders reports).
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\33\ 17 CFR 17.00.
\34\ 17 CFR 15.03(b).
\35\ 17 CFR 17.00(g).
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i. Identification of Special Accounts--Current Form 102
For each special account identified by an FCM, clearing member, or
foreign broker and reported to the Commission in a Sec. 17.00 position
report, current Sec. 17.01 \36\ requires the reporting party to
separately identify the special account to the Commission on Form
102.\37\ Pursuant to current Sec. 17.02(b)(2),\38\ Form 102 must be
submitted by such parties within three days of an account becoming a
special account. A Form 102 submission may also be required by the
Commission or its designee via a special call. The text of current
Sec. 17.01 \39\ states the requirement to submit Form 102, and
enumerates the specific data fields that are required to be completed
on Form 102. Currently, Form 102 requires the filing of a separate
``paper'' form for each special account, which is generally transmitted
to the Commission via email, facsimile, or regular mail. As explained
below, these final rules will replace current Form 102, and require
respondents to electronically submit New Form 102; the Commission will
no longer accept submissions by email, facsimile, or regular mail.
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\36\ 17 CFR 17.01.
\37\ Current Form 102 is titled ``Identification of Special
Accounts.'' 17 CFR 15.02.
\38\ 17 CFR 17.02(b)(2).
\39\ 17 CFR 17.01.
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As noted above, Form 102 identifies and provides information with
respect to special accounts carried by FCMs, clearing members, and
foreign brokers. The current form, which will be updated and replaced
by these final rules, provides the Commission with contact information
for the trader(s) who owns and/or controls trading in each special
account included in the daily Sec. 17.00 position reports. The Form
102 questions, as currently detailed in Sec. 17.01(a)-(f),\40\ require
the reporting firm to provide the following: A special account number;
the name, address, and other identification information for the
controller, owner (if also the controller), or originator (if an
omnibus account) of the account; an indication whether trades and
positions in the special account are usually associated with commercial
activity of the account owner in a related cash commodity or activity;
information regarding an FCM's relationship to the account; and name
and address information for the party submitting the Form 102.\41\
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\40\ 17 CFR 17.01(a)-(f).
\41\ Form 102 requires the reporting party to provide the legal
entity identifier (``LEI'') (if any) of the reporting party and of
various other parties reportable on the form, such as account
owners, controllers, and originators. As noted in the footnotes to
the reporting forms in the Appendix, if a reporting party provides
an LEI on New Form 102 that was issued by the CICI Utility (or by
any other CFTC-accepted LEI provider), then the reporting party is
not required to report any of the fields marked as ``Optional
Fields'' in the relevant question (i.e., name and address), provided
that such Optional Fields were reported to the CICI Utility (or
other CFTC-accepted LEI provider) and are associated with the
relevant LEI. The Commission is addressing such otherwise
duplicative reporting in order to leverage information regarding
reporting parties that is available from another source.
Furthermore, in the event the CICI Utility (or any other CFTC-
accepted LEI provider) is modified in the future to accept any of
the fields marked on the forms as ``Supplemental Fields,'' then the
reporting party will not be required to report any of the
Supplemental Fields in the relevant question, provided that such
Supplemental Fields were reported to the CICI Utility (or other
CFTC-accepted LEI provider) and are associated with the relevant
LEI. ``Optional Fields'' are currently captured by the CICI Utility,
while ``Supplemental Fields'' are not currently captured by the CICI
Utility. Reporting parties that take advantage of such relief from
duplicative reporting on the forms should indicate in their
submission that the omitted information has been reported to an LEI
provider.
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Based on the Commission's experience in receiving and reviewing
Form 102 submissions, and as discussed below in the context of the
final rules, the Commission has determined to update Form 102 in order
to accommodate more detailed ownership and control information
regarding identified special accounts, and to identify underlying
trading accounts. In addition, the Commission is implementing an
automated transmission process for Form 102 reporting, through either a
web portal or secure FTP transmission, so that both the Commission and
market participants may benefit from the efficiencies of
automation.\42\
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\42\ See infra section VIII(B)(iv) for a discussion of the
Commission's contact reference database, which is intended to
streamline the automated submission process and reduce the burden on
reporting parties.
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[[Page 69182]]
ii. Statement of Reporting Trader--Current Form 40
Current Sec. 18.04, in part 18 of the Commission's regulations,
requires that, after a special call of the Commission, each trader
holding or controlling a reportable position file with the Commission a
``Statement of Reporting Trader'' on current Form 40, at such time and
place as directed in the call.\43\ Current Form 40 is most commonly
submitted to the Commission via email, facsimile, or regular mail, but
this submission scheme will be changed by these final rules.
Specifically, as discussed below, current Form 40 will be replaced by
New Form 40, which must be electronically submitted in response to a
special call through either a web-based portal or a secure FTP
transmission. When submitted in a timely and accurate manner, Form 40
submissions provide the Commission with basic identifying information
regarding reportable traders active in its markets.
---------------------------------------------------------------------------
\43\ 17 CFR 18.04.
---------------------------------------------------------------------------
Similar to current Sec. 17.01, current Sec. 18.04 specifically
enumerates the data fields required in a Form 40 filing. Section 18.04
and Form 40 require a reporting trader receiving a special call to
provide the following principal data points: Name and address;
principal business and occupation; type of trader; registration status
with the Commission; name and address of other persons whose trading
the trader controls; name, address, and phone number for each
controller of the reporting trader's trading; name and location of
other reporting firms through which the reporting trader has accounts;
name and locations of persons guaranteeing the trading accounts of the
reporting trader or persons having a 10 percent or greater financial
interest in the reporting trader or its accounts; other identification
information regarding accounts which the reporting trader guarantees or
in which the reporting trader has a financial interest of 10 percent or
more; and whether the reporting trader has certain relationships with
owners that are foreign governments.
Natural persons completing current Form 40 must also provide the
following information, as applicable: A business telephone number;
employer and job title; description of trading activity related to
physical activity in or commercial use of a commodity; name and address
of any organization of which the reporting trader participates in the
management, if such organization holds a trading account; the name and
address of a partner and/or joint tenant on the account; and the name
and address of the partner and/or joint tenant that places orders.
Corporations and other non-natural persons completing current Form
40 must also provide the following information, as applicable: The
jurisdiction where the reporting party is organized; names and
locations of parent firms and their respective U.S. entity indication;
names and locations of all subsidiary firms that trade in commodity
futures and options on futures and their respective U.S. entity
indication; name and address of person(s) controlling trading, by
commodity and transaction type; contact information for a contact
person regarding trading; and description of trading activity related
to physical activity in, or the commercial use of, a commodity.
As with Form 102, and based on the Commission's experience in
calling for and reviewing Form 40 submissions, the Commission has
determined to update Form 40 in order to request more detailed
information regarding the ownership, control and business activities of
reporting traders. In addition, the Commission is implementing an
automated transmission process for Form 40 reporting, through either a
web portal or secure FTP transmission, so that both the Commission and
market participants may benefit from the efficiencies of automation.
B. Large Trader Reporting for Physical Commodity Swaps--102S and 40S
Filings
As noted above, and discussed in detail in Section III of the
NPRM,\44\ the Commission adopted rules in 2011 pertaining to swaps
large trader reporting as new part 20 of the Commission's
regulations.\45\ In addition to establishing a position-based reporting
scheme for swaps,\46\ the rules also require the reporting of
counterparty consolidated accounts with reportable positions (via Form
102S) and the filing of a Form 40S in response to a special call by the
Commission. In general, the 102S and 40S filings serve an analogous
function for swap counterparties with reportable positions to that
served by the current Form 102 and Form 40 filings for futures and
options on futures traders with reportable positions. These final rules
will update Forms 102S and 40S, in part by requiring more detailed
ownership and control information, and integrate the forms into the
automated submission process.
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\44\ See NPRM supra note 10 at 43972.
\45\ See supra note 12.
\46\ See generally: Large Trader Reporting for Physical
Commodity Swaps: Division of Market Oversight Guidebook for part 20
Reports, available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/ltrguidebook053112.pdf (hereafter, ``Swaps
Large Trader Guidebook'').
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Pursuant to Sec. 20.5(a), in part 20 of the Commission's
regulations, current 102S filings must be filed by a part 20 reporting
party (a swap dealer or clearing firm) for each reportable counterparty
consolidated account and ``shall consist of the name, address, and
contact information of the counterparty and a brief description of the
nature of such person's paired swaps and swaptions market activity.''
\47\ In addition, pursuant to Sec. 20.5(b), and in conjunction with
Sec. 20.6, all clearing organizations, swap dealers, clearing members,
and counterparties with reportable positions must, after a special call
of the Commission, complete a Form 40 ``as if any references to futures
or options contracts were references to paired swaps or swaptions as
defined in Sec. 20.1'' and submit the same to the Commission as a 40S
filing.\48\
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\47\ 17 CFR 20.5(a).
\48\ 17 CFR 20.5(b) and 20.6.
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These final rules update and replace the reporting framework
established by part 20. The information requested in new Form 102S also
reflects considerations developed in the Swaps Large Trader Guidebook
for compliance with part 20.\49\ For example, new Form 102S requires
information on both swap counterparty and customer consolidated
accounts with a reportable position.\50\ New Form 102S also requests
ownership and control information regarding each non-omnibus
consolidated account identified on the form. Building on the approach
of modernizing Form 102 and Form 40 submissions, these final rules also
provide for the electronic submission of both Form 102S and Form 40S.
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\49\ See supra note 46.
\50\ As explained in the Swaps Large Trader Guidebook,
acceptable part 20 data records include ``customer,'' ``principal,''
``counterparty'' and ``agent'' records. Customer consolidated
accounts, principal consolidated accounts, and counterparty
consolidated accounts must be reported on new Form 102S, but agent
data records do not need to be reported on Form 102S. Customer
consolidated accounts are treated as customer accounts for purposes
of Form 102S reporting, while principal consolidated accounts and
counterparty consolidated accounts are treated as counterparty
accounts for purposes of Form 102S reporting.
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IV. Summary of 2010 and 2012 NPRMs
On July 19, 2010, the Commission published for public comment a
Notice of Proposed Rulemaking that proposed to collect certain account
ownership and control information for all trading accounts active on
U.S. futures
[[Page 69183]]
exchanges and other reporting parties (the ``2010 OCR NPRM'').\51\ The
2010 OCR NPRM proposed to collect this information through a dedicated
ownership and control report (``OCR''). In an effort to accommodate
comments received in response to the 2010 OCR NPRM, the Commission
withdrew the 2010 OCR NPRM, and instead pursued the collection of
account ownership and control information through a separate Notice of
Proposed Rulemaking, published on July 26, 2012 (the ``NPRM'').\52\
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\51\ See supra note 9.
\52\ See supra note 10.
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The NPRM proposed new rules and related forms to enhance the
Commission's identification of futures and swap market participants, by
collecting ownership and control information for certain trading
accounts active on reporting markets that are DCMs or SEFs. The rules
proposed to leverage the Commission's current position and transaction
reporting programs by requiring the electronic submission of trader
identification and market participant data on revised Forms 102 and 40,
and on New Form 71. The NPRM contained a detailed discussion of the
current futures large trader program under Forms 102 and 40,\53\ and
the anticipated benefits of the revised and newly introduced forms,\54\
topics which are also summarized in these final rules.
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\53\ See NPRM supra note 10 at 43971.
\54\ See NPRM supra note 10 at 43970.
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The Commission invited all interested parties to submit comments on
the NPRM, including comments with respect to costs and benefits, within
a designated comment window. The Commission received a total of eight
comment letters from thirteen interested parties, which are listed
below.\55\
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\55\ All NPRM comment letters (``CL'') are available through the
Commission's Web site at: http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1247.
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The following parties submitted written comments:
1. CME Group Inc. (``CME'') \56\
---------------------------------------------------------------------------
\56\ CME Group submitted a single comment letter on behalf of
four DCMs, each of which is being counted for purposes of this
summary as a separate interested party: The Chicago Mercantile
Exchange, Inc.; the Board of Trade of the City of Chicago, Inc.; the
New York Mercantile Exchange, Inc.; and the Commodity Exchange, Inc.
Its comments are noted here as those of ``CME''.
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2. Futures Industry Association (``FIA'')
3. ICE Futures U.S., Inc. (``ICE'')
4. North American Derivatives Exchange, Inc. (``Nadex'')
5. The National Rural Electric Cooperative Association, the Large
Public Power Council, and the Electric Power Supply Association
(collectively, ``Joint Electric Association'')
6. John Hazelwood Estate (``Hazelwood'') \57\
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\57\ Hazelwood's comment letter responds to the 2010 OCR NPRM,
rather than the NPRM; however, it remains part of the record for
this rulemaking.
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7. Sheila Bailey-Waddell (``Waddell'')
8. Ron Troncatty (``Troncatty'') \58\
---------------------------------------------------------------------------
\58\ Mr. Troncatty's comment letter was unresponsive; however,
it remains part of the record for this rulemaking.
---------------------------------------------------------------------------
The written comments received are summarized in section VII below.
In response to the comments received, the Commission has revised and/or
eliminated several regulations that were proposed in the NPRM. The
Commission also received a number of comments pertaining to the costs
and/or benefits of certain proposed regulations. Pursuant to section
15(a) of the CEA, the Commission has considered the costs and benefits
of the regulations being adopted in this release, as discussed in more
detail in section VIII(B) below. For purposes of these final rules, the
Commission has updated the cost estimates that appeared in the NPRM
based on the most recent data and statistics available to the
Commission.
V. Summary of New and Amended Forms Adopted in These Final Rules
As noted above, this rulemaking addresses three forms--New Form
102, New Form 71, and New Form 40. New Form 102 is designed as a multi-
function form, since the requirement to submit New Form 102 can arise
from one of three separate triggers: A special account, volume
threshold account, or consolidated account becomes reportable. The data
required to be submitted on a New Form 102 is determined by the
underlying triggering mechanism. A discussion follows of the three New
Form 102 triggering mechanisms, the related sections of the form, and
the information required to be provided in each section. The Commission
will send New Form 71 via a special call to collect additional
information about certain volume threshold accounts identified as
omnibus accounts on New Form 102B. New Form 40 will continue to serve
its traditional purpose as a tool to be used, at the Commission's
discretion, to collect additional information about traders and market
participants identified on New Form 102, as well as on New Form 71. New
Form 71 and New Form 40 are also described in detail below. In
addition, section VII below discusses in detail the version of the
forms proposed in the NPRM, the comments received on the forms, and the
changes that are being made to the forms in these final rules in
response to comments.
As part of its implementation plan related to this rulemaking, and
described in more detail below, the Commission has developed both a
web-based portal and a secure FTP transmission through which market
participates will submit and update their reporting forms. Market
participants may provide required information through either submission
method. This automated process is intended to cure much of the
inefficiency and potential error associated with the current submission
process via email, facsimile, or regular mail.
A. Position-Triggered Form 102A (Special Accounts)
i. Special Accounts and Reportable Positions
New Form 102A is the section of New Form 102 that will serve a
function most analogous to current Form 102. New Form 102A requires an
FCM, clearing member, or foreign broker to identify and report its
special accounts. As discussed above, a special account is defined in
current Sec. 15.00(r), and means any commodity futures or option
account in which there is a reportable position.\59\ For the purposes
of part 17, reportable position is defined in current Sec.
15.00(p)(1), and generally includes any open contract position that at
the close of the market on any given business day equals or exceeds the
levels in current Sec. 15.03.\60\ These final rules do not amend the
definition of either special account or reportable position.
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\59\ 17 CFR 15.00(r).
\60\ 17 CFR 15.00(p)(1) and 15.03.
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The Commission notes that under current regulations (Sec.
17.00(b), citing Sec. 150.4),\61\ reporting firms are required to
separately aggregate the positions of common owners and those of common
controllers for purposes of reporting special accounts to the
Commission, except as otherwise instructed by the Commission or its
designee. Special accounts that are so aggregated and reported to the
Commission pursuant to Sec. 17.00 must also be identified to the
Commission on Form 102 pursuant to current Sec. 17.01. The requirement
to separately aggregate the positions of common owners and those of
common controllers for purposes of reporting special accounts to the
Commission on Form 102 is reflected in the instructions to New Form
102A. As noted in question 2 on New Form 102A, special accounts become
reportable on the form based on (i) ownership of a reportable
[[Page 69184]]
position, (ii) control of a reportable position, (iii) both ownership
and control of a reportable position, or (iv) because the relevant
account is an omnibus account with a reportable position.
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\61\ 17 CFR 17.00(b) and 150.4.
---------------------------------------------------------------------------
Following the implementation of these final rules, reporting
parties should continue to report special accounts pursuant to Sec.
17.00 on a disaggregated basis if the parties have been so instructed
by the Commission or its designee. All reporting parties should
continue to provide position reporting based on control of a special
account. As an example, if a special account is controlled by one
reporting party but owned by another, such account should be reported
only by the reporting party that controls the special account.
Consistent with this guidance, and notwithstanding the requirement
on New Form 102A to also report based solely on ownership of a
reportable position, the Commission will not require reporting based on
this trigger via New Form 102A following the implementation of these
final rules. The Commission is retaining the reporting trigger based on
ownership of a reportable position in New Form 102A as a placeholder,
in the event that the Commission requires 102A reporting based solely
on this trigger on a future date.
ii. 102A Form Requirements
As compared to current Form 102, the data fields in 102A will
include new ownership and control information fields (or, in the case
of special accounts that are omnibus accounts, omnibus account
originator information fields) for position-based special accounts.
Form 102A will also require reporting firms that are clearing members
to identify the trading accounts that comprise a position-based special
account, and to provide TCR trading account numbers for those trading
accounts.\62\ To clarify, trading accounts that comprise a position-
based special account include all of those trading accounts that: (1)
Are used to execute trades cleared by the clearing member submitting
the 102A; (2) are owned or controlled by the entity identified as
owning or controlling the special account reported on a 102A; and (3)
execute transactions in the same commodity or commodities in which the
special account has a reportable position. Notwithstanding the fact
that the Commission will not require reporting of special accounts
based solely on ownership (as discussed above), when completing New
Form 102A, reporting parties must identify both the owners and
controllers of trading accounts that comprise a position-based special
account identified on the form. The Commission's objective, in
requiring 102A reporting parties to identify the trading accounts that
comprise a special account, is to facilitate trade-level monitoring of
the means by which special account owners or controllers establish and
unwind their reportable positions.
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\62\ See supra section I(B) for a discussion of the TCR.
---------------------------------------------------------------------------
Based on comments received in response to the 2010 OCR NPRM, it is
the Commission's understanding that non-clearing FCMs, foreign brokers,
and omnibus account originators (collectively, ``non-clearing
entities'') will generally not have the ability to match/identify a
trading account number for their customers or sub-accounts (hereafter,
``sub-accounts'') on the TCR.\63\ As a result, the Commission notes
that the requirement in 102A to identify a trading account number for
trading accounts that comprise a special account will only be a
relevant/applicable data field for clearing members identifying trading
accounts that comprise a special account.
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\63\ See supra section I(B) for a discussion of the TCR.
---------------------------------------------------------------------------
Notwithstanding these limitations regarding the reporting of
trading accounts that comprise a special account, non-clearing entities
must continue to report special accounts on Form 102 with respect to
their customers/sub-accounts, in the event that such accounts, if
carried directly with a clearing member, would be required to be
reported as a position-based special account. Current Form 102 requires
non-clearing entities to report such special accounts, and New Form
102A does not change that requirement.
New Form 102A will also require reporting firms to indicate whether
a special account reported based on ownership or control of a
reportable position is a house or customer account of the reporting
firm. This indicator will allow the Commission to perform certain
financial risk surveillance functions in a more automated and efficient
manner, by quickly identifying house positions that potentially create
risk for the reporting firm. Finally, 102A requires any reporting firm
that indicates on 102A that it is a foreign broker to identify its U.S.
FCM.
New Form 102A also includes a question regarding the controllers of
trading accounts.\64\ Respondents should report all individuals meeting
the definition of ``trading account controller'' set forth in Sec.
15.00(bb) when responding to this question.\65\ The Commission notes
however that regardless of whether the trading is carried out in whole
or in part through an automated trading system or direct human
initiation, the underlying analysis remains the same. When completing
Form 102A, reporting parties should identify each person that satisfies
the definition of ``trading account controller,'' as defined in Sec.
15.00(bb). Once respondents have identified all individuals meeting the
definition of trading account controller in a Form 102A submission,
they will not be required to submit change updates to the 102A if one
previously identified controller takes the place of another previously
identified controller. These instructions regarding the reporting of
trading account controllers on New Form 102A are also applicable to the
reporting of volume threshold account controllers on New Form 102B.\66\
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\64\ See question 10(iii) on Form 102A.
\65\ Pursuant to Sec. 15.00(bb), trading account controllers
are natural persons ``who by power of attorney or otherwise actually
direc[t] the trading of a trading account''. In the event that a
respondent's trading in a reportable trading account is conducted in
whole or in part through an automated trading system (``ATS''), when
submitting New Form 102A the respondent should consider whether any
operator, supervisor, or other individual involved in the
administration of such ATS meets the definition of trading account
controller with respect to the trading account. The Commission
recognizes that, for some respondents, the individuals involved in
the administration of an ATS may not qualify as trading account
controllers. The Commission further recognizes that the
administration of ATSs may vary from one respondent to another, and
that such variance may impact which natural persons a respondent
identifies as trading account controllers for accounts whose trading
is conducted in whole or in part through an ATS.
\66\ See question 6 on Form 102B.
---------------------------------------------------------------------------
iii. Timing of 102A Reporting \67\
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\67\ See infra the discussion of Sec. 17.02(b) in section VII,
which provides additional information regarding changes to the
timing of New Form 102A reporting made in response to comments on
the NPRM.
---------------------------------------------------------------------------
This rulemaking imposes a bifurcated deadline for submitting
certain information on New Form 102A. Reporting parties are required to
submit a completed Form 102A to the Commission no later than 9 a.m.\68\
on the business day following the date on which the special account
becomes
[[Page 69185]]
reportable. This form must include all required information, including
the names of the owner(s) and controller(s) of each trading account
that is not an omnibus account, and that comprises a special account
reported on the form. However, the reporting party may provide certain
supplemental information regarding such owner(s) and controller(s) on a
later date. No later than 9 a.m. on the third business day following
the date on which the special account becomes reportable, the reporting
party may update its Form 102 submission to provide information with
respect to such owner(s) and controller(s) other than their names
(e.g., their address and other contact information).\69\ The final
rules also include an ``on-call'' provision, which requires a 102A to
be submitted on such other date as directed by special call of the
Commission.
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\68\ Unless otherwise specified by the Commission or its
designee, the stated time in the final rules is eastern time for
information concerning markets located in that time zone, and
central time for information concerning all other markets, in
accordance with Sec. 17.02(a).
\69\ Specifically, the information marked as `Follow-On
Information' in questions 10(ii) and (iii) on New Form 102A may be
provided within three business days. All other required fields on
New Form 102A must be completed by 9:00 a.m. the following business
day. See New Form 102A in the Appendix to these final rules for more
information.
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iv. Timing of 102A Change Updates and Refresh Updates
The final rules also require reporting parties to submit an updated
Form 102A in the event that a change occurs that causes the information
submitted on the form to no longer be accurate (``change updates'').
Change updates must be submitted according to the bifurcated schedule
described in the preceding paragraph. The final rules also include an
``on-call'' provision, which requires 102A change updates to be
submitted on such other date as directed by special call of the
Commission.
In addition to change updates, Sec. 17.02(b) requires that,
starting on a date specified by the Commission or its designee and at
the end of each annual increment thereafter (or such other date
specified by the Commission or its designee that is equal to or greater
than six months), each FCM, clearing member, or foreign broker resubmit
every 102A that it has submitted to the Commission or its designee for
each of its special accounts (``refresh updates''). The goal of the
refresh update provision for 102A is to establish discrete points in
time where all 102A data is considered accurate and reliable, thereby
avoiding the data drift that is often associated with long-term data
collection efforts.
Both the change update and refresh update provisions of Sec.
17.02(b) include a sunset provision. An FCM, clearing member, or
foreign broker may stop providing change updates or refresh updates for
a Form 102A that it has submitted to the Commission for any special
account upon notifying the Commission or its designee that the account
in question is no longer reportable as a special account and has not
been reportable as a special account for the past six months. If a
reporting party so notifies the Commission, and the special account
becomes reportable again at a subsequent date, then the reporting party
would be required to file a new Form 102A.
B. Volume-Triggered Form 102B (Volume Threshold Accounts)
i. Volume Threshold Accounts and Reportable Trading Volume Level
New Form 102B of New Form 102 introduces a new volume-based
reporting structure not found in current Form 102. While current Form
102 reporting requirements arise when an account (or collection of
related accounts) has a reportable position, 102B reporting is
triggered when an individual trading account meets a specified trading
volume level in an individual product and, as a result, becomes a
``volume threshold account.'' Volume threshold account, as defined
below in final Sec. 15.00(x), means any trading account that carries
reportable trading volume on or subject to the rules of a reporting
market that is a DCM or SEF.\70\ The reportable trading volume level
(``RTVL'') is defined in final Sec. 15.04 as trading volume of 50 or
more contracts, during a single trading day, on a single reporting
market that is a DCM or SEF, in all instruments that such reporting
market designates with the same product identifier (including purchases
and sales, and inclusive of all expiration months).\71\ As noted above,
volume threshold accounts could reflect, without limitation, trading in
futures, options on futures, swaps, and any other product traded on or
subject to the rules of a DCM or SEF.
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\70\ See supra section I(A) for an explanation of the reporting
markets relevant to 102B filings, and infra sections VII and IX for
amendments to the definition of ``reporting market.'' See also infra
the discussion of Sec. 15.00(x) in section VII, which provides
additional information regarding changes to the definition of volume
threshold account made in response to comments on the NPRM.
\71\ The RTVL is based on the Commission's analysis of DCM trade
data received through the TCR from a sample of DCMs during a recent
six month period. It is calibrated to yield information with respect
to those trading accounts that are responsible for a substantial
percentage of trading volume, while minimizing the adopted
regulations' impact on low-volume accounts whose trading activity
does not warrant inclusion in the adopted reporting and
identification regime. Based on the sample data set used in the
Commission's analysis, the RTVL would result in the reporting and
identification of approximately one-third of the trading accounts
reported in the sample data set. However, due to the concentration
of trading activity among a minority of accounts and some accounts'
tendency to be active in more than one product, the RTVL, as
adopted, would nonetheless result in the identification of at least
85% of the trading volume in approximately 90% of the products in
the sample data set, as measured at the conclusion of the six-month
period sampled by the Commission. See the discussion of Sec. 15.04
in section VII below for additional information regarding the
application of the RTVL to products traded on or subject to the
rules of a SEF.
---------------------------------------------------------------------------
ii. 102B Form Requirements
As a threshold question, 102B requires that clearing members
provide, in response to question 2, the trading account number of any
trading account that meets the criteria for a volume threshold account;
any related short code(s) for such account; and the name of the
reporting market (i.e. the DCM or SEF) at which the volume threshold
account had reportable trading volume. These data points are necessary
to report and identify volume threshold accounts in TCRs received from
DCMs, or similar transaction-based reports that may be received from
SEFs, and to link the volume threshold account to other Commission's
surveillance databases.\72\ The data points will also assist the
Commission in identifying traders whose end-of-day open interest does
not reach reportable levels on Form 102A, but whose intra-day trading
reaches the volume threshold, thus enabling the Commission to monitor
trading that could potentially impact markets during concentrated
periods of intra-day trading.
---------------------------------------------------------------------------
\72\ See supra section I(B) for a discussion of the TCR.
---------------------------------------------------------------------------
Second, 102B requires that clearing members provide, in response to
question 3, the volume threshold account's associated special account
number, if applicable. This information will permit the Commission to
more effectively and efficiently connect position data received via the
large trader reporting system and trade data received via the TCR.
Third, 102B requires that clearing members indicate, in response to
question 4, whether the volume threshold account is an omnibus account,
or used to execute trades for an omnibus account. If the account is an
omnibus account or used to execute trades for an omnibus account,
question 4 requires clearing members to indicate whether the account is
a house or customer omnibus account, and to provide information
sufficient to uniquely identify and contact the originator of the
account (e.g., the originator's name, address and phone
[[Page 69186]]
number, among other information).\73\ More detailed information
regarding ownership and control with respect to a volume threshold
account that is a customer omnibus account will be collected separately
at the Commission's request, from the omnibus account's originating
firm (via a New Form 71), also adopted herein and described below.
---------------------------------------------------------------------------
\73\ See supra note 41. Form 102B also requires the reporting
party to provide the LEI (if any) of any omnibus account originator
and volume threshold account owner(s) reported on the form. As noted
in the footnotes to the reporting forms in the Appendix, if a
reporting party provides an LEI on Form 102B that was issued by the
CICI Utility (or by any other CFTC-accepted LEI provider), then the
reporting party is not required to report any of the fields marked
as ``Optional Fields'' in the relevant question (i.e., name and
address), provided that such optional fields were reported to the
CICI Utility (or other CFTC-accepted LEI provider) and are
associated with the relevant LEI. Footnotes to the reporting forms
in the Appendix contain instructions regarding other fields that are
not required to be reported in certain circumstances.
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Fourth, 102B requires clearing members to provide information, in
response to question 5, sufficient to uniquely identify and contact
each owner of a volume threshold account that is not an omnibus account
(e.g., the owner's name, address and phone number, among other
information). For each account owner that is not a natural person,
question 5 also requests, among other identifying information, a
contact name, contact job title, and the relationship of the contact to
the account owner. Finally, the Commission requests that clearing
members provide information, in response to question 6, sufficient to
uniquely identify and contact each volume threshold account controller
of an account that is not an omnibus account. Pursuant to final Sec.
15.00(cc), a volume threshold account controller must be a natural
person. The requested information includes the name of the account
controller(s), address, phone number and job title, together with the
name of the controller's employer and other identifying
information.\74\
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\74\ As with Form 102A, respondents should report all
individuals meeting the definition of volume threshold account
controller on Form 102B. In the event that a respondent's trading in
a reportable volume threshold account is conducted in whole or in
part through an ATS, when submitting New Form 102B the respondent
should consider whether any operator, supervisor, or other
individual involved in the administration of such ATS meets the
definition of volume threshold account controller with respect to
the volume threshold account. The Commission recognizes that, for
some respondents, the individuals involved in the administration of
an ATS may not qualify as volume threshold account controllers. See
supra section V(A)(ii).
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iii. Timing of 102B Reporting \75\
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\75\ See infra the discussion of Sec. 17.02(c) in section VII,
which provides additional information regarding changes to the
timing of New Form 102B reporting made in response to comments on
the NPRM.
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This rulemaking imposes a bifurcated deadline for submitting
certain information on New Form 102B. Reporting parties are required to
submit a completed Form 102B to the Commission no later than 9 a.m. on
the business day following the date on which the volume threshold
account becomes reportable. This form must include all required
information, including the names of the owner(s) and controller(s) of
each volume threshold account reported on the form that is not an
omnibus account. However, the reporting party may provide certain
supplemental information regarding such owner(s) and controller(s) on a
later date. No later than 9 a.m. on the third business day following
the date on which the volume threshold account becomes reportable, the
reporting party may update its Form 102 submission to provide
information with respect to such owner(s) and controller(s) other than
their names (e.g., their address and other contact information).\76\
The final rules also include an ``on-call'' provision, which requires a
102B to be submitted on such other date as directed by special call of
the Commission.
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\76\ Specifically, the information marked as `Follow-On
Information' in questions 5 and 6 on New Form 102B may be provided
within three business days. All other required fields on New Form
102B must be completed by 9:00 a.m. the following business day
(including question 4, with respect to omnibus account information).
See New Form 102B in the Appendix to these final rules for more
information.
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iv. Timing of 102B Change Updates and Refresh Updates
The final rules also require reporting parties to submit an updated
Form 102B in the event that a change occurs that causes the information
submitted on the form to no longer be accurate (``change updates'').
Change updates must be submitted according to the bifurcated schedule
described in the preceding paragraph. The final rules also include an
``on-call'' provision, which requires 102B change updates to be
submitted on such other date as directed by special call of the
Commission.
In addition to change updates, Sec. 17.02(c) requires that,
starting on a date specified by the Commission or its designee and at
the end of each annual increment thereafter (or such other date
specified by the Commission or its designee that is equal to or greater
than six months), each clearing member resubmit every 102B that it has
submitted to the Commission for each of its volume threshold accounts
(``refresh updates''). The goal of the refresh update provision for
102B is to establish discrete points in time where all 102B data is
considered accurate and reliable, thereby avoiding the data drift that
is often associated with long-term data collection efforts.
Both the change update and refresh update provisions of Sec.
17.02(c) include a sunset provision. A clearing member may stop
providing change updates or refresh updates for a Form 102B that it has
submitted to the Commission for any volume threshold account upon
notifying the Commission or its designee that the account in question
executed no trades in any product in the past six months on the
reporting market at which the volume threshold account reached the
reportable trading volume level. If a reporting party so notifies the
Commission, and the volume threshold account becomes reportable again
at a subsequent date, then the reporting party would be required to
file a new Form 102B.
C. Position-Triggered Form 102S (Consolidated Accounts)
i. 102S Form Requirements
Section 102S of New Form 102 is designed to facilitate the
electronic submission of 102S filings. Such filings are currently being
submitted to the Commission (pursuant to Sec. 17 CFR 20.5(a)) through
a non-automated process. As noted above, pursuant to Sec. 20.5(a),
102S filings must be filed by a part 20 reporting party (a swap dealer
or clearing firm) for each reportable counterparty consolidated account
when such account first becomes reportable, and ``shall consist of the
name, address, and contact information of the counterparty and a brief
description of the nature of such person's paired swaps and swaptions
market activity.'' \77\ By incorporating 102S in New Form 102, these
rules will request more detailed ownership and control information
regarding identified consolidated accounts, and require the submission
of consolidated account reporting via an automated submission.\78\ As
explained above, 102S
[[Page 69187]]
will also incorporate considerations developed in the Swaps Large
Trader Guidebook for compliance with part 20. These rules will replace
the 102S submission procedure and guidance in the Swaps Large Trader
Guidebook.\79\
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\77\ 17 CFR 20.5(a).
\78\ See supra note 41. Form 102S also requires the reporting
party to provide the LEI (if any) of any omnibus account originator
and consolidated account owner(s) and controller(s) reported on the
form. As noted in the footnotes to the reporting forms in the
Appendix, if a reporting party provides an LEI on Form 102S that was
issued by the CICI Utility (or by any other CFTC-accepted LEI
provider), then the reporting party is not required to report any of
the fields marked as ``Optional Fields'' in the relevant question
(i.e., name and address), provided that such optional fields were
reported to the CICI Utility (or other CFTC-accepted LEI provider)
and are associated with the relevant LEI. Footnotes to the reporting
forms in the Appendix contain instructions regarding other fields
that are not required to be reported in certain circumstances.
\79\ See Swaps Large Trader Guidebook at p. 26 and p. 91,
Appendix D. See also supra note 12.
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ii. Timing of 102S Reporting, Change Updates and Refresh Updates
The timing for submitting new 102S filings will continue to be
subject to current Sec. 20.5(a)(3).\80\
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\80\ 17 CFR 20.5(a)(3) provides: ``Reporting entities shall
submit a 102S filing within three days following the first day a
consolidated account first becomes reportable or at such time as
instructed by the Commission upon special call.''
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Section 20.5(a)(4) of the final rules requires that if any change
causes the information filed on a 102S for a consolidated account to no
longer be accurate, an updated 102S must be filed with the Commission
no later than 9:00 a.m. on the business day after such change occurs,
or on such other date as directed by special call of the Commission
(``change updates'').
In addition to change updates, final Sec. 20.5(a)(5) requires
that, starting on a date specified by the Commission or its designee
and at the end of each annual increment thereafter (or such other date
specified by the Commission or its designee that is equal to or greater
than six months), each clearing member or swap dealer must resubmit
every 102S that it has submitted to the Commission for each of its
consolidated accounts (``refresh updates''). As with the 102A and 102B,
discussed above, the goal of the refresh update provision is to
establish discrete points in time where all 102S data is considered
accurate and reliable. The Commission is proposing the refresh update
provision in an effort to maintain accurate 102S data, and to avoid the
data drift which is often associated with long-term data collection
efforts.
Both the change update and refresh update provisions of Sec.
20.5(a) include a sunset provision. A clearing member or swap dealer
may stop providing change updates or refresh updates for a Form 102S
that it has submitted to the Commission for any consolidated account
upon notifying the Commission or its designee that the account in
question is no longer reportable as a consolidated account and has not
been reportable as a consolidated account for the past six months. If a
reporting party so notifies the Commission, and the consolidated
account becomes reportable again at a subsequent date, then the
reporting party would be required to file a new Form 102S.
D. Form 71 (Omnibus Accounts and Sub-Accounts)
New Form 71 (``Identification of Omnibus Accounts and Sub-
Accounts'') will be sent, in the Commission's discretion, in the event
that a volume threshold account is identified as a customer omnibus
account on Form 102B. The Commission will send New Form 71 via a
special call to the originating firm of such an account. The Commission
will provide the relevant account number and reporting market reported
on the 102B when sending the Form 71. Recipients of a Form 71 will be
required to provide information regarding any account to which the
customer omnibus account allocated trades that resulted in reportable
trading volume for the account receiving such allocations (a
``reportable sub-account'') on a specified trading date.\81\ Form 71 is
designed to permit originating firms to report the required information
directly to the Commission without requiring such firms to disclose
information regarding customers to potential competitors. If a
reportable sub-account is itself an omnibus account (an ``omnibus
reportable sub-account''), then the originating firm will be required
to (a) indicate whether the omnibus reportable sub-account is a house
or customer omnibus account and (b) identify the originator of the
omnibus reportable sub-account. Another Form 71 will be sent, at the
discretion of Commission staff, to the originator of a customer omnibus
reportable sub-account identified on Form 71. At its discretion, the
Commission will continue to reach through layered customer omnibus
reportable sub-accounts via successive Form 71s until reaching all
reportable sub-accounts, if any, that are not omnibus sub-accounts.
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\81\ The relevant trading date will be specified by Commission
staff on Form 71 at the time the special call is made.
---------------------------------------------------------------------------
If a reportable sub-account identified on Form 71 is not an omnibus
sub-account, then the originating firm will be required to identify the
owner(s) and controller(s) of the non-omnibus reportable sub-account. A
New Form 40 will be sent, via a special call at the discretion of the
Commission, to such owner(s) and controller(s). Form 71 will therefore
enable the Commission to collect the same level of information
regarding owners and controllers (via a subsequent New Form 40) that
the Commission will collect with respect to a non-omnibus volume
threshold account identified on 102B. The key data points to be
collected in Form 71 are summarized below.
As a threshold question, section A of Form 71 requires the
originator of an omnibus volume threshold account or a reportable sub-
account to confirm certain identifying information regarding the
originator. Such information would have been reported to the Commission
by an omnibus account carrying firm on Form 102B or on a preceding Form
71 (e.g., the originator's name, address and phone number), and used to
auto-populate the present Form 71. The originator is prompted to update
any incorrect information provided in Section A.
Second, section B of Form 71 requires the originator to provide
certain information regarding the allocation of trades from a specified
account number, and on a specified date and reporting market, to
another account (called a ``recipient account''). Specifically, the
originator is required to indicate whether: (1) It allocated trades
from the specified account number on the specified date and reporting
market that resulted in reportable trading volume for a recipient
account; (2) it allocated trades from the specified account number on
the specified date and reporting market, but the allocations did not
sum to reportable trading volume for a recipient account on such date;
or (3) it did not allocate any trades from the specified account number
on the specified date and reporting market.
If condition (1) is met, the originator is required to indicate in
section B whether the reportable sub-account is an omnibus reportable
sub-account. If so, the originator is required to indicate whether the
omnibus reportable sub-account is a house or customer omnibus account,
and to provide information sufficient to identify and contact the
originator of the sub-account (e.g., the originator's name, address and
phone number, and a contact name, contact job title, and the
relationship of the contact to the originator). As noted above, another
Form 71 will be sent at the discretion of Commission staff to the
originator of a customer omnibus reportable sub-account identified in
response to section B of Form 71. Therefore, Form 71 may be sent to a
chain of such originators if each originator allocated trades to
another customer omnibus reportable sub-account.
If the reportable sub-account is not an omnibus sub-account, the
originator is
[[Page 69188]]
required to provide information sufficient to identify and contact the
owner(s) and controller(s) of such non-omnibus reportable sub-account
(e.g., the name, address and phone number of the owner(s) and
controller(s)). This information will enable the Commission, in its
discretion, to send a New Form 40 to such owner(s) and controller(s).
E. New Form 40 (Reporting Traders)
In these final rules, the Commission adopts a revised Form 40 that
will be sent, on special call of the Commission, to individuals and
other entities identified on any of 102A, 102B, and Form 71. As adopted
herein, New Form 40, still referred to as the ``Statement of Reporting
Trader,'' will continue to serve the function traditionally met by
current Form 40. New Form 40 will provide the Commission with detailed
information regarding both the business activities and the ownership
and control structure of a reporting trader identified in the
Commission's Form 102 program (as updated by these final rules). New
Form 40 will also be the vehicle through which market participants
subject to 17 CFR 20.5(b) submit their 40S filings, and will be used to
collect additional information regarding the owners and controllers of
non-omnibus volume threshold accounts identified by Form 71. Those
entities required to complete a New Form 40 will be under a continuing
obligation, per direction in the special call, to update and maintain
the accuracy of the information submitted on New Form 40 by
periodically updating the information on the New Form 40 web portal or
by periodically resubmitting New Form 40 by secure FTP transmission.
Among other data, New Form 40 will request the following regarding
the reporting trader: Contact information for the individual(s)
responsible for the reporting trader's trading activities, risk
management operations, and the information on the New Form 40; if
applicable, omnibus account information, foreign government affiliation
information, and an indication regarding the reporting trader's status
as a domestic or non-domestic entity; information regarding the
reporting party's ownership structure in connection with its parents
and subsidiaries; information regarding the reporting trader's control
relationships with other entities; information regarding other
relationships with persons that influence or exercise authority over
the trading of the reporting trader; an indication regarding swap
dealer status and major swap participant status; an indication of all
commodity groups and individual commodities that the reporting trader
presently trades, or expects to trade in the near future, in
derivatives markets; and other indications regarding the nature of the
reporting trader's derivatives trading activity. The form includes
definitions of certain terms, including parent, subsidiary, and
control, to be used for the purpose of completing New Form 40.
New Form 40 will also require reporting traders who engage in
commodity index trading (``CIT''), as defined in the new form, to
identify themselves to the Commission.\82\ New Form 40 defines CIT as:
(a) An investment strategy that consists of investing in an instrument
(e.g., a commodity index fund, exchange-traded fund for commodities, or
exchange-traded note for commodities) that enters into one or more
derivative contracts to track the performance of a published index that
is based on the price of one or more commodities, or commodities in
combination with other securities; or (b) an investment strategy that
consists of entering into one or more derivative contracts to track the
performance of a published index that is based on the price of one or
more commodities, or commodities in combination with other securities.
Reporting traders engaged in CIT as defined in (b) are required to
indicate whether they are, in the aggregate, pursuing long exposure or
short exposure with respect to the relevant commodities or commodity
groups listed on the Form.\83\
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\82\ See question 14 in New Form 40.
\83\ See question 14ii(a) in New Form 40.
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VI. Data Submission Standards and Procedures
A. Overview
During the comment period of the NPRM, the Commission's data and
technology staff worked with potential reporting parties and other
market participants to address the information technology standards
associated with the rules proposed by the NPRM.\84\ Following these
discussions, the Commission established two submission methods for the
reporting forms required by these final rules: (a) A web-based portal
and (b) an XML-based, secure FTP data feed. While the NPRM contemplated
that certain forms (Forms 40/S and 71) could be submitted only via the
web portal, these final rules provide that reporting parties may submit
each of the new or revised forms through either the web-based portal or
the FTP data feed, in order to provide additional flexibility to
reporting parties. The Commission is offering two filing methods for
each form because it anticipates a wide range of technological
capabilities among reporting parties (varying based on the relative
size and experience of a given reporting party). Reporting parties will
be able to select the submission method that works best with their
existing data and technology infrastructure and the number of filings
they expect to make. Those reporting parties electing to submit
information through the FTP data feed should contact the Commission,
which will provide the necessary technical information to establish the
data feed. Following the publication of these final rules, the
Commission intends to publish a data compliance guidebook with detailed
instructions for the two submission methods.\85\
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\84\ Summaries of these discussions are available through the
Commission's Web site at: http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1247.
\85\ For a recent example of a similar undertaking, see the
Swaps Large Trader Guidebook, linked supra at note 46.
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When a reporting party identifies a new account on New Form 102A,
102B or 102S, the Commission will evaluate the account to determine
whether to request a New Form 40/40S or New Form 71 via a special call.
If the Commission determines to send a New Form 40/40S or New Form 71
to the applicable reporting trader or account originator, the
Commission will contact the reporting party (generally via email, using
the email address provided on the New Form 102). The Commission will
provide instructions for submitting the applicable form through either
the web-based portal or secure FTP data feed. Depending on the
information provided in New Form 71, the Commission may require a New
Form 40 or New Form 71 from additional persons or entities identified
in the New Form 71, using the same process described above.
B. Schedule of Effective Date and Compliance Date
As noted above, these final rules include separate ``effective''
and ``compliance'' dates:
The effective date of these final rules will be February
18, 2014.
The compliance date, however, will be delayed by an
additional 180 days, with the result that the compliance date of these
final rules will be August 15, 2014.
Between the publication of these final rules and the effective
date, reporting parties should work with the Commission's data and
technology staff
[[Page 69189]]
to test and implement any information technology standards or systems
associated with the final rules. During this testing period, reporting
parties should provide all test data or form filings requested by the
Commission's data and technology staff, in the form and manner
requested by staff.\86\ In addition, the Commission will conduct beta
testing of each submission method prior to the compliance date. All
reporting parties subject to the final rules must be in full compliance
by the compliance date, including having submitted complete and
accurate filings using one of the two submission methods described
above.
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\86\ The Commission will protect proprietary information
consistent with the Freedom of Information Act and 17 CFR part 145,
``Commission Records and Information.'' In addition, section 8(a)(1)
of the Act strictly prohibits the Commission, unless specifically
authorized by the Act, from making public ``data and information
that would separately disclose the business transactions or market
positions of any person and trade secrets or names of customers.''
The Commission is also required to protect certain information
contained in a government system of records according to the Privacy
Act of 1974, 5 U.S.C. 552a.
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VII. Review of NPRM and Summary of Final Rules
A. Part 15
i. Sec. 15.00(q)--Reporting Market
NPRM Proposal
Proposed Sec. 15.00(q) revised the definition of ``reporting
market'' in current Sec. 15.00(q) to replace the provision's cross-
reference to section 1a(29) of the Act with a cross-reference to Sec.
1a(40). The proposed rule also revised current Sec. 15.00(q) to remove
the provision's reference to derivatives transaction execution
facilities (``DTEFs'').\87\
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\87\ 17 CFR 15.00(q) and 15.02. The Dodd-Frank Act modified
section 1a of the CEA. As a result, the definition of ``registered
entity'' previously found in section 1a(29) of the CEA is now in
section 1a(40). In the NPRM, the Commission proposed to revise
current Sec. 15.00(q) so that it cites to section 1a(40) for the
definition of registered entity. The Commission also proposed to
revise current Sec. 15.00(q) by removing the provision's reference
to DTEFs, a category of regulated markets that was eliminated by
section 734 of the Dodd-Frank Act.
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Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 15.00(q) without modification.
ii. Sec. 15.00(t)--Control
NPRM Proposal
Proposed Sec. 15.00(t) added ``control'' to the list of defined
terms in Sec. 15.00.\88\ The Commission's proposed definition, which
applied only to special accounts (New Form 102A) and consolidated
accounts (Form 102S), defined control as ``to actually direct, by power
of attorney or otherwise, the trading of a special account or a
consolidated account.'' The proposed definition specified that special
accounts and consolidated accounts may have more than one controller.
The Commission notes that the proposed definition of ``control''
applied solely for the purpose of satisfying the reporting obligations
under parts 15 through 19 and 21 of the Commission's regulations. The
proposed definition did not limit or alter existing law with respect to
the meaning of the term control for the purpose of enforcing other
requirements under the Act and the Commission's regulations, including
those relating to position limits or manipulation. Similarly, existing
requirements regarding the aggregation of positions in separate
accounts for reporting or other purposes under the Act and Commission
regulations (e.g., Sec. Sec. 17.00(b) and 150.4) were not altered by
the definition of ``control'' proposed in Sec. 15.00(t).
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\88\ The definition of ``control'' in Sec. 15.00 is based upon
the definition of ``controlled account'' in section 1.3(j) of the
Commission's regulations.
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Summary of Comments on NPRM Proposal
FIA commented that it would be difficult and/or meaningless to
provide the requested control information, because the individuals
responsible for trading an account within a special account or a volume
threshold account can change often, even within the same trading
day.\89\ Furthermore, ``in the case of algorithmic trading programs,
there likely will not be an identifiable individual who `actually
directs the trading' of the program. For this reason, FCMs do not
currently collect this information.'' \90\ FIA recommended removing the
requirement to identify account controllers on Forms 102A and 102B.\91\
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\89\ CL-2012-FIA supra note 55 at 5.
\90\ CL-2012-FIA supra note 55 at 6.
\91\ CL-2012-FIA supra note 55 at 5. The 2010 OCR NPRM proposed
a broader definition of an account controller: ``A natural person,
or a group of natural persons, with the legal authority to exercise
discretion over trading decisions by a trading account, with the
authority to determine the trading strategy of an automated trading
system, or responsible for the supervision of any automated system
or strategy.'' In a comment letter dated December 23, 2010, FIA
commented that ``this definition cuts too broad a swath and would
require information on individuals that never actually exercise
trading authority over an account but, because of their position
with the customer, as an owner or officer, would be deemed to have
this authority . . . FIA believes the definition of an account
controller should be consistent with the Commission's definition of
control as set out in Commission Rule 1.3(j) and generally applied
at exchanges.'' The definition of an account controller reflected in
Sec. 15.00(t) and (bb)-(dd) of these final rules is based on
Commission Rule 1.3(j).
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Discussion of Final Rule
The Commission is adopting proposed Sec. 15.00(t) without
modification. At the same time, the Commission is modifying the
instructions on Form 102 in response to comments that discussed the
difficulty of identifying individuals that exercise control on a
transient basis, such as individuals operating an automated trading
system (``ATS'') during a daily shift. The instructions for Form 102A
and Form 102B have been revised to state that respondents should report
all individuals who qualify as ``trading account controllers'' or
``volume threshold account controllers,'' as defined in Sec. 15.00(bb)
and (cc), respectively.\92\ The Commission notes that regardless of
whether the trading is carried out in whole or in part through an
automated trading system or direct human initiation, the underlying
analysis remains the same. When completing Form 102A and Form 102B,
reporting parties should identify each person that satisfies the
definition of ``trading account controller'' or ``volume threshold
account controller,'' as defined in Sec. 15.00(bb) and (cc),
respectively. Once respondents have identified all individuals meeting
the applicable controller definition in a Form 102A or Form 102B
submission, they will not be required to submit change updates to the
submission if one previously identified controller takes the place of
another previously identified controller.
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\92\ The Commission recognizes that, for some respondents that
conduct trading in a reportable trading account or volume threshold
account in whole or in part through an ATS, the individuals involved
in the administration of such ATS may not qualify as trading account
controllers or volume threshold account controllers. See supra
section V(A)(ii).
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iii. Sec. 15.00(u)--Reportable Trading Volume
NPRM Proposal
Volume threshold accounts, omnibus volume threshold accounts,
omnibus reportable sub-accounts, and reportable sub-accounts all
reflect accounts that execute (or receive via allocation or give-up)
``reportable trading volume.'' Proposed Sec. 15.00(u) defined
reportable trading volume as contract trading volume that meets or
exceeds the level specified in proposed Sec. 15.04. Section 15.04, in
turn, provided that reportable trading volume for a trading account is
trading volume of 50 or more contracts, during a single trading day, on
a single
[[Page 69190]]
reporting market that is a board of trade designated as a contract
market under section 5 of the Act or a swap execution facility
registered under section 5h of the Act, in all instruments that such
reporting market designates with the same product identifier (including
purchases and sales, and inclusive of all expiration months).
Discussion of Final Rule
See below the discussion of comments received regarding the
reportable trading volume level proposed by Sec. 15.04. No comments
were received pertaining specifically to proposed Sec. 15.00(u), and
the Commission is adopting Sec. 15.00(u) without modification.
iv. Sec. 15.00(v)--Direct Market Access
NPRM Proposal
Proposed Sec. 15.00(v) defined direct market access (``DMA'') as
``a connection method that enables a market participant to transmit
orders to a DCM's electronic trade matching system without re-entry by
another person or entity, or similar access to the trade execution
platform of a SEF.'' Pursuant to the proposed definition, such access
could be provided directly by a DCM or SEF, or by a 3rd-party platform.
Proposed Forms 102A and 102B required an FCM to indicate whether a
trading account or volume threshold account has been granted DMA to the
trade matching system or the respective reporting system of the
applicable reporting market.
Summary of Comments on NPRM Proposal
FIA, CME and ICE commented that the definition of DMA was
overbroad, and FIA predicted that ``virtually all customers for which a
Form 102 would be required to be filed will have been granted DMA.''
\93\ CME commented that DMA data is not related to account ownership
and control, the focus of these final rules, but rather to
connectivity.\94\
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\93\ CL-2012-FIA supra note 55 at 6. CL-2012-CME supra note 55
at 2-3. CL-2012-ICE supra note 55 at 2.
\94\ CL-2012-CME supra note 55 at 2-3.
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Discussion of Final Rule
In response to CME's comment regarding the relevance of DMA
information, the Commission has concluded that the OCR reporting forms
are not the appropriate vehicle for reporting information regarding
connectivity. The Commission is therefore not adopting proposed Sec.
15.00(v), and will not include a question regarding DMA in Form 102.
v. Sec. 15.00(v)--Omnibus Account \95\
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\95\ Note that the following definitions in section Sec. 15.00
have been reordered due to the elimination of the definition of
direct market access (proposed in the NPRM as Sec. 15.00(v)).
---------------------------------------------------------------------------
NPRM Proposal
Proposed Sec. 15.00(w) (re-ordered in the final rules as Sec.
15.00(v)) defined omnibus account as any trading account that one FCM,
clearing member or foreign broker carries for another and in which the
transactions of multiple individual accounts are combined. The
identities of the holders of the individual accounts are not generally
known or disclosed to the carrying firm.
Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 15.00(w) (re-ordered in the final
rules as Sec. 15.00(v)) without modification.
vi. Sec. 15.00(w)--Omnibus Account Originator
NPRM Proposal
Proposed Sec. 15.00(x) (re-ordered in the final rules as Sec.
15.00(w)) defined omnibus account originator as any FCM, clearing
member or foreign broker that executes trades for one or more customers
via one or more accounts that are part of an omnibus account carried by
another FCM, clearing member or foreign broker.
Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 15.00(x) (re-ordered in the final
rules as Sec. 15.00(w)) without modification.
vii. Sec. 15.00(x)--Volume Threshold Account
NPRM Proposal
Proposed Sec. 15.00(y) (re-ordered in the final rules as Sec.
15.00(x)) defined volume threshold account as any trading account that
executes, or receives via allocation or give-up, reportable trading
volume on or subject to the rules of a reporting market that is a board
of trade designated as a contract market under section 5 of the Act or
a swap execution facility registered under section 5h of the Act.
In the case of a give-up trade, this NPRM definition was intended
to require reporting by: (i) The carrying firm of the original
executing account; (ii) the carrying firm of any intervening
account(s); and (iii) the carrying firm of the account to which the
give-up trade was ultimately allocated. Question 10 in Section VII of
the NPRM emphasized the broad scope of the definition: ``The Commission
intends that the definition of `volume threshold account' captures all
possible categories of accounts with reportable trading volume. . . .
The Commission requests public comment regarding whether the proposed
definition of `volume threshold account' achieves this purpose.''
Summary of Comments on NPRM Proposal
In response to this question, CME commented that volume-based
accounts should be reported at the carrying broker level, and noted
that, ``this is where the account ownership and control information
resides, not at executing brokers.'' \96\
---------------------------------------------------------------------------
\96\ CL-2012-CME supra note 55 at 4.
---------------------------------------------------------------------------
Discussion of Final Rule
The Commission is adopting proposed Sec. 15.00(y) (re-ordered in
the final rules as Sec. 15.00(x)) with one modification. The
definition of volume threshold account is being scaled back in the
final rules, to capture a smaller number of volume threshold accounts
than under the NPRM proposal. The definition is being modified to:
``any trading account that carries reportable trading volume on or
subject to the rules of a reporting market that is a [DCM or SEF].''
\97\ This change will reduce the number of reportable volume threshold
accounts in the case of a give-up trade:
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\97\ Based on comment letters received in response to various
proposed OCR rulemakings, the Commission understands that, in the
case of a give-up trade, the industry regards the account to which a
give-up trade is ultimately allocated as the only ``carrying''
account in the give-up process. On this basis, the Commission does
not view the original executing account of a give-up trade, or any
intervening account(s) prior to the account to which the give-up
trade is ultimately allocated, as ``carrying'' accounts in the give-
up process.
---------------------------------------------------------------------------
In a give-up scenario, this definition will require
reporting by the carrying firm of the account to which the trade is
ultimately allocated. Reporting will not be required, however, by the
carrying firm of the original executing account, or by the carrying
firm of any intervening account(s) prior to the account to which the
trade is ultimately allocated.
In a non-give-up scenario, there will be no change to the
number of reportable volume threshold accounts. Under both the original
and revised definition, reporting will be required by the carrying firm
of the account in which the trade is both executed and cleared.
The Commission believes that this approach will be more efficient
and less
[[Page 69191]]
burdensome for reporting parties, while nonetheless capturing a
sufficient number of volume threshold accounts to advance the
Commission's surveillance objectives.
viii. Sec. 15.00(y)--Omnibus Volume Threshold Account
NPRM Proposal
Proposed Sec. 15.00(z) (re-ordered in the final rules as Sec.
15.00(y)) defined omnibus volume threshold account as any trading
account that, on an omnibus basis, executes, or receives via allocation
or give-up, reportable trading volume on or subject to the rules of a
reporting market that is a board of trade designated as a contract
market under section 5 of the Act or a swap execution facility
registered under section 5h of the Act.
Summary of Comments on NPRM Proposal
See the discussion above regarding CME's comment on the definition
of ``volume threshold account.''
Discussion of Final Rule
The Commission is adopting proposed Sec. 15.00(z) (re-ordered in
the final rules as Sec. 15.00(y)) with one modification, consistent
with the change to the definition of volume threshold account described
above. Under the final rules, omnibus volume threshold account means
``any trading account that, on an omnibus basis, carries reportable
trading volume on or subject to the rules of a reporting market that is
a [DCM or SEF].''
ix. Sec. 15.00(z)--Omnibus Reportable Sub-Account
NPRM Proposal
Proposed Sec. 15.00(aa) (re-ordered in the final rules as Sec.
15.00(z)) defined omnibus reportable sub-account as any trading sub-
account of an omnibus volume threshold account, which sub-account
executes reportable trading volume on an omnibus basis. Omnibus
reportable sub-account also means any trading account that is itself an
omnibus account, executes reportable trading volume, and is a sub-
account of another omnibus reportable sub-account.
Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 15.00(aa) (re-ordered in the
final rules as Sec. 15.00(z)) without modification.
x. Sec. 15.00(aa)--Reportable Sub-Account
NPRM Proposal
Proposed Sec. 15.00(bb) (re-ordered in the final rules as Sec.
15.00(aa)) defined reportable sub-account as any trading sub-account of
an omnibus volume threshold account or omnibus reportable sub-account,
which sub-account executes reportable trading volume.
Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 15.00(bb) (re-ordered in the
final rules as Sec. 15.00(aa)) without modification.
xi. Sec. 15.00(bb)--Trading Account Controller; Sec. 15.00(cc)--
Volume Threshold Account Controller; Sec. 15.00(dd)--Reportable Sub-
Account Controller
NPRM Proposal
The Commission proposed to separately define the concept of control
in the context of trading accounts, volume threshold accounts, and
reportable sub-accounts. For these accounts, ``control'' may only be
exercised by natural persons. Accordingly, proposed Sec. 15.00(cc),
(dd), and (ee) (re-ordered in the final rules as Sec. 15.00(bb), (cc),
and (dd)) defined trading account controllers, volume threshold account
controllers, and reportable sub-account controllers, respectively, as
``a natural person who by power of attorney or otherwise actually
directs the trading of a [trading account, volume threshold account, or
reportable sub-account].'' Each account type may have more than one
controller. The proposed definitions in Sec. 15.00(cc), (dd), and (ee)
are relevant to the submission of New Forms 102A (trading accounts),
102B (volume threshold accounts), and 71 (reportable sub-accounts),
respectively.
Summary of Comments on NPRM Proposal
See above the discussion of comments received regarding the
definition of control proposed by Sec. 15.00(t).
Discussion of Final Rule
The Commission is adopting proposed Sec. 15.00(cc), (dd), and (ee)
(re-ordered in the final rules as Sec. 15.00(bb), (cc), and (dd))
without modification. See the discussion of Sec. 15.00(t) above
regarding the modifications to the Form 102 instructions that will be
made in response to comments received regarding the definition of
control.
xii. Sec. 15.01(c)--Persons Required To Report
NPRM Proposal
The introduction of new account and controller types in New Forms
102A, 102B, and 71 will result in a corresponding expansion in the
categories of persons required to provide New Form 40 reports.
Accordingly, the Commission proposed to amend Sec. 15.01(c), which
currently requires Form 40 reports only from persons who hold or
control reportable positions.\98\ Proposed Sec. 15.01(c) required New
Form 40 reports from: Traders who own, hold, or control reportable
positions (identified via New Form 102A); volume threshold account
controllers (identified via New Form 102B); persons who own volume
threshold accounts (identified via New Form 102B); reportable sub-
account controllers (identified via New Form 71); and persons who own
reportable sub-accounts (identified via New Form 71).
---------------------------------------------------------------------------
\98\ 17 CFR 15.01(c).
---------------------------------------------------------------------------
Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 15.01(c) without modification.
xiii. Sec. 15.02--Reporting Forms
NPRM Proposal
Current Sec. 15.02 contains a list of the forms contained in parts
15 through 19, and 21.\99\ Proposed Sec. 15.02 was revised to reflect
the proposed introduction of new Form 71, the renaming of Form 102, and
the new OMB control number created by this rulemaking.
---------------------------------------------------------------------------
\99\ 17 CFR 15.00(q) and 15.02. The Dodd-Frank Act modified
section 1a of the CEA. As a result, the definition of ``registered
entity'' previously found in section 1a(29) of the CEA is now in
section 1a(40). In the NPRM, the Commission proposed to revise
current Sec. 15.00(q) so that it cites to section 1a(40) for the
definition of registered entity. The Commission also proposed to
revise current Sec. 15.00(q) by removing the provision's reference
to DTEFs, a category of regulated markets that was eliminated by
section 734 of the Dodd-Frank Act. These proposals are adopted in
the final rules.
---------------------------------------------------------------------------
Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 15.02 without modification.
xiv. Sec. 15.04--Reportable Trading Volume Level
NPRM Proposal
Proposed Sec. 15.04 provided that reportable trading volume for a
trading account is trading volume of 50 or more contracts, during a
single trading day,
[[Page 69192]]
on a single reporting market that is a board of trade designated as a
contract market under section 5 of the Act or a swap execution facility
registered under section 5h of the Act, in all instruments that such
reporting market designates with the same product identifier (including
purchases and sales, and inclusive of all expiration months).
Notably, proposed Sec. 15.04 addressed trading volume, not open
positions, and required that purchases and sales by a trading account
be summed to determine whether such account has reached the reportable
trading volume. Section 15.04 also stipulates that reportable trading
volume should encompass all instruments that the reporting market
designates with the same product identifier.
Summary of Comments on NPRM Proposal
FIA, CME and ICE commented that the reportable trading volume level
(``RTVL''), as proposed, would generate an excessive amount of data
that may not be meaningful to the Commission's trade practice and
market surveillance programs.\100\ More specifically, Nadex commented
that the proposed 50-contract reportable trading volume level would
capture too many retail customers that are trading contracts with very
small notional values.\101\
---------------------------------------------------------------------------
\100\ CL-2012-FIA supra note 55 at 8. CL-2012-CME supra note 55
at 3. CL-2012-ICE supra note 55 at 6.
\101\ CL-2012-Nadex supra note 55 at 2-3.
---------------------------------------------------------------------------
FIA and ICE both recommended that the Commission phase in a
descending RTVL until the optimum level is reached.\102\ FIA, for
example, recommended that ``the Commission could require that only
accounts meeting a volume threshold of 1,000 contracts per day be
reported in the first three months; contracts meeting a volume
threshold of 750 contracts per day be reported in the second three
months after the compliance date; and so on until the optimum volume
threshold is reached.'' \103\ CME also expressed concern that the RTVL
will capture too many accounts, but recommended that the RTVL should be
changed to 250 contracts bought or sold during a calendar week.\104\
---------------------------------------------------------------------------
\102\ CL-2012-FIA supra note 55 at 8. CL-2012-ICE supra note 55
at 6.
\103\ CL-2012-FIA supra note 55 at 8.
\104\ CL-2012-CME supra note 55 at 3.
---------------------------------------------------------------------------
Nadex recommended that a different RTVL should be applied to
contracts with small notional values, as compared to contracts with
larger, traditional notional values. ``For any contract with a notional
value of $1,000 or less, the RTVL could be increased to 5,000 (i.e.,
1,000 times the standard RTVL of 50). This would still result in the
Commission capturing information with respect to a relatively
insignificant amount of trading activity in terms of notional value,
but would be significantly less burdensome for the DCMs that offer
these contracts.'' \105\ If the Commission determined not to adopt a
different RTVL for contracts with small notional values, then Nadex
recommended that ``DCMs should have the opportunity to obtain a waiver
from the standard RTVL level with an appropriate alternative to be
determined after consultation between the relevant market and CFTC
staff.'' \106\
---------------------------------------------------------------------------
\105\ CL-2012-Nadex supra note 55 at 3.
\106\ Id.
---------------------------------------------------------------------------
Discussion of Final Rule
Although the Commission acknowledges comments received regarding
the appropriate RTVL, the Commission is adopting proposed Sec. 15.04
without modification.
As indicated in the NPRM, the RTVL is based on Commission staff's
analysis of DCM trade data received through the trade capture report
from a sample of DCMs during a recent six-month period. The 50-contract
RTVL is calibrated to identify a critical mass of the trading accounts
active in Commission- regulated markets, measured not only by the
percentage of trading volume for which those accounts are responsible,
but also by the absolute number of accounts identified. The 50-contract
RTVL identifies approximately 85 percent of trading volume in
approximately 90 percent of the products sampled by the Commission over
the six-month sample period. The 50-contract RTVL also identifies
approximately one-third of the trading accounts in the sample set. As a
result, the 50-contract RTVL will capture both: (1) Those accounts
responsible for the large majority of trading volume; and (2) a
meaningful absolute number of the trading accounts active in
Commission-regulated markets. The Commission believes that (1) and (2)
are both equally important in improving the Commission's ability to
perform robust and comprehensive market and trade practice
surveillance. While the 50-contract RTVL achieves the Commission's
regulatory objectives, it is nonetheless also calibrated to minimize
the regulations' impact on low-volume accounts whose trading activity
does not warrant inclusion in the reporting regime.
Furthermore, the Commission also reiterates that volume threshold
account reporting, through Form 102B, is a transaction-based reporting
regime rather than a position-based regime. A fundamental purpose of
volume-based reporting on Form 102B is to identify trading accounts
based solely on their trading volume, independently of such accounts'
contribution to open interest. The Commission's intent in this
rulemaking is to achieve a comprehensive identification of the
participants in regulated derivatives markets regardless of the trading
strategies they may pursue.
For these reasons, the Commission declines to accept proposals that
could reduce the trading volume or absolute number of accounts
identified, including FIA's proposal that the final rules switch to an
RTVL that descends from 1,000 contracts to 750 contracts, or proposals
that would change the basis of measurement, including CME's proposal to
use an RTVL of 250 contracts bought or sold per week. In addition, the
Commission also declines to accept recommendations that would result in
an impracticable administrative burden, including Nadex's
recommendation that a different RTVL should be applied to contracts
with small notional values. The Commission believes it would be
inefficient for both the Commission and various reporting parties to
create a reporting regime for its regulated markets that is differently
scaled across multiple products, in response to the fact that trading
volume varies from one product to the next.\107\ Accordingly, the final
rules will use the same RTVL proposed in the NPRM.
---------------------------------------------------------------------------
\107\ See infra section VIII(B)(vii) for a discussion of the
administrative difficulties of implementing such a proposal.
---------------------------------------------------------------------------
The NPRM proposed to apply the same RTVL (50 contracts) to volume
threshold accounts associated with both DCMs and SEFs. Because the RTVL
is based on the Commission's experience with DCMs, the NPRM asked for
comment whether the 50-contract RTVL was also appropriate for the
reporting of accounts associated with SEFs--and if not, what changes
would be appropriate for reporting with regard to SEFs. The Commission
did not receive any comments in response to this question. As a result,
the Commission will apply the same RTVL (50 contracts) to volume
threshold accounts associated with both DCMs and SEFs in the final
rules, as contemplated by the NPRM.
In the event that trading activity in the SEF marketplace is lower
than in the futures marketplace, the Commission expects that the 50
contract RTVL will likely identify a smaller percentage of volume
threshold accounts associated with SEFs. The 50 contract RTVL for
[[Page 69193]]
SEFs would, correspondingly, impose a lesser burden on parties
reporting volume threshold accounts on SEFs as compared to parties
reporting such accounts on DCMs. Once the final rules have been
implemented, if the Commission determines that the 50 contract RTVL is
identifying an insufficient number of volume threshold accounts, the
Commission may adjust the RTVL for SEF reporting via a subsequent
rulemaking, to ensure that an equivalent segment of both the DCM and
SEF marketplace is identified.
B. Part 17
i. Sec. 17.01(a)--Identification of Special Accounts (via 102A)
NPRM Proposal
Proposed Sec. 17.01(a) required reporting parties to identify
special accounts on New Form 102A, and referred reporting parties
directly to the new form for the required data points.
Summary of Comments on NPRM Proposal
Efficiency of Forms. FIA and CME both commented that the use of
multiple reporting forms (i.e., the 102A, 102B and 102S) to capture
similar information is inefficient and unnecessary.\108\ FIA stated
that ``the proposed amendments appear to be designed to populate three
separate data bases to accommodate the Commission's existing systems
for conducting trade practice and market surveillance, thereby
perpetuating an inefficient system.'' \109\ As an example of this
inefficiency, FIA noted that ``the proposed amendments would require
reporting firms to provide contact information for each of Form 102A,
Form 102B and Form 102S.'' \110\ FIA stated that ``managing three
separate forms for the same customer will create unnecessary work and
be more challenging to keep current.'' \111\ CME regarded the 102
reporting as duplicative and inefficient because it ``requires a
different Form 102 depending on the type of trigger.'' \112\
---------------------------------------------------------------------------
\108\ CL-2012-FIA supra note 55 at 3-4. CL-2012-CME supra note
55 at 2.
\109\ CL-2012-FIA supra note 55 at 4.
\110\ Id.
\111\ Id.
\112\ CL-2012-CME supra note 55 at 2.
---------------------------------------------------------------------------
In order to eliminate redundant requests on the forms for contact
information, FIA suggested creating a ``Reporting Contact Reference
Database,'' where contact information would be stored once for each
special account number.\113\ ``This would ensure that contact
information is stored and maintained as a single record, eliminate
redundancy and improve the quality of information in the ownership and
control reporting process.'' \114\ More generally, CME recommended that
``the Commission's systems can and should use a common set of reference
data so that a previously identified account does not need to be re-
reported based upon a different trigger.'' \115\
---------------------------------------------------------------------------
\113\ CL-2012-FIA supra note 55 at 4.
\114\ Id.
\115\ CL-2012-CME supra note 55 at 2.
---------------------------------------------------------------------------
Discussion of Final Rule
Efficiency of Forms. In response to comments regarding the
efficiency of the electronic submission process, the Commission is
creating a contact reference database so that respondents will not need
to enter contact information each time they manually complete a 102A,
102B or 102S through the web portal. For example, the respondent would
enter the account number for the applicable form, and the Web portal
page would automatically populate the contact information for that
account number which the respondent had most recently provided. The
Commission expects that this solution may be particularly helpful to
small entities, which are likely to manually complete forms through the
web portal. Larger firms, by contrast, are more likely to completely
automate the process.\116\
---------------------------------------------------------------------------
\116\ See also supra note 41. New Form 102 requires the
reporting party to provide the LEI (if any) of the reporting party
and of various other parties reportable on the form, such as account
owners, controllers, and originators. As noted in the footnotes to
the reporting forms in the Appendix, if a reporting party provides
an LEI on New Form 102 that was issued by the CICI Utility (or by
any other CFTC-accepted LEI provider), then the reporting party is
not required to report any of the fields marked as ``Optional
Fields'' in the relevant question (i.e., name and address), provided
that such optional fields were reported to the CICI Utility (or
other CFTC-accepted LEI provider) and are associated with the
relevant LEI. The Commission is addressing such otherwise
duplicative reporting in order to leverage information previously
submitted by reporting parties. Footnotes to the reporting forms in
the Appendix contain instructions regarding other fields that are
not required to be reported in certain circumstances.
---------------------------------------------------------------------------
Summary of Comments on NPRM Proposal
Burden of Collecting Information for Certain Fields. CME
recommended that the data fields collected on any automated form should
be limited to those records that an FCM obtains in its regular
onboarding processes.\117\ CME commented that if the Commission
requires the inclusion of certain data points that are not currently
collected, ``FCMs will need to revise their onboarding procedures to
obtain that data for every account so that it can be recorded in a
system and eventually be extracted for the automated reports, which
would be, among other things, incredibly costly.'' \118\ FIA
recommended that data points that are not currently collected by FCMs
be removed from the forms. Specifically, FIA recommended removing the
requirement to provide a customer or account controller's NFA
identification number, because FCMs generally do not request or record
this information.\119\ FIA also recommended that certain ownership and
control fields be removed, because FCMs do not collect this
information. On a related topic, FIA recommended that the requirement
to list the customer or account controller's Web site be removed,
because Web site addresses are subject to change and FCMs would have no
ability to monitor for such changes and update their records.\120\
---------------------------------------------------------------------------
\117\ Id.
\118\ Id.
\119\ CL-2012-FIA supra note 55 at 6.
\120\ CL-2012-FIA supra note 55 at 7.
---------------------------------------------------------------------------
FIA proposed that the three sections of the proposed 102 be
consolidated into a single Form 102, a draft of which is attached to
the FIA comment letter (the ``FIA consolidated form'').\121\ CME
expressed support for the FIA consolidated form.\122\ The FIA
consolidated form does not include fields that FIA indicated are
currently unavailable and would be burdensome to collect and/or
maintain, such as the customer or account controller's NFA ID and Web
site address.
---------------------------------------------------------------------------
\121\ CL-2012-FIA supra note 55 at 4 and Exhibit A.
\122\ CL-2012-CME supra note 55 at 2.
---------------------------------------------------------------------------
Discussion of Final Rule
Burden of Collecting Information for Certain Fields. The Commission
declines to accept the proposal to create a single, consolidated Form
102 based on the FIA consolidated form. The FIA consolidated form is
missing a number of key data fields, the absence of which would
undermine the goals of the Commission's data collection effort.\123\
For example, the FIA consolidated form does not require respondents to
state the reporting trigger. Instead, the directions to the FIA
consolidated form state that, ``This form must be completed if an
account exceeds the reportable levels on special accounts, volume
threshold accounts or consolidated accounts.'' The form does not
clarify whether respondents are reporting a special account, volume
threshold account, or consolidated account that has reached a
[[Page 69194]]
reportable level. Without knowing the reporting trigger for the form
(e.g., whether the reporting party had reached a reportable position or
reportable volume level), the Commission would be unable to efficiently
and accurately categorize the trading accounts reported on the form,
and utilize this account information for surveillance or other related
purposes.
---------------------------------------------------------------------------
\123\ See infra section VIII(B)(vi) for a more detailed
discussion of the FIA consolidated form.
---------------------------------------------------------------------------
However, the Commission is accommodating FIA's comments in a more
limited fashion, by clarifying in the instructions to the new forms
that the NFA ID and Web site (the two examples of problematic fields
cited by FIA) are only required to be reported to the extent the
respondent has this information available in its records. There is no
affirmative obligation for respondents to poll customers or other
parties for the NFA ID and Web site if this information has not been
previously collected.
Summary of Comments on NPRM Proposal
Identification of Special Account Owners. FIA noted that the
current Form 102 requires that a special account be identified only by
account controller (who may also be the account owner).\124\ The new
Form 102A requires that both the owner and controller of a special
account be identified, if the account is reportable due to both
ownership and control of a reportable position. FIA commented that ``if
an account is identified by owner or controller, the FCM may be
required to file two Form 102s for the same account.'' \125\ FIA also
commented that ownership information may be difficult for FCMs to
provide, because FCMs ``currently collect only limited information on
certain indirect owners of an account, e.g., fund participants that
have a 10 percent or greater ownership interest, when the account is
opened. This information is not updated.'' \126\ Finally, FIA commented
that ``owner'' is not defined for purposes of Form 102.\127\ FIA
recommended ``removing the proposed requirement that special accounts
be identified only by account owner.'' \128\
---------------------------------------------------------------------------
\124\ CL-2012-FIA supra note 55 at 5.
\125\ Id.
\126\ Id.
\127\ Id.
\128\ Id.
---------------------------------------------------------------------------
Discussion of Final Rule
Identification of Special Account Owners. The Commission declines
to modify the reporting forms in response to comments regarding the
identification of account owners. The Commission notes that FIA's
comment that FCMs may be required to file two Form 102s for the same
account appears to be based upon a misunderstanding of the New Form 102
filing procedure. Regardless of whether a Form 102A is filed as a
result of ownership of a reportable position, control of a reportable
position, or both ownership and control of a reportable position,\129\
the form would be filed only once in response to each reporting
trigger, by means of an electronic submission through a secure FTP data
feed or through the Commission's secure Web site portal.
---------------------------------------------------------------------------
\129\ See supra section V(A)(i) regarding the requirement on New
Form 102A to report special accounts solely on the basis of
ownership.
---------------------------------------------------------------------------
As discussed above, FIA commented on the difficulty of collecting
information regarding the direct owners of an account. However, the
Commission notes that New Form 102 is identical to current Form 102 in
that it requires respondents to determine which party directly owns a
special account. The New Form 102 is not more burdensome in this
regard. As a result, the Commission is not, pursuant to these final
rules, requiring respondents to change their current practices with
respect to the manner in which they identify owners for purposes of 102
reporting.
Finally, FIA discussed the difficulty of maintaining accurate
information regarding the indirect owners of an account. The Commission
notes that the New Form 102 requests information regarding only the
direct owners of trading accounts, not the indirect owners.
Summary of Comments on NPRM Proposal
Sharing of Information With Regulatory and Self-Regulatory
Authorities. FIA and CME recommended that the information collected via
the revised forms should be made available to ``appropriate regulatory
and self-regulatory authorities'' (FIA) and ``relevant SROs''
(CME).\130\ Furthermore, ICE recommended that the Commission should
``either provide a feed or separate file differentiated by exchange
code(s) to each DCM containing information only for those accounts
actively trading on the DCM, or permit DCMs to access and download the
LTR [large trader reporting] and OCR data specific to the DCM.'' \131\
---------------------------------------------------------------------------
\130\ CL-2012-FIA supra note 55 at 8. CL-2012-CME supra note 55
at 3.
\131\ CL-2012-ICE supra note 55 at 6.
---------------------------------------------------------------------------
Discussion of Final Rule
Sharing of Information With Regulatory and Self-Regulatory
Authorities. The Commission is not modifying the final rules to provide
for the sharing of information collected via the forms with the parties
proposed by commenters, such as regulatory and self-regulatory
authorities. The Commission believes that it would be costly and overly
burdensome for the Commission to distribute the collected information
to external parties; furthermore, distribution to external parties
would not be consistent with the scope of the Commission's
responsibilities. The Commission notes that DCMs and SEFs may also
implement rules requiring market participants to submit ownership and
control information directly to them, if DCMs and SEFs determine that
such reporting would be beneficial.
ii. Sec. 17.01(b)--Identification of Volume Threshold Accounts (via
102B)
NPRM Proposal
Proposed Sec. 17.01(b) subjects volume threshold accounts to an
account identification regime comparable to the position-based regime
already existing for special accounts. Proposed Sec. 17.01(b)
specifically requires clearing firms to identify volume threshold
accounts on New Form 102B.
Summary of Comments on NPRM Proposal
See the discussion of Sec. 17.01(a) above, which describes
comments received regarding the identification of special accounts and
volume threshold accounts on Forms 102A and 102B, respectively.
Discussion of Final Rule
The Commission is adopting proposed Sec. 17.01(b) without
modification.
iii. Sec. 17.01(c)--Identification of Omnibus Accounts and Sub-
Accounts (via 71)
NPRM Proposal
Proposed Sec. 17.01(c) subjected omnibus accounts to their own
volume-based account identification regime.\132\ The proposed rule
required the originator of an omnibus volume threshold account (or the
originator of an omnibus reportable sub-account within such account) to
file New Form 71 (``Identification of Omnibus Accounts and Sub-
Accounts'') upon
[[Page 69195]]
special call by the Commission or its designee.
---------------------------------------------------------------------------
\132\ See supra section V(D) and infra section IX.
---------------------------------------------------------------------------
Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 17.01(c) without modification.
iv. Sec. 17.01(d)--Exclusively Self-Cleared Contracts
NPRM Proposal
Proposed Sec. 17.01(d) required reporting markets that list
exclusively self-cleared contracts to file Sec. 17.01(a) and Sec.
17.01(b) reports as if they were clearing members. Proposed Sec.
17.01(d) reflects the requirements of current Sec. 17.01(h) with
respect to special accounts, but also incorporates the new volume
threshold accounts added by these final rules.
Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 17.01(d) without modification.
v. Sec. 17.01(e)--Identification of Omnibus Accounts and Sub-Accounts
NPRM Proposal
The Commission proposed to introduce a new Sec. 17.01(e) that
would extend the Commission's special call authority--currently
applicable to special accounts--to also include volume threshold
accounts, omnibus volume threshold accounts and reportable sub-
accounts.\133\ Responses to special calls would be due within 24 hours.
---------------------------------------------------------------------------
\133\ The Commission's special call authority with respect to
special accounts is currently found in Sec. 17.02(b)(1), which the
Commission will now strike, as explained below.
---------------------------------------------------------------------------
Discussion of Final Rule
No comments were received pertaining to the proposed rule, and the
Commission is adopting proposed Sec. 17.01(e) without modification.
vi. Sec. 17.02(b)--Section 17.01(a) Reports (via 102A)
NPRM Proposal
Section 17.02(b) \134\ currently addresses the form, manner, and
completion date requirements of current 102 filings. Specifically,
Sec. 17.02(b)(1) requires reporting parties to submit current Form 102
upon special call by the Commission; in the absence of a special call,
Sec. 17.02(b)(2) requires reporting parties to submit current Form 102
within three business days of the first day that a special account is
reported to the Commission. The Commission proposed to replace both
provisions as described below.
---------------------------------------------------------------------------
\134\ 17 CFR 17.02(b).
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First, as explained above, the Commission proposed to strike
current Sec. 17.02(b)(1) and to shift its special call requirements to
proposed Sec. 17.01(e). Second, the Commission proposed to strike
current Sec. 17.02(b)(2) and to replace its Form 102 submission
requirements with a new Sec. 17.02(b)(1)-(4) to address the form and
manner of New Form 102A filings for special accounts. Proposed Sec.
17.02(b)(1) directed reporting parties to the Commission's Web site
(www.cftc.gov) for detailed instructions on the Form 102A filing
process. Proposed Sec. 17.02(b)(2)-(4) addressed the completion date
requirements of initial Form 102A submissions, 102A change updates, and
102A refresh updates, respectively.
Summary of Comments on NPRM Proposal
Sec. 17.02(b)(2)-(3) (new 102A filings and change 102A filings).
Proposed Sec. 17.02(b)(2)-(3) required firms to file a new Form 102A
by 9:00 a.m. ET the following business day after a special account
becomes reportable; similarly, changes to a previously submitted Form
102A were required to be reported by 9:00 a.m. ET the following
business day. FIA stated that obtaining all the information required by
Form 102A (including, for example, the trading accounts that comprise a
special account) can take several days.\135\ As a result, FIA
recommended that the deadline for filing a complete Form 102A or any
change update be modified to five business days from the date the
account or change becomes reportable.\136\
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\135\ CL-2012-FIA supra note 55 at 7.
\136\ Id.
---------------------------------------------------------------------------
Sec. 17.02(b)(4) (refresh 102A filings). Proposed Sec.
17.02(b)(4) required firms to resubmit the Form 102A every six months
for each special account, in order to ensure that the information
reported is frequently updated. Refresh updates were also required
under this proposed rule on such later date (i.e., later than six
months) specified by the Commission or its designee. FIA commented that
this timeframe ``will impose significant operational and financial
burden on reporting firms,'' and recommended that refresh updates
instead be required every two years.\137\ CME also recommended that
refresh updates be required every two years.\138\
---------------------------------------------------------------------------
\137\ Id.
\138\ CL-2012-CME supra note 55 at 3.
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Sec. 17.02(b)(3)-(4) (when 102A accounts are no longer
reportable). Proposed Sec. 17.02(b)(3)-(4) provided that an FCM may
stop reporting a change update or refresh update with respect to a
special account upon notifying the Commission or its designee that the
account in question is no longer reportable. FIA stated that ``the
Commission provides no guidance on when an FCM may reasonably conclude
that an account is no longer reportable. A customer may fall below and
rise above the reportable position level frequently during the course
of its relationship with an FCM.'' \139\ FIA therefore recommended that
the Commission revise the proposed rule to provide that an FCM may
determine that an account is no longer reportable with respect to a
particular product if the account remains below the reporting level for
a fixed period of time, such as 180 days/six months.\140\ FIA's six-
month proposal tracks the sunset provision in the NPRM for the
reporting of change and refresh updates on Form 102B.\141\
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\139\ CL-2012-FIA supra note 55 at 7.
\140\ CL-2012-FIA supra note 55 at 7-8.
\141\ Under the NPRM and these final rules, clearing members may
stop providing change and refresh updates on Form 102B for any
volume threshold account upon notifying the Commission or its
designee that the volume threshold account executed no trades in any
product in the past six months on the reporting market at which the
volume threshold account reached the reportable trading volume
level. See Sec. 17.01(c)(3) and (4) in section IX, infra.
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Discussion of Final Rule
No comments were received pertaining to proposed Sec. 17.02(b)(1),
and the Commission is adopting this proposed rule without modification.
In light of the comments received, the Commission is making the
following modifications to Sec. 17.02(b)(2)-(4) and to new Form 102A:
Sec. 17.02(b)(2)-(3) (new 102A filings and change 102A filings).
New Form 102A requests information regarding both special accounts and
the trading accounts that comprise a special account. The Commission is
modifying the reporting deadline for new and changed Form 102A filings,
specifically with respect to the reporting of non-omnibus trading
accounts that comprise a special account. Respondents are required to
provide the names of such trading account owners and controllers by
9:00 a.m. the following business day. However, respondents are required
to provide the other contact details with respect to such trading
account owners and controllers (address, telephone
[[Page 69196]]
number, etc.) within three business days.\142\
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\142\ Specifically, the information marked as `Follow-On
Information' in questions 10(ii) and (iii) on New Form 102A may be
provided within three business days. All other required fields on
New Form 102A must be completed by 9:00 a.m. the following business
day. See New Form 102A in the Appendix to these final rules for more
information. The Commission is adopting a reporting requirement of
three business days as an acceptable intermediate point between one
business day (as proposed in the NPRM) and five business days (as
requested by FIA, per the preceding summary of comments). The three
business day requirement is therefore less burdensome than the one
business day requirement proposed in the NPRM. Based on the
experience of the Commission's surveillance group, the Commission
believes that the three business day requirement, while longer than
the one day proposal in the NPRM, will nonetheless enable the
Commission to maintain current databases, including up-to-date
contact information that will allow the Commission to contact market
participants quickly in the event of significant market events that
occur close to the time of reporting. By contrast, based on the
experience of the Commission's surveillance group, the Commission
believes that a five business day reporting deadline is too long to
perform timely market surveillance, and maintain databases that are
sufficiently accurate and current to be useful.
---------------------------------------------------------------------------
In addition, the final rules will reduce the burden on reporting
parties by clarifying that all Form 102 reporting deadlines in the
final rules are eastern time for information concerning markets located
in that time zone, and central time for information concerning all
other markets.
Sec. 17.02(b)(4) (refresh 102A filings). Refresh filings for
special accounts will be required once per year, as opposed to once
each six months (as proposed in the NPRM).\143\ In light of this
change, the final rules provide that refresh updates are required on
such other date specified by the Commission or its designee that is
equal to or greater than six months, which is consistent with the
alternative deadline language in proposed Sec. Sec. 17.02 and 20.5.
---------------------------------------------------------------------------
\143\ The Commission is adopting a refresh reporting requirement
of once per year as an acceptable intermediate point between once
each six months (as proposed in the NPRM) and once every two years
(as requested by FIA and CME, per the preceding summary of
comments). The annual refresh requirement is therefore less
burdensome than the six month requirement proposed in the NPRM.
Based on the experience of the Commission's surveillance group, the
Commission believes that the annual refresh requirement, while
longer than the six month requirement proposed in the NPRM, will
nonetheless enable the Commission to maintain current databases,
including up-to-date contact information that will allow the
Commission to contact market participants quickly in the event of
significant market events. By contrast, based on the experience of
the Commission's surveillance group, the Commission believes that a
two year refresh deadline is too long to perform timely market
surveillance and maintain databases that are sufficiently accurate
and current to be useful.
---------------------------------------------------------------------------
Sec. 17.02(b)(3)-(4) (when 102A special accounts are no longer
reportable). In response to FIA's comment, pursuant to these final
rules, reporting parties may stop providing Form 102A change updates
and refresh updates for a special account if the account is no longer
reportable as a special account and has not been reportable as a
special account for the past six months. This change is intended to
substantively replicate Sec. 17.02(c)(3)-(4), which provide that
clearing members may stop providing Form 102B change updates and
refresh updates, respectively, upon notifying the Commission or its
designee that the relevant volume threshold account executed no trades
in any product in the past six months on the reporting market at which
the volume threshold account reached the reportable trading volume
level.
Sections 17.02(b)(3) and (4) have also been modified to enable
reporting parties to notify the Commission ``or its designee'' that an
account is no longer reportable as a special account, based on the
criteria described in these sections.
vii. Sec. 17.02(c)--Section 17.01(b) Reports (via 102B)
NPRM Proposal
To address New Form 102B filings for volume threshold accounts, the
Commission proposed to codify a new Sec. 17.02(c). Proposed Sec.
17.02(c) followed a structure similar to that of proposed Sec.
17.02(b), with Sec. 17.02(c)(1) directing reporting parties to
www.cftc.gov for detailed instructions on the Form 102B filing process,
and proposed Sec. 17.02(c)(2)-(4) addressing the timing of initial
Form 102B filings, 102B change updates, and 102B refresh updates,
respectively.
Summary of Comments on NPRM Proposal
Sec. 17.02(c)(2)-(3) (new 102B filings and change 102B filings).
Proposed Sec. 17.02(c)(2)-(3) required firms to file a new Form 102B
by 9:00 a.m. ET the following business day after the account becomes a
volume threshold account; similarly, changes to a previously submitted
Form 102B were required to be reported by 9:00 a.m. ET the following
business day. See the discussion above of the comments received
regarding Form 102A filings required by Sec. 17.02(b)(2)-(3), which
are also relevant to the new 102B and change 102B reporting
obligations.
Sec. 17.02(c)(4) (refresh 102B filings). Proposed Sec.
17.02(c)(4) required firms to resubmit the Form 102B every six months
for each volume threshold account, in order to ensure that the
information reported is frequently updated. Refresh updates were also
required under this proposed rule on such later date (i.e., later than
six months) specified by the Commission or its designee. As noted
above, FIA commented that this timeframe ``will impose significant
operational and financial burden on reporting firms,'' and recommended
that refresh updates instead be required every two years.\144\ CME also
recommended that refresh updates be required every two years.\145\
---------------------------------------------------------------------------
\144\ CL-2012-FIA supra note 55 at 7.
\145\ CL-2012-CME supra note 55 at 3.
---------------------------------------------------------------------------
Discussion of Final Rule
No comments were received pertaining to proposed Sec. 17.02(c)(1),
and the Commission is adopting this proposed rule without modification.
In light of the comments received, the Commission is making the
following modifications to Sec. 17.02(c)(2)-(4) and to new Form 102B:
Sec. 17.02(c)(2)-(3) (new 102B filings and change 102B filings).
The Commission is modifying the reporting deadline for new and changed
Form 102B filings, specifically with respect to the reporting of non-
omnibus volume threshold accounts. Respondents are required to provide
the names of non-omnibus volume threshold account owners and
controllers reported on 102B by 9:00 a.m. the following business day.
Respondents are required to provide the other contact details reported
on 102B with respect to such parties (i.e., the address, telephone
number, etc. of non-omnibus volume threshold account owners and
controllers) within three business days.\146\ Notwithstanding this
change to the reporting deadline with respect to non-omnibus volume
threshold accounts, these final rules do not modify the reporting
deadline for omnibus account information (question 4 on New Form 102B).
Such omnibus account information must be reported by 9:00 a.m. the
following business day.
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\146\ Specifically, the information marked as `Follow-On
Information' in questions 5 and 6 on New Form 102B may be provided
within three business days. All other required fields on New Form
102B must be completed by 9:00 a.m. the following business day. See
New Form 102B in the Appendix to these final rules for more
information.
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Sec. 17.02(c)(4) (refresh 102B filings). Refresh filings for
volume threshold accounts will be required once per year, as opposed to
once each six months (as proposed in the NPRM). In light of this
change, the final rules provide that refresh updates are required on
such other date specified by the Commission or its designee that is
equal to or greater than six months, which is consistent with the
alternative deadline language in proposed Sec. Sec. 17.02 and 20.5.
Sections 17.02(c)(3) and (4) have also been modified to enable
reporting
[[Page 69197]]
parties to notify the Commission ``or its designee'' that an account is
no longer reportable as a volume threshold account, based on the
criteria described in these sections.
viii. Sec. 17.03(a)-(g)--Delegation of Authority to the Director of
the Office of Data and Technology or the Director of the Division of
Market Oversight
NPRM Proposal
In the NPRM, the Commission proposed a number of new and revised
provisions relating to the delegation of authority to solicit
information on the OCR reporting forms. First, the Commission proposed
to codify a new Sec. 17.03(e) that provided the Director of ODT with
delegated authority to make special calls to solicit information from
omnibus volume threshold account originators and omnibus reportable
sub-account originators on New Form 71. The Commission also proposed to
codify (a) a new Sec. 17.03(f) that provided the Director of DMO with
delegated authority to determine the date on which each FCM, clearing
member, or foreign broker shall update or otherwise resubmit every Form
102 that it has submitted to the Commission for each of its special
accounts and (b) a new Sec. 17.03(g) that provided the Director of DMO
with delegated authority to determine the date on which each clearing
member shall update or otherwise resubmit every Form 102 that it has
submitted to the Commission for each of its volume threshold accounts.
Second, the Commission proposed to revise current Sec. 17.03(a),
which grants the Director of DMO the authority to determine whether
FCMs, clearing members and foreign brokers can report certain
information on series `01 forms, or can use some other format upon a
determination that such person is unable to report the information
using the standard transmission format.\147\ More specifically, the
NPRM revised Sec. 17.03(a) to grant such authority to the Director of
ODT, rather than the Director of DMO.
---------------------------------------------------------------------------
\147\ 17 CFR 17.03(a).
---------------------------------------------------------------------------
Third, the Commission proposed to revise current Sec. 17.03(b),
which grants the Director of DMO the authority to approve the late
submission of position reports and Form 102.\148\ The NPRM revised
Sec. 17.03(b) to grant such authority to the Director of ODT, rather
than the Director of DMO. The NPRM further revised Sec. 17.03(b) to:
(i) Replace the provision's cross-reference to Sec. 17.01,\149\ which
the Commission proposed to strike, with cross-references to proposed
Sec. Sec. 17.01(a) and 17.01(b); and (ii) eliminate the provision's
cross-reference to current Sec. 17.01(g),\150\ which the Commission
also proposed to strike.
---------------------------------------------------------------------------
\148\ 17 CFR 17.03(b).
\149\ 17 CFR 17.01.
\150\ 17 CFR 17.01(g).
---------------------------------------------------------------------------
Fourth, the Commission proposed to revise current Sec. 17.03(c),
which grants the Director of DMO the authority to permit reporting
parties filing Form 102 to authenticate it through a means other than
signing the form.\151\ The NPRM revised Sec. 17.03(c) to grant such
authority to the Director of ODT, rather than the Director of DMO. The
NPRM further revised Sec. 17.03(c) to replace the provision's current
cross-reference to Sec. 17.01(f),\152\ which the Commission proposed
to strike, with a cross-reference to proposed Sec. 17.01, and to
address New Form 71.
---------------------------------------------------------------------------
\151\ 17 CFR 17.03(c).
\152\ 17 CFR 17.01(f).
---------------------------------------------------------------------------
Finally, the Commission proposed to revise current Sec. 17.03(d),
which grants the Director of DMO the authority to approve a format and
coding structure other than that set forth in Sec. 17.00(g).\153\ The
NPRM revised Sec. 17.03(d) to grant such authority to the Director of
ODT, rather than the Director of DMO.
---------------------------------------------------------------------------
\153\ 17 CFR 17.03(d) and 17.00(g).
---------------------------------------------------------------------------
Discussion of Final Rule
No comments were received pertaining to the proposed rules, and the
Commission is adopting proposed Sec. 17.03(a)-(g) without
modification.
C. Part 18
i. Sec. 18.04--Statement of Reporting Trader
NPRM Proposal
Current Sec. 18.04 (the ``Statement of Reporting Trader'')
requires every trader who holds or controls a reportable position to
file a Form 40 upon special call by the Commission or its designee and
to provide on Form 40 information required by current Sec. 18.04(a)-
(c).\154\ In the NPRM, the Commission proposed to amend Sec. 18.04 by
striking all of its current provisions and replacing them as described
below.
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\154\ 17 CFR 18.04(a)-(c).
---------------------------------------------------------------------------
First, and consistent with its approach to New Form 102, the
Commission proposed to transition current Sec. 18.04(a)-(c)'s detailed
form content requirements from the regulatory text to New Form 40.
Second, the Commission proposed to codify a new Sec. 18.04(a) that, as
with current Sec. 18.04, would require every trader who holds or
controls a reportable position to file a New Form 40 upon special call
by the Commission or its designee. Finally, to accommodate volume
threshold accounts and reportable sub-accounts identified on New Forms
102 and 71, the Commission proposed to codify a new Sec. 18.04(b) that
would require volume threshold account controllers, persons who own a
volume threshold account, reportable sub-account controllers, and
persons who own a reportable sub-account to file New Form 40 upon
special call by the Commission or its designee.
Summary of Comments on NPRM Proposal
FIA and Joint Electric Association stated that the Form 40 (and the
corresponding Form 40S) is overly complicated and extensive without a
justified regulatory need.\155\ The forms request information regarding
the ownership structure of the reporting trader, including all direct
and indirect parents and subsidiaries and information regarding their
trading activities. FIA commented that ``for some reporting traders,
the number of parents and subsidiaries could number in the hundreds.
Moreover, the reporting trader may not know, and may not be permitted
to know, if the person in which the reporting trader has a 10 percent
or greater interest engages in derivatives trading.'' \156\ FIA also
noted that the Form 40 requires the reporting of persons that have a 10
percent or greater ownership interest in the reporting trader.\157\ FIA
viewed the 10 percent threshold as inconsistent with the precedent
established by Commission Rule 45.6(a), which establishes a control
definition based in part upon ``the right to vote 25 percent or more of
a class of voting interest.'' \158\
---------------------------------------------------------------------------
\155\ CL-2012-FIA supra note 55 at 8. CL-2012-Joint Electric
Association supra note 55 at 3-4.
\156\ CL-2012-FIA supra note 55 at 8.
\157\ CL-2012-FIA supra note 55 at 5.
\158\ Id.
---------------------------------------------------------------------------
Joint Electric Association expressed concern that its members,
which often enter into energy commodity swaps to hedge commercial
risks, will not understand the terminology and purpose of the Form
40S.\159\ They noted that Association members would, for the most part,
be unlikely to have received an old Form 40. Joint Electric Association
commented that ``most of the words in the form were not revised to
reflect the different market structure whereby swap counterparties
transact directly with registered `swap dealers' . . . rather than
through financial intermediaries or market professionals as is the case
in the futures industry. As a result, commercial market participants
receiving the New Form 40, if they have never seen old Form 40, have no
context
[[Page 69198]]
within which to understand the new Form or their responsibilities to
the Commission.'' \160\
---------------------------------------------------------------------------
\159\ CL-2012-Joint Electric Association supra note 55 at 3.
\160\ Id.
---------------------------------------------------------------------------
FIA recommended that, instead of requiring identification of
indirect owners that have an ownership interest of 10 percent or more,
``Form 40 be revised to require identification of indirect owners that
have an ownership interest of 25 percent or more. Setting different
indirect ownership levels for related purposes imposes an unnecessary
operational burden on firms that must develop systems and procedures to
assure compliance with these reporting requirements.'' \161\
---------------------------------------------------------------------------
\161\ CL-2012-FIA supra note 55 at 5.
---------------------------------------------------------------------------
Joint Electric Association recommended that various terms in the
Form 40S (such as ``reportable position,'' ``swap dealer'' and ``major
swap participant'') should be clarified and made more understandable to
a commercial end user of energy commodity swaps.\162\ Joint Electric
Association made several other recommendations to simplify the form and
reduce the reporting burden on small entities, including the following:
Provide a ``regulatory reporting lite'' version of the form, which
would excuse commercial end users from completing the majority of the
form; \163\ permit small entities to deliver the form by paper,
facsimile or email, rather than make electronic filing through a web
portal; \164\ excuse small entities from any requirement to
periodically update the form in response to a subsequent special call
by the Commission; \165\ and establish procedures to limit the
application of the special call authority to small entities.\166\
---------------------------------------------------------------------------
\162\ CL-2012-Joint Electric Association supra note 55 at 4-5.
\163\ CL-2012-Joint Electric Association supra note 55 at 5.
\164\ CL-2012-Joint Electric Association supra note 55 at 6.
\165\ CL-2012-Joint Electric Association supra note 55 at 7.
\166\ Id.
---------------------------------------------------------------------------
Discussion of Final Rule
The Commission is adopting proposed Sec. 18.04 without
modifications.
The current Form 40 asks whether any person has a financial
interest of 10 percent or more in the reporting trader. The Commission
believes that it is appropriate to maintain the 10 percent threshold
for reporting based on ownership that appears in current Form 40. The
10 percent threshold in current Form 40 allows the Commission to
receive reporting on a greater number of ownership relationships than a
25 percent threshold would require, thereby benefiting the Commission's
surveillance capabilities. The 10 percent threshold is also consistent
with other Commission regulations, such as the aggregation requirements
(based on 10 percent or greater ownership or equity interest) in Sec.
150.4(b)-(c). The Commission notes that the 25 percent reporting
threshold recommended by FIA reflects the definition of control for
purposes of assigning legal entity identifiers (``LEIs'') to swap
counterparties, a regulatory objective unrelated to the Form 40's
objective of obtaining ownership and control information with regard to
reporting traders.
The questions added to New Form 40 will provide the Commission with
crucial information regarding reporting traders' ownership and control
relationships and business activities. The Commission will utilize this
information to perform more comprehensive oversight and surveillance of
regulated derivatives markets, including by better understanding
relationships that may exist among market participants, and to
facilitate analysis of potentially disruptive or manipulative trading
activity. The definitions of ``swap dealer'' and ``major swap
participant,'' which are the subject of a comment by Joint Electric
Association, have now been finalized.\167\ In response to Joint
Electric Association's other comments, the Commission expects New Form
40 to affect only a small subset of respondents that may be ``small
entities'' for purposes of the Regulatory Flexibility Act.\168\ This is
due, in part, to the fact that the Commission will send New Form 40 on
a discretionary basis in response to the reporting of an account that
reaches a minimum position or volume threshold. The Commission does not
expect that small entities will typically reach such reporting
thresholds.\169\
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\167\ See Commission, Further Definition of ``Swap Dealer,''
``Security-Based Swap Dealer,'' ``Major Swap Participant,'' ``Major
Security-Based Swap Participant'' and ``Eligible Swap Participant'',
77 FR 30596 (May 23, 2012).
\168\ The Regulatory Flexibility Act requires that agencies
consider whether the rules they propose will have a significant
economic impact on a substantial number of small entities and, if
so, provide a regulatory flexibility analysis regarding the impact.
See NPRM supra note 10 at 43990 and section VIII(C) infra.
\169\ See supra the discussion of the RTVL for volume-based
reporting in section VII(xiv). As noted above, the RTVL has been
calibrated to yield information with respect to those trading
accounts that are responsible for a substantial percentage of
trading volume, while minimizing the proposed regulations' impact on
low-volume accounts whose trading activity does not warrant
inclusion in the reporting regime.
---------------------------------------------------------------------------
Finally, the Commission declines to accept the proposal by Joint
Electric Association that respondents retain the option to file by
paper, facsimile or email. The Commission believes that the automation
of Form 40, and the use of auto-population on the web-based Form, will
result in increased efficiencies for the Commission and the majority of
reporting parties. As noted in section VIII(A) below, the Commission
expects that the majority of reporting parties will submit Form 40 via
the web-based portal, as opposed to via an FTP data feed. The auto-
population of certain data fields on the portal will reduce the burden
and complexity of the submission process. As a result, the Commission
estimates that the time required to update information contained in New
Form 40 using the web-based portal will be de minimis for most
reporting parties.
ii. Sec. 18.05--Maintenance of Books and Records
NPRM Proposal
Current Sec. 18.05 requires traders who hold or control reportable
positions to maintain books and records regarding all positions and
transactions in the commodity in which they have reportable
positions.\170\ In addition, current Sec. 18.05 requires that the
trader furnish the Commission with information concerning such
positions upon request. The Commission proposed to expand Sec. 18.05
to also impose books and records requirements upon (a) volume threshold
account controllers and owners of volume threshold accounts reported on
New Form 102B and (b) reportable sub-account controllers and persons
who own a reportable sub-account reported on New Form 71.
---------------------------------------------------------------------------
\170\ 17 CFR 18.05.
---------------------------------------------------------------------------
Discussion of Final Rule
No comments were received pertaining to the proposed rule. As noted
above, the Commission proposed to expand Sec. 18.05 to impose books
and records requirements on volume threshold account controllers and
owners of volume threshold accounts reported on New Form 102B and
reportable sub-account controllers and persons who own a reportable
sub-account reported on New Form 71. The Commission also notes that the
definition of reportable trading volume encompasses trading on both
DCMs and SEFs. Accordingly, the Commission is adopting Sec. 18.05 as
proposed, with the clarification that the books and records required to
be kept by volume threshold
[[Page 69199]]
account controllers, owners of volume threshold accounts, reportable
sub-account controllers, and persons who own reportable sub-accounts
include books and records with respect to both their futures and swap
market activities.
D. Part 20
i. Sec. 20.5--Series S Filings
NPRM Proposal
As with Forms 102 and 40, the Commission proposed to transfer the
list of data points required in Form 102S from the relevant regulatory
text (i.e., Sec. 20.5) \171\ to the form itself. More specifically,
the Commission proposed to eliminate the data points specified in Sec.
20.5(a)(1), and to revise Sec. 20.5(a)(1) to provide that when a
counterparty consolidated account first becomes reportable, the
reporting party shall submit a 102S filing (``initial 102S filing'').
The timing for submitting initial 102S filings would continue to be
subject to current Sec. 20.5(a)(3).\172\ Finally, the Commission
proposed to codify new Sec. 20.5(a)(4) and (5) to require change and
refresh updates for Form 102S in the same manner as they are required
for Form 102A. The Commission also proposed a conforming amendment to
Sec. 20.5(a)(2) to eliminate the current instructions with respect to
updating 102S filings.
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\171\ 17 CFR 20.5.
\172\ 17 CFR 20.5(a)(3).
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Summary of Comments on NPRM Proposal
FIA commented on the utility of Form 102S, which requires swap
dealers and clearing members to identify and report a swap counterparty
or customer consolidated account with a reportable position. FIA stated
that the information that will be reported to swap data repositories
under part 45 would provide the Commission with access to essentially
the same information that proposed Form 102S will require.\173\ FIA
commented that ``requiring FCMs, and the industry generally, to divert
critical operational and financial resources from building the systems
necessary to implement the part 45 recordkeeping and reporting
requirements to implement this interim solution, would impose an
unnecessary operational burden and cost without a significant
offsetting benefit.'' \174\ CME commented that ``requiring swap
reporting as part of OCR, to accomplish reporting that is already being
done under part 20- and soon to be duplicated under SDR reporting with
new unique legal entity identifiers- is unnecessary and imposes
additional unjustified costs on the industry.'' \175\
---------------------------------------------------------------------------
\173\ CL-2012-FIA supra note 55 at 2-3.
\174\ CL-2012-FIA supra note 55 at 3.
\175\ CL-2012-CME supra note 55 at 3.
---------------------------------------------------------------------------
See the discussion of Sec. 17.02(b) above for a summary of the
comments received on change and refresh obligations related to the Form
102, which are relevant to Form 102S.
Discussion of Final Rule
The Commission acknowledges the comments of FIA and CME regarding
the Form 102S. Contrary to commenters' claims, however, SDRs will not,
in all cases, be able to provide the ownership and control information
requested on 102S. For example, the Commission anticipates that swap
dealers and clearing members (the 102S reporting parties) will be able
to consistently provide the contact information for owners and
controllers of consolidated accounts on the 102S, based on the records
these entities maintain. Part 45 reporting, by contrast, is based on
counterparty data. This counterparty data may, in some cases, overlap
with the owners and controllers of consolidated accounts reported on
102S. However, counterparty data will not, in all cases, overlap with
102S reporting and provide the ownership and control information
required by 102S. As a result, the Commission cannot rely on SDR
reporting under part 45 as a substitute for 102S. In addition, SDRs
would not have a proactive obligation to send swap account information
to the Commission; in contrast, 102S places an affirmative obligation
on respondents to provide swap counterparty consolidated account
information to the Commission.
Such differences notwithstanding, in developing New Form 102, the
Commission has endeavored to identify and eliminate any duplicative
reporting obligations that may arise from these final rules. For
example, New Form 102 requires respondents to provide the legal entity
identifiers (LEI) and related information (i.e., names and addresses)
of parties reportable on the form. However, if such related information
has previously been reported to a CFTC-accepted provider of LEIs (e.g.,
the CICI Utility), then reporting parties are not required to report it
again on New Form 102. This eliminates all duplication between New Form
102 and data currently reported to an LEI provider. Furthermore, in the
event the CICI Utility or another CFTC-accepted LEI provider is
modified in the future to accept certain supplemental fields required
on the forms,\176\ then reporting parties will not be required to
report these supplemental fields on New Form 102, if the information
has previously been reported to such an LEI provider.\177\
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\176\ The Regulatory Oversight Committee (ROC) of the Global LEI
System (GLEIS) is seeking to modify ISO 17442 LEI, the core standard
underlying the GLEIS, in order to collect certain additional
information from persons registering to receive an LEI.
\177\ The supplemental fields required on New Form 102 include
the name, phone number and email address of certain contact persons
required by the reporting forms, among other fields. See the
footnotes to the reporting forms in the Appendix for a detailed list
of the information that may be omitted from the forms for the
reasons described in this paragraph.
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More generally, staff is considering recommending that the
Commission issue an Advanced Notice of Proposed Rulemaking seeking
public input on possible revisions to part 45 that could increase
efficiencies in reporting swap data and mitigate the burden on market
participants. As markets, market participants, and trading conventions
adapt to the swap data recordkeeping and reporting requirements under
part 45, staff will review these requirements to ensure that they
continue to fulfill their regulatory objectives in light of the
evolving swaps marketplace. For the reasons discussed above, the
Commission is implementing 102S reporting pursuant to the final rules.
The Commission is adopting proposed Sec. 20.5(a)(1)-(2) without
modification. In response to comments received with respect to Sec.
17.02(b), the Commission is making the following modifications to
proposed Sec. 20.5(a)(4)-(5) and to Form 102S:
Sec. 20.5(a)(5) (refresh 102S filings). The discussion of Sec.
17.02(b) above contains a summary of the comments received on change
and refresh obligations related to the Form 102, which are relevant to
Form 102S. In response to FIA's comments, refresh filings for
consolidated accounts will be required once per year, as opposed to
once each six months (as proposed in the NPRM). In light of this
change, the final rules provide that refresh updates are required on
such other date specified by the Commission or its designee that is
equal to or greater than six months, which is consistent with the
alternative deadline language in proposed Sec. Sec. 17.02 and 20.5.
Sec. 20.5(a)(4)-(5) (when 102S consolidated accounts are no longer
reportable). Reporting parties may stop providing Form 102S change
updates and refresh updates for a consolidated account if the account
is no longer reportable as a consolidated account and has not been
reportable as a consolidated account for the past six months. This
change is intended to
[[Page 69200]]
substantively replicate Sec. 17.02(c)(3)-(4), which provide that
clearing members may stop providing Form 102B change updates and
refresh updates, respectively, upon notifying the Commission or its
designee that the relevant volume threshold account executed no trades
in any product in the past six months on the reporting market at which
the volume threshold account reached the reportable trading volume
level.
Sections 20.5(a)(4) and (5) have also been modified to enable
reporting parties to notify the Commission ``or its designee'' that an
account is no longer reportable as a consolidated account, based on the
criteria described in these sections.
VIII. Related Matters
A. Paperwork Reduction Act
i. Overview
The Paperwork Reduction Act (``PRA'') \178\ imposes certain
requirements on Federal agencies in connection with their conducting or
sponsoring any collection of information as defined by the PRA. An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid control number. This rulemaking will result in new collection of
information requirements within the meaning of the PRA. The Commission
has therefore submitted this proposal to the Office of Management and
Budget (``OMB'') for review in accordance with 44 U.S.C. 3507(d) and 5
CFR 1320.11. The title for this collection of information is ``Trader
and Account Identification Reports'' (OMB control number 3038-0103).
Responses to this collection of information will be mandatory. The
Commission will protect proprietary information consistent with the
Freedom of Information Act and 17 CFR part 145, ``Commission Records
and Information.'' In addition, section 8(a)(1) of the Act strictly
prohibits the Commission, unless specifically authorized by the Act,
from making public ``data and information that would separately
disclose the business transactions or market positions of any person
and trade secrets or names of customers.'' \179\ The Commission is also
required to protect certain information contained in a government
system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.
---------------------------------------------------------------------------
\178\ 44 U.S.C. 3501 et seq.
\179\ 7 U.S.C. 12(a)(1).
---------------------------------------------------------------------------
The rulemaking will create new information collection requirements
via Sec. Sec. 17.01, 18.04, 18.05, and 20.5. Currently, OMB control
number 3038-0009 covers, among other things, the collection
requirements arising from current Sec. Sec. 17.01, 18.04, and
18.05.\180\ Also, OMB control number 3038-0095 covers, among other
things, the collection requirements arising from current Sec.
20.5.\181\ Accordingly, the Commission is requesting a new OMB control
number for the purpose of consolidating the collections into a common
control number. Collection requirements arising from Sec. Sec. 17.01,
18.04, 18.05, and 20.5 will be covered by 3038-0103. Once the
collections covered by control number 3038-0103 become operational, OMB
control number 3038-0009 will no longer cover collection requirements
arising from Sec. Sec. 17.01, 18.04, and 18.05. In addition, OMB
control number 3038-0095 will no longer cover collection requirements
arising from Sec. 20.5. The remaining collection requirements covered
by 3038-0009 and 3038-0095 will not be affected.
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\180\ 17 CFR 17.01, 18.04 and 18.05.
\181\ 17 CFR 20.5.
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ii. Information To Be Provided
Section 17.01, as revised by this rulemaking, will result in the
collection of information regarding the following types of accounts:
(a) Special accounts (as defined in current Sec. 15.00(r)); \182\ and
(b) volume threshold accounts, omnibus volume threshold accounts, and
omnibus reportable sub-accounts (each as defined in Sec. 15.00).
Specifically, Sec. 17.01 will provide for the filing of New Form 102A,
New Form 102B and New Form 71, as follows:
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\182\ 17 CFR 15.00(r).
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1. pursuant to Sec. 17.01(a), FCMs, clearing members, and foreign
brokers will identify new special accounts to the Commission on New
Form 102A; \183\
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\183\ See supra sections III(A) and V(A) for a description of
current Form 102 and a comparison to New Form 102A.
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2. pursuant to Sec. 17.01(b), clearing members will identify
volume threshold accounts to the Commission on New Form 102B; \184\ and
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\184\ See supra section V(B) for a description of New Form 102B.
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3. pursuant to Sec. 17.01(c), omnibus volume threshold account
originators and omnibus reportable sub-account originators will
identify reportable sub-accounts to the Commission on New Form 71 when
requested via a special call by the Commission or its designee.\185\
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\185\ See supra section V(D) for a description of New Form 71.
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Additional reporting requirements will arise from Sec. 18.04,
which will result in the collection of information from and regarding
traders who own, hold, or control reportable positions; volume
threshold account controllers; persons who own volume threshold
accounts; reportable sub-account controllers; and persons who own
reportable sub-accounts. Specifically, Sec. 18.04 will provide for the
filing of New Form 40, as follows:
1. pursuant to Sec. 18.04(a), a trader who owns, holds, or
controls a reportable position will file New Form 40, when requested
via a special call by the Commission or its designee; and
2. pursuant to Sec. 18.04(b), a volume threshold account
controller, person who owns a volume threshold account, reportable sub-
account controller, and person who owns a reportable sub-account will
file New Form 40 when requested via a special call by the Commission or
its designee.\186\
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\186\ See supra sections III(A) and V(E) for a description of
current Form 40 and a comparison to New Form 40.
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Reporting requirements will also arise from Sec. 20.5(a), which
will require all reporting entities to submit New Form 102S for swap
counterparty or customer consolidated accounts with reportable
positions.\187\ In addition, current Sec. 20.5(b) requires every
person subject to books or records under current Sec. 20.6 to complete
a 40S filing after a special call upon such person by the
Commission.\188\ However, current Sec. 20.5(b) also provides that a
40S filing shall consist of the submission of Form 40. As discussed
above, the final rules provide for the creation of New Form 40, which
will expand and replace current Form 40. Accordingly, the final rules
will require additional information from 40S filers.
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\187\ ``Reporting entity,'' ``counterparty,'' and ``consolidated
account'' are each defined in Sec. 20.1 of the Commission's
regulations. See supra sections III(B) and V(C) for a description of
current Form 102S and a comparison to New Form 102S.
\188\ 17 CFR 20.5(b) and 20.6. See supra sections III(B) and
V(E) for a description of current Form 40S and a comparison to New
Form 40S.
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[[Page 69201]]
In addition to the reporting requirements summarized above, Sec.
18.05 will impose recordkeeping requirements upon: (1) Traders who own,
hold, or control a reportable futures or options on futures position
(who are subject to current Sec. 18.05); (2) volume threshold account
controllers; (3) persons who own volume threshold accounts; (4)
reportable sub-account controllers; and (5) persons who own reportable
sub-accounts. These provisions extend the recordkeeping requirements of
current Sec. 18.05, which are applicable to traders who hold or
control a reportable futures or options on futures position, to owners
and controllers of accounts with reportable trading volume.\189\
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\189\ 17 CFR 18.05.
iii. Total Reporting and Recordkeeping Costs; Methodology Used To
---------------------------------------------------------------------------
Estimate Costs
(a) Total Costs
Set forth below is the estimated total annual industry cost for
affected participants to (i) Complete Forms 102A and 102S and any
resulting Form 40s, (ii) complete Forms 102B and 71 for volume
threshold accounts associated with DCMs and SEFs and any resulting Form
40s, and (iii) comply with the books and records obligations arising
from revised Sec. 18.05:
----------------------------------------------------------------------------------------------------------------
Estimated total annual Anticipated transmission
Regulation Associated report industry cost \190\ method
----------------------------------------------------------------------------------------------------------------
17.01(a)............................ New Form 102A.......... $1,931,129 FTP.
17.01(b)............................ New Form 102B.......... 1,299,799 FTP.
17.01(c)............................ New Form 71............ 427,147 Web.
18.04(a)............................ New Form 40............ 1,103,603 Web.
18.04(b)............................ New Form 40............ 3,977,173 Web.
18.05............................... Books and Records...... 18,569 N/A.
20.5(a)............................. 102S Filing............ 289,669 FTP.
20.5(b)............................. 40S Filing............. 527,207 Web.
-------------------------
Total........................... ....................... 9,574,296
----------------------------------------------------------------------------------------------------------------
Total reporting and recordkeeping costs for the final rules reflect
the sum of estimated burdens, multiplied by the wage rate provided
below, for: (1) New Form 102A; (2) New Form 102B; (3) New Form 71; (4)
New Form 40 (pursuant to 18.04(a)); \191\ (5) New Form 40 (pursuant to
Sec. 18.04(b)); \192\ (6) the reporting and recordkeeping requirements
of revised Sec. 18.05; (7) New Form 102S; and (8) New Form 40S. The
Commission has updated the cost estimates in the NPRM based on the most
recent data and statistics available to the Commission.
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\190\ The estimated total annual industry cost includes annual
reporting and recordkeeping costs, as well as annualized start-up
costs and ongoing operating and maintenance costs. The estimated
total costs for each form included in this chart are subject to the
limitations described in section VIII(B), below.
\191\ 17 CFR 18.04(a).
\192\ 17 CFR 18.04(b).
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Methodology Used To Estimate Costs
The Commission estimated the reporting burden associated with each
filing obligation below by considering the two distinct filing methods
that it will accommodate pursuant to these final rules (via FTP or via
the web portal). With two methods of submission, reporting parties will
have the flexibility to select the submission method that works best
with their existing data and technology infrastructure and the number
of filings they expect to make. While the NPRM contemplated that
certain forms (Forms 40/S and 71) could be submitted only via the web
portal, these final rules provide that all forms may be submitted
either via the web portal or via FTP, in order to provide additional
flexibility to reporting parties. In general, the Commission believes
that FTP submission will be more cost effective for reporting parties
with a large number of filings, while submission through the web-based
portal will be more cost effective for reporting parties with a small
number of filings.
As noted above, the Commission has calculated the total estimated
industry cost for submitting each form via FTP or via the web portal.
These calculations represent the total industry cost if all reporting
parties submit information via one method--as compared to the total
industry cost if all parties submit via the other method. For example,
the 102A calculations below represent the total estimated industry cost
if all reporting parties submit 102A via FTP ($1,931,129), or if all
parties submit 102A via the web portal ($5,954,969). The Commission
recognizes that, even if it is less expensive for the industry as a
whole to submit 102A via FTP, it may be less expensive for certain
individual reporting parties to submit 102A via the web portal. This
may be due to the limited number of forms these parties expect to
submit, their technology infrastructure, or other factors.
To expand on this example, if a new reporting party anticipates
that it will submit only two 102A filings per year, it might logically
conclude that it would be less expensive to submit its two filings via
the web portal than to incur the development costs associated with
establishing an FTP link to the Commission. In this instance, the
Commission has estimated that the reporting party would incur 20 hours
of initial development burden for each of the two records submitted via
the web portal, or a total initial development burden of 40 hours.
Accordingly, the reporting party may conclude that submitting its 102A
filings via the web portal is more cost-effective than submitting the
same information via FTP, which the Commission has estimated would
require an initial development burden of 264 hours per entity
(regardless of the number of forms submitted).\193\
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\193\ In this example, the Commission expects that reporting
parties making a small number of filings would choose to submit via
the web-based portal, because web submission would be the most cost-
effective submission method for such parties. In doing so, they will
incur fewer costs than they would if they submitted via FTP, thereby
lowering the total costs to the industry. As a result, the
simplifying assumption that all reporting parties will submit New
Form 102A (along with certain other forms discussed below) via FTP
is a conservative assumption, which will tend to overestimate the
total industry cost.
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[[Page 69202]]
All burden estimates assume that information required by each form
is generally available within the reporting party; however, in
preparing its estimates, the Commission did make an effort to account
for the added burden associated with assembling data distributed among
multiple systems and/or databases within a reporting party. Finally,
the cost estimates in section VIII(A) and (B) assume that all market
participants will start from the same point in developing the systems
required to implement OCR reporting. Accordingly, to the extent that
current reporting parties leverage their existing reporting systems
\194\ to implement OCR reporting, the cost estimates are likely to
overestimate actual costs to some degree for such parties.
---------------------------------------------------------------------------
\194\ Certain parties that will be required to report under
these final rules now provide certain forms under the current
reporting system (e.g., the current Forms 102 and 40).
---------------------------------------------------------------------------
For the following additional reasons, the Commission anticipates
that total reporting and recordkeeping costs to the industry are likely
to be lower than the sum of the costs associated with each form
individually, as the Commission has calculated herein.
First, the Commission notes that reporting and recordkeeping
burdens arising from each regulation and associated form were estimated
independently of the requirements of the other regulations and
associated forms, and that substantial synergies are likely to exist
across the systems and data necessary to meet the reporting
requirements. As a result, the total reporting and recordkeeping costs
to the industry for the final rules are likely to be substantially
lower than estimated. For example, many reporting firms submitting New
Form 102A will also submit New Form 102B, and will be able to leverage
systems and information necessary for submitting one form to meet the
requirements of the other.
Second, the Commission responded to several proposals by commenters
to modify the reporting requirements in order to reduce the
requirements' burdens and associated costs. Commenters did not quantify
the magnitude of the potential cost savings from their alternative
proposals. The final rules adopt a number of these proposals in
modified fashion in order to reduce the rules' burden and costs, while
also maintaining their regulatory benefits. The Commission has taken a
conservative approach and made no downward adjustment for cost savings
attributable to modifications that the Commission has made to the final
rules to accommodate commenters' proposals.
iv. Reporting Burdens--New and Revised Forms
New Form 102A--Sec. 17.01(a):
Method 1 (102A FTP submission--lower estimate): Method 1 assumes
that each New Form 102A reporting party will use an automated program
to submit its forms via secure FTP. Each Method 1 submission will
likely contain numerous 102A records. The Commission estimates that the
total initial development burden will average 264 hours per reporting
party. The Commission also estimates that the highly automated nature
of this option will virtually eliminate the marginal costs associated
with each additional submission or each additional record contained in
a submission. Accordingly, the Commission estimates that 102A change
and refresh updates will not increase a reporting party's burden when
using Method 1. The Commission further estimates that the ongoing
operation and maintenance burden will average 53 hours per year no
matter how many records are contained in a submission. The total Method
1 annualized initial development burden and the ongoing operation and
maintenance burden (total yearly burden) will equal approximately 106
hours per reporting party.\195\
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\195\ All annualized development burden estimates are based on 5
year, straight line depreciation. The 106 hour figure is arrived at
by dividing 264 hours (initial development burden per reporting
party) by 5 years, which results in an estimated annualized initial
development burden of 53 hours per reporting party. 53 hours plus 53
hours (annual, ongoing operation and maintenance burdens per
reporting party) equals 106 hours per reporting party. The
submission of Form 71 through the web-based portal does not require
initial development expenditures; as a result, the burdens and costs
for this form are calculated on an annual basis rather than an
annualized basis.
---------------------------------------------------------------------------
An assessment of Commission data collection efforts demonstrated
that the Commission received Form 102 submissions from 260 reporting
parties in 2012. The Commission anticipates that it will receive New
Form 102A submissions from a similar number of reporting parties each
year. Assuming all New Form 102A reporting parties utilize Method 1,
the Commission estimates that the total annual industry burden for New
Form 102A will equal 27,560 hours. Using an estimated wage rate of
$70.07 per hour,\196\ annual industry costs for 102A filings made
pursuant to Method 1 are estimated at $1,931,129. As indicated
throughout this section VIII(A), the Commission has applied the same
wage rate of $70.07 to submission via both the web portal and FTP,
although each submission method will require a different annual or
annualized burden, in terms of hours. This $70.07 wage rate encompasses
the work of a senior programmer, programmer, intermediate compliance
advisor, systems analyst, and assistant/associate general counsel, in
the proportions described in the preceding footnote.
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\196\ The Commission staff's estimates concerning the wage rates
are based on salary information for the securities industry compiled
by the Securities Industry and Financial Markets Association
(``SIFMA''). The $70.07 per hour is derived from figures from a
weighted average of salaries and bonuses across different
professions from the SIFMA Report on Management & Professional
Earnings in the Securities Industry 2011, modified to account for an
1800-hour work-year and multiplied by 1.3 to account for overhead
and other benefits. The wage rate is a weighted national average of
salary and bonuses for professionals with the following titles (and
their relative weight): ``programmer (senior)'' (30% weight);
``programmer'' (29% weight); ``compliance advisor (intermediate)''
(15%), ``systems analyst'' (16%), and ``assistant/associate general
counsel'' (10%). The $70.07 wage rate is a blended rate, such that
the Commission has applied the same $70.07 wage rate when
calculating the cost of submission via both FTP and the web-based
portal. As noted above, the NPRM contemplated that Forms 40/S and 71
could be submitted only via the web portal. However, pursuant to
these final rules, the Commission is allowing reporting parties to
submit Forms 40/S and 71 via FTP as well, with the result that
reporting parties may submit all forms either via the web portal or
via FTP. In light of this change, the wage rage percentages in these
final rules have been updated and slightly modified from the wage
rate percentages in the NPRM, to more accurately reflect anticipated
labor allocations. The NPRM employed the following wage rage
percentages: ``programmer (senior)'' (30% weight); ``programmer''
(30% weight); ``compliance advisor (intermediate)'' (20%), ``systems
analyst'' (10%), and ``assistant/associate general counsel'' (10%).
While the NPRM calculated an estimated wage rate of $78.61 per hour,
these final rules calculate an estimated wage rate of $70.07 per
hour, using the 2011 SIFMA statistics and updated wage rate
percentages. (Note that the national average of salary and bonuses
for the professionals listed above declined between 2010 to 2011,
according to the SIFMA report addressing each of those years. The
2010 SIMA report (which is the basis for the wage rate in the NPRM)
indicates an aggregate national average of salary and bonuses of
$530,321 for these professionals, while the 2011 SIFMA report
indicates an aggregate national average of salary and bonuses of
$510,943.) The Commission has also updated the cost estimates that
appeared in the NPRM based on the most recent data and statistics
available to the Commission (including, for example, the number of
reporting forms and/or records received by the Commission in 2012).
The NPRM calculated an estimated total annual cost to the industry
of $9,147,061, as compared to an estimated total cost to the
industry of $9,574,296 in these final rules, supra. See also infra
note 265.
[[Page 69203]]
Form 102A--Lower Estimate Is Method 1
[FTP submission]
----------------------------------------------------------------------------------------------------------------
Annualized
burden per Total annual Estimated wage Annual
Number of reporting parties per year reporting party industry rate industry costs
(hours) \197\ burden (hours)
----------------------------------------------------------------------------------------------------------------
260......................................... 106 27,560 $70.07 $1,931,129
----------------------------------------------------------------------------------------------------------------
Method 2 (102A web submission--higher estimate): Method 2 assumes
that each New Form 102A reporting party will complete and submit its
forms online via a secure portal provided by the Commission. The
Commission estimates that the total initial development burden will
average 20 hours per New Form 102A record. The Commission also
estimates that the annual ongoing burden, which includes change and
refresh filings, will average 7 hours per year for each New Form 102A
record. The estimated Method 2 total annualized initial development
burden and the ongoing operation and maintenance burden (total yearly
burden) equals approximately 11 hours per New Form 102A record.\198\
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\197\ See supra note 195 for a discussion of the calculation of
this annualized burden. As discussed above, the initial development
burden per reporting party (264 hours) has been divided by 5 years,
which results in an estimated annualized initial development burden
of 53 hours per reporting party. On a non-annualized basis, the
initial development cost per reporting party is estimated at $18,498
(264 hours x a wage rate of $70.07). The Commission expects that
reporting parties will budget initial development costs in the
manner that is most cost-effective for each party, which may result
in some reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
\198\ All annualized development burden estimates are based on 5
year, straight line depreciation.
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In connection with the introduction of New Form 102A pursuant to
this rulemaking, the Commission notes that (except as otherwise
instructed by the Commission or its designee) its regulations require
reporting firms to separately aggregate positions by common ownership
and by common control for the purpose of identifying and reporting
special accounts.\199\ On the basis of such regulations, the Commission
anticipates that it will receive 7,726 New Form 102A records per
year.\200\ Assuming each of the 7,726 New Form 102A records are
provided via Method 2, the Commission estimates that the total annual
industry burden for New Form 102A will equal 84,986 hours. Using an
estimated wage rate of $70.07 per hour, annual industry costs for 102A
filings made pursuant to Method 2 are estimated at $5,954,969.\201\
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\199\ See Sec. Sec. 17.00 and 150.4 of the Commission's
regulations.
\200\ This estimate is based on the requirements of Sec. Sec.
17.00 and 150.4 of the Commission's regulations. The 7,726 figure
represents an increase from the 4,415 Form 102 records the
Commission received in 2012. The Commission calculated that in
approximately 75 percent of New Form 102A filings, the owner and
controller of a special account reported on the form will be
different. As a result, the Commission multiplied the 4,415 figure
from 2012 by 1.75, and estimated that it will receive approximately
7,726 New Form 102A records per year.
Notwithstanding this estimate, which is based on the
requirements of Sec. Sec. 17.00 and 150.4, reporting parties should
continue to report special accounts pursuant to Sec. 17.00 on a
disaggregated basis following the implementation of these final
rules, if the parties have been so instructed by the Commission or
its designee. All reporting parties should continue to provide
position reporting based on control of a special account. As an
example, if a special account is controlled by one reporting party
but owned by another, such account should be reported only by the
reporting party that controls the special account. Consistent with
this guidance, and notwithstanding the requirement on New Form 102A
to also report based solely on ownership of a reportable position,
the Commission will not require reporting based on this trigger via
New Form 102A following the implementation of these final rules.
Because the Commission will not require reporting on New Form 102A
based solely on ownership of a reportable position, the Commission
anticipates that the number of New Form 102A records it receives per
year is likely to be lower than the estimated 7,726 records. See
also supra section V(A)(i).
\201\ The $5,954,969 figure is arrived at by multiplying 7,726
records by 11 hours (equals 84,986 hours) by $70.07 (equals
$5,954,969).
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[[Page 69204]]
Conclusion: The Commission believes that providing filing options
to the industry should lower their ultimate costs. Because of this,
estimated total costs to the industry for 102A filings should be lower
than any cost associated with mandating either Method 1 or Method 2.
Given the cost estimates for the two individual methods discussed
above, the Commission anticipates that the annual cost to the industry
of filing 102A will be approximately $1,931,129 (Method 1--FTP
submission), the lower of the two estimated filing methods. In
developing this estimate, the Commission does not make any assumptions
about the behavior of an individual reporting party. Reporting parties,
given their own individualized needs, are assumed to make the most
cost-effective choice for them, which may be either of the two methods.
New Form 102B--Sec. 17.01(b)
Method 1 (102B FTP submission--lower estimate): Method 1 assumes
that each New Form 102B reporting party will use an automated program
to submit its forms via secure FTP. Each Method 1 submission will
likely contain numerous 102B records. The Commission estimates that the
total initial development burden should average 264 hours per reporting
party. The Commission also estimates that the highly automated nature
of this option will virtually eliminate the marginal costs associated
with each additional submission or each additional record contained in
a submission. Accordingly, the Commission estimates that 102B change
and refresh updates will not increase a reporting party's burden when
using Method 1. The Commission further estimates that the ongoing
operation and maintenance burden will average 53 hours per year no
matter how many records are contained in a submission. The total Method
1 annualized initial development burden and the ongoing operation and
maintenance burden (total yearly burden) equals approximately 106 hours
per reporting party.\202\
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\202\ All annualized development burden estimates are based on 5
year, straight line depreciation.
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Because New Form 102B provides a new volume-based reporting
structure not found in current Form 102, the Commission is unable to
refer to historical reporting statistics to directly estimate the
number of New Form 102B reporting parties. Instead, based on a review
of transaction volume across a sample of several DCMs from the second
half of 2011, the Commission estimated the number of trading accounts
that the Commission anticipates will qualify as volume threshold
accounts. The Commission estimated the number of DCM-related New Form
102B reporting parties by calculating the number of clearing members
associated with these projected volume threshold accounts.
For volume threshold accounts associated with DCMs, the
Commission anticipates that it will receive New Form 102B submissions
from approximately 100 reporting parties annually. Assuming that all
such reporting parties utilize Method 1, the Commission estimates that
the total annual industry burden for the reporting of such accounts on
New Form 102B would equal 10,600 hours.\203\ Using an estimated wage
rate of $70.07 per hour, annual industry costs for such filings made
pursuant to Method 1 are estimated at $742,742.\204\
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\203\ The 10,600 hour figure is arrived at by multiplying 106
hours (annualized development burden and ongoing operation and
maintenance burden per reporting party) by 100 reporting parties.
\204\ The $742,742 figure is arrived at by multiplying 100
reporting parties by 106 hours (equals 10,600 hours) by $70.07
(equals $742,742).
---------------------------------------------------------------------------
In estimating the number of reporting parties that will
submit New Form 102B for volume threshold accounts associated with
SEFs, the Commission has made an assumption that trading activity in
the SEF marketplace will be lower than in the futures marketplace. For
volume threshold accounts associated with SEFs, the Commission
anticipates that it will receive New Form 102B submissions from
approximately 75 reporting parties annually. Assuming that all such
reporting parties utilize Method 1, the Commission estimates that the
total annual industry burden for the reporting of such accounts on New
Form 102B would equal 7,950 hours.\205\ Using an estimated wage rate of
$70.07 per hour, annual industry costs for such filings made pursuant
to Method 1 are estimated at $557,057.\206\
---------------------------------------------------------------------------
\205\ The 7,950 hour figure is arrived at by multiplying 106
hours (annualized development burden and ongoing operation and
maintenance burden per reporting party) by 75 reporting parties.
\206\ The $557,057 figure is arrived at by multiplying 75
reporting parties by 106 hours (equals 7,950 hours) by $70.07
(equals $557,057).
---------------------------------------------------------------------------
Collectively, annual industry costs for 102B filings made pursuant
to Method 1 are estimated at $1,299,799.\207\
---------------------------------------------------------------------------
\207\ The $1,299,799 figure is arrived at by multiplying 175
reporting parties by 106 hours (equals 18,550 hours) by $70.07
(equals $1,299,799).
Form 102B--Lower Estimate Is Method 1
[FTP submission]
----------------------------------------------------------------------------------------------------------------
Annualized
burden per Total annual Estimated wage Annual
Number of reporting parties per year reporting party industry rate industry costs
(hours) \208\ burden (hours)
----------------------------------------------------------------------------------------------------------------
175......................................... 106 18,550 $70.07 $1,299,799
----------------------------------------------------------------------------------------------------------------
Method 2 (102B web submission--higher estimate): Method 2 assumes
that each New Form 102B reporting party will complete and submit its
forms online via a secure portal provided by the Commission. The
Commission estimates that the total initial development burden will
average 20 hours per New Form 102B record. The Commission also
estimates that annual ongoing burdens, which include both change and
refresh updates, will average 7 hours per year for each New Form 102B
record. The estimated Method 2 total annualized initial development
burden and the ongoing operation and maintenance burden (total yearly
burden) equals approximately 11 hours per New Form 102B record.\209\
---------------------------------------------------------------------------
\208\ See supra note 195 for a discussion of the calculation of
this annualized burden. As discussed above, the initial development
burden per reporting party (264 hours) has been divided by 5 years,
which results in an estimated annualized initial development burden
of 53 hours per reporting party. On a non-annualized basis, the
initial development cost per reporting party is estimated at $18,498
(264 hours x a wage rate of $70.07). The Commission expects that
reporting parties will budget initial development costs in the
manner that is most cost-effective for each party, which may result
in some reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
\209\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
Because New Form 102B provides a new volume-based reporting
structure
[[Page 69205]]
not found in current Form 102, the Commission is unable to refer to
historical reporting statistics to directly estimate the number of New
Form 102B records it might receive. Instead, the Commission estimated
the number of New Form 102B records that it will receive on an annual
basis by reviewing transaction volume across a sample of several DCMs
from the second half of 2011. Based on this data, the Commission
calculated the relationship between (a) volume activity on the DCMs
reviewed, (b) the number of reportable volume threshold accounts that
would result from this volume activity, and (c) the number of DCM-
related New Form 102B records the Commission would receive in
connection with these volume threshold accounts. The Commission created
a mathematical function based on these three factors. The Commission
then made a projection regarding anticipated SEF-related volume
activity, and applied the mathematical function described above to
estimate (i) the number of SEF-related, reportable volume threshold
accounts that would result from this volume activity, and (ii) the
number of SEF-related New Form 102B records the Commission would
receive in connection with these volume threshold accounts. Based on
the preceding methodology, the Commission estimated the following:
For volume threshold accounts associated with DCMs, the
Commission anticipates that it will receive approximately 126,000 New
Form 102B records annually. Assuming each such record is provided via
Method 2, the Commission estimates that the total annual industry
burden for the reporting of such accounts on New Form 102B would equal
1,386,000 hours. Using an estimated wage rate of $70.07 per hour,
annual industry costs for such filings made pursuant to Method 2 are
estimated at $97,117,020.\210\
---------------------------------------------------------------------------
\210\ The $97,117,020 figure is arrived at by multiplying
126,000 records by 11 hours (equals 1,386,000 records) by $70.07
(equals $97,117,020).
---------------------------------------------------------------------------
For volume threshold accounts associated with SEFs, the
Commission anticipates that it will receive approximately 62,015 New
Form 102B records annually. Assuming each such record is provided via
Method 2, the Commission estimates that the total annual industry
burden for the reporting of such accounts on New Form 102B would equal
682,165 hours. Using an estimated wage rate of $70.07 per hour, annual
industry costs for such filings made pursuant to Method 2 are estimated
at $47,799,302.\211\
---------------------------------------------------------------------------
\211\ The $47,799,302 figure is arrived at by multiplying 62,015
records by 11 hours (equals 682,165 records) by $70.07 (equals
$47,799,302).
---------------------------------------------------------------------------
Collectively, annual industry costs for 102B filings made pursuant
to Method 2 are estimated at $144,916,322.\212\
---------------------------------------------------------------------------
\212\ The $144,916,322 figure is arrived at by multiplying
188,015 records by 11 hours (equals 2,068,165 hours) by $70.07
(equals $144,916,322).
---------------------------------------------------------------------------
Conclusion
As discussed above, while the Commission estimates that
establishing an FTP link will require an initial development burden of
264 hours, the Commission also believes that submission via FTP will
virtually eliminate the ongoing marginal costs associated with each
additional submission or each additional record contained in a
submission. For this reason, the Commission believes that FTP
submission will be more cost effective for reporting parties making a
large number of filings. The Commission expects that a significant
majority of New Form 102B reporting parties will be making a large
number of filings. Therefore, when estimating the industry-wide costs,
the Commission has made the simplifying assumption that all reporting
parties will use the FTP submission method when submitting New Form
102B.
Given the cost estimates for the two individual methods discussed
above, the Commission anticipates the annual cost to the industry of
filing DCM and SEF-related 102B will be approximately $1,299,799
(Method 1--FTP submission), the lower of the two estimated filing
methods. Notwithstanding the preceding discussion regarding submission
via FTP by New Form 102B reporting parties, the Commission recognizes
that reporting parties, given their own individualized needs, will make
the most cost-effective choice for them, which may be either of the two
submission methods.
New Form 71--Sec. 17.01(c)
Method 1 (71 FTP submission--higher estimate): New Form 71 must be
provided in response to a special call by the Commission or its
designee. Method 1 assumes that each New Form 71 reporting party will
use an automated program to submit its form via secure FTP. The
Commission estimates that the total initial development burden will
average 264 hours per reporting party. The Commission further estimates
that the ongoing operation and maintenance burden will average 53 hours
per year no matter how many records are contained in a submission. The
total Method 1 annualized initial development burden and the ongoing
operation and maintenance burden (total yearly burden) will equal
approximately 106 hours per reporting party.\213\
---------------------------------------------------------------------------
\213\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
The number of New Form 71 filings per year will vary according to
the number of special calls for the form made by the Commission. In
order to estimate the annual number of New Form 71 filings (i.e., the
number of special calls made), the Commission considered the number of
current Form 102 omnibus special accounts and estimated that New Form
102B will capture a similar number of DCM-related omnibus volume
threshold accounts.\214\ Furthermore, the Commission estimated that it
will require a New Form 71 for every such omnibus volume threshold
account. Commission records indicate 564 omnibus special accounts in
2012, and the Commission expects an equal number of DCM-related omnibus
volume threshold accounts. The Commission therefore anticipates that it
will receive approximately 564 DCM-related New Form 71 filings per
year, from the same number of reporting parties (564).
---------------------------------------------------------------------------
\214\ The Commission is estimating the number of New Form 71
filings in this manner because New Form 71 provides for an omnibus
account reporting structure that does not currently exist, making
direct estimates impracticable.
---------------------------------------------------------------------------
Because the Commission does not presently receive filings
pertaining to SEF-related omnibus volume threshold accounts, the
Commission is unable to refer to historical reporting statistics to
calculate the number of applicable reporting parties. To estimate the
number of Form 71 reporting parties for omnibus volume threshold
accounts associated with SEFs, the Commission assumed that SEF
transactions will likely be intermediated to a lesser extent than DCM
transactions. The Commission estimates that there may be 35 percent as
many SEF-related omnibus volume threshold accounts as DCM-related
omnibus volume threshold accounts. Accordingly, the Commission
estimates that there will be 198 SEF-related omnibus volume threshold
accounts, and an equal number of reporting parties (198).
The Commission notes that the final rules do not require change or
refresh updates of New Form 71. Accordingly, the burdens and costs
associated with such updates in the case of other forms described
herein are not relevant to the calculation of burdens and costs for
[[Page 69206]]
New Form 71 filings. The Commission also notes that it is likely to
request the resubmission of New Form 71 each year.
Based on an estimated 564 DCM-related New Form 71
reporting parties per year, the Commission estimates an aggregate
reporting burden of 59,784 hours annually for DCM-related New Form 71
filings via Method 1. Using an estimated wage rate of $70.07 per hour,
annual industry costs for such filings made pursuant to Method 1 are
estimated at $4,189,065.\215\
---------------------------------------------------------------------------
\215\ The $4,189,065 figure is arrived at by multiplying 564
reporting parties by 106 hours (equals 59,784 hours) by $70.07
(equals $4,189,065).
---------------------------------------------------------------------------
Based on an estimated 198 SEF-related New Form 71
reporting parties per year, the Commission estimates an aggregate
reporting burden of 20,988 hours annually for SEF-related New Form 71
filings via Method 1. Using an estimated wage rate of $70.07 per hour,
annual industry costs for such filings made pursuant to Method 1 are
estimated at $1,470,629.\216\
---------------------------------------------------------------------------
\216\ The $1,470,629 figure is arrived at by multiplying 198
reporting parties by 106 hours (equals 20,988 hours) by $70.07
(equals $1,470,629).
---------------------------------------------------------------------------
Collectively, annual industry costs for New Form 71 filings made
pursuant to Method 1 are estimated at $5,659,694.\217\
---------------------------------------------------------------------------
\217\ The $5,659,694 figure is arrived at by multiplying 762
reporting parties by 106 hours (equals 80,772 hours) by $70.07
(equals $5,659,694).
---------------------------------------------------------------------------
Method 2 (71 web submission--lower estimate): Method 2 assumes that
each New Form 71 reporting party (i.e., originators of omnibus volume
threshold accounts or omnibus reportable sub-accounts) will complete
and submit New Form 71 online via a secure portal provided by the
Commission.\218\ The Commission estimates that, on average, New Form 71
will create an annual reporting burden of 8 hours per filing.\219\
---------------------------------------------------------------------------
\218\ The Commission's special call will likely be in the form
of an email request that will contain a URL for the portal, and a
unique login and password for access to the portal.
\219\ The submission of New Form 71 through the web-based portal
does not require initial development expenditures; as a result, the
burdens and costs for this form are calculated on an annual basis
rather than an annualized basis.
---------------------------------------------------------------------------
As discussed above, the Commission expects approximately 564 DCM-
related New Form 71 filings per year, and 198 SEF-related New Form 71
filings per year.
Based on an estimated 564 DCM-related New Form 71 filings
per year, the Commission estimates an aggregate reporting burden of
4,512 hours annually for such filings via Method 2. Using an estimated
wage rate of $70.07 per hour, annual industry costs for such filings
made pursuant to Method 2 are estimated at $316,156.\220\
---------------------------------------------------------------------------
\220\ The $316,156 figure is arrived at by multiplying 564
records by 8 hours (equals 4,512 hours) by $70.07 (equals $316,156).
---------------------------------------------------------------------------
Based on an estimated 198 SEF-related New Form 71 filings
per year, the Commission estimates an aggregate reporting burden of
1,584 hours annually for such filings via Method 2. Using an estimated
wage rate of $70.07 per hour, annual industry costs for such filings
made pursuant to Method 2 are estimated at $110,991.\221\
---------------------------------------------------------------------------
\221\ The $110,991 figure is arrived at by multiplying 198
records by 8 hours (equals 1,584 hours) by $70.07 (equals $110,991).
---------------------------------------------------------------------------
Collectively, annual industry costs for New Form 71 filings made
pursuant to Method 2 are estimated at $427,147.\222\
---------------------------------------------------------------------------
\222\ The $427,147 figure is arrived at by multiplying 762
records by 8 hours (equals 6,096 hours) by $70.07 (equals $427,147).
Form 71--Lower Estimate Is Method 2
[Web submission]
----------------------------------------------------------------------------------------------------------------
Annual burden Total annual
Number of responses per year per response industry Estimated wage Annual
(hours) burden (hours) rate industry costs
----------------------------------------------------------------------------------------------------------------
762......................................... 8 6,096 $70.07 $427,147
----------------------------------------------------------------------------------------------------------------
Conclusion: The Commission believes that providing filing options
to the industry should lower their ultimate costs. Because of this,
estimated total costs to the industry for 71 filings should be lower
than any cost associated with mandating either Method 1 or Method 2.
Given the cost estimates for the two individual methods discussed
above, the Commission anticipates the annual cost to the industry of
filing 71 will be approximately $427,147 (Method 2--web submission),
the lower of the two estimated filing methods. In developing this
estimate, the Commission does not make any assumptions about the
behavior of an individual reporting party. Reporting parties, given
their own individualized needs, are assumed to make the most cost-
effective choice for them, which may be either of the two methods. New
Form 40--Sec. 18.04(a) (arising from New Form 102A): \223\
---------------------------------------------------------------------------
\223\ As discussed in section VIII(A)(iii) above, the Commission
is evaluating the burden associated with each regulation and
associated form separately. It should be noted that the burdens
estimated for New Form 40 filings, arising from proposed Sec.
18.04(a) and (b), are especially duplicative. For example, many of
the traders that complete New Form 40 pursuant to Sec. 18.04(a) may
also be volume threshold account controllers that could receive New
Form 40 pursuant to Sec. 18.04(b). In practice, if the Commission
possesses a recent Form 40 filing from a reporting party, it may
elect not to request a second Form 40 filing from that same entity
if the entity becomes reportable under an additional provision of
the proposed regulations and there is no additional information to
be gained.
---------------------------------------------------------------------------
Method 1 (40 FTP submission (arising from New Form 102A)--higher
estimate): New Form 40 must be provided in response to a special call
by the Commission or its designee. Method 1 assumes that each New Form
40 reporting party will use an automated program to submit its forms
(arising from New Form 102A) via secure FTP. The Commission estimates
that the total initial development burden will average 224 hours per
reporting party. The Commission further estimates that the ongoing
operation and maintenance burden will average 53 hours per year no
matter how many records are contained in a submission. The total Method
1 annualized initial development burden and the ongoing operation and
maintenance burden (total yearly burden) will equal approximately 98
hours per reporting party.\224\
---------------------------------------------------------------------------
\224\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
As noted above, in connection with the introduction of New Form
102A pursuant to this rulemaking, the Commission notes that (except as
otherwise instructed by the Commission or its designee) its regulations
require reporting firms to separately aggregate positions by common
ownership and by common control for the purpose of identifying and
reporting special accounts.\225\ On the basis of such regulations, the
Commission anticipates that it will receive a greater number of
[[Page 69207]]
New Form 102A records per year (7,726) than the number of Form 102
records it has received in recent years.\226\ While the number of New
Form 40 filings arising from New Form 102A filings will vary according
to the number of special calls made by the Commission, the Commission
nonetheless anticipates that it may make a larger number of special
calls than in recent years, due to the larger number of anticipated New
Form 102A records.\227\ As a result, the Commission estimates that New
Form 102A will result in approximately 5,250 New Form 40 records per
year, submitted by an equal number of reporting parties (5,250).\228\
---------------------------------------------------------------------------
\225\ See Sec. Sec. 17.00 and 150.4 of the Commission's
regulations.
\226\ The Commission received 4,415 Form 102 records in 2012.
See also supra note 200.
\227\ The Commission made approximately 3,000 special calls in
2012. Such calls were made to special account owners and controllers
identified via existing DCM-related Form 102.
\228\ See also supra note 200. Because the Commission
anticipates that the number of New Form 102A records it receives per
year is likely to be lower than the estimated 7,726 records, the
Commission may also make fewer special calls than the estimated
5,250 calls.
---------------------------------------------------------------------------
Entities required to complete a New Form 40 will be under a
continuing obligation, per direction in the special call, to update and
maintain the accuracy of the information they provide. Entities can
update this information by either visiting the online New Form 40
portal to review, verify, and/or update their information, or by
submitting updated information via FTP. Regardless of whether entities
update the information contained in New Form 40 via the web or FTP, the
Commission believes that the time required to provide this information
will be de minimis.\229\
---------------------------------------------------------------------------
\229\ See infra section VIII(B)(iv) for a discussion of the
Commission's contact reference database, which is intended to
streamline the automated submission process and reduce the burden on
reporting parties.
---------------------------------------------------------------------------
Assuming all 5,250 New Form 40 reporting parties utilize Method 1,
the Commission estimates that the total annual industry burden for New
Form 40, as a result of New Form 102A, will equal 514,500 hours. Using
an estimated wage rate of $70.07 per hour, annual industry costs for
such New Form 40 filings made pursuant to Method 1 are estimated at
$36,051,015.\230\
---------------------------------------------------------------------------
\230\ The $36,051,015 figure is arrived at by multiplying 5,250
reporting parties by 98 hours (equals 514,500 hours) by $70.07
(equals $36,051,015).
---------------------------------------------------------------------------
Method 2 (40 web submission (arising from New Form 102A)--lower
estimate): Method 2 assumes that each reporting party filing New Form
40 as a result of Form 102A (i.e., special account owners and
controllers) will complete and submit New Form 40 online via a secure
portal provided by the Commission.\231\
---------------------------------------------------------------------------
\231\ The Commission's special call will likely be in the form
of an email request that will contain a URL for the portal, and a
unique login and password for access to the portal.
---------------------------------------------------------------------------
The Commission estimates that each of the 5,250 New Form 40 records
will require three hours to complete.\232\ Assuming each such New Form
40 record is provided via Method 2, the Commission estimates that the
total annual industry burden for reporting on New Form 40, as a result
of New Form 102A, will equal 15,750 hours. Using an estimated wage rate
of $70.07 per hour, annual industry costs for New Form 40 filings
arising from special accounts are estimated at $1,103,603.\233\
---------------------------------------------------------------------------
\232\ The Commission's estimate of three hours per response
reflects an initial, one-time burden of 10 hours, annualized over a
five-year period, plus an additional hour per year for change
updates.
\233\ The $1,103,603 figure is arrived at by multiplying 5,250
records by 3 hours (equals 15,750 hours) by $70.07 (equals
$1,103,603).
Form 40--lower estimate is Method 2
[Web submission]
----------------------------------------------------------------------------------------------------------------
Annualized
burden per Total annual Estimated wage Annual
Number of responses per year response industry rate industry costs
(hours) \234\ burden (hours)
----------------------------------------------------------------------------------------------------------------
5,250....................................... 3 15,750 $70.07 $1,103,603
----------------------------------------------------------------------------------------------------------------
Conclusion: The Commission believes that providing filing options
to the industry should lower their ultimate costs. Because of this,
estimated total costs to the industry for 40 filings, as a result of
New Form 102A, should be lower than any cost associated with mandating
either Method 1 or Method 2. Given the cost estimates for the two
individual methods discussed above, the Commission anticipates the
annual cost to the industry of filing 40, as a result of New Form 102A,
will be approximately $1,103,603 (Method 2--web submission), the lower
of the two estimated filing methods. In developing this estimate, the
Commission does not make any assumptions about the behavior of an
individual reporting party. Reporting parties, given their own
individualized needs, are assumed to make the most cost-effective
choice for them, which may be either of the two methods.
---------------------------------------------------------------------------
\234\ As discussed above, the initial development burden per
reporting party (10 hours) has been divided by 5 years, which
results in an estimated annualized initial development burden of two
hours per reporting party. On a non-annualized basis, the initial
development cost per reporting party is estimated at $701 (10 hours
x a wage rate of $70.07). The Commission expects that reporting
parties will budget initial development costs in the manner that is
most cost-effective for each party, which may result in some
reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
---------------------------------------------------------------------------
New Form 40--Sec. 18.04(b) (arising from New Form 102B and New
Form 71):
Method 1 (40 FTP submission (arising from New Form 102B and New
Form 71)--higher estimate):
New Form 40 must be provided in response to a special call by the
Commission or its designee. Method 1 assumes that each New Form 40
reporting party will use an automated program to submit its forms
(arising from New Form 102B and New Form 71) via secure FTP. The
Commission estimates that the total initial development burden will
average 224 hours per reporting party. The Commission further estimates
that the ongoing operation and maintenance burden will average 53 hours
per year no matter how many records are contained in a submission. The
total Method 1 annualized initial development burden and the ongoing
operation and maintenance burden (total yearly burden) will equal
approximately 98 hours per reporting party.\235\
---------------------------------------------------------------------------
\235\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
In estimating the number of anticipated New Form 40 special calls
arising from both DCM-related and SEF-related New Form 102B and New
Form 71, the Commission first considered the number of Form 40 special
calls made in 2012 (approximately 3,000). The Commission sent some of
these special calls to a subset of the 260 special account owners and
controllers identified via existing DCM-related
[[Page 69208]]
Form 102 in 2012. The Commission sent other of these special calls to
individuals that were not identified via Form 102, but instead were
identified through other surveillance means. The 260 reporting parties
that submitted a Form 102 in 2012 represent approximately 8.7 percent
of the 3,000 special calls sent in 2012 (``the special call ratio'').
The Commission used this special call ratio as a baseline in
calculating the number of anticipated New Form 40 filings arising from
New Form 102B and New Form 71. The Commission acknowledges that this
percentage represents a high-end baseline, since as noted above, the
Commission made a special call in 2012 to a subset of the 260 reporting
parties, rather than to each one.
Form 40s Arising From DCM-related New Form 102B and New Form 71. To
estimate the number of Form 40 special calls arising from DCM-related
New Form 102B and New Form 71, the Commission first calculated the
number of anticipated reporting parties for each form: 100 reporting
parties for DCM-related New Form 102B, and 564 reporting parties for
DCM-related New Form 71, or 664 in total. Based on the special call
ratio calculations performed above with respect to the Commission's
2012 special call practices, the Commission estimated that it will send
special calls to approximately 7,662 recipients per year in connection
with DCM-related New Form 102B and New Form 71.\236\ Finally, the
Commission calculated that in approximately 75 percent of New Form 102B
and New Form 71 filings, the owner and controller of a volume threshold
account reported on the form will be different.\237\ In this scenario,
the Commission may make a separate special call to both the owner and
controller. As a result, the Commission multiplied the 7,662 recipient
estimate by 1.75, and concluded that it will receive approximately
13,409 New Form 40 filings annually arising from DCM-related New Form
102B and New Form 71, from the same number of reporting parties
(13,409).
---------------------------------------------------------------------------
\236\ The Commission applied the ratio of reporting parties to
special calls that it developed with respect to its 2012 Form 40
special call practices. 260 reporting parties represents
approximately 8.7 percent of the 3,000 special calls sent in 2012.
Similarly, 664 reporting parties represents approximately 8.7
percent of 7,662 special calls. The Commission believes that 664
reporting parties is a high-end estimate, because the Commission
will likely send New Form 40 to a subset of New Form 71 reporting
parties, rather than to each reporting party, as this calculation
assumes.
\237\ As with 102A records, the Commission estimates that in
approximately 25 percent of filings, the owner and the controller of
a volume threshold account reported on New Form 102B or New Form 71
will be the same, and that accordingly, only one New Form 40 would
be required. Similarly, a number of potential New Form 40 reporting
parties are likely to own or control both DCM-related and SEF-
related volume threshold accounts, but only one New Form 40 would be
required.
---------------------------------------------------------------------------
Form 40s Arising From SEF-related New Form 102B and New Form 71.
The Commission applied the same rationale to calculate the number of
anticipated New Form 40 filings arising from SEF-related New Form 102B
and New Form 71. The Commission first calculated the number of
anticipated reporting parties for each form: 75 reporting parties for
SEF-related New Form 102B, and 198 reporting parties for SEF-related
New Form 71, or 273 in total. Based on the special call ratio
calculations performed above with respect to the Commission's 2012
special call practices, the Commission estimated that it will send
special calls to approximately 3,149 recipients per year in connection
with SEF-related New Form 102B and New Form 71.\238\ Finally, the
Commission calculated that in approximately 75 percent of New Form 102B
and New Form 71 filings, the owner and controller of a volume threshold
account reported on the form will be different.\239\ In this scenario,
the Commission may make a separate special call to both the owner and
controller. As a result, the Commission multiplied the 3,149 recipient
estimate by 1.75, and concluded that it will receive approximately
5,511 New Form 40 filings annually arising from SEF-related New Form
102B and New Form 71, from the same number of reporting parties
(5,511).
---------------------------------------------------------------------------
\238\ The Commission applied the ratio of reporting parties to
special calls that it developed with respect to its 2012 Form 40
special call practices. 260 reporting parties represents
approximately 8.7 percent of the 3,000 special calls sent in 2012.
Similarly, 273 reporting parties represents approximately 8.7
percent of 3,149 special calls. The Commission believes that 273
reporting parties is a high-end estimate, because the Commission
will likely send New Form 40 to a subset of New Form 71 reporting
parties, rather than to each reporting party, as this calculation
assumes.
\239\ See supra note 237.
---------------------------------------------------------------------------
As discussed above, the Commission estimates that the time required
to update information contained in New Form 40, whether submitted via
the web or FTP, will be de minimis.\240\
---------------------------------------------------------------------------
\240\ See infra section VIII(B)(iv) for a discussion of the
Commission's contact reference database, which is intended to
streamline the automated submission process and reduce the burden on
reporting parties.
---------------------------------------------------------------------------
Based on an estimated 13,409 DCM-related New Form 40
reporting parties per year, the Commission estimates an aggregate
reporting burden of 1,314,082 hours annually for DCM-related New Form
40 filings, arising from New Form 102B and New Form 71, via Method 1.
Using an estimated wage rate of $70.07 per hour, annual industry costs
for such filings made pursuant to Method 1 are estimated at
$92,077,726.\241\
---------------------------------------------------------------------------
\241\ The $92,077,726 figure is arrived at by multiplying 13,409
reporting parties by 98 hours (equals 1,314,082 hours) by $70.07
(equals $92,077,726).
---------------------------------------------------------------------------
Based on an estimated 5,511 SEF-related New Form 40
reporting parties per year, the Commission estimates an aggregate
reporting burden of 540,078 hours annually for SEF-related New Form 40
filings, arising from New Form 102B and New Form 71, via Method 1.
Using an estimated wage rate of $70.07 per hour, annual industry costs
for such filings made pursuant to Method 1 are estimated at
$37,843,265.\242\
---------------------------------------------------------------------------
\242\ The $37,843,265 figure is arrived at by multiplying 5,511
reporting parties by 98 hours (equals 540,078 hours) by $70.07
(equals $37,843,265).
---------------------------------------------------------------------------
Collectively, annual industry costs for New Form 40 filings
(arising from New Form 102B and New Form 71) made pursuant to Method 1
are estimated at $129,920,991.\243\
---------------------------------------------------------------------------
\243\ The $129,920,991 figure is arrived at by multiplying
18,920 reporting parties by 98 hours (equals 1,854,160 hours) by
$70.07 (equals $129,920,991).
---------------------------------------------------------------------------
Method 2 (40 web submission (arising from New Form 102B and New
Form 71)--lower estimate):
Method 2 assumes that each reporting party filing New Form 40 as a
result of New Form 102B and New Form 71 (i.e., volume threshold account
controllers, persons who own volume threshold accounts, reportable sub-
account controllers, and persons who own reportable sub-accounts) will
complete and submit New Form 40 online via a secure portal provided by
the Commission.\244\
---------------------------------------------------------------------------
\244\ The Commission's special call will likely be in the form
of an email request that will contain a URL for the portal, and a
unique login and password for access to the portal.
---------------------------------------------------------------------------
As discussed above, the Commission anticipates that it will receive
approximately 13,409 DCM-related New Form 40 filings annually and
approximately 5,511 SEF-related New Form 40 filings annually, in each
case arising from New Form 102B and New Form 71.\245\ Each such New
Form 40 filing is estimated to require three hours.\246\ Assuming each
such New
[[Page 69209]]
Form 40 record is provided via Method 2:
---------------------------------------------------------------------------
\245\ As with 102A records, the Commission estimates that in
approximately 25 percent of filings, the owner and the controller of
a volume threshold account reported on New Form 102B will be the
same, and that accordingly, only one New Form 40 would be required.
Similarly, a number of potential New Form 40 reporting parties are
likely to own or control both DCM-related and SEF-related volume
threshold accounts, but only one New Form 40 would be required.
\246\ The Commission's estimate of three hours per response
reflects an initial, one-time burden of 10 hours, annualized over a
five-year period, plus an additional hour per year for change
updates.
---------------------------------------------------------------------------
The Commission estimates that the total annual industry
burden for reporting on New Form 40, as a result of New Form 102B and
New Form 71, will equal 40,227 hours for DCM-related New Form 40
filings. Using an estimated wage rate of $70.07 per hour, annual
industry costs for such filings arising from volume threshold accounts
and reportable sub-accounts are estimated at $2,818,706.\247\
---------------------------------------------------------------------------
\247\ The $2,818,706 figure is arrived at by multiplying 13,409
filings by 3 hours (equals 40,227 hours) by $70.07 (equals
$2,818,706).
---------------------------------------------------------------------------
The Commission estimates that the total annual industry
burden for reporting on New Form 40, as a result of New Form 102B and
New Form 71, will equal 16,533 hours for SEF-related New Form 40
filings. Using an estimated wage rate of $70.07 per hour, annual
industry costs for such filings arising from volume threshold accounts
and reportable sub-accounts are estimated at $1,158,467.\248\
---------------------------------------------------------------------------
\248\ The $1,158,467 figure is arrived at by multiplying 5,511
filings by 3 hours (equals 16,533 hours) by $70.07 (equals
$1,158,467).
---------------------------------------------------------------------------
Collectively, annual industry costs for New Form 40 filings, as a
result of New Form 102B and New Form 71, are estimated at
$3,977,173.\249\
---------------------------------------------------------------------------
\249\ The $3,977,173 figure is arrived at by multiplying 18,920
filings by 3 hours (equals 56,760 hours) by $70.07 (equals
$3,977,173).
Form 40--Lower Estimate is Method 2
[Web submission]
----------------------------------------------------------------------------------------------------------------
Annualized
burden per Total annual Estimated wage Annual
Number of responses per year response industry burden rate industry costs
(hours) \250\ (hours)
----------------------------------------------------------------------------------------------------------------
18,920...................................... 3 56,760 $70.07 $3,977,173
----------------------------------------------------------------------------------------------------------------
Conclusion: The Commission believes that providing filing options
to the industry should lower their ultimate costs. Because of this,
estimated total costs to the industry for 40 filings, as a result of
New Form 102B and New Form 71, should be lower than any cost associated
with mandating either Method 1 or Method 2. Given the cost estimates
for the two individual methods discussed above, the Commission
anticipates the annual cost to the industry of filing 40, as a result
of New Form 102B and New Form 71, will be approximately $3,977,173
(Method 2--web submission), the lower of the two estimated filing
methods. In developing this estimate, the Commission does not make any
assumptions about the behavior of an individual reporting party.
Reporting parties, given their own individualized needs, are assumed to
make the most cost-effective choice for them, which may be either of
the two methods. New Form 102S -- Sec. 20.5(a):
---------------------------------------------------------------------------
\250\ As discussed above, the initial development burden per
reporting party (10 hours) has been divided by 5 years, which
results in an estimated annualized initial development burden of two
hours per reporting party. On a non-annualized basis, the initial
development cost per reporting party is estimated at $701 (10 hours
x a wage rate of $70.07). The Commission expects that reporting
parties will budget initial development costs in the manner that is
most cost-effective for each party, which may result in some
reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
---------------------------------------------------------------------------
Method 1 (102S FTP submission--lower estimate): Method 1 assumes
that each New Form 102S reporting party will use an automated program
to submit its forms via secure FTP. Each Method 1 submission will
likely contain numerous 102S records. The Commission estimates that the
total initial development burden will average 264 hours per reporting
party. The Commission also estimates that the highly automated nature
of this option will virtually eliminate the marginal costs associated
with each additional submission or each additional record contained in
a submission. The Commission believes that the timing requirements for
102S filings in current Sec. 20.5(a)(3),\251\ or any new submission
procedures arising from the Swaps Large Trader Guidebook (i.e.,
frequency of 102S filing submission), will not increase a reporting
party's burden when using Method 1. The Commission further estimates
that the ongoing operation and maintenance burden will average 53 hours
per year no matter how many records are contained in a submission. The
total Method 1 annualized initial development burden and the ongoing
operation and maintenance burden (total yearly burden) will equal
approximately 106 hours per reporting party.\252\
---------------------------------------------------------------------------
\251\ 17 CFR 20.5(a)(3).
\252\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
The 102S filing requirements in current Sec. 20.5 \253\ are nearly
identical to the filing requirements for revised 102S; accordingly, the
Commission used its recent experience with 102S filings to estimate the
number of 102S reporting parties. An assessment of Commission data
collection efforts demonstrated that the Commission received Form 102S
submissions from 39 reporting parties in 2012. The Commission
anticipates that it will receive New Form 102S submissions from a
similar number of reporting parties each year. Assuming 102S reporting
parties utilize Method 1, the Commission estimates that the total
annual industry burden for 102S filing will equal 4,134 hours. Using an
estimated wage rate of $70.07 per hour, annual industry costs for New
Form 102S are estimated at $289,669.\254\
---------------------------------------------------------------------------
\253\ 17 CFR 20.5.
\254\ The $289,669 figure is arrived at by multiplying 39
reporting parties by 106 hours (equals 4,134 hours) by $70.07
(equals $289,669).
[[Page 69210]]
Form 102S--Lower Estimate is Method 1
[FTP submission]
----------------------------------------------------------------------------------------------------------------
Annualized
burden per Total annual Estimated wage Annual
Number of reporting parties per year reporting party industry burden rate industry costs
(hours) \255\ (hours)
----------------------------------------------------------------------------------------------------------------
39.......................................... 106 4,134 $70.07 $289,669
----------------------------------------------------------------------------------------------------------------
Method 2 (102S web submission--higher estimate): Method 2 assumes
that each New Form 102S reporting party will complete and submit its
forms online via a secure portal provided by the Commission. The
Commission estimates that the total initial development burden will
average 17 hours per 102S record. The Commission also estimates that
the annual ongoing burden, including change and refresh updates, will
average 7 hours per year for each 102S record. The sum of the Method 2
annualized initial development burden and the ongoing operation and
maintenance burden (total yearly burden) equals approximately 10 hours
per 102S record.\256\
---------------------------------------------------------------------------
\255\ See supra note 195 for a discussion of the calculation of
this annualized burden. As discussed above, the initial development
burden per reporting party (264 hours) has been divided by 5 years,
which results in an estimated annualized initial development burden
of 53 hours per reporting party. On a non-annualized basis, the
initial development cost per reporting party is estimated at $18,498
(264 hours x a wage rate of $70.07). The Commission expects that
reporting parties will budget initial development costs in the
manner that is most cost-effective for each party, which may result
in some reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
\256\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
An assessment of Commission data collection efforts demonstrated
that the Commission received approximately 2,508 102S records in 2012.
The Commission anticipates that it will receive a similar number of
102S records each year. Assuming each of the estimated 2,508 102S
records are provided via Method 2, the Commission estimates that the
total annual industry burden for New Form 102S will equal 25,080 hours.
Using an estimated wage rate of $70.07 per hour, annual industry costs
for New Form 102S filings made pursuant to Method 2 are estimated at
$1,757,356.\257\
---------------------------------------------------------------------------
\257\ The $1,757,356 figure is arrived at by multiplying 2,508
records by 10 hours (equals 25,080 hours) by $70.07 (equals
$1,757,356).
---------------------------------------------------------------------------
Conclusion: The Commission understands that providing options to
the industry should lower costs relative to failing to provide these
options. Because of this, estimated total costs to the industry for
102S filing should be lower than any cost associated with mandating
either Method 1 or Method 2. Given the cost estimates for the two
individual methods discussed above, the Commission anticipates the
annual cost to the industry of filing 102S will be approximately
$289,669 (Method 1--FTP submission), the lower of the two estimated
submission costs. In developing this estimate, the Commission does not
make any assumptions about the behavior of an individual reporting
party. Reporting parties, given their own individualized needs, are
assumed to make the most cost-effective choice for them, which may be
either of the two methods.
New Form 40S--Sec. 20.5(b): \258\
---------------------------------------------------------------------------
\258\ The final rules do not revise Sec. 20.5(b); however,
current Sec. 20.5(b) requires a person, after special call by the
Commission, to submit a 40S filing, which shall consist of the
submission of Form 40. The final rules do include changes to Form
40. Accordingly, the reporting burden associated with Sec. 20.5(b)
and the 40S filing is being recalculated to account for variations
between current and New Form 40.
---------------------------------------------------------------------------
Method 1 (40S FTP submission--higher estimate): New Form 40S must
be provided in response to a special call by the Commission or its
designee. Method 1 assumes that each New Form 40S reporting party will
use an automated program to submit its forms via secure FTP. The
Commission estimates that the total initial development burden will
average 224 hours per reporting party. The Commission further estimates
that the ongoing operation and maintenance burden will average 53 hours
per year no matter how many records are contained in a submission. The
total Method 1 annualized initial development burden and the ongoing
operation and maintenance burden (total yearly burden) will equal
approximately 98 hours per reporting party.\259\
---------------------------------------------------------------------------
\259\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
Current Sec. 20.5(b),\260\ which requires the 40S filing, will not
be altered by this rulemaking. As noted above, the Commission
anticipates that it will receive approximately 2,508 102S records per
year, and the Commission estimates that it will make approximately the
same number of 40S special calls each year (2,508). Assuming all Form
40S reporting parties utilize Method 1, the Commission estimates that
the total annual industry burden for Form 40S will equal 245,784 hours.
Time required to update information contained in 40S filings, whether
submitted via the web or FTP, will be de minimis. Using an estimated
wage rate of $70.07 per hour, annual industry costs for Form 40S
filings made pursuant to Method 1 are estimated at $17,222,085.\261\
---------------------------------------------------------------------------
\260\ 17 CFR 20.5(b).
\261\ The $17,222,085 figure is arrived at by multiplying 2,508
reporting parties by 98 hours (equals 245,784 hours) by $70.07
(equals $17,222,085).
---------------------------------------------------------------------------
Method 2 (40S web submission--lower estimate): Method 2 assumes
that each New Form 40S reporting party will complete and submit its
forms online via a secure portal provided by the Commission.\262\ As
noted above, the Commission anticipates that it will receive
approximately 2,508 102S records per year, and the Commission estimates
that it will make approximately the same number of 40S special calls
each year (2,508). Each response is estimated to require three
hours,\263\ resulting in an estimated total annual reporting burden of
7,524 hours. Using an estimated wage rate of $70.07 per hour, annual
industry costs for New Form 40S filings made pursuant to Method 2 are
estimated at $527,207.\264\
---------------------------------------------------------------------------
\262\ The Commission's special call will likely be in the form
of an email request that will contain a URL for the portal, and a
unique login and password for access to the portal.
\263\ The Commission's estimate of three hours per response
reflects an initial, one-time burden of 10 hours, annualized over a
five-year period, plus an additional hour per year for change
updates.
\264\ The $527,207 figure is arrived at by multiplying 2,508
filings by 3 hours (equals 7,524 hours) by $70.07 (equals $527,207).
[[Page 69211]]
Form 40S--Lower Estimate is Method 2
[Web submission]
----------------------------------------------------------------------------------------------------------------
Annualized
burden per Total annual Estimated wage Annual
Number of responses per year response industry burden rate industry costs
(hours) \265\ (hours)
----------------------------------------------------------------------------------------------------------------
2,508....................................... 3 7,524 $70.07 $527,207
----------------------------------------------------------------------------------------------------------------
Conclusion: The Commission understands that providing options to
the industry should lower costs relative to failing to provide these
options. Because of this, estimated total costs to the industry for 40S
filing should be lower than any cost associated with mandating either
Method 1 or Method 2. Given the cost estimates for the two individual
methods discussed above, the Commission anticipates the annual industry
cost to the industry of filing 40S will be approximately $527,207
(Method 2--web submission), the lower of the two estimated submission
costs. In developing this estimate, the Commission does not make any
assumptions about the behavior of an individual reporting party.
Reporting parties, given their own individualized needs, are assumed to
make the most cost-effective choice for them, which may be either of
the two methods.
---------------------------------------------------------------------------
\265\ As discussed above, the initial development burden per
reporting party (10 hours) has been divided by 5 years, which
results in an estimated annualized initial development burden of two
hours per reporting party. On a non-annualized basis, the initial
development cost per reporting party is estimated at $701 (10 hours
x a wage rate of $70.07). The Commission expects that reporting
parties will budget initial development costs in the manner that is
most cost-effective for each party, which may result in some
reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
---------------------------------------------------------------------------
v. Recordkeeping Burdens--Revised Sec. 18.05
Current Sec. 18.05 requires traders who hold or control reportable
positions to maintain books and records regarding all positions and
transactions in the commodity in which they have reportable
positions.\266\ In addition, current Sec. 18.05 requires that the
trader furnish the Commission with information concerning such
positions upon request. The Commission is expanding Sec. 18.05 to also
impose books and records requirements upon (1) Volume threshold account
controllers and (2) owners of volume threshold accounts, and upon (3)
reportable sub-account controllers and (4) persons who own reportable
sub-accounts. As a result, revised Sec. 18.05 will likely impose a
recordkeeping burden on a larger number of persons than current Sec.
18.05. However, any additional persons subject to Sec. 18.05 may be
able to rely on books and records already kept in the ordinary course
of business to meet the requirements of the final regulation.
Accordingly, the Commission believes that revised Sec. 18.05 will not
meaningfully increase recordkeeping burdens on persons brought under
its scope.
---------------------------------------------------------------------------
\266\ 17 CFR 18.05.
---------------------------------------------------------------------------
The Commission sent 59 special calls pursuant to Sec. 18.05 in
2012, 42 of which were based on trade data reflected in the TCR data
feed.\267\ As noted above, revised Sec. 18.05 will make four new
categories of persons, identified through the volume-based reporting
regime, subject to Sec. 18.05. Because the volume-based reporting
regime is designed to identify designated types of trading activity,
the Commission estimates that it will send special calls pursuant to
revised Sec. 18.05 to, at a minimum, 42 recipients (i.e., the same
number of persons to which the Commission sent special calls in 2012
based on trade data reflected in the TCR). At the same time, the
Commission expects that the introduction of volume-based reporting will
lead to the Commission sending more special calls than it would
otherwise, because this regime will identify new ownership and control
relationships and patterns of trading activity. As a result, for
purposes of estimating the costs of revised Sec. 18.05, the Commission
assumes it will send 25% more special calls in response to trade data
than it did in 2012, for a total of 53 special calls per year. These
special calls will require a response from approximately 53 individual
traders per year.
---------------------------------------------------------------------------
\267\ See supra section I(B) for a discussion of the TCR.
---------------------------------------------------------------------------
This estimate reflects only special calls sent pursuant to Sec.
18.05 as a result of information collected via the volume-based
reporting regime (i.e., New Form 102B and New Form 71).\268\ The
estimated 53 recipients of such special calls may include some traders
that are already subject to the costs and obligations of current Sec.
18.05. The Commission estimates that each special call response
submitted by the new categories of persons subject to revised Sec.
18.05 will take approximately 5 hours, for a total annual reporting
burden of 265 hours. Using an estimated wage rate of $70.07 per hour,
annual reporting costs for the new categories of persons that are
subject to revised Sec. 18.05 are estimated at $18,569.\269\
---------------------------------------------------------------------------
\268\ The NPRM estimated the total annual cost to the industry
of Sec. 18.05 following implementation of the final rules as
$214,605. This figure included the cost to parties already subject
to Sec. 18.05 who will not be impacted by the amendments to Sec.
18.05 described herein. Consistent with the description of costs to
reporting parties presented elsewhere herein, the estimate of
$18,569 represents only the new or incremental costs imposed by the
changes to Sec. 18.05 described in these final rules. The $18,569
estimate is therefore less than the $214,605 estimate for revised
Sec. 18.05 in the NPRM.
\269\ The $18,569 figure is arrived at by multiplying 53
responses by 5 hours (equals 265 hours) by $70.07 (equals $18,569).
Sec. 18.05--Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
Annual burden Total annual
Number of responses per year per response industry burden Estimated wage Annual
(hours) (hours) rate industry costs
----------------------------------------------------------------------------------------------------------------
53.......................................... 5 265 $70.07 $18,569
----------------------------------------------------------------------------------------------------------------
[[Page 69212]]
B. Consideration of Costs and Benefits
i. Background
The current rules and forms, which these final rules update,
require FCMs, clearing members, and foreign brokers to identify special
account traders to the Commission via Form 102.\270\ The Commission
sends a Form 40 in its discretion via a special call to a trader
identified on Form 102, requiring the trader to provide the Commission
with detailed information regarding the nature of the trader's market
activity. The current Form 102 and Form 40 are generally submitted to
the Commission via a manual submission process (via email, facsimile,
or regular mail). The Commission then individually uploads the forms
into the Commission's Integrated Surveillance System (ISS), discussed
in section I(B) above. The questions and data points on both forms
relate only to the Commission's current position-based reporting rules.
---------------------------------------------------------------------------
\270\ See supra section III for a discussion of the current
trader and account identification programs.
---------------------------------------------------------------------------
The final rules establish the information architecture necessary
for the Commission to efficiently identify and categorize individual
trading accounts and market participants that trigger position or
newly-created volume-based reporting thresholds. By requiring the
collection of ownership and control information via the new and amended
forms, the Commission will be able to efficiently and effectively
monitor risk exposure by institution, market class, and asset class
over an extended period of time. To accomplish this, the final rules
modify current Forms 102 and 40 to require additional information,
require additional reporting via New Form 71, and modify the timing and
method by which market participants are required to submit these forms
to the Commission. New Form 102 will now be divided into three
sections: 102A, 102B, and 102S. Section 102A captures information that
must be reported when a trading account exceeds open position
thresholds (a ``special account''); section 102B, which is new in its
entirety, will capture information that must be reported when a trading
account exceeds a specified volume threshold during a single trading
day (a ``volume threshold account''); and section 102S will capture
information that must be reported for consolidated accounts and swap
counterparties that have a reportable position in swaps. The following
summarizes each of the new and amended forms that will take the place
of current Form 102 and 40 pursuant to these final rules.\271\
---------------------------------------------------------------------------
\271\ See supra section IV for a detailed summary of the new and
amended forms adopted in these final rules.
---------------------------------------------------------------------------
New Form 102A. As noted above, Form 102A is a position-based
reporting form, which requires the reporting of both special accounts
and the trading accounts that comprise special accounts. This reporting
will allow the Commission to link special accounts holding reportable
positions to the transactions (and associated trading accounts)
identified on daily trade capture reports received by the Commission.
By illustrating the connections between end-of-day position reporting
via Form 102 and daily trade capture reports, the final rules will
enable the Commission to perform a more accurate and timely accounting
of market position at the level of individual trading accounts, thereby
improving the Commission's surveillance capabilities.\272\
---------------------------------------------------------------------------
\272\ See the discussion of the daily trade capture reports in
section I(B) above.
---------------------------------------------------------------------------
New Form 102B. While Form 102A requires the reporting of large
trader positions that remain open at the end of the day, Form 102B
requires the reporting of trading accounts that exceed a stated volume
threshold during a single trading day, regardless of whether these
positions remain open at the end of the day. This will identify traders
whose end-of-day open interest does not reach reportable levels on Form
102A, but whose intra-day trading reaches the volume threshold, thus
enabling the Commission to monitor trading that could potentially
impact markets during concentrated periods of intra-day trading. The
Commission expects that the addition of volume-based reporting will
provide much needed information about high-frequency traders and other
market participants using algorithmic systems, whose activities are not
typically captured by the current position-based reporting regime. When
combined with the position data reported on Form 102A, New Form 102B
will improve the Commission's ability to: (i) Aggregate accounts under
common ownership and/or control; (ii) better understand how certain
market segments may affect the process of price formation; (iii)
efficiently analyze trading behavior surrounding price spikes and other
pricing anomalies throughout the day; and (iv) detect and investigate
disruptive trading activities, including intraday speculative position
limit violations and wash trades.
New Form 71. The Commission will send Form 71, in its discretion
via a special call, to collect additional information on omnibus volume
threshold accounts identified on Form 102B (or on another Form 71).
Form 71 is designed to permit originating firms to report the required
information directly to the Commission without requiring such firms to
disclose information regarding customers to potential competitors. Form
71 illustrates the `nested' structure of omnibus accounts and
underlying omnibus sub-accounts that are volume threshold accounts, and
identifies the ultimate owner and controller of these accounts. Form 71
will provide crucial ownership and control information to the
Commission that is not collected under the current reporting regime.
The Commission will use this ownership information to aggregate and
analyze all trading by a market participant for surveillance purposes,
irrespective of whether this trading is conducted through a single
account, or through a number of accounts maintained by one or more
intermediaries.
New Form 102S. Form 102S is designed to facilitate the electronic
submission of 102S filings. Such filings are currently being submitted
to the Commission (pursuant to 17 CFR 20.5(a)) through a non-automated
process. Form 102S will provide position-based reporting of
consolidated accounts in the swaps market. The form expands the current
102S reporting regime to require the reporting of ownership and control
information with respect to such accounts. Swap reporting on Form 102S
significantly improves the Commission's surveillance capabilities, by
enabling it to track the market activity of a specific trader,
including traders that may be dividing risk exposure between both on-
exchange and off-exchange instruments. Swap reporting will also enable
the Commission to more efficiently aggregate position exposure in a
particular product or commodity group. Such reporting also aligns with
the Commission's recently finalized rules on real-time public and
regulatory reporting of swap trades, and improves transparency into
markets that, historically, have often been opaque and/or over-the-
counter.
New Form 40/40S. Each of the 102 forms and Form 71 requires
respondents to identify the parties that the Commission should contact
(such as the account owner, controller, and related contact persons) if
the Commission requires additional information regarding traders or
trading accounts identified on the forms. The
[[Page 69213]]
Commission will send New Form 40 in its discretion via a special call
to collect additional information from traders reported on each of the
102 forms and Form 71. These final rules expand Form 40 by requiring
the reporting trader to: (1) Indicate whether it is engaged in
commodity index trading (as that term is defined in the form) (a
question that does not appear on current Form 40); (2) report its
control relationships with other entities, and other relationships with
persons that influence or exercise authority over the trading of a
reporting trader (a question that has been expanded on New Form 40);
(3) identify all the business sectors that pertain to its business
activities or occupation (a question that has been expanded on New Form
40); and (4) identify all commodity groups and individual commodities
that it presently trades, or expects to trade in the near future, in
derivatives markets (a question that has been expanded on New Form 40),
among other information.
Responses to these questions will improve the Commission's ability
to perform effective surveillance, by enabling it to better understand
the ownership and control structure of reporting traders, and the
extent of their business activities across multiple markets and product
groups. The Commission will, furthermore, be able to use information
reported on New Form 40 to cross-check several of the ownership and
control data fields reported on New Form 102. The additional
information requested on New Form 40 will improve the quality of data
published in the Commission's reports, including the classifications in
the Commitments of Traders Report. Finally, the Commission will be able
to compare the trading goals that a respondent reports on New Form 40
to its subsequent market activity. If the two do not correspond, the
Commission will request additional information from the respondent in
order to maintain accuracy in Commission databases and reports, or take
other appropriate action.
In sum, the final rules will build upon the Commission's existing
market and trade practice surveillance programs for futures, options on
futures, and swaps, by improving the Commission's understanding of the
impact of special accounts, consolidated accounts, and newly designated
volume threshold accounts on market activity. In turn, this will allow
the Commission to better perform risk-based monitoring and surveillance
among related accounts; efficiently monitor risk exposure by
institution, market class, and asset class; facilitate investigations
into disruptive trading activity by Commission enforcement staff; and
expand the Commission's ability to research and analyze how a wide-
ranging variety of market participants impact market behavior.
ii. The Statutory Requirement for the Commission To Consider the Costs
and Benefits of Its Actions
Section 15(a) of the CEA \273\ requires the Commission to
``consider the costs and benefits'' of its actions before promulgating
a regulation under the CEA or issuing certain orders. Section 15(a)
further specifies that the costs and benefits must be evaluated in
light of the following 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 considers the costs and
benefits resulting from its discretionary determinations with respect
to the section 15(a) factors below.
---------------------------------------------------------------------------
\273\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
As a general matter, the Commission considers the incremental costs
and benefits of these rules, that is the costs and benefits that are
above the standard established by the Commission's existing
regulations.\274\ Where reasonably feasible, the Commission has
endeavored to estimate quantifiable costs and benefits. Where
quantification is not feasible, the Commission identifies and describes
costs and benefits qualitatively.\275\
---------------------------------------------------------------------------
\274\ As discussed below with respect to costs more
specifically, the Commission's estimated cost ranges assume that all
market participants will start from the same point in developing the
systems required to implement OCR reporting, irrespective of whether
they provide certain forms under the current reporting system (e.g.,
the current Forms 102 and 40).
\275\ For example, to quantify benefits such as improved
transparency and enhanced protections for market participants and
the public would require information, data and/or metrics that
either do not exist, or to which the Commission generally does not
have access.
---------------------------------------------------------------------------
iii. Commission Request for Comments Regarding Cost and Benefit
Estimates
The Commission requested comment on a variety of cost and benefit
metrics in the NPRM. As a general matter, the Commission requested that
commenters provide data and any other information or statistics that
they relied on to reach conclusions on the Commission's cost and
benefit estimates. The Commission also requested comment, including
specific quantitative estimates, on the expected costs related to
upgrading or obtaining systems to implement and comply with the
reporting requirement under the proposed new and revised forms, as well
as the impact of the proposed rules (or the relative impact of any
alternative rules) on the section 15(a) factors. Although some
commenters stated that the NPRM understated the total cost to the
industry, no commenter provided specific quantitative cost or benefit
estimates, or other information to more precisely estimate costs beyond
those presented in the NPRM.\276\
---------------------------------------------------------------------------
\276\ See section VIII(B)(vi) below for additional discussion of
comments received by the Commission regarding the costs and benefits
of reporting.
---------------------------------------------------------------------------
In the absence of specific quantitative estimates or alternative
cost proposals by commenters, the Commission performed its own analysis
in updating the NPRM cost benefit considerations for these final rules.
As explained below, for purposes of these final rules, the Commission
has updated the cost estimates that appeared in the NPRM based on the
most recent data and statistics available to the Commission. In this
section VIII(B), the Commission has also calculated an estimated range
of 25 percent below and 25 percent above the estimated total annual
industry cost for each form. The Commission has applied these ranges
because reporting costs will differ among market participants based on
a variety of factors, including the state of their current technology
systems, and their differing levels of market and reporting experience.
The upper end of the ranges also responds to comments stating that the
cost estimates in the NPRM understated the total cost to the industry
(without expressing by how much, or to what degree).\277\
---------------------------------------------------------------------------
\277\ See id.
---------------------------------------------------------------------------
iv. Methodology Used To Estimate Costs
As discussed above, the Commission has calculated the total
estimated industry cost for submitting each form via FTP or via the web
portal. For each form, these calculations represent the total industry
cost if all reporting parties submit information via one method--as
compared to the total industry cost if all parties submit via the other
method. For example, the 102A estimates described in sections VIII(A)
and (B) represent the total estimated industry cost if all reporting
parties submit 102A via FTP ($1,931,129), or if all parties submit 102A
via the web portal ($5,954,969). The Commission recognizes that, even
if it is less expensive for the industry as a whole to submit 102A via
FTP, it may be less expensive for certain individual reporting parties
to submit 102A via the web portal. This may be due to the limited
number of forms these parties
[[Page 69214]]
expect to submit, their technology infrastructure, or other factors.
To expand on this example, if a new reporting party anticipates
that it will submit only two 102A filings per year, it might logically
conclude that it would be less expensive to submit its two filings via
the web portal than to incur the development costs associated with
establishing an FTP link to the Commission. In this instance, the
Commission has estimated that the reporting party would incur 20 hours
of initial development burden for each of the two records submitted via
the web portal, or a total initial development burden of 40 hours.
Accordingly, the reporting party may conclude that submitting its 102A
filings via the web portal is more cost-effective than submitting the
same information via FTP, which the Commission has estimated would
require an initial development burden of 264 hours per entity
(regardless of the number of forms submitted).\278\
---------------------------------------------------------------------------
\278\ In this example, the Commission expects that reporting
parties making a small number of filings would choose to submit via
the web-based portal, because web submission would be the most cost-
effective submission method for such parties. In doing so, they will
incur fewer costs than they would if they submitted via FTP, thereby
lowering the total costs to the industry. As a result, the
simplifying assumption that all reporting parties will submit New
Form 102A (along with certain other forms discussed below) via FTP
is a conservative assumption, which will tend to overestimate the
total industry cost.
---------------------------------------------------------------------------
The cost estimates in section VIII(A) and (B) assume that all
market participants will start from the same point in developing the
systems required to implement OCR reporting. Accordingly, to the extent
that current reporting parties leverage their existing reporting
systems \279\ to implement OCR reporting, the cost estimates are likely
to overestimate actual costs to some degree for such parties.
---------------------------------------------------------------------------
\279\ Certain parties that will be required to report under
these final rules now provide certain forms under the current
reporting system (e.g., the current Forms 102 and 40).
---------------------------------------------------------------------------
For the following additional reasons, the Commission anticipates
that total reporting and recordkeeping costs to the industry are likely
to be lower than the sum of the costs associated with each form
individually, as the Commission has calculated herein.
First, the reporting and recordkeeping burdens arising from each
regulation and associated form were estimated independently of the
requirements of the other regulations and associated forms. The
Commission anticipates that substantial synergies are likely to exist
across the systems and data necessary to meet the reporting
requirements. For example, many reporting firms submitting New Form
102A via FTP (which the Commission believes is the more cost-effective
submission method for the industry as a whole) will also submit New
Form 102B via FTP, and will be able to leverage systems and information
necessary for submitting one form to meet the requirement to submit the
other.
Second, the Commission has incorporated a number of proposals made
by commenters that are intended to reduce the reporting burden and
associated costs to market participants. These proposals are described
in section VII above and section VIII(B)(vii) below. While the
Commission has updated the cost estimates that appeared in the NPRM
based on the most recent data and statistics available to the
Commission, in order to generate more conservative cost estimates, the
Commission has not reduced the cost estimates in these final rules to
account for the incorporation of these cost-saving proposals.
v. Costs and Benefits of Individual Reporting Forms and Reporting and
Recordkeeping Requirements
The discussion below considers the anticipated costs and benefits
to the industry of New Form 102A, New Form 102B, New Form 71, New Form
40, New Form 102S, New Form 40S, and the reporting and recordkeeping
requirements of revised Sec. 18.05.
New Form 102A
(1) Overview of New Form 102A
New Form 102A, which identifies owners and controllers of special
accounts and other related information, is based on the Form 102
currently in use. These final rules do not modify the definition of
what constitutes a ``special account'' for reporting purposes.\280\ The
rules do, however, increase the amount of information required to be
reported with respect to each special account. For example, New Form
102A requests that the respondent provide the Web site, NFA ID, and
Legal Entity Identifier of the owners and controllers reported on the
form, to the extent this information is available in the respondent's
records. More significantly, New Form 102A requires respondents to
identify the owners and controllers of each trading account that
comprises the reported special account. The preceding information is
not collected on current Form 102. These newly collected data points
will allow the Commission to link special accounts holding reportable
positions to the transactions (and associated trading accounts)
identified on daily trade capture reports received by the Commission.
The Commission understands that (as noted by comment letters on the
2010 OCR NPRM) \281\ the majority of these data points already reside
with reporting parties.\282\ As a result, reporting parties will not
need to coordinate with external parties in order to compile most data
points required by New Form 102A.
---------------------------------------------------------------------------
\280\ See Sec. 15.005(r) of the Commission's regulations.
\281\ All 2010 OCR NPRM comment letters are available through
the Commission's Web site at: http://comments.cftc.gov/PublicComments/CommentList.aspx?id=755&ctl00_ctl00_cphContentMain_MainContent_gvCommentListChangePage=1
\282\ The Commission received a number of comment letters in
response to the 2010 OCR NPRM, and incorporated several of their
suggestions in the NPRM (published in the Federal Register in 2012),
which forms the basis for these final rules. Among these changes,
the Commission removed certain questions from the reporting forms
asking for data that, in the view of commenters, is not maintained
by reporting parties. See NPRM supra note 10 at 43973-43974 for a
discussion of comments received in response to the 2010 OCR NPRM
that were incorporated in the NPRM. See also the December 23, 2010
comment letter from FIA at 9 and Exhibit A; October 7, 2010 comment
letter from CME at 4; and October 7, 2010 comment letter from ICE at
3, which establish that the majority of the remaining data points,
which appear on the forms adopted in these final rules, already
reside with reporting parties.
---------------------------------------------------------------------------
(2) Benefits of New Form 102A
The reporting of trading accounts that comprise a special account
will provide common reference points between TSS and ISS data, thereby
enabling the Commission to efficiently compare end-of-day reportable
positions with intra-day account activity.\283\ By connecting end-of-
day position level data with intra-day account activity, the Commission
will be able to efficiently determine the ownership or control of
specific positions held by individual trading accounts at any time
throughout the trading day, thereby improving market transparency. More
specifically, Commission staff will use the additional ownership and
control information to determine whether a reported account is a new
account of a previously reported trader, or whether it correlates to a
previously unreported trader. If the account is owned or controlled by
a previously reported trader, it will be aggregated with other related
accounts currently being reported. By identifying and aggregating
accounts in this manner, Commission staff can more thoroughly monitor
and assess a trader's potential market impact during significant
periods such as price spikes or settlement periods, monitor the
trader's compliance with speculative position limits, and determine
whether
[[Page 69215]]
the trader is engaging in abusive or disruptive practices (such as
marking the close, ``wash trading,'' or money passing). By aggregating
the accounts of individual traders, the Commission will also be able to
more efficiently calculate aggregate position exposure in a particular
product or commodity group. In sum, the additional information provided
by New Form 102A will contribute to the overall integrity of the
financial markets, by improving the Commission's ability to detect and
investigate disruptive or manipulative behavior.
---------------------------------------------------------------------------
\283\ See supra section I(B) for a discussion of the TSS and
ISS.
---------------------------------------------------------------------------
(3) Costs of New Form 102A
The Commission assumes that each New Form 102A reporting party will
submit New Form 102A via secure FTP, which the Commission believes is
the more cost-effective of the two filing methods for the industry as a
whole. Each FTP submission will likely contain numerous 102A records.
The Commission estimates that the total initial development burden will
average 264 hours per reporting party. The Commission also estimates
that the highly automated nature of this option will virtually
eliminate the marginal costs associated with each additional submission
or each additional record contained in a submission. Accordingly, the
Commission estimates that 102A change and refresh updates will not
increase a reporting party's burden when using the FTP submission
method. The Commission further estimates that the ongoing operation and
maintenance burden will average 53 hours per year no matter how many
records are contained in a submission. The total annualized initial
development burden and the ongoing operation and maintenance burden
(total yearly burden) will equal approximately 106 hours per reporting
party.\284\
---------------------------------------------------------------------------
\284\ All annualized development burden estimates are based on 5
year, straight line depreciation. The 106 hour figure is arrived at
by dividing 264 hours (initial development burden per reporting
party) by 5 years, which results in an estimated annualized initial
development burden of 53 hours per reporting party. 53 hours plus 53
hours (annual, ongoing operation and maintenance burdens per
reporting party) equals 106 hours per reporting party.
---------------------------------------------------------------------------
An assessment of Commission data collection efforts demonstrated
that the Commission received Form 102 submissions from 260 reporting
parties in 2012. The Commission anticipates that it will receive New
Form 102A submissions from a similar number of reporting parties each
year. Assuming all New Form 102A reporting parties utilize the FTP
submission method, the Commission estimates that the total annual
industry burden for New Form 102A will equal 27,560 hours. Using an
estimated wage rate of $70.07 per hour,\285\ annual industry costs for
102A filings made pursuant to the FTP submission method are estimated
at $1,931,129.
---------------------------------------------------------------------------
\285\ The Commission staff's estimates concerning the wage rates
are based on salary information for the securities industry compiled
by the Securities Industry and Financial Markets Association
(``SIFMA''). The $70.07 per hour is derived from figures from a
weighted average of salaries and bonuses across different
professions from the SIFMA Report on Management & Professional
Earnings in the Securities Industry 2011, modified to account for an
1800-hour work-year and multiplied by 1.3 to account for overhead
and other benefits. The wage rate is a weighted national average of
salary and bonuses for professionals with the following titles (and
their relative weight): ``programmer (senior)'' (30% weight);
``programmer'' (29% weight); ``compliance advisor (intermediate)''
(15%), ``systems analyst'' (16%), and ``assistant/associate general
counsel'' (10%). The $70.07 wage rate is a blended rate, such that
the Commission has applied the same $70.07 wage rate when
calculating the cost of submission via both FTP and the web-based
portal. As noted above, the NPRM contemplated that Forms 40/S and 71
could be submitted only via the web portal. However, pursuant to
these final rules, the Commission is allowing reporting parties to
submit Forms 40/S and 71 via FTP as well, with the result that
reporting parties may submit all forms either via the web portal or
via FTP. In light of this change, the wage rage percentages in these
final rules have been updated and slightly modified from the wage
rate percentages in the NPRM, to more accurately reflect anticipated
labor allocations. The NPRM employed the following wage rage
percentages: ``programmer (senior)'' (30% weight); ``programmer''
(30% weight); ``compliance advisor (intermediate)'' (20%), ``systems
analyst'' (10%), and ``assistant/associate general counsel'' (10%).
While the NPRM calculated an estimated wage rate of $78.61 per hour,
these final rules calculate an estimated wage rate of $70.07 per
hour using the 2011 SIFMA statistics and updated wage rate
percentages. (Note that the national average of salary and bonuses
for the professionals listed above declined between 2010 to 2011,
according to the SIFMA report addressing each of those years. The
2010 SIMA report (which is the basis for the wage rate in the NPRM)
indicates an aggregate national average of salary and bonuses of
$530,321 for these professionals, while the 2011 SIFMA report
indicates an aggregate national average of salary and bonuses of
$510,943.) The Commission has also updated the cost estimates that
appeared in the NPRM based on the most recent data and statistics
available to the Commission (including, for example, the number of
reporting forms received by the Commission in 2012). The NPRM
calculated an estimated total annual cost to the industry of
$9,147,061, as compared to an estimated total cost to the industry
of $9,574,296 in these final rules, per section VIII(A) above. See
also supra note 265.
---------------------------------------------------------------------------
As indicated throughout this section VIII(B), the Commission has
used the same wage rate of $70.07 when calculating the cost of
submission via both the web portal and FTP. Each submission method
will, nonetheless, require a different annual or annualized burden, in
terms of hours. This $70.07 wage rate represents the work of a senior
programmer, programmer, intermediate compliance advisor, systems
analyst, and assistant/associate general counsel, in the proportions
described in the preceding footnote.
---------------------------------------------------------------------------
\286\ As noted in section VIII(A), the initial development cost
per reporting party is estimated at $18,498 (264 hours of initial
development burden x a wage rate of $70.07). The Commission expects
that reporting parties will budget initial development costs in the
manner that is most cost-effective for each party, which may result
in some reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
\287\ The Commission has calculated an estimated range of 25%
below and 25% above the estimated total annual industry cost, due to
the fact that reporting costs will differ among market participants
based on a variety of factors, including the state of their current
technology systems, and their differing levels of market and
reporting experience. The upper end of the ranges also responds to
comments stating that the cost estimates in the NPRM understated the
total cost to the industry (without expressing by how much, or to
what degree).
\288\ The Commission estimated the total annual industry cost
associated with each filing obligation by considering the two
distinct filing methods that it will accommodate pursuant to these
final rules (web-based submission and FTP submission). The estimated
cost of each filing obligation assumes that all reporting parties
will file via the less expensive of the two filing methods. However,
reporting parties, given their own individualized needs, are assumed
to make the most cost-effective choice for them, which may be either
of the two methods. As noted in section VIII(A) above, the estimated
total annual industry cost of the more expensive submission method,
via the web-based portal, is $5,954,969. The $5,954,969 figure is
arrived at by multiplying the anticipated 7,726 records by 11 hours
anticipated burden per record (equals 84,986 hours) by a wage rate
of $70.07 (equals $5,954,969). An estimated low and high range (25%
below and above this figure) equals $4,466,227 and $7,443,711,
respectively.
Form 102A
----------------------------------------------------------------------------------------------------------------
Estimated low and high range
Estimated total (25% below and 25% above Anticipated
Regulation annual industry estimated total annual transmission
cost \286\ industry cost) \287\ method \288\
----------------------------------------------------------------------------------------------------------------
17.01(a)....................................... $1,931,129 $1,448,347-$2,413,911 FTP
----------------------------------------------------------------------------------------------------------------
[[Page 69216]]
New Form 102B
(4) Overview of New Form 102B
New Form 102B provides a new volume-based reporting structure not
found in current Form 102. While current Form 102 reporting
requirements arise when an account (or collection of related accounts)
has a reportable position, 102B reporting is triggered when an
individual trading account meets a specified trading volume level in an
individual product and, as a result, becomes a ``volume threshold
account.'' As noted above, volume threshold accounts could reflect,
without limitation, trading in futures, options on futures, swaps, and
any other product traded on or subject to the rules of a DCM or SEF.
(5) Benefits of New Form 102B
The current position-based reporting regime captures over 90
percent of open interest in many markets regulated by the Commission.
Nonetheless, the current system is not specifically designed to
identify market participants using algorithmic systems, whose
activities have been opaque under the position-based reporting regime.
These traders typically enter and exit a given market position within
very brief periods intraday, and are therefore rarely captured by end-
of-day position reports. In highly liquid markets, participants of this
type can make up a meaningful percentage of market activity. The
addition of volume-based reporting, which identifies intra-day trading
activity meeting a volume threshold regardless of whether positions
continue to be held at the end of day, will enable the Commission to
better understand the behavior and evolution of this rapidly growing
market segment. Reporting on 102B will also enable the Commission to
identify other types of high-volume traders that may hold positions for
longer periods of time than is characteristic of high-frequency
traders, but nonetheless enter and exit positions intraday.
While the Commission is able to view intraday transactions via the
Commission's trade capture report, this report does not provide
ownership or control information regarding the relevant trading
accounts. Because the Commission lacks the information necessary to
efficiently link transaction and account data, the Commission is unable
to aggregate the positions of individual trading accounts, or associate
trading accounts with special accounts in a timely fashion. The
addition of volume-based reporting via New Form 102B will remedy this,
by providing the Commission with an efficient means to collect the
information required to aggregate positions, detect intra-day position
limit violations, and calculate market share. When analyzing periods of
elevated volatility--especially at significant trading times such as
market open and close--the ability to aggregate intra-day trading
behavior by owner/controller is crucial to understanding whether a
trader has adversely affected (or has the potential to affect) market
quality or price discovery.
In sum, the information collected on new Form 102B will
significantly improve the efficiency and performance of the
Commission's market and trade practice surveillance program. The
Commission anticipates that New Form 102B will allow the Commission to
perform more comprehensive surveillance, by identifying over 90 percent
of market activity in many significant products that are traded intra-
day but not held overnight, mirroring the level of account
identification under the current end-of-day position-based reporting
regime. In so doing, it will improve the integrity of financial
markets, protecting market participants and the public from the costs
of disruptive trading practices and other market abuses. Improving the
Commission's surveillance program will also support the Commission's
enforcement efforts to investigate such market abuses. Finally, the
ability to more efficiently identify and aggregate trading activity
will improve the Commission's research capabilities as well as its
forensic analysis of disruptive market events, even when prohibited
practices are not involved. For example, the Commission's efforts to
identify and aggregate trading activity were shown to be particularly
helpful in diagnosing events such as the Flash Crash of 2010.\289\
---------------------------------------------------------------------------
\289\ See ``Findings Regarding the Market Events of May 6,
2010,'' available at: http://www.sec.gov/news/studies/2010/marketevents-report.pdf.
---------------------------------------------------------------------------
(6) Costs of New Form 102B
The Commission assumes that each New Form 102B reporting party will
submit New Form 102B via secure FTP, which the Commission believes is
the more cost-effective of the two filing methods for the industry as a
whole. Each FTP submission will likely contain numerous 102B records.
The Commission estimates that the total initial development burden
should average 264 hours per reporting party. The Commission also
estimates that the highly automated nature of this option will
virtually eliminate the marginal costs associated with each additional
submission or each additional record contained in a submission.
Accordingly, the Commission estimates that 102B change and refresh
updates will not increase a reporting party's burden when using the FTP
submission method. The Commission further estimates that the ongoing
operation and maintenance burden will average 53 hours per year no
matter how many records are contained in a submission. The total
annualized initial development burden and the ongoing operation and
maintenance burden (total yearly burden) equals approximately 106 hours
per reporting party.\290\
---------------------------------------------------------------------------
\290\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
Because New Form 102B provides a new volume-based reporting
structure not found in current Form 102, the Commission is unable to
refer to historical reporting statistics to directly estimate the
number of New Form 102B reporting parties. Instead, the Commission
estimated the number of New Form 102B reporting parties by estimating
the number of clearing members associated with trading accounts that
the Commission projects will qualify as volume threshold accounts.
For volume threshold accounts associated with DCMs, the
Commission anticipates that it will receive New Form 102B submissions
from approximately 100 reporting parties annually. Assuming that all
such reporting parties utilize the FTP submission method, the
Commission estimates that the total annual industry burden for the
reporting of such accounts on New Form 102B will equal 10,600
hours.\291\ Using an estimated wage rate of $70.07 per hour, annual
industry costs for such filings made pursuant to the FTP submission
method are estimated at $742,742.\292\
---------------------------------------------------------------------------
\291\ The 10,600 hour figure is arrived at by multiplying 106
hours (annualized development burden and ongoing operation and
maintenance burden per reporting party) by 100 reporting parties.
\292\ The $742,742 figure is arrived at by multiplying 100
reporting parties by 106 hours (equals 10,600 hours) by $70.07
(equals $742,742).
---------------------------------------------------------------------------
For volume threshold accounts associated with SEFs, the
Commission anticipates that it will receive New Form 102B submissions
from approximately 75 reporting parties annually. Assuming that all
such reporting parties utilize the FTP submission method, the
Commission estimates that the total annual industry burden for the
reporting of such accounts on New Form 102B will equal 7,950
hours.\293\ Using an estimated wage
[[Page 69217]]
rate of $70.07 per hour, annual industry costs for such filings made
pursuant to the FTP submission method are estimated at $557,057.\294\
---------------------------------------------------------------------------
\293\ The 7,950 hour figure is arrived at by multiplying 106
hours (annualized development burden and ongoing operation and
maintenance burden per reporting party) by 75 reporting parties.
\294\ The $557,057 figure is arrived at by multiplying 75
reporting parties by 106 hours (equals 7,950 hours) by $70.07
(equals $557,057).
---------------------------------------------------------------------------
Collectively, annual industry costs for 102B filings made pursuant
to the FTP submission method are estimated at $1,299,799.\295\
---------------------------------------------------------------------------
\295\ The $1,299,799 figure is arrived at by multiplying 175
reporting parties by 106 hours (equals 18,550 hours) by $70.07
(equals $1,299,799).
\296\ As noted in section VIII(A), the initial development cost
per reporting party is estimated at $18,498 (264 hours of initial
development burden x a wage rate of $70.07). The Commission expects
that reporting parties will budget initial development costs in the
manner that is most cost-effective for each party, which may result
in some reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
\297\ The Commission has calculated an estimated range of 25%
below and 25% above the estimated total annual industry cost, due to
the fact that reporting costs will differ among market participants
based on a variety of factors, including the state of their current
technology systems, and their differing levels of market and
reporting experience. The upper end of the ranges also responds to
comments stating that the cost estimates in the NPRM understated the
total cost to the industry (without expressing by how much, or to
what degree).
\298\ As noted in section VIII(A) above, the estimated total
annual industry cost of the more expensive submission method, via
the web-based portal, is $144,916,322. The $144,916,322 figure is
arrived at by multiplying the anticipated 188,015 records by 11
hours anticipated burden per record (equals 2,068,165 hours) by a
wage rate of $70.07 (equals $144,916,322). An estimated low and high
range (25% below and above this figure) equals $108,687,242 and
$181,145,403, respectively.
Form 102B
----------------------------------------------------------------------------------------------------------------
Estimated total Estimated low and high range
annual (25% below and 25% above Anticipated
Regulation industry cost estimated total annual transmission
\296\ industry cost) \297\ method \298\
----------------------------------------------------------------------------------------------------------------
17.01(b)....................................... $1,299,799 $974,849-$1,624,749 FTP
----------------------------------------------------------------------------------------------------------------
New Form 71
(7) Overview of New Form 71
New Form 71 (``Identification of Omnibus Accounts and Sub-
Accounts'') will be sent, in the Commission's discretion, in the event
that a volume threshold account is identified as a customer omnibus
account on Form 102B. The Commission will send New Form 71 via a
special call to the originating firm of such an account. If the
originating firm indicates that this account is itself an omnibus
account (an ``omnibus reportable sub-account''), then the originating
firm will be required to indicate whether the omnibus reportable sub-
account is a house or customer omnibus account and identify the
originator of the omnibus reportable sub-account. Another Form 71 will
be sent, at the discretion of Commission staff, to the originator of a
customer omnibus reportable sub-account identified on Form 71. At its
discretion, the Commission will continue to reach through layered
customer omnibus reportable sub-accounts via successive Form 71s until
reaching all reportable sub-accounts, if any, that are not omnibus sub-
accounts. Form 71 therefore illustrates the `nested' structure of
omnibus accounts and underlying omnibus sub-accounts that are volume
threshold accounts, and identifies the ultimate owner and controller of
these accounts.
(8) Benefits of New Form 71
Without the information provided on New Form 71, the Commission is
unable to determine whether trading activity in omnibus accounts is
attributable to accounts under common ownership or control, or whether
it simply represents the combined trading activity of multiple traders
acting independently of one another. Similar to the benefits of New
Form 102B, the ability to aggregate trading activity will enable the
Commission to better identify manipulative and disruptive trading
activity, regardless of whether this activity is conducted through a
single account, or spread across a number of omnibus accounts and sub-
accounts.
(9) Costs of New Form 71
The Commission assumes that each New Form 71 reporting party (i.e.,
originators of omnibus volume threshold accounts or omnibus reportable
sub-accounts) will complete and submit New Form 71 online via a secure
web-based portal provided by the Commission, which the Commission
believes is the more cost-effective of the two filing methods for the
industry as a whole. The Commission estimates that, on average, New
Form 71 will create an annual reporting burden of 8 hours per
filing.\299\
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\299\ The submission of New Form 71 through the web-based portal
does not require initial development expenditures; as a result, the
burdens and costs for this form are calculated on an annual basis
rather than an annualized basis. In addition, Form 71 does not
require change or refresh updates.
---------------------------------------------------------------------------
As discussed in section VIII(A) above, the Commission expects
approximately 564 DCM-related New Form 71 filings per year, and 198
SEF-related New Form 71 filings per year.
Based on an estimated 564 DCM-related New Form 71 filings
per year, the Commission estimates an aggregate reporting burden of
4,512 hours annually for such filings via the web-based portal. Using
an estimated wage rate of $70.07 per hour, annual industry costs for
such filings made via the web-based portal are estimated at
$316,156.\300\
---------------------------------------------------------------------------
\300\ The $316,156 figure is arrived at by multiplying 564
records by 8 hours (equals 4,512 hours) by $70.07 (equals $316,156).
---------------------------------------------------------------------------
Based on an estimated 198 SEF-related New Form 71 filings
per year, the Commission estimates an aggregate reporting burden of
1,584 hours annually for such filings via the web-based portal. Using
an estimated wage rate of $70.07 per hour, annual industry costs for
such filings made via the web-based portal are estimated at
$110,991.\301\
---------------------------------------------------------------------------
\301\ The $110,991 figure is arrived at by multiplying 198
records by 8 hours (equals 1,584 hours) by $70.07 (equals $110,991).
---------------------------------------------------------------------------
Collectively, annual industry costs for New Form 71 filings made
via the web-based portal are estimated at $427,147.\302\
---------------------------------------------------------------------------
\302\ The $427,147 figure is arrived at by multiplying 762
records by 8 hours (equals 6,096 hours) by $70.07 (equals $427,147).
\303\ The Commission has calculated an estimated range of 25%
below and 25% above the estimated total annual industry cost, due to
the fact that reporting costs will differ among market participants
based on a variety of factors, including the state of their current
technology systems, and their differing levels of market and
reporting experience. The upper end of the ranges also responds to
comments stating that the cost estimates in the NPRM understated the
total cost to the industry (without expressing by how much, or to
what degree).
\304\ As noted in section VIII(A) above, the estimated total
annual industry cost of the more expensive submission method, via
FTP data feed, is $5,659,694. The $5,659,694 figure is arrived at by
multiplying the anticipated 762 reporting parties by 106 hours of
annualized development burden and ongoing operation and maintenance
burden (equals 80,772 hours) by a wage rate of $70.07 (equals
$5,659,694). An estimated low and high range (25% below and above
this figure) equals $4,244,771 and $7,074,618, respectively.
[[Page 69218]]
Form 71
----------------------------------------------------------------------------------------------------------------
Estimated low and high range
Estimated total (25% below and 25% above Anticipated
Regulation annual estimated total annual transmission
industry cost industry cost) \303\ method \304\
----------------------------------------------------------------------------------------------------------------
17.01(c)....................................... $427,147 $320,360-$533,934 web
----------------------------------------------------------------------------------------------------------------
New Form 40
(10) Overview of New Form 40
New Form 40 will be sent, on special call of the Commission, to
individuals and other entities identified on any of 102A, 102B, and
Form 71. New Form 40, still referred to as the ``Statement of Reporting
Trader,'' will continue to serve the function traditionally met by
current Form 40. At the same time, New Form 40 will provide the
Commission with more detailed information than current Form 40
regarding both the business activities and the ownership and control
structure of a reporting trader identified in the Commission's Form 102
program (as updated by these final rules). New Form 40 will also be the
vehicle through which market participants subject to 17 CFR 20.5(b)
submit their 40S filings (discussed below), and will be used to collect
additional information regarding the owners and controllers of non-
omnibus volume threshold accounts identified by Form 71. Those entities
required to complete a New Form 40 will be under a continuing
obligation, per direction in the special call, to update and maintain
the accuracy of the information submitted on New Form 40 by
periodically updating the information on the New Form 40 web portal or
by periodically resubmitting New Form 40 by secure FTP transmission.
Among other requested data fields, New Form 40: asks if the
respondent is engaged in commodity index trading (as that term is
defined in the form) (a question that does not appear on current Form
40); requires the respondent to identify all the business sectors that
pertain to its business activities or occupation (a question that has
been expanded on New Form 40); requires the respondent to identify all
commodity groups and individual commodities that it presently trades,
or expects to trade in the near future, in derivatives markets (a
question that has been expanded on New Form 40); and requires the
respondent to indicate the business purpose for which it uses
derivatives markets (a question that has been expanded on New Form 40).
(11) Benefits of New Form 40
The expanded Form 40 will improve the Commission's ability to
perform effective surveillance, by providing the Commission with more
detailed data on reporting traders, including: information regarding
reporting traders' control relationships with other entities; other
relationships with persons that influence or exercise authority over
the trading of a reporting trader; and more detailed information
regarding the business activities of the reporting trader. Responses to
the questions above will enable the Commission to better understand the
ownership and control structure of reporting traders, and the extent of
their business activities across multiple markets and product groups.
This enhanced visibility will, in turn, improve the Commission's
ability to respond to market disruptions, which can come at a high cost
to the investing and general public. The Commission will also be able
to use information reported on New Form 40 to cross-check several of
the ownership and control data fields reported on New Form 102. The
Commission will be able to compare the trading goals that a respondent
reports on New Form 40 to its subsequent market activity. If the two do
not correspond, the Commission will request additional information from
the respondent in order to maintain accuracy in Commission databases
and reports, or take other appropriate action.
Currently, Form 40s (as well as Form 102s) are submitted to the
Commission via facsimile, email, and physical mail. The Commission
converts these submissions into an electronic format, and loads them
into the Commission's Integrated Surveillance System. Automating Form
40 submission will improve efficiency by eliminating this additional
layer of transcription. As a result, these final rules will reduce the
likelihood of input errors. The rules will also reduce the burden and
costs that arise when Commission staff must contact reporting parties
to request additional information or clarification due to errors
arising from mistaken inputs. The more accurate data reported via the
automated Form 40 will, in turn, improve the quality of the
Commission's published reports, such as the classifications in the
Commitments of Traders report.
(12) Costs of New Form 40
New Form 40 Submissions Resulting from New Form 102A. The
Commission assumes that each reporting party filing New Form 40 as a
result of New Form 102A (i.e., special account owners and controllers)
will complete and submit New Form 40 online via a secure web-based
portal provided by the Commission, which the Commission believes is the
more cost-effective of the two filing methods for the industry as a
whole.
As discussed in section VIII(A) above, the Commission expects
approximately 5,250 New Form 40 records filings per year arising from
New Form 102A filings. The Commission estimates that each of the 5,250
New Form 40 records will require three hours to complete.\305\ Assuming
each such New Form 40 record is provided via the web-based portal, the
Commission estimates that the total annual industry burden for
reporting on New Form 40, as a result of New Form 102A, will equal
15,750 hours. Using an estimated wage rate of $70.07 per hour, annual
industry costs for New Form 40 filings arising from special accounts
are estimated at $1,103,603.\306\
---------------------------------------------------------------------------
\305\ The Commission's estimate of three hours per response
reflects an initial, one-time burden of 10 hours, annualized over a
five-year period, plus an additional hour per year for change
updates.
\306\ The $1,103,603 figure is arrived at by multiplying 5,250
records by 3 hours (equals 15,750 hours) by $70.07 (equals
$1,103,603).
---------------------------------------------------------------------------
New Form 40 Submissions Resulting from New Form 102B and New Form
71. The Commission also assumes that each reporting party filing New
Form 40 as a result of New Form 102B and New Form 71 (i.e., volume
threshold account controllers, persons who own volume threshold
accounts, reportable sub-account controllers, and persons who own
reportable sub-accounts) will complete and submit New Form 40 online
via a secure web-based portal provided by the Commission.
[[Page 69219]]
As discussed in section VIII(A) above, the Commission anticipates
that it will receive approximately 13,409 DCM-related New Form 40
filings annually and approximately 5,511 SEF-related New Form 40
filings annually, in each case arising from New Form 102B and New Form
71.\307\ Each such New Form 40 filing is estimated to require three
hours.\308\ Assuming each such New Form 40 record is provided via the
web-based portal:
---------------------------------------------------------------------------
\307\ As with 102A records, the Commission estimates that in
approximately 25 percent of filings, the owner and the controller of
a volume threshold account reported on New Form 102B will be the
same, and that accordingly, only one New Form 40 would be required.
Similarly, a number of potential New Form 40 reporting parties are
likely to own or control both DCM-related and SEF-related volume
threshold accounts, but only one New Form 40 would be required.
\308\ The Commission's estimate of three hours per response
reflects an initial, one-time burden of 10 hours, annualized over a
five-year period, plus an additional hour per year for change
updates.
---------------------------------------------------------------------------
The Commission estimates that the total annual industry
burden for reporting on New Form 40, as a result of New Form 102B and
New Form 71, will equal 40,227 hours for DCM-related New Form 40
filings. Using an estimated wage rate of $70.07 per hour, annual
industry costs for such filings arising from volume threshold accounts
and reportable sub-accounts are estimated at $2,818,706.\309\
---------------------------------------------------------------------------
\309\ The $2,818,706 figure is arrived at by multiplying 13,409
filings by 3 hours (equals 40,227 hours) by $70.07 (equals
$2,818,706).
---------------------------------------------------------------------------
The Commission estimates that the total annual industry
burden for reporting on New Form 40, as a result of New Form 102B and
New Form 71, will equal 16,533 hours for SEF-related New Form 40
filings. Using an estimated wage rate of $70.07 per hour, annual
industry costs for such filings arising from volume threshold accounts
and reportable sub-accounts are estimated at $1,158,467.\310\
---------------------------------------------------------------------------
\310\ The $1,158,467 figure is arrived at by multiplying 5,511
filings by 3 hours (equals 16,533 hours) by $70.07 (equals
$1,158,467).
---------------------------------------------------------------------------
Collectively, annual industry costs for New Form 40 filings, as a
result of New Form 102B and New Form 71, are estimated at
$3,977,173.\311\
---------------------------------------------------------------------------
\311\ The $3,977,173 figure is arrived at by multiplying 18,920
filings by 3 hours (equals 56,760 hours) by $70.07 (equals
$3,977,173).
Form 40--Submissions Resulting From (a) New Form 102A and (b) New Form 102B and New Form 71
----------------------------------------------------------------------------------------------------------------
Estimated total Estimated low and high range
annual (25% below and 25% above Anticipated
Regulation industry cost estimated total annual transmission
\312\ industry cost) \313\ method
----------------------------------------------------------------------------------------------------------------
18.04(a)....................................... $1,103,603 $827,702-$1,379,504 web \314\
18.04(b)....................................... 3,977,173 $2,982,880-$4,971,466 web \315\
----------------------------------------------------------------------------------------------------------------
New Form 102S
(13) Overview of New Form 102S
Section 102S of New Form 102 is designed to facilitate the
electronic submission of 102S filings. Such filings are currently being
submitted to the Commission (pursuant to 17 CFR 20.5(a)) through a non-
automated process.\316\ Pursuant to Sec. 20.5(a), 102S filings must be
submitted by a part 20 reporting party (a swap dealer or clearing firm)
for each reportable counterparty consolidated account when such account
first becomes reportable.\317\ By incorporating 102S in New Form 102,
these final rules will require more detailed ownership and control
information regarding identified consolidated accounts, and require the
submission of consolidated account reporting via an automated
submission.
---------------------------------------------------------------------------
\312\ As noted in section VIII(A) above, the initial development
cost per reporting party is estimated at $701 (10 hours of initial
development burden x a wage rate of $70.07). The Commission expects
that reporting parties will budget initial development costs in the
manner that is most cost-effective for each party, which may result
in some reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
\313\ The Commission has calculated an estimated range of 25%
below and 25% above the estimated total annual industry cost, due to
the fact that reporting costs will differ among market participants
based on a variety of factors, including the state of their current
technology systems, and their differing levels of market and
reporting experience. The upper end of the ranges also responds to
comments stating that the cost estimates in the NPRM understated the
total cost to the industry (without expressing by how much, or to
what degree).
\314\ As noted in section VIII(A) above, the estimated total
annual industry cost of the more expensive submission method for New
Form 40 submissions arising from New Form 102A, via FTP data feed,
is $36,051,015. The $36,051,015 figure is arrived at by multiplying
the anticipated 5,250 reporting parties by 98 hours of annualized
development burden and ongoing operation and maintenance burden
(equals 514,500 hours) by a wage rate of $70.07 (equals
$36,051,015). An estimated low and high range (25% below and above
this figure) equals $27,038,261 and $45,063,769, respectively.
\315\ As noted in section VIII(A) above, the estimated total
annual industry cost of the more expensive submission method for New
Form 40 submissions arising from New Form 102B and New Form 71, via
FTP data feed, is $129,920,991. The $129,920,991 figure is arrived
at by multiplying the anticipated 18,920 reporting parties by 98
hours of annualized development burden and ongoing operation and
maintenance burden (equals 1,854,160 hours) by a wage rate of $70.07
(equals $129,920,991). An estimated low and high range (25% below
and above this figure) equals $97,440,743 and $162,401,239,
respectively.
\316\ References in these final rules to ``102S filings'' are
based on the regulatory text of Sec. 20.5, which refers to ``102S
filings'' and ``40S filings.''
\317\ 17 CFR 20.5(a).
---------------------------------------------------------------------------
(14) Benefits of New Form 102S
Form 102S will require reporting parties to identify swap
counterparty or customer consolidated accounts with reportable
positions. Swap reporting on Form 102S significantly improves the
Commission's surveillance capabilities, by enabling it to track the
market activity of a specific trader, including traders that may be
dividing risk exposure between both on-exchange and off-exchange
instruments. Swap reporting will also enable the Commission to more
efficiently aggregate position exposure in a particular product or
commodity group. The reporting of swap activity on Form 102S aligns
with the Commission's recently finalized rules on real-time public and
regulatory reporting of swap trades, and provides further transparency
into markets that, historically, have often been opaque and/or over-
the-counter.
As further changes arise in the commodity swap market, such as the
introduction of SEFs, the identification of both special accounts (via
102A) and consolidated accounts (via 102S) will enable the Commission
to monitor a broad range of market activity across traditional futures
exchanges and SEFs. This will enable the Commission to quantify the
amount of activity in a given product across different execution
platforms, and monitor changes in this amount over time. The
Commission's expanded view of the marketplace will enable it to more
quickly and efficiently identify disruptive market activity occurring
across multiple trading facilities (similar to the transmission effects
that occurred during the Flash
[[Page 69220]]
Crash).\318\ In particular, New Form 102S will improve the Commission's
ability to perform risk-based monitoring of trading activity conducted
through accounts owned or controlled by, for example, a single market
participant, but spread across multiple platform types.\319\ In the
event the Commission identifies trading activity requiring further
investigation, the Commission will be able to contact market
participants more quickly and efficiently using the ownership and
control information collected through the OCR reporting process.
---------------------------------------------------------------------------
\318\ See supra note 289 for further information regarding the
Flash Crash.
\319\ The Commission also notes that 102S reporting is a
necessary complement to SDR reporting under Part 45, and will
provide information that is not otherwise available under the SDR
reporting regime. The Commission anticipates that swap dealers and
clearing members (the 102S reporting parties) will be able to
consistently provide the contact information for owners and
controllers of consolidated accounts on the 102S, based on the
records these entities maintain. Part 45 reporting, by contrast, is
based on counterparty data. Although this counterparty data may, in
some cases, include the owners and controllers of consolidated
accounts, it will not include this information in all cases. As a
result, the Commission cannot rely on SDR reporting under Part 45 as
a substitute for 102S reporting.
---------------------------------------------------------------------------
(15) Costs of New Form 102S
The Commission assumes that each New Form 102S reporting party will
submit New Form 102S via secure FTP, which the Commission believes is
the more cost-effective of the two filing methods for the industry as a
whole. Each FTP submission will likely contain numerous 102S records.
The Commission estimates that the total initial development burden will
average 264 hours per reporting party. The Commission also estimates
that the highly automated nature of this option will virtually
eliminate the marginal costs associated with each additional submission
or each additional record contained in a submission. The Commission
believes that the timing requirements for 102S filings in current Sec.
20.5(a)(3),\320\ or any new submission procedures arising from the
Swaps Large Trader Guidebook (i.e., frequency of 102S filing
submission), will not increase a reporting party's burden when using
the FTP submission method. The Commission further estimates that the
ongoing operation and maintenance burden will average 53 hours per year
no matter how many records are contained in a submission. The total
annualized initial development burden and the ongoing operation and
maintenance burden (total yearly burden) will equal approximately 106
hours per reporting party.\321\
---------------------------------------------------------------------------
\320\ 17 CFR 20.5(a)(3).
\321\ All annualized development burden estimates are based on 5
year, straight line depreciation.
---------------------------------------------------------------------------
The 102S filing requirements in current Sec. 20.5 \322\ are nearly
identical to the filing requirements for revised 102S; accordingly, the
Commission used its experience to date with 102S filings to estimate
the number of 102S reporting parties. An assessment of Commission data
collection efforts demonstrated that the Commission received Form 102S
submissions from 39 reporting parties in 2012. The Commission
anticipates that it will receive New Form 102S submissions from a
similar number of reporting parties each year. Assuming 102S reporting
parties utilize the FTP submission method, the Commission estimates
that the total annual industry burden for 102S filing will equal 4,134
hours. Using an estimated wage rate of $70.07 per hour, annual industry
costs for New Form 102S are estimated at $289,669.\323\
---------------------------------------------------------------------------
\322\ 17 CFR 20.5.
\323\ The $289,669 figure is arrived at by multiplying 39
reporting parties by 106 hours (equals 4,134 hours) by $70.07
(equals $289,669).
\324\ As noted in section VIII(A), the initial development cost
per reporting party is estimated at $18,498 (264 hours of initial
development burden x a wage rate of $70.07). The Commission expects
that reporting parties will budget initial development costs in the
manner that is most cost-effective for each party, which may result
in some reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
\325\ The Commission has calculated an estimated range of 25%
below and 25% above the estimated total annual industry cost, due to
the fact that reporting costs will differ among market participants
based on a variety of factors, including the state of their current
technology systems, and their differing levels of market and
reporting experience. The upper end of the ranges also responds to
comments stating that the cost estimates in the NPRM understated the
total cost to the industry (without expressing by how much, or to
what degree).
\326\ As noted in section VIII(A) above, the estimated total
annual industry cost of the more expensive submission method, via
the web-based portal, is $1,757,356. The $1,757,356 figure is
arrived at by multiplying the anticipated 2,508 records by 10 hours
anticipated burden per record (equals 25,080 hours) by a wage rate
of $70.07 (equals $1,757,356). An estimated low and high range (25%
below and above this figure) equals $568,017 and $946,695,
respectively.
Form 102S
----------------------------------------------------------------------------------------------------------------
Estimated total Estimated low and high range
annual (25% below and 25% above Anticipated
Regulation industry cost estimated total annual transmission
\324\ industry cost) \325\ method \326\
----------------------------------------------------------------------------------------------------------------
20.5(a)........................................ $289,669 $217,252-$362,086 FTP
----------------------------------------------------------------------------------------------------------------
New Form 40S
(16) Overview of New Form 40S
New Form 40 will be the vehicle through which market participants
subject to 17 CFR 20.5(b) submit New Form 40S. As a result, New Form 40
and New Form 40S are substantively identical. New Form 40S will be
sent, on special call of the Commission, to individuals and other
entities identified on Form 102S. New Form 40S will continue to serve
the function traditionally met by current Form 40S. New Form 40S will
provide the Commission with detailed information regarding both the
business activities and the ownership and control structure of a
reporting trader identified in the Commission's Form 102S program (as
updated by these final rules). As noted above, a reporting party (a
swap dealer or clearing firm) must submit a Form 102S for each
reportable counterparty consolidated account when such account first
becomes reportable. Those entities required to complete a New Form 40S
will be under a continuing obligation, per direction in the special
call, to update and maintain the accuracy of the information submitted
on New Form 40S by periodically updating the information on the New
Form 40S web portal or by periodically resubmitting New Form 40S by
secure FTP transmission.
The expanded Form 40S will provide the Commission with more
detailed data on reporting traders, including information regarding
reporting traders' control relationships with other entities, and other
relationships with persons that influence or exercise authority over
the trading of a reporting trader. The expanded form also collects more
detailed information regarding the business activities of the reporting
trader. For example, New Form 40S:
[[Page 69221]]
Asks if the respondent is engaged in commodity index trading (as that
term is defined in the form) (a question that does not appear on
current Form 40S); requires the respondent to identify all the business
sectors that pertain to its business activities or occupation (a
question that has been expanded on New Form 40S); requires the
respondent to identify all commodity groups and individual commodities
that it presently trades, or expects to trade in the near future, in
derivatives markets (a question that has been expanded on New Form
40S); and requires the respondent to indicate the business purpose for
which it uses derivatives markets (a question that has been expanded on
New Form 40S).
(17) Benefits of New Form 40S
Responses to the questions above will improve the Commission's
ability to perform effective surveillance, by enabling it to better
understand the ownership and control structure of reporting traders,
and the extent of their business activities across multiple markets and
product groups. The collection of the information described above will
improve the Commission's ability to analyze and/or respond to market
disruptions, which can exact a high cost to the investing and general
public. The Commission will also be able to use information reported on
New Form 40S to cross-check several of the ownership and control data
fields reported on New Form 102S. The Commission will be able to
compare the trading goals that a respondent reports on New Form 40S to
its subsequent market activity. If the two do not correspond, the
Commission will request additional information from the respondent in
order to maintain accuracy in Commission databases and reports, or take
other appropriate action.
(18) Costs of New Form 40S
The Commission assumes that each New Form 40S reporting party will
complete and submit its forms online via a secure web-based portal
provided by the Commission, which the Commission believes is the more
cost-effective of the two filing methods for the industry as a whole.
As discussed in section VIII(A) above, the Commission anticipates that
it will receive approximately 2,508 102S records per year, and the
Commission estimates that it will make approximately the same number of
40S special calls each year (2,508). Each response is estimated to
require three hours,\327\ resulting in an estimated total annual
reporting burden of 7,524 hours. Using an estimated wage rate of $70.07
per hour, annual industry costs for New Form 40S filings made via the
web-based portal are estimated at $527,207.\328\
---------------------------------------------------------------------------
\327\ The Commission's estimate of three hours per response
reflects an initial, one-time burden of 10 hours, annualized over a
five-year period, plus an additional hour per year for change
updates.
\328\ The $527,207 figure is arrived at by multiplying 2,508
filings by 3 hours (equals 7,524 hours) by $70.07 (equals $527,207).
\329\ As noted in section VIII(A) above, the initial development
cost per reporting party is estimated at $701 (10 hours of initial
development burden x a wage rate of $70.07). The Commission expects
that reporting parties will budget initial development costs in the
manner that is most cost-effective for each party, which may result
in some reporting parties incurring the majority of these initial
development costs in the beginning of the rule compliance period.
\330\ The Commission has calculated an estimated range of 25%
below and 25% above the estimated total annual industry cost, due to
the fact that reporting costs will differ among market participants
based on a variety of factors, including the state of their current
technology systems, and their differing levels of market and
reporting experience. The upper end of the ranges also responds to
comments stating that the cost estimates in the NPRM understated the
total cost to the industry (without expressing by how much, or to
what degree).
\331\ As noted in section VIII(A) above, the estimated total
annual industry cost of the more expensive submission method, via
FTP data feed, is $17,222,085. The $17,222,085 figure is arrived at
by multiplying the anticipated 2,508 reporting parties by 98 hours
of annualized development burden and ongoing operation and
maintenance burden (equals 245,784 hours) by a wage rate of $70.07
(equals $17,222,085). An estimated low and high range (25% below and
above this figure) equals $12,916,564 and $21,527,606, respectively.
Form 40S
----------------------------------------------------------------------------------------------------------------
Estimated total Estimated low and high range
annual (25% below and 25% above Anticipated
Regulation industry cost estimated total annual transmission
\329\ industry cost) \330\ method \331\
----------------------------------------------------------------------------------------------------------------
20.5(b)........................................ $527,207 $395,405-$659,009 web
----------------------------------------------------------------------------------------------------------------
Expanded Obligation To Maintain Books and Records and Furnish
Information to the Commission Under Sec. 18.05
(19) Overview of Sec. 18.05
Current Sec. 18.05 requires traders who hold or control reportable
positions to maintain books and records regarding all positions and
transactions in the commodity in which they have reportable
positions.\332\ In addition, current Sec. 18.05 requires that the
trader furnish the Commission with information concerning such
positions upon request. The Commission is expanding Sec. 18.05 to
impose books and records requirements upon four new categories of
market participants, who are not required to maintain books and records
pursuant to current Sec. 18.05: (1) Owners of volume threshold
accounts reported on New Form 102B; (2) controllers of volume threshold
accounts reported on New Form 102B; (3) owners of reportable sub-
accounts reported on New Form 71; and (4) controllers of reportable
sub-accounts reported on New Form 71. Traders who hold or control
reportable positions will remain subject to the books and records
requirements, consistent with the current requirements.
---------------------------------------------------------------------------
\332\ 17 CFR 18.05.
---------------------------------------------------------------------------
(20) Benefits of Expanded Recordkeeping
As a result of the final rules, the four new categories of persons
identified above will have the same books and records requirements as
traders who hold or control a reportable futures or options on futures
position, and are therefore required to maintain books and records
under current Sec. 18.05. When the Commission identifies potential
instances of manipulative or abusive practices via the new and amended
Forms 102, 40 and 71, or in the daily trade capture reports received by
the Commission, it may request additional information via special call
regarding traders' positions, transactions or activities. The Sec.
18.05 special call enables the Commission to analyze a trader's
activities in Commission-regulated markets and related cash markets, as
well as the trader's other commercial activity. By requiring all
persons subject to the revised reporting regime to provide detailed
books and records to the Commission upon its request, the Commission
will strengthen its ability to conduct surveillance and pursue
enforcement actions in the event
[[Page 69222]]
of potentially manipulative or abusive activity.
(21) Costs of Expanded Recordkeeping
As noted above, revised Sec. 18.05 will likely impose a
recordkeeping burden on a larger number of persons than current Sec.
18.05. The Commission anticipates that additional persons subject to
Sec. 18.05 will likely be able to rely on books and records already
kept in the ordinary course of business to meet the requirements of the
final regulation. This is due, in part, to the fact that Sec. 18.05
requires traders to maintain fairly limited information regarding their
trading activity. Section 18.05(a), for example, requires that, ``Every
trader who holds or controls a reportable futures or option position
shall keep books and records showing all details concerning all
positions and transactions in the commodity'' on certain enumerated
trading markets. Furthermore, the Commission assumes that some parties
required to maintain books and records pursuant to revised Sec. 18.05
are likely required to maintain books and records under current Sec.
18.05, because they hold or control reportable positions (i.e., there
will be a certain amount of overlap between these two groups).
Accordingly, the Commission believes that revised Sec. 18.05 will not
meaningfully increase recordkeeping burdens on persons brought under
its scope. As noted in section VII above, the Commission did not
receive any comments regarding the changes to Sec. 18.05 proposed in
the NPRM.
The Commission sent 59 special calls pursuant to Sec. 18.05 in
2012, 42 of which were based on trade data reflected in the TCR data
feed.\333\ As noted above, revised Sec. 18.05 will make four new
categories of persons, identified through the volume-based reporting
regime, subject to Sec. 18.05. Because the volume-based reporting
regime is designed to identify designated types of trading activity,
the Commission estimates that it will send special calls pursuant to
revised Sec. 18.05 to, at a minimum, 42 recipients (i.e., the same
number of persons to which the Commission sent special calls in 2012
based on trade data reflected in the TCR). At the same time, the
Commission expects that the introduction of volume-based reporting will
lead to the Commission sending more special calls than it would
otherwise, because this regime will identify new ownership and control
relationships and patterns of trading activity. As a result, for
purposes of estimating the costs of revised Sec. 18.05, the Commission
assumes it will send 25% more special calls in response to trade data
than it did in 2012, for a total of 53 special calls per year. These
special calls will require a response from approximately 53 individual
traders per year.
---------------------------------------------------------------------------
\333\ See supra section I(B) for a discussion of the TCR.
---------------------------------------------------------------------------
This estimate reflects only special calls sent pursuant to Sec.
18.05 as a result of information collected via the volume-based
reporting regime (i.e., New Form 102B and New Form 71). The estimated
53 recipients of such special calls may include some traders that are
already subject to the costs and obligations of current Sec. 18.05.
The Commission estimates that each special call response submitted by
the new categories of persons subject to revised Sec. 18.05 will take
approximately 5 hours, for a total annual reporting burden of 265
hours. Using an estimated wage rate of $70.07 per hour, annual
reporting costs for the new categories of persons that are subject to
revised Sec. 18.05 are estimated at $18,569.\334\
---------------------------------------------------------------------------
\334\ The $18,569 figure is arrived at by multiplying 53
responses by 5 hours (equals 265 hours) by $70.07 (equals $18,569).
\335\ The Commission has calculated an estimated range of 25%
below and 25% above the estimated total annual industry cost, due to
the fact that recordkeeping costs will differ among market
participants based on a variety of factors, including the state of
their current technology and recordkeeping systems, and their
differing levels of market and reporting experience. The upper end
of the ranges also responds to comments stating that the cost
estimates in the NPRM understated the total cost to the industry
(without expressing by how much, or to what degree).
Sec. 18.05 Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
Estimated low and high range
Estimated total (25% below and 25% above
Regulation annual estimated total annual
industry cost industry cost) \335\
----------------------------------------------------------------------------------------------------------------
18.05........................................................... $18,569 $13,927-$23,211
----------------------------------------------------------------------------------------------------------------
vi. Comments Regarding Costs and Benefits
As previously noted, the NPRM requested comment on many aspects of
the proposed rules, including the Commission's evaluation of the rules'
costs and benefits.\336\ In response, ICE commented that it
``recognizes the value in collecting this OCR information for accounts
that actively trade on DCMs, and integrating it with existing market
surveillance and trade practice surveillance data to bridge gaps that
may exist between individual transaction data contained in the trade
register and position data contained in LTRs [large trader reporting].
Having such data readily available in Commission . . . surveillance
systems would improve the efficiency of the investigative process by
saving the additional work and time required to manually request such
information from clearing members.'' \337\
---------------------------------------------------------------------------
\336\ See NPRM supra note 10 at 43984 and 43990.
\337\ CL-2012-ICE supra note 55 at 5.
---------------------------------------------------------------------------
ICE's comments are consistent with other supportive comments
received in response to the 2009 NPRM.\338\ Petroleum Marketers
Association of America (PMAA), for example, stated that, ``Efficient
integration of large trader and trade register data from DCMs, ECMS,
and [other markets] will improve market transparency and ensure that no
one trader, investment fund or other entity controls a large percentage
of the interest on commodity futures exchanges. Increased reporting
requirements will help to identify those who possibly attempt to corner
the market by taking huge positions in the futures markets which can
move futures prices beyond what supply and demand fundamentals
dictate.'' \339\
---------------------------------------------------------------------------
\338\ See supra note 8. All 2009 Advanced NPRM comment letters
(``CL-2009'') are available through the Commission's Web site at:
http://www.cftc.gov/LawRegulation/FederalRegister/CommentFiles/09-008.
\339\ CL-2009-PMAA supra note 338 at 2. Similarly, the Air
Transport Association (ATA), commenting on the 2009 Advanced NPRM,
included a list of market and regulatory benefits of the ownership
and control report. These include allowing Commission staff to
aggregate trading accounts under common ownership or control,
allowing large trader reports and exchange trade registers to be
linked, allowing expanded oversight of trading by widely dispersed
individuals and accounts, linking traders' intra-day transactions
with end-of-day positions, assisting investigations into intra-day
manipulation and other trade practice abuses, and bridging gaps in
current data reporting systems. CL-2009-ATA supra note 338 at 2-3.
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Other NPRM commenters, however, asserted that the Commission's cost
[[Page 69223]]
estimates were underestimated, that certain requirements imposed costs
unwarranted by the magnitude of the anticipated benefits, and/or that
certain requirements would not provide meaningful benefits.\340\ CME
commented that ``Commission estimates do not appear to take into
consideration the process changes that firms would need to engage in to
obtain all OCR data, nor do they contain estimates for changes that
SROs might have to institute to their systems to incorporate the three
tiered reporting method.'' \341\ FIA commented that ``the proposed
rules . . . would require significant changes to the procedures,
processes and systems pursuant to which FCMs create and maintain
records with respect to their customers and customer transactions. Such
redesign would take longer and be substantially more expensive than the
Commission has suggested in the Federal Register release accompanying
the proposed rules.'' \342\ FIA also stated that ``we are still
developing our costs analyses and will forward them to the Commission
as soon as they are ready.''\343\ FIA did not provide the cost analyses
mentioned in its comment letter to the Commission.
---------------------------------------------------------------------------
\340\ See, e.g., the discussion of Sec. 15.00(v) (direct market
access), Sec. 15.04 (reportable trading volume level) and Sec.
17.01(a) in section VII, above.
\341\ CL-2012-CME supra note 55 at 4.
\342\ CL-2012-FIA NPRM supra note 55 at 9.
\343\ Id.
---------------------------------------------------------------------------
In the absence of specific quantitative estimates or alternative
cost proposals by commenters, the Commission performed its own analysis
in updating the NPRM cost benefit considerations for these final rules.
As noted above, for purposes of these final rules, the Commission has
updated the cost estimates that appeared in the NPRM based on the most
recent data and statistics available to the Commission. The Commission
has also calculated the total initial development burden on a non-
annualized basis for each reporting form, as applicable, and presented
cost ranges below and above each estimate in this section VIII(B). The
high end of the cost ranges responds to comments stating that the cost
estimates in the NPRM understated the total cost to the industry
(without expressing by how much, or to what degree).
Commenters asserting that certain requirements imposed costs
unwarranted by the magnitude of anticipated benefits, and/or that
certain requirements would not provide meaningful benefits, typically
proposed an alternative approach, such as removing a question on the
reporting forms, or modifying a reporting deadline. Such comments are
addressed in the consideration of alternatives below. In addition,
section VII above contains a detailed discussion of the comments
received in response to the NPRM, the Commission's response to
comments, and any changes made to the final rules in response to
comments.
vii. Consideration of Alternatives
Commenters suggested a number of alternatives to the rules proposed
in the NPRM for purposes of minimizing the cost to market participants.
The final rules incorporate a number of these alternative proposals, or
otherwise modify the proposed rules where doing so reduces costs
without sacrificing benefits.\344\ The various alternatives considered
for purposes of minimizing the cost to market participants (including
those not ultimately adopted) are discussed below.
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\344\ As noted in section VIII(A) above, while the Commission
has updated the cost estimates that appeared in the NPRM based on
the most recent data and statistics available to the Commission, the
Commission has not reduced the cost estimates in these final rules
to account for the incorporation of the cost-saving proposals
described below. As a result, total reporting costs to the industry
are likely to be lower than the sum of the costs associated with
each form individually, as the Commission has calculated above.
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(a) Creation of Contact Reference Database
FIA commented that requiring firms to potentially submit three
separate forms (102A, 102B and 102S) for the same customer ``will
create unnecessary work and be more challenging to keep current.''
\345\ To address this issue, FIA suggested that the Commission create a
reporting contact reference database, which would ``ensure that contact
information is stored and maintained as a single record, eliminate
redundancy and improve the quality of information in the ownership and
control reporting process.'' \346\ In response to FIA's comment, the
Commission is creating a contact reference database that will store
contact information previously provided through the web-based portal by
a reporting party on each of the reporting forms with respect to
owners, controllers, and other parties. When a reporting party submits
a subsequent reporting form through the web-based portal, the
Commission will, to the extent practicable, pre-populate contact
information that the reporting party previously provided. This will
reduce the amount of time that is required for reporting entities to
update information submitted to the Commission through the web-based
portal without reducing the amount of information that is required to
be submitted through the portal.\347\
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\345\ CL-2012-FIA supra note 55 at 4.
\346\ Id.
\347\ See also supra note 41 for a discussion of certain fields
in the reporting forms that have been made optional, subject to
certain conditions discussed in the reporting forms, in order to
leverage information that reporting parties have previously
provided.
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Definition of ``Control''
Section 15.00(t), as proposed in the NPRM, added ``control'' to the
list of defined terms in Sec. 15.00.\348\ The Commission's proposed
definition, which applied only to special accounts (New Form 102A) and
consolidated accounts (Form 102S), defined control as ``to actually
direct, by power of attorney or otherwise, the trading of a special
account or a consolidated account.'' FIA commented that it would be
difficult and/or meaningless to provide the requested control
information, because the individuals responsible for trading an account
within a special account or a volume threshold account can change
often, even within the same trading day.\349\ Furthermore, ``in the
case of algorithmic trading programs, there likely will not be an
identifiable individual who `actually directs the trading' of the
program. For this reason, FCMs do not currently collect this
information.'' \350\ FIA recommended removing the requirement to
identify account controllers on Forms 102A and 102B.\351\
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\348\ The definition of ``control'' in Sec. 15.00 is based upon
the definition of ``controlled account'' in Sec. 1.3(j) of the
Commission's regulations.
\349\ CL-2012-FIA supra note 55 at 5.
\350\ CL-2012-FIA supra note 55 at 6.
\351\ CL-2012-FIA supra note 55 at 5.
---------------------------------------------------------------------------
As noted in section VII, these final rules adopt proposed Sec.
15.00(t) without modification. At the same time, the Commission is
modifying the instructions on Form 102 in response to comments that
discussed the difficulty of identifying individuals that exercise
control on a transient basis, such as individuals operating an
automated trading system (``ATS'') during a daily shift. The
instructions for Form 102A and Form 102B have been revised to state
that respondents should report all individuals who qualify as ``trading
account controllers'' or ``volume threshold account controllers,'' as
defined in Sec. 15.00(bb) and (cc), respectively.\352\ The Commission
notes
[[Page 69224]]
that regardless of whether the trading is carried out in whole or in
part through an automated trading system or direct human initiation,
the underlying analysis remains the same. When completing Form 102A and
Form 102B, reporting parties should identify each person that satisfies
the definition of ``trading account controller'' or ``volume threshold
account controller,'' as defined in Sec. 15.00(bb) and (cc),
respectively. Once respondents have identified all individuals meeting
the applicable controller definition in a Form 102A or Form 102B
submission, they will not be required to submit change updates to the
submission if one previously identified controller takes the place of
another previously identified controller. These changes to the
instructions on Form 102 are intended to reduce the reporting burden on
market participants, who would otherwise be required to submit change
updates to the 102 in the prior scenario. Respondents will be required
to report the same number of controllers that they would be required to
report under the NPRM proposal, but will do so in their original 102
submission, thereby eliminating the cost of submitting change updates
due to a shift change. The Commission believes that this is a more
effective solution than removing the control question altogether, as
FIA had suggested, which would deprive the Commission of the ability to
aggregate trading accounts based on common control.
---------------------------------------------------------------------------
\352\ The Commission recognizes that, for some respondents that
conduct trading in a reportable trading account or volume threshold
account in whole or in part through an ATS, the individuals involved
in the administration of such ATS may not qualify as trading account
controllers or volume threshold account controllers. See supra
section V(A)(ii).
---------------------------------------------------------------------------
Definition of ``Volume Threshold Account''
The NPRM defined a volume threshold account as any trading account
that executes, or receives via allocation or give-up, reportable
trading volume on or subject to the rules of a reporting market that is
a board of trade designated as a contract market under section 5 of the
Act or a swap execution facility registered under section 5h of the
Act.
In the case of a give-up trade, this NPRM definition was intended
to require reporting by: (i) The carrying firm of the original
executing account; (ii) the carrying firm of any intervening
account(s); and (iii) the carrying firm of the account to which the
give-up trade was ultimately allocated. Question 10 in Section VII of
the NPRM emphasized the broad scope of the definition: ``The Commission
intends that the definition of `volume threshold account' captures all
possible categories of accounts with reportable trading volume . . .
The Commission requests public comment regarding whether the proposed
definition of `volume threshold account' achieves this purpose.'' In
response to this question, CME commented that volume-based accounts
should be reported at the carrying broker level, and noted that, ``this
is where the account ownership and control information resides, not at
executing brokers.'' \353\
---------------------------------------------------------------------------
\353\ CL-2012-CME supra note 55 at 4.
---------------------------------------------------------------------------
As noted in section VII above, the Commission is adopting the
definition of volume threshold account with one modification.\354\ The
following change incorporates CME's comment. It is also intended to
reduce the burden and cost to reporting parties. The definition of
volume threshold account is being scaled back in the final rules, to
capture a smaller number of volume threshold accounts than under the
NPRM proposal. The definition is being modified to: ``any trading
account that carries reportable trading volume on or subject to the
rules of a reporting market that is a [DCM or SEF].'' This change will
lessen the burden on reporting parties, by reducing the number of
reportable volume threshold accounts in the case of a give-up trade:
---------------------------------------------------------------------------
\354\ The definition of volume threshold account appears in the
final rules as Sec. 15.00(x).
---------------------------------------------------------------------------
In a give-up scenario, this definition will require
reporting by the carrying firm of the account to which the trade is
ultimately allocated. Reporting will not be required, however, by the
carrying firm of the original executing account, or by the carrying
firm of any intervening account(s).
In a non-give-up scenario, there will be no change to the
number of reportable volume threshold accounts. Under both the original
and revised definition, reporting will be required by the carrying firm
of the account in which the trade is both executed and cleared.
The Commission believes that this approach, which incorporates
CME's comment, will be more efficient (and less burdensome and costly)
for reporting parties than the approach proposed in the NPRM. At the
same time, it captures a sufficient number of volume threshold accounts
to advance the Commission's surveillance objectives.
Reportable Trading Volume Level
Section 15.04, as proposed in the NPRM, provided that reportable
trading volume for a trading account is trading volume of 50 or more
contracts, during a single trading day, on a single reporting market
that is a board of trade designated as a contract market under section
5 of the Act or a swap execution facility registered under section 5h
of the Act, in all instruments that such reporting market designates
with the same product identifier (including purchases and sales, and
inclusive of all expiration months). Relative to alternatives proposed
by commenters, the Commission has determined--as shown through its
analysis of sample DCM trade data received through the TCR during a
recent six-month period-- that the 50-contract threshold represents the
level that best optimizes visibility into both trading volume and the
absolute number of trading accounts. Both components are fundamental to
the volume-based reporting regime established by Form 102B. At the same
time, the RTVL is calibrated to minimize the impact of the volume-based
reporting requirements on low-volume accounts whose trading activity
would not meaningfully advance the Commission's volume-based
surveillance goals.
Several commenters criticized the 50-contract RTVL, and proposed
alternatives to it. FIA, CME and ICE commented that the RTVL, as
proposed, would generate an excessive amount of data that may not be
meaningful to the Commission's trade practice and market surveillance
programs.\355\ More specifically, Nadex commented that the proposed 50-
contract RTVL would capture too many retail customers that are trading
contracts with very small notional values.\356\ FIA and ICE both
recommended that the Commission phase in a descending RTVL until the
optimum level is reached.\357\ FIA, for example, recommended that ``the
Commission could require that only accounts meeting a volume threshold
of 1,000 contracts per day be reported in the first three months;
contracts meeting a volume threshold of 750 contracts per day be
reported in the second three months after the compliance date; and so
on until the optimum volume threshold is reached.'' \358\ CME also
expressed concern that the RTVL will capture too many accounts, but
recommended that the RTVL should be changed to 250 contracts bought or
sold during a calendar week.\359\
---------------------------------------------------------------------------
\355\ CL-2012-FIA supra note 55 at 8. CL-2012-CME supra note 55
at 3. CL-2012-ICE supra note 55 at 6.
\356\ CL-2012-Nadex supra note 55 at 2-3.
\357\ CL-2012-FIA supra note 55 at 8. CL-2012-ICE supra note 55
at 6.
\358\ CL-2012-FIA supra note 55 at 8.
\359\ CL-2012-CME supra note 55 at 3.
---------------------------------------------------------------------------
Nadex recommended that a different RTVL should be applied to
contracts with small notional values, as compared to contracts with
larger, traditional notional values. ``For any contract with a notional
value of $1,000 or less, the
[[Page 69225]]
RTVL could be increased to 5,000 (i.e., 1,000 times the standard RTVL
of 50). This would still result in the Commission capturing information
with respect to a relatively insignificant amount of trading activity
in terms of notional value, but would be significantly less burdensome
for the DCMs that offer these contracts.'' \360\
---------------------------------------------------------------------------
\360\ CL-2012-Nadex supra note 55 at 3.
---------------------------------------------------------------------------
Compared to these various alternatives, the 50-contract RTVL--which
the Commission's analysis has shown to identify approximately 85
percent of trading volume in approximately 90 percent of the products
sampled, and approximately one-third of the trading accounts in the
sample set--best achieves the regulatory objective and design-purpose
of Form 102B. That objective is to identify a critical mass of the
trading accounts active in its regulated markets through 102B
reporting, measured not only by the percentage of trading volume for
which those accounts are responsible, but also by the number of
accounts identified. This objective is independent of whether the
identified accounts hold reportable positions and what trading
strategies market participants may pursue. The 50-contract RTVL
achieves this objective by capturing both: (1) Those accounts
responsible for the majority of trading volume; and (2) a meaningful
number of the trading accounts active in the Commission's regulated
markets. The Commission seeks to identify a meaningful number of such
trading accounts in order to improve its ability to protect market
participants from instances of fraudulent or deceptive trading
practices, regardless of the amount of trading volume that such
practices represent, or their impact on the overall market. In
determining the optimal threshold level, the Commission gave equal
weight to the twin objectives of the volume-based reporting regime--
trading volume and trading account identification. In its analysis, the
Commission found that although higher RTVLs, such as those proposed by
commenters, may have a relatively minor impact on the identification of
trading volume in a particular market, they would likely lead to a
disproportionately large exclusion of the number of trading accounts,
thus rendering the RTVL ineffective to achieve the Commission's
objective.\361\ In particular, the alternative proposals to raise the
RTVL threshold to 250 contracts and/or to incrementally introduce
moderately lower thresholds down from 1,000 contracts over time would
sacrifice visibility with respect to the number of trading accounts
(and at the highest threshold levels perhaps in trading volume, as
well) to a degree likely to frustrate the intent of volume account
surveillance.
---------------------------------------------------------------------------
\361\ This is because the correlation between trading volume and
number of accounts when RTVL is adjusted up or down is not
proportional. Rather, the curve for the number of accounts is much
steeper than for trading account volume, meaning that, while a tick
up or down in RTVL translates to a relatively modest proportional
change in trading volume coverage, the impact on number-of-account
coverage is more exaggerated. The Commission took this relationship
into account when proposing the 50 RTVL threshold: while a lower
RTVL threshold would yield a substantially higher number of
accounts, the slight incremental gain in trading volume coverage
would not significantly advance the Commission's volume account
surveillance objectives. Furthermore, the relationship also explains
why the alternatives proposed are suboptimal and unacceptable to
capture the twin elements essential to achieve the regulatory
objective of volume account surveillance.
---------------------------------------------------------------------------
Furthermore, if the Commission were to substitute an alternative
RTVL, in response to commenter proposals, that does not identify a
sufficient percentage of trading volume or absolute number of trading
accounts, the Commission would, in effect, partially transform 102B
into another vehicle for identifying trading accounts associated with
reportable positions. Form 102A will accomplish this objective
separately.
Finally, even if modifying the RTVL to make fewer accounts
reportable were consistent with the Commission's regulatory objectives
(which it is not), doing so is unlikely to result in significant cost
savings to market participants. As explained above, FTP submission of
New Form 102B will be most cost-effective for the industry as a whole.
Furthermore, the ongoing operation and maintenance burden for FTP
submission of New Form 102B will average the same number of hours per
year (53 hours) irrespective of how many records are contained in a
submission.\362\ Accordingly, the number of volume threshold accounts
reported to the Commission by a reporting party via FTP should not have
a material impact on the overall cost burden.
---------------------------------------------------------------------------
\362\ See supra section VIII(A)(iv).
---------------------------------------------------------------------------
The Commission also considered the alternative of adopting
threshold levels that distinguish on the basis of notional value, such
as proposed by Nadex, and/or other contract or market characteristics.
The Commission recognizes that the uniform 50-contract threshold will
capture a relatively small degree of market activity that is less
significant for purposes of its Form 102B regulatory objectives.
However, an alternative that would appropriately filter for such less-
significant contracts would be administratively impracticable for the
Commission and increase the administrative burden for some, if not
many, reporting parties. For example, in the five year period from
January 1, 2008 through December 31, 2012, the Commission received from
DCMs self-certifications or requests for approval for approximately
5,400 new products, or an average of almost 21 new products per week.
It is simpler, and far superior in terms of administrative cost and
burden to set a single RTVL level, above which all parties report, than
to determine differing levels for different markets/products, monitor
the appropriateness of such levels and adjust them as circumstances
warrant over time, and effectively communicate such differing levels
and their periodic adjustments to the trading community. Moreover, the
cost of determining whether parties were compliant with the reporting
requirements and enforcing those requirements would place further
burden upon the Commission and reporting parties.
In sum, the Commission believes that it is has achieved an
appropriate balance by implementing a uniform 50-contract RTVL rather
than a product-by-product RTVL. While the uniform RVTL may capture a
small number of additional accounts, representing a relatively small
degree of market activity that is less significant for purposes of its
Form 102B regulatory objectives, it avoids the administrative
complexity of a product-by-product RTVL, which carries the potential to
hobble Form 102B's regulatory effectiveness.
Direct Market Access
CME commented on a question in proposed Forms 102A and 102B,
discussed in more detail in section VII above, which asks whether
certain trading accounts have been granted direct market access
(DMA).\363\ CME stated that ``requiring this data may force substantial
process change at the firms to obtain the data upfront and record it in
the firm's reference database with other account information.'' \364\
As discussed in section VII above, the Commission is not including the
question regarding DMA in the final rules.
---------------------------------------------------------------------------
\363\ See the discussion of the definition of direct market
access in proposed Sec. 15.00(v).
\364\ CL-2012-CME supra note 55 at 3.
---------------------------------------------------------------------------
Reporting Deadline for Certain Information Required on Forms
FIA commented that obtaining all the information required by the
Form 102 could potentially take longer than the
[[Page 69226]]
deadlines proposed in the NPRM. ``Although it is possible to file
limited information by 9:00 a.m., i.e., the name of the account holder
and the special account number, it is not practical to complete the
entire Form 102 by that deadline.'' \365\ As a result, FIA recommended
that the deadline for filing a complete Form 102A or any change update
be modified to five business days from the date the account or change
becomes reportable.\366\ In response to this comment, the Commission is
extending the reporting deadline for new and changed Form 102A filings,
specifically with respect to the reporting of non-omnibus trading
accounts that comprise a special account. Respondents are required to
provide the names of such trading account owners and controllers by
9:00 a.m. the following business day.\367\ However, respondents are
required to provide the other contact details with respect to such
trading account owners and controllers (address, telephone number,
etc.) within three business days, in order to permit respondents
additional time to compile the required information.\368\
---------------------------------------------------------------------------
\365\ Id.
\366\ Id.
\367\ Unless otherwise specified by the Commission or its
designee, the stated time in the final rules is eastern time for
information concerning markets located in that time zone, and
central time for information concerning all other markets, in
accordance with Sec. 17.02(a).
\368\ Specifically, the information marked as `Follow-On
Information' in questions 10(ii) and (iii) on New Form 102A may be
provided within three business days. All other required fields on
New Form 102A must be completed by 9:00 a.m. the following business
day. See New Form 102A in the Appendix to these final rules for more
information. Notwithstanding the change to the reporting deadline
with respect to non-omnibus trading accounts that comprise a special
account, these final rules do not modify the reporting deadline for
information with respect to omnibus trading accounts that comprise a
special account (question 10(i) on New Form 102A). Such omnibus
account information must be reported by 9:00 a.m. the following
business day. The Commission is adopting a reporting requirement of
three business days as an intermediate compromise between one
business day (as proposed in the NPRM) and five business days (as
requested by FIA). The three business day requirement is therefore
less burdensome than the one business day requirement proposed in
the NPRM. Based on the experience of the Commission's surveillance
group, the Commission believes that the three business day
requirement, while longer than the one day proposal in the NPRM,
will nonetheless enable the Commission to maintain current
databases, including up-to-date contact information that will allow
the Commission to contact market participants quickly in the event
of significant market events that occur close to the time of
reporting. By contrast, based on the experience of the Commission's
surveillance group, the Commission believes that a five business day
reporting deadline is too long to perform timely market
surveillance, and maintain databases that are sufficiently accurate
and current to be useful.
---------------------------------------------------------------------------
The Commission is also modifying the reporting deadline for new and
changed Form 102B filings, specifically with respect to the reporting
of non-omnibus volume threshold accounts. Respondents are required to
provide the names of non-omnibus volume threshold account owners and
controllers reported on 102B by 9:00 a.m. the following business day.
Consistent with the change described above, respondents are required to
provide the other contact details reported on 102B with respect to such
parties (i.e., the address, telephone number, etc. of non-omnibus
volume threshold account owners and controllers) within three business
days, in order to permit respondents additional time to compile the
required information.\369\
---------------------------------------------------------------------------
\369\ Specifically, the information marked as `Follow-On
Information' in questions 5 and 6 on New Form 102B may be provided
within three business days. All other required fields on New Form
102B must be completed by 9:00 a.m. the following business day. See
New Form 102B in the Appendix to these final rules for more
information. Notwithstanding the change to the reporting deadline
with respect to non-omnibus volume threshold accounts, these final
rules do not modify the reporting deadline for information with
respect to omnibus volume threshold accounts (question 4 on New Form
102B). Such omnibus account information must be reported by 9:00
a.m. the following business day.
---------------------------------------------------------------------------
FIA commented that the refresh filing deadline proposed by the
NPRM, which required firms to resubmit the Form 102 for each special
account, volume threshold account and consolidated account every six
months, was too short. FIA stated that this six-month schedule ``will
impose a significant operational and financial burden on reporting
firms,'' and recommended that refresh updates instead be required every
two years.\370\ CME also recommended that refresh updates be required
every two years.\371\ In response to this comment, the Commission is
modifying the reporting deadline for refresh filings. Refresh filings
for special accounts, volume threshold accounts and consolidated
accounts will be required once per year, as opposed to once every six
months.\372\ The Commission believes that the annual refresh
requirement is a reasonable accommodation that will limit costs to
market participants while still achieving the Commission's surveillance
objectives. For the majority of accounts, there should be little or no
change to prior reported information. As a result, the reporting burden
for refresh filings should be minimal.
---------------------------------------------------------------------------
\370\ CL-2012-FIA supra note 55 at 7.
\371\ CL-2012-CME supra note 55 at 3.
\372\ The Commission is adopting a refresh reporting requirement
of once per year as an acceptable intermediate point between once
each six months (as proposed in the NPRM) and once every two years
(as requested by FIA and CME). The annual refresh requirement is
therefore less burdensome than the six month requirement proposed in
the NPRM. Based on the experience of the Commission's surveillance
group, the Commission believes that the annual refresh requirement,
while longer than the six month requirement proposed in the NPRM,
will nonetheless enable the Commission to maintain current
databases, including up-to-date contact information that will allow
the Commission to contact market participants quickly in the event
of significant market events. By contrast, based on the experience
of the Commission's surveillance group, the Commission believes that
a two year refresh deadline is too long to perform timely market
surveillance and maintain databases that are sufficiently accurate
and current to be useful.
---------------------------------------------------------------------------
viii. Reporting on Form 102S
FIA commented on the utility of Form 102S, which requires swap
dealers and clearing members to identify and report a swap counterparty
or customer consolidated account with a reportable position. FIA stated
that the information that will be reported to swap data repositories
under part 45 would provide the Commission with access to essentially
the same information that proposed Form 102S will require.\373\ FIA
commented that ``requiring FCMs, and the industry generally, to divert
critical operational and financial resources from building the systems
necessary to implement the part 45 recordkeeping and reporting
requirements to implement this interim solution, would impose an
unnecessary operational burden and cost without a significant
offsetting benefit.'' \374\ CME commented that ``requiring swap
reporting as part of OCR, to accomplish reporting that is already being
done under part 20--and soon to be duplicated under SDR reporting with
new unique legal entity identifiers--is unnecessary and imposes
additional unjustified costs on the industry.'' \375\
---------------------------------------------------------------------------
\373\ CL-2012-FIA supra note 55 at 2-3.
\374\ CL-2012-FIA supra note 55 at 3.
\375\ CL-2012-CME supra note 55 at 3.
---------------------------------------------------------------------------
In light of FIA and CME's comments regarding the Form 102S, the
Commission considered, but rejected, the alternative of omitting Form
102S from the final rules. Contrary to commenters' claims, SDRs will
not, in all cases, be able to provide the ownership and control
information requested on 102S. For example, the Commission anticipates
that swap dealers and clearing members (the 102S reporting parties)
will be able to consistently provide the contact information for owners
and controllers of consolidated accounts on the 102S, based on the
records these entities maintain. Part 45 reporting, by contrast, is
based on counterparty data. This counterparty data may, in some cases,
[[Page 69227]]
overlap with the owners and controllers of consolidated accounts
reported on 102S. However, counterparty data will not, in all cases,
overlap with 102S reporting. Furthermore, even when counterparty data
does overlap with 102S reporting, it does not provide the ownership and
control information required by 102S. Counterparty data provides a
Legal Entity Identifier, which is a numeric data field that must be
cross-checked against an external source in order to generate the names
of owners and controllers. As a result, the Commission cannot rely on
SDR reporting under part 45 as a substitute for 102S. For these
reasons, the Commission is implementing 102S reporting pursuant to
these final rules.
ix. Consolidated Form Proposed by FIA
For purposes of reducing the costs to reporting parties, and
alleviating perceived inefficiencies in the forms proposed in the NPRM,
FIA recommended consolidating the proposed forms into a single Form
102.\376\ FIA attached a proposed form to its NPRM comment letter that
consolidates Forms 102A, 102B and 102S (the ``FIA consolidated form'').
The FIA consolidated form is the principal alternative approach
proposed by commenters on the NPRM.\377\
---------------------------------------------------------------------------
\376\ CL-2012-FIA NPRM supra note 55 at 4.
\377\ Note that the Commission published a prior Notice of
Proposed Rulemaking on July 19, 2010 (the 2010 OCR NPRM) with
respect to ownership and control reporting, which the Commission
withdrew concurrent with the publication of the NPRM. See supra note
9. The Commission received a number of comment letters in response
to the 2010 OCR NPRM, and incorporated several of their suggestions
in the NPRM (published in the Federal Register in 2012), which forms
the basis for these final rules. See NPRM supra note 10 at 43973-
43974 for a discussion of comments received in response to the 2010
OCR NPRM that were incorporated in the NPRM.
---------------------------------------------------------------------------
The Commission notes that FIA's description of New Form 102A, 102B
and 102S as inefficient and overlapping appears to arise from a
presumption that reporting parties will print and complete each form as
a separate paper filing. The forms included in the Appendix to these
final rules are visual representations of reporting forms that will be
completed through the Commission's web-based portal. In such an
electronic environment, it will not be more burdensome for reporting
parties to enter information via separate screens on a web portal (for
102A, 102B and 102S), as compared to via a single screen.
The Commission does not consider the FIA consolidated form an
acceptable alternative, because it is missing a number of key data
fields that appear on Forms 102A, 102B, and 102S. As discussed in more
detail below, while the list of data fields that the FIA consolidated
form is missing is not extensive, the absence of these data fields
would create gaps in the reporting of ownership and control
information. These gaps would prevent the Commission from realizing the
goals of the OCR data collection. If the missing data fields were added
back to FIA consolidated form, then the FIA form would be substantively
identical to the forms adopted in these final rules.
The FIA consolidated form does not include the following data
fields collected on New Forms 102A, 102B and 102S:
The FIA consolidated form does not require respondents to
state the reporting trigger. I.e., the form does not clarify whether
respondents are reporting a special account, volume threshold account,
or consolidated account that has reached a reportable level. Instead,
the directions to the FIA consolidated form state that, ``This form
must be completed if an account exceeds the reportable levels on
special accounts, volume threshold accounts or consolidated accounts.''
The Commission would receive ownership and control information
regarding the reported trading accounts, but would not know what market
activity the trader had engaged in that necessitated reporting pursuant
to the Commission's regulations. Without knowing the reporting trigger
for the form (e.g., whether the reporting party had reached a
reportable position or reportable volume level), the Commission would
be unable to efficiently and accurately categorize the trading accounts
reported on the form, and utilize this account information for
surveillance or other related purposes.
The FIA consolidated form does not require respondents to
identify the originator of a consolidated account that is also an
omnibus account, and provide contact information for this
originator.\378\ Without this contact information, the Commission would
not know which party to contact to request additional information on
the reported omnibus account (e.g., via a Form 40). As noted above, one
of the key reasons that the Commission is requesting additional
information regarding ownership and control on the reporting forms is
to enable it to send a Form 40 to such parties in order to identify
them for surveillance purposes. Alternative proposals that would leave
significant and potentially exploitable gaps in the reporting and
identification system--e.g., with respect to omnibus accounts--would
defeat the Commission's intent for these final rules.
---------------------------------------------------------------------------
\378\ This information will be collected on New Form 102S as a
result of these final rules.
---------------------------------------------------------------------------
Similarly, the FIA consolidated form does not require
respondents to state whether a volume threshold account is an omnibus
account--and if so, to identify the originator of the omnibus account
and provide contact information for this originator.\379\ Without the
name and contact information of the originator of an omnibus volume
threshold account, the Commission would be unable to send a Form 71 to
the originator and collect ownership and control information for
underlying sub-accounts. If the Commission does not send a Form 71 in
this scenario, the Commission would again be unable to send a Form 40
to identify the ultimate owner and controller of the underlying sub-
accounts. This would again create significant gaps in the reporting and
identification system, which would defeat the Commission's intent for
these final rules.
---------------------------------------------------------------------------
\379\ This information will be collected on New Form 102B as a
result of these final rules.
---------------------------------------------------------------------------
As discussed above, FIA commented that requiring respondents to
potentially submit three separate forms (102A, 102B and 102S) for the
same customer is inefficient. FIA proposed its consolidated form in an
attempt to address this overlap, reduce the costs to reporting parties,
and alleviate other perceived inefficiencies in the forms proposed in
the NPRM.\380\ As previously noted, the Commission is implementing a
contact reference database to reduce the burden on parties reporting
via the web-based portal.\381\ This database will pre-populate certain
fields on the portal with information previously provided by the
respondent, thereby reducing the inefficiency associated with
responding to more than one section of New Form 102.\382\
---------------------------------------------------------------------------
\380\ CL-2012-FIA supra note 55 at 4.
\381\ As discussed in section VIII(B)(iv) above, the Commission
has determined that it will be more cost-effective for the industry
as a whole to submit Forms 102A, 102B and 102S via FTP. Nonetheless,
it may be less expensive for certain individual reporting parties to
submit these forms via the web portal. This may be due to the
limited number of forms these parties expect to submit, their
technology infrastructure, or other factors. The Commission has also
determined that it will be more cost-effective for the industry as a
whole to submit Forms 40/S and 71 via the web portal. The contact
reference database will pre-populate information on Forms 40/S and
71 to the extent practicable.
\382\ See also supra note 41 for a discussion of certain fields
in the reporting forms that have been made optional, subject to
certain conditions discussed in the reporting forms, in order to
leverage information that reporting parties have previously
provided.
---------------------------------------------------------------------------
[[Page 69228]]
x. Section 15(a) Factors
(a) Protection of Market Participants and the Public
The data collection requirements under these final rules will
support the Commission in its mission to protect market participants
and the public, by significantly improving the Commission's visibility
with respect to market participants and their activities across
derivatives markets. Specifically, the final rules build upon the
Commission's existing market and trade practice surveillance programs
for futures, options on futures, and swaps, by providing for the timely
and efficient analysis of market data related to special accounts,
consolidated accounts, and newly designated volume threshold accounts.
The rules implement these goals in a manner designed to reduce costs to
reporting entities. Improving the capabilities of the Commission's
market and trade practice surveillance programs will support the
integrity of financial markets, and protect market participants and the
public from the costs of disruptive trading practices and other market
abuses.
New Form 102A. As an example of these benefits, New Form 102A
requires reporting of ownership and control information for the trading
accounts that constitute special accounts. This will allow the
Commission to more efficiently link special accounts holding reportable
positions to the transactions (and associated trading accounts)
identified on daily trade capture reports received by the
Commission.\383\ By illustrating the connections between end-of-day
position reporting via Form 102 and daily trade capture reports, the
final rules will enable the Commission to perform a more accurate and
timely accounting of market position at the level of individual trading
accounts. With this information, the Commission will be able to conduct
a thorough assessment of a trader's potential market impact, including
with respect to disruptive practices.
---------------------------------------------------------------------------
\383\ See the discussion of the daily trade capture reports in
section I(B) above.
---------------------------------------------------------------------------
New Form 102B. New Form 102B institutes a reporting requirement for
trading accounts that exceed a specific volume threshold on any single
trading day, regardless of whether the account maintains open positions
at the end of the day. The addition of volume-based reporting will
provide the Commission with an efficient means to collect the
information required to aggregate positions, detect intra-day position
limit violations, and calculate market share. When analyzing periods of
elevated volatility--especially at significant trading times such as
market open and close--the ability to aggregate intra-day trading
behavior by owner/controller is crucial to understanding whether a
trader has adversely affected (or has the potential to affect) market
quality or price discovery.
New Form 102S. New Form 102S will improve upon the current 102S
reporting system by providing detailed ownership and control
information regarding consolidated accounts. The information collected
via Form 102S will allow the Commission's market and trade practice
surveillance programs to track the market activity of traders that may
be dividing risk exposure between both on-exchange and off-exchange
instruments. In addition to the ability to track individual traders,
swap reporting will also enable the Commission to aggregate exposure in
a particular product or commodity group. The reporting of swap activity
on Form 102S aligns with the Commission's recently finalized rules on
real-time public and regulatory reporting of swap trades, and provides
further transparency into markets that, historically, have often been
opaque and/or over-the-counter.
Collectively, the ownership and control information on New Forms
102A/102B/102S, 40/40S and 71 will improve the Commission's ability to
analyze and/or respond to market disruptions, which can come at a high
cost to the investing and general public. The information will also
enable the Commission to perform more robust research and analytics,
encompassing a significantly greater segment of market activity on a
more diverse set of platforms, as well as improve its classification of
traders in Commission publications, such as the Commitments of Traders
report. Finally, the Commission will be able to perform data integrity
checks within and between its databases using the additional fields
collected on the revised forms.
Efficiency, Competitiveness, and Financial Integrity of the Markets
The collection of ownership and control information via the new and
amended forms will enable the Commission to better perform risk-based
monitoring and surveillance among related accounts, and monitor risk
exposure by institution, market class, and asset class. For example,
the rules will enable the Commission to more efficiently link end-of-
day position reporting and the trade capture reports received by the
Commission. Accordingly, the rules will allow the Commission to
aggregate respondents' positions across multiple products and markets,
assess their potential market impact with respect to disruptive or
manipulative activities during important periods, and analyze their
compliance with speculative position limits at any time during the
trading day. In the event the Commission identifies trading activity
requiring further investigation, the Commission will be able to contact
market participants more quickly and efficiently using the ownership
and control information collected through the OCR reporting process.
The final rules will also promote resource allocation efficiency by
automating the submission process, eliminating an additional layer of
transcription and reducing the likelihood of input errors and/or the
need to revert back to reporting parties for further explanation. In
addition, the final rules permit respondents to use either of two
available submission methods (FTP or web portal), thereby allowing
respondents to select the method that is most economical in light of
the number of filings they expect to make, and that integrates most
efficiently with their existing data and technology infrastructure.
These improvements in resource efficiency and data quality will also
improve the Commission's published reports, such as the classifications
in the Commitments of Traders report. Finally, the Commission will be
able to perform data integrity checks within and between its databases
using the additional data fields collected on the revised forms.
The Commission believes that market integrity is essential to fair
and orderly markets that serve as effective centers for price discovery
and risk management. By promoting these important goals, the final
rules will help promote the utility of Commission-regulated markets.
Price Discovery
The Commission does not view the costs and benefits of the final
rules as impacting price discovery in markets that it regulates.
Sound Risk Management Practices
The final rules establish the information architecture necessary to
support Dodd-Frank's objectives of reducing risk, increasing
transparency, and promoting market integrity within the financial
system. The expanded reporting requirements will significantly improve
the Commission's ability to perform risk-based monitoring of trading
activity spread across multiple platform types but directed or
controlled by individual entities. Such
[[Page 69229]]
an expanded view of the marketplace will enable the Commission to more
effectively identify disruptive or manipulative trading activity. The
Commission does not believe that the costs arising from the final
rules, which the Commission has taken steps to reduce, threaten the
ability of market participants to manage risk.
Other Public Interest Considerations
The Commission does not view the costs and benefits of the final
rules as impacting other public interest considerations beyond those
discussed above.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires that agencies
consider whether the rules they propose will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis regarding the impact.\384\ A
regulatory flexibility analysis or certification is typically required
for ``any rule for which the agency publishes a general notice of
proposed rulemaking'' pursuant to the notice-and-comment provisions of
the Administrative Procedure Act, 5 U.S.C. 553(b).\385\
---------------------------------------------------------------------------
\384\ 5 U.S.C. 601 et seq.
\385\ 5 U.S.C. 601(2), 603, 604 and 605. While the definition of
``entity'' does not encompass natural persons, it does encompass
sole proprietorships. 5 U.S.C. 601(6). The Commission recognizes
that floor brokers and other natural persons doing business as sole
proprietors could potentially be considered small entities. See
generally 58 FR 40,335 at 40,347-48, n. 45 (July 28, 1993); 47 FR
18618 at 18,620, (Apr. 30, 1982).
---------------------------------------------------------------------------
The final rules require FCMs, clearing members, foreign brokers,
swap dealers and other reporting traders (including natural persons) to
complete New Forms 102 or 71, and to submit them to the Commission as
specified in the final rules, or upon special call by the Commission.
The Commission has previously determined that FCMs, clearing members,
foreign brokers, and swap dealers are not small entities for purposes
of the RFA.\386\ The Commission has also determined that natural
persons are not `entities' for purposes of the RFA.\387\ Accordingly,
the final rules with respect to Forms 102 and 71 will not have a
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------
\386\ See respectively and as indicated: 47 FR 18618 (April 30,
1982) (FCMs and large traders); 72 FR 34417 at 34418 (June 22, 2007)
(foreign brokers); 76 FR 71626 at 71680 (November 18, 2011) (swap
dealers); 76 FR 71626 at 71680 (November 18, 2011) and 76 FR 43851
at 43860 (July 22, 2011) (clearing members).
\387\ See 5 U.S.C. 601(6).
---------------------------------------------------------------------------
The final rules also require certain reporting traders to complete
and submit New Form 40 upon special call by the Commission. Some of
these reporting traders may be ``small entities'' under the RFA. In
2012, the Commission received approximately 3,123 completed Form 40s,
from a total population of approximately 10,000 reporting traders. Of
these 3,123 Form 40s, approximately 2,500 were completed by
institutions, a portion of which could potentially be small entities
under the RFA. For example, the Commission has received comments on its
Dodd-Frank Act rulemakings indicating that certain entities that may be
required to comply with the reporting and recordkeeping requirements in
the final rules have been determined by the Small Business
Administration to be small entities. In particular, the Commission
understands that some not-for-profit electric generators, transmitters,
and distributors that may be required to comply with the proposed rules
have been determined to be small entities by the SBA, because they are
``primarily engaged in the generation, transmission, and/or
distribution of electric energy for sale and [their] total electric
output for the preceding fiscal year did not exceed 4 million megawatt
hours.'' \388\
---------------------------------------------------------------------------
\388\ Small Business Administration, Table of Small Business
Size Standards (Nov. 5, 2010). See also the regulatory flexibility
analysis regarding such entities in 77 FR 1182 at 1240 (January 9,
2012), 77 FR 2136 at 2170 (January 13, 2012), and 77 FR 2613 at 2620
(January 19, 2012).
---------------------------------------------------------------------------
The Commission believes that, due to the limited number of
institutions likely to receive a New Form 40 request in any given year,
as well as the limited nature of the New Form 40 reporting burden, the
final rules with respect to New Form 40 will not have a significant
economic impact on a substantial number of small entities. New Form 40
will not be required on a routine and ongoing basis, but rather will be
sent by the Commission on a discretionary basis in response to the
reporting of an account that reaches a minimum position or volume
threshold. As summarized above, in 2012 the Commission made Form 40
requests to only 25 percent of all reporting traders that could
potentially be small entities; furthermore, some of these reporting
traders were not in fact small entities. As a result, New Form 40
should be expected to affect only a small subset of the entities that
may be small entities under the RFA. In addition, New Form 40 is not
lengthy or complex, and will require reporting traders to provide only
limited information to the Commission. As discussed above, the
Commission estimates that a reporting trader submitting New Form 40 via
the web-based portal will require only three hours, on an annualized
basis, to complete the form.\389\
---------------------------------------------------------------------------
\389\ See supra section VIII(A).
---------------------------------------------------------------------------
The final rules regarding revised Sec. 18.05 will also impose
books and records obligations upon a new category of market
participants--specifically, certain owners (but not controllers) of a
volume threshold account or a reportable sub-account. Such owners may
be small entities under the RFA. The Commission does not believe that
the obligation to maintain books and records under revised Sec. 18.05
will impose significant costs on the additional small entities subject
to the recordkeeping requirements of such section. The Commission
expects that such account owners may largely rely on the books and
records that they maintain in the ordinary course of business to
fulfill the requirements of revised Sec. 18.05. The Commission also
expects that a portion of the account owners subject to revised Sec.
18.05 are subject to the position-based recordkeeping requirements of
current Sec. 18.05,\390\ and will not incur significant costs
expanding their recordkeeping practices to comply with revised Sec.
18.05. To the extent that certain small entities are required to modify
their practices to comply with the volume-based recordkeeping
requirements of revised Sec. 18.05, the Commission believes that the
resulting economic burden will be appropriate, because this requirement
will: (a) Ensure that (i) owners of volume threshold accounts and
reportable sub-accounts and (ii) owners of reportable positions are
subject to equivalent recordkeeping obligations under Sec. 18.05, and
therefore maintain books and records in a consistent format; and (b)
promote the Commission's surveillance and investigatory functions to
better deter price manipulation and other disruptions of market
integrity.
---------------------------------------------------------------------------
\390\ 17 CFR 18.05.
---------------------------------------------------------------------------
List of Subjects
17 CFR Part 15
Brokers, Commodity futures, Reporting and recordkeeping
requirements.
17 CFR Part 17
Brokers, Commodity futures, Reporting and recordkeeping
requirements.
17 CFR Part 18
Commodity futures, Reporting and recordkeeping requirements.
[[Page 69230]]
17 CFR Part 20
Physical commodity swaps, Swap dealers, Reporting and recordkeeping
requirements.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR parts 15, 17, 18, and 20 as follows:
PART 15--REPORTS--GENERAL PROVISIONS
0
1. The authority citation for part 15 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 7a,
9, 12a, 19, and 21, as amended by Title VII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, Pub. L. 111-203, 124
Stat. 1376 (2010).
0
2. Amend Sec. 15.00 by revising paragraph (q) and adding paragraphs
(t) through (dd) to read as follows:
Sec. 15.00 Definitions of terms used in parts 15 to 19, and 21 of
this chapter.
* * * * *
(q) Reporting market means a designated contract market or a
registered entity under section 1a(40) of the Act.
* * * * *
(t) Control means to actually direct, by power of attorney or
otherwise, the trading of a special account or a consolidated account.
A special account or a consolidated account may have more than one
controller.
(u) Reportable trading volume means contract trading volume that
meets or exceeds the level specified in Sec. 15.04.
(v) Omnibus account means any trading account that one futures
commission merchant, clearing member or foreign broker carries for
another and in which the transactions of multiple individual accounts
are combined. The identities of the holders of the individual accounts
are not generally known or disclosed to the carrying firm.
(w) Omnibus account originator means any futures commission
merchant, clearing member or foreign broker that executes trades for
one or more customers via one or more accounts that are part of an
omnibus account carried by another futures commission merchant,
clearing member or foreign broker.
(x) Volume threshold account means any trading account that carries
reportable trading volume on or subject to the rules of a reporting
market that is a board of trade designated as a contract market under
section 5 of the Act or a swap execution facility registered under
section 5h of the Act.
(y) Omnibus volume threshold account means any trading account
that, on an omnibus basis, carries reportable trading volume on or
subject to the rules of a reporting market that is a board of trade
designated as a contract market under section 5 of the Act or a swap
execution facility registered under section 5h of the Act.
(z) Omnibus reportable sub-account means any trading sub-account of
an omnibus volume threshold account, which sub-account executes
reportable trading volume on an omnibus basis. Omnibus reportable sub-
account also means any trading account that is itself an omnibus
account, executes reportable trading volume, and is a sub-account of
another omnibus reportable sub-account.
(aa) Reportable sub-account means any trading sub-account of an
omnibus volume threshold account or omnibus reportable sub-account,
which sub-account executes reportable trading volume.
(bb) Trading account controller means, for reports specified in
Sec. 17.01(a) of this chapter, a natural person who by power of
attorney or otherwise actually directs the trading of a trading
account. A trading account may have more than one controller.
(cc) Volume threshold account controller means a natural person who
by power of attorney or otherwise actually directs the trading of a
volume threshold account. A volume threshold account may have more than
one controller.
(dd) Reportable sub-account controller means a natural person who
by power of attorney or otherwise actually directs the trading of a
reportable sub-account. A reportable sub-account may have more than one
controller.
0
3. In Sec. 15.01, revise paragraph (c) to read as follows:
Sec. 15.01 Persons required to report.
* * * * *
(c) As specified in part 18 of this chapter:
(1) Traders who own, hold, or control reportable positions;
(2) Volume threshold account controllers;
(3) Persons who own volume threshold accounts;
(4) Reportable sub-account controllers; and
(5) Persons who own reportable sub-accounts.
* * * * *
0
4. Revise Sec. 15.02 to read as follows:
Sec. 15.02 Reporting forms.
Forms on which to report may be obtained from any office of the
Commission or via the Internet (http://www.cftc.gov). Forms to be used
for the filing of reports follow, and persons required to file these
forms may be determined by referring to the rule listed in the column
opposite the form number.
----------------------------------------------------------------------------------------------------------------
Form No. Title Rule
----------------------------------------------------------------------------------------------------------------
40......................................... Statement of Reporting Trader......................... 18.04
101........................................ Positions of Special Accounts......................... 17.00
102........................................ Identification of Special Accounts, Volume Threshold 17.01
Accounts, and Consolidated Accounts.
204........................................ Cash Positions of Grain Traders (including Oilseeds 19.00
and Products).
304........................................ Cash Positions of Cotton Traders...................... 19.00
71......................................... Identification of Omnibus Accounts and Sub-accounts... 17.01
----------------------------------------------------------------------------------------------------------------
(Approved by the Office of Management and Budget under control
numbers 3038-0007, 3038-0009, and 3038-0103.)
0
5. Add Sec. 15.04 to read as follows:
Sec. 15.04 Reportable trading volume level.
The volume quantity for the purpose of reports filed under parts 17
and 18 of this chapter is trading volume of 50 or more contracts,
during a single trading day, on a single reporting market that is a
board of trade designated as a contract market under section 5 of the
Act or a swap execution facility registered under section 5h of the
Act, in all instruments that such reporting market designates with the
same product identifier (including purchases and sales, and inclusive
of all expiration months).
PART 17--REPORTS BY REPORTING MARKETS, FUTURES COMMISSION
MERCHANTS, CLEARING MEMBERS, AND FOREIGN BROKERS
0
6. The authority citation for part 17 is revised to read as follows:
[[Page 69231]]
Authority: 7 U.S.C. 2, 6a, 6c, 6d, 6f, 6g, 6i, 6t, 7, 7a, and
12a, as amended by Title VII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).
0
7. In Sec. 17.00, revise paragraph (g)(2)(iii) to read as follows:
Sec. 17.00 Information to be furnished by futures commission
merchants, clearing members and foreign brokers.
* * * * *
(g) * * *
(2) * * *
(iii) Account Number. A unique identifier assigned by the reporting
firm to each special account. The field is zero filled with the account
number right-justified. Assignment of the account number is subject to
the provisions of paragraph (b) of this section and appendix A of this
part (Form 102).
* * * * *
0
8. Revise Sec. 17.01 to read as follows:
Sec. 17.01 Identification of special accounts, volume threshold
accounts, and omnibus accounts.
(a) Identification of special accounts. When a special account is
reported for the first time, the futures commission merchant, clearing
member, or foreign broker shall identify the special account to the
Commission on Form 102, in accordance with the form instructions and as
specified in Sec. 17.02(b).
(b) Identification of volume threshold accounts. Each clearing
member shall identify and report its volume threshold accounts to the
Commission on Form 102, in accordance with the form instructions and as
specified in Sec. 17.02(c).
(c) Identification of omnibus accounts and sub-accounts. Each
originator of an omnibus volume threshold account identified in Form
102 or an omnibus reportable sub-account identified in Form 71 shall,
after a special call upon such originator by the Commission or its
designee, file with the Commission an ``Identification of Omnibus
Accounts and Sub-Accounts'' on Form 71, to be completed in accordance
with the instructions thereto, at such time and place as directed in
the call.
(d) Exclusively self-cleared contracts. Unless determined otherwise
by the Commission, reporting markets that list exclusively self-cleared
contracts shall meet the requirements of paragraphs (a) and (b) of this
section, as they apply to trading in such contracts by all clearing
members, on behalf of all clearing members.
(e) Special call provision. Upon a call by the Commission or its
designee, the reports required to be filed by futures commission
merchants, clearing members, foreign brokers, and reporting markets
under paragraphs (a) through (d) of this section shall be submitted
within 24 hours of the Commission or its designee's request in
accordance with the instructions accompanying the request.
0
9. Amend Sec. 17.02 by revising the introductory text and paragraph
(b) and adding paragraph (c) to read as follows:
Sec. 17.02 Form, manner and time of filing reports.
Unless otherwise instructed by the Commission or its designee, the
reports required to be filed by reporting markets, futures commission
merchants, clearing members, and foreign brokers under Sec. Sec. 17.00
and 17.01 shall be filed as specified in paragraphs (a) through (c) of
this section.
* * * * *
(b) Section 17.01(a) reports. For data submitted pursuant to Sec.
17.01(a) on Form 102:
(1) Form of submission. Form 102 must be submitted to the
Commission in the form and manner provided on www.cftc.gov.
(2) Time of submission. For each account that becomes reportable as
a special account, the futures commission merchant, clearing member, or
foreign broker, as appropriate, shall submit a Form 102 to the
Commission, in accordance with the instructions thereto, and in the
manner specified by the Commission or its designee. Such form shall be
submitted in accordance with the instructions and schedule set forth in
paragraphs (b)(2)(i) and (ii) of this section:
(i) The applicable reporting party shall submit a completed Form
102 to the Commission no later than 9 a.m. on the business day
following the date on which the special account becomes reportable, or
on such other date as directed by special call of the Commission or its
designee, and as periodically required thereafter by paragraphs (b)(3)
and (4) of this section. Such form shall include all required
information, including the names of the owner(s) and controller(s) of
each trading account that is not an omnibus account, and that comprises
a special account reported on the form, provided that, with respect to
such owners(s) and controller(s), information other than the names of
such parties may be reported in accordance with the instructions and
schedule set forth in paragraph (b)(2)(ii) of this section. Unless
otherwise specified by the Commission or its designee, the stated time
is eastern time for information concerning markets located in that time
zone, and central time for information concerning all other markets.
(ii) With respect to the owner(s) and controller(s) of each trading
account that is not an omnibus account, and that comprises a special
account reported on Form 102, information other than the names of such
parties must be provided on Form 102 no later than 9 a.m. on the third
business day following the date on which the special account becomes
reportable, or on such other date as directed by special call of the
Commission or its designee, and as periodically required thereafter by
paragraphs (b)(3) and (4) of this section. Unless otherwise specified
by the Commission or its designee, the stated time is eastern time for
information concerning markets located in that time zone, and central
time for information concerning all other markets.
(3) Change updates. If any change causes the information filed by a
futures commission merchant, clearing member, or foreign broker on a
Form 102 for a special account to no longer be accurate, then such
futures commission merchant, clearing member, or foreign broker shall
file an updated Form 102 with the Commission in accordance with the
instructions and schedule set forth in paragraphs (b)(2)(i) and (ii) of
this section, or on such other date as directed by special call of the
Commission, provided that, a futures commission merchant, clearing
member, or foreign broker may stop providing change updates for a Form
102 that it has submitted to the Commission for any special account
upon notifying the Commission or its designee that the account in
question is no longer reportable as a special account and has not been
reportable as a special account for the past six months.
(4) Refresh updates. For Special Accounts--Starting on a date
specified by the Commission or its designee and at the end of each
annual increment thereafter (or such other date specified by the
Commission or its designee that is equal to or greater than six
months), each futures commission merchant, clearing member, or foreign
broker shall resubmit every Form 102 that it has submitted to the
Commission for each of its special accounts, provided that, a futures
commission merchant, clearing member, or foreign broker may stop
providing refresh updates for a Form 102 that it has submitted to the
Commission for any special account upon notifying the Commission or its
designee that the account in question is no longer reportable as a
special account and has not been reportable as a special account for
the past six months.
[[Page 69232]]
(c) Section 17.01(b) reports. For data submitted pursuant to Sec.
17.01(b) on Form 102:
(1) Form of submission. Form 102 must be submitted to the
Commission in the form and manner provided on www.cftc.gov.
(2) Time of submission. For each account that becomes reportable as
a volume threshold account, the clearing member shall submit a Form 102
to the Commission, in accordance with the instructions thereto, and in
the manner specified by the Commission or its designee. Such form shall
be submitted in accordance with the instructions and schedule set forth
in paragraphs (c)(2)(i) and (ii) of this section:
(i) The clearing member shall submit a completed Form 102 to the
Commission no later than 9 a.m. on the business day following the date
on which the volume threshold account becomes reportable, or on such
other date as directed by special call of the Commission or its
designee, and as periodically required thereafter by paragraphs (c)(3)
and (4) of this section. Such form shall include all required
information, including the names of the owner(s) and controller(s) of
each volume threshold account reported on the form that is not an
omnibus account, provided that, with respect to such owners(s) and
controller(s), information other than the names of such parties may be
reported in accordance with the instructions and schedule set forth in
paragraph (c)(2)(ii) of this section. Unless otherwise specified by the
Commission or its designee, the stated time is eastern time for
information concerning markets located in that time zone, and central
time for information concerning all other markets.
(ii) With respect to the owner(s) and controller(s) of each volume
threshold account reported on Form 102 that is not an omnibus account,
information other than the names of such parties must be provided on
Form 102 no later than 9 a.m. on the third business day following the
date on which the volume threshold account becomes reportable, or on
such other date as directed by special call of the Commission or its
designee, and as periodically required thereafter by paragraphs (c)(3)
and (4) of this section. Unless otherwise specified by the Commission
or its designee, the stated time is eastern time for information
concerning markets located in that time zone, and central time for
information concerning all other markets.
(3) Change updates. If any change causes the information filed by a
clearing member on a Form 102 for a volume threshold account to no
longer be accurate, then such clearing member shall file an updated
Form 102 with the Commission in accordance with the instructions and
schedule set forth in paragraphs (c)(2)(i) and (ii) of this section, or
on such other date as directed by special call of the Commission,
provided that, a clearing member may stop providing Form 102 change
updates for a volume threshold account upon notifying the Commission or
its designee that the volume threshold account executed no trades in
any product in the past six months on the reporting market at which the
volume threshold account reached the reportable trading volume level.
(4) Refresh updates. For Volume Threshold Accounts--Starting on a
date specified by the Commission or its designee and at the end of each
annual increment thereafter (or such other date specified by the
Commission or its designee that is equal to or greater than six
months), each clearing member shall resubmit every Form 102 that it has
submitted to the Commission for each of its volume threshold accounts,
provided that, a clearing member may stop providing refresh updates for
a Form 102 that it has submitted to the Commission for any volume
threshold account upon notifying the Commission or its designee that
the volume threshold account executed no trades in any product in the
past six months on the reporting market at which the volume threshold
account reached the reportable trading volume level.
0
10. Revise Sec. 17.03 to read as follows:
Sec. 17.03 Delegation of authority to the Director of the Office of
Data and Technology or the Director of the Division of Market
Oversight.
The Commission hereby delegates, until the Commission orders
otherwise, the authority set forth in the paragraphs below to either
the Director of the Office of Data and Technology or the Director of
the Division of Market Oversight, as indicated below, to be exercised
by such Director or by such other employee or employees of such
Director as designated from time to time by such Director. The Director
of the Office of Data and Technology or the Director of the Division of
Market Oversight may submit to the Commission for its consideration any
matter which has been delegated to such Director in this paragraph.
Nothing in this paragraph prohibits the Commission, at its election,
from exercising the authority delegated in this paragraph.
(a) Pursuant to Sec. 17.00(a) and (h), the authority shall be
designated to the Director of the Office of Data and Technology to
determine whether futures commission merchants, clearing members and
foreign brokers can report the information required under Sec.
17.00(a) and (h) on series `01 forms or using some other format upon a
determination that such person is unable to report the information
using the format, coding structure or electronic data transmission
procedures otherwise required.
(b) Pursuant to Sec. 17.02, the authority shall be designated to
the Director of the Office of Data and Technology to instruct or
approve the time at which the information required under Sec. Sec.
17.00 and 17.01(a) and (b) must be submitted by futures commission
merchants, clearing members and foreign brokers provided that such
persons are unable to meet the requirements set forth in Sec. 17.02.
(c) Pursuant to Sec. 17.01, the authority shall be designated to
the Director of the Office of Data and Technology to determine whether
to permit an authorized representative of a firm filing the Form 102 or
person filing the Form 71 to use a means of authenticating the report
other than by signing the Form 102 or Form 71 and, if so, to determine
the alternative means of authentication that shall be used.
(d) Pursuant to Sec. 17.00(a), the authority shall be designated
to the Director of the Office of Data and Technology to approve a
format and coding structure other than that set forth in Sec.
17.00(g).
(e) Pursuant to Sec. 17.01(c), the authority shall be designated
to the Director of the Office of Data and Technology to make special
calls on omnibus volume threshold account originators and omnibus
reportable sub-account originators for information as set forth in
Sec. 17.01(c).
(f) Pursuant to Sec. 17.02(b)(4), the authority shall be
designated to the Director of the Division of Market Oversight to
determine the date on which each futures commission merchant, clearing
member, or foreign broker shall update or otherwise resubmit every Form
102 that it has submitted to the Commission for each of its special
accounts.
(g) Pursuant to Sec. 17.02(c)(4), the authority shall be
designated to the Director of the Division of Market Oversight to
determine the date on which each clearing member shall update or
otherwise resubmit every Form 102 that it has submitted to the
Commission for each of its volume threshold accounts.
0
11. Add appendix A to part 17 to read as follows:
[[Page 69233]]
Appendix A to Part 17--Form 102
Note: This Appendix is a representation of the final reporting
form, which will be submitted in an electronic format pursuant to
the rules in part 17, either via the Commission's web portal or via
XML-based, secure FTP transmission.
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BILLING CODE 6351-01-C
0
12. Add appendix B to part 17 to read as follows:
Appendix B to Part 17--Form 71
Note: This Appendix is a representation of the final reporting
form, which will be submitted in an electronic format pursuant to
the rules in Part 17, either via the Commission's web portal or via
XML-based, secure FTP transmission.
BILLING CODE 6351-01-P
[[Page 69253]]
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[[Page 69254]]
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PART 18--REPORTS BY TRADERS
0
13. The authority citation for part 18 is revised to read as follows:
Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 6t,
12a, and 19, as amended by Title VII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376
(2010).
0
14. Revise Sec. 18.04 to read as follows:
Sec. 18.04 Statement of reporting trader.
(a) Every trader who owns, holds, or controls a reportable futures
and option position shall after a special call upon such trader by the
Commission or its designee file with the Commission a ``Statement of
Reporting Trader'' on the Form 40, to be completed in accordance with
the instructions thereto, at such time and place as directed in the
call.
(b) Every volume threshold account controller, person who owns a
volume threshold account, reportable sub-account controller, and person
who owns a reportable sub-account shall after a special call upon such
person by the Commission or its designee file with the Commission a
``Statement of Reporting Trader'' on the Form 40, to be completed in
accordance with the instructions thereto, at such time and place as
directed in the call.
0
15. Amend Sec. 18.05 to revise introductory paragraph (a), and
paragraphs (b) and (c), to read as follows:
Sec. 18.05 Maintenance of books and records.
(a) Every volume threshold account controller; person who owns a
volume threshold account; reportable sub-account controller; person who
owns a reportable sub-account; and trader who owns, holds, or controls
a reportable futures or option position shall keep books and records
showing all details concerning all positions and transactions in the
commodity or swap:
* * * * *
(b) Every such volume threshold account controller; person who owns
a volume threshold account; reportable sub-account controller; person
who owns a reportable sub-account; and trader who owns, holds, or
controls a reportable futures or option position shall also keep books
and records showing all details concerning all positions and
transactions in the cash commodity or swap, its products and
byproducts, and all commercial activities that it hedges in the
futures, option, or swap contract in which it is reportable.
(c) Every volume threshold account controller; person who owns a
volume threshold account; reportable sub-account controller; person who
owns a reportable sub-account; and trader who owns, holds, or controls
a reportable futures or option position shall upon request furnish to
the Commission any pertinent information concerning such positions,
transactions, or activities in a form acceptable to the Commission.
0
16. Add appendix A to part 18 to read as follows:
Appendix A to Part 18--Form 40
Note: This Appendix is a representation of the final reporting
form, which will be submitted in an electronic format pursuant to
the rules in Part 18, either via the Commission's web portal or via
XML-based, secure FTP transmission.
BILLING CODE 6351-01-P
[[Page 69260]]
[GRAPHIC] [TIFF OMITTED] TR18NO13.030
BILLING CODE 6351-01-P
General Instructions
Who Must File a Form 40--17 CFR 18.04(a) requires every person
who owns or controls a reportable position to file a Form 40--
Statement of Reporting Trader with the Commission. 17 CFR 18.04(b)
requires every volume threshold account controller, person who owns
a volume threshold account, reportable sub-account controller, and
person who owns a reportable sub-account to file a Form 40--
Statement of Reporting Trader with the Commission. 17 CFR 20.5
requires every person subject to books or records under 17 CFR 20.6
to file a 40S filing \3\ with the Commission.
---------------------------------------------------------------------------
\3\ As used in this document, ``Form 40'' may refer to either a
Form 40--Statement of Reporting Trader or a 40S Filing, as
appropriate, and as the context may require.
---------------------------------------------------------------------------
[[Page 69261]]
When to file--A reporting trader must file a Form 40 on call by
the Commission or its designee.
Where to file--The Form 40 should be submitted (a) via the
CFTC's web-based Form 40 submission process at www.cftc.gov, (b) via
a secure FTP data feed to the Commission, or (c) as otherwise
instructed by the Commission or its designee. If electronic
submission attempts fail, the reporting trader shall contact the
Commission at [email protected] for further technical support.
When to update--A reporting trader required to complete a Form
40 will be under a continuing obligation, per direction in the
special call, to update and maintain the accuracy of the information
it provides. Reporting traders can update this information by either
visiting the CFTC's web-based Form 40 portal to review, verify, and/
or update their information, or by submitting updated information
via FTP.
Signature--Each Form 40 submitted to the Commission must be
signed or otherwise authenticated by either (1) the reporting trader
submitting the form or (2) an individual that is duly authorized by
the reporting trader to provide the information and representations
contained in the form.
What to File--All reporting traders that are filing a Form 40
pursuant to either 17 CFR 18.04(a) (i.e. reportable position
reporting traders) or 17 CFR 20.5 (i.e. swaps books and records
reporting traders) must complete all questions. All reporting
traders that are filing a Form 40 pursuant to 17 CFR 18.04(b) (i.e.
volume threshold account controllers, persons who own a volume
threshold account, reportable sub-account controllers, and persons
who own a reportable sub-account reporting trader) must complete all
questions unless they are natural persons. Reporting traders that
are filing a Form 40 pursuant to 17 CFR 18.04(b) who are natural
persons shall mark not applicable for questions 7 and 8.
Please be advised that pursuant to 5 CFR 1320.5(b)(2)(i), you
are not required to respond to this collection of information unless
it displays a currently valid OMB control number.
Table of Contents
1. General information for Reporting Trader
2. Contact Information for Individual Responsible for Trading
Activities
3. Contact Information for Individual Responsible for Risk
Management Operations
4. Contact information for Individual Responsible for Information on
the Form 40
5. Omnibus Account Identification
6. Foreign Government Affiliation
7. Non-Domestic Entity Indicator
8. Ownership Structure (Parent/Parents)
9. Ownership Structure (Subsidiary/Subsidiaries)
10. Control of Reporting Trader's Trading Activities by Others
11. Control of Other's Trading Activities by Reporting Trader
12. Other Parties Influencing Trading of Reporting Trader
13. Trading Subject to Express or Implied Agreement
14. Commodity Index Trading Indicator
15. Swap Dealer Identification
16. Major Swap Participant Identification
17. Business Sectors, Subsectors and Occupation
18. Commodities Being Traded in Derivative Markets
19. Business Purpose for Trading in Derivative Markets
20. Signature/Authentication, Name, and Date
Acknowledgement of Definitions
Before proceeding with your submission, please check this box to
indicate that you have read the definitions for the following
terms--as they are used in the Form 40: [ballot]
Commodity (or commodities)--generally, all goods and articles
(except onions and motion picture box office receipts, or any index,
measure, value, or data related to such receipts), and all services,
rights, and interests (except motion picture box office receipts, or
any index, measure, value, or data related to such receipts) in
which contracts for future delivery are presently or in the future
dealt in (see 7 U.S.C. 1a(9)).
Commodity Index Trading (``CIT'')--means:
a. An investment strategy that consists of investing in an
instrument (e.g., a commodity index fund, exchange-traded fund for
commodities, or exchange-traded note for commodities) that enters
into one or more derivative contracts to track the performance of a
published index that is based on the price of one or more
commodities, or commodities in combination with other securities; or
b. An investment strategy that consists of entering into one or
more derivative contracts to track the performance of a published
index that is based on the price of one or more commodities, or
commodities in combination with other securities.
Control--as used in this Form, ``control'' means to actually
direct, by power of attorney or otherwise, the trading of a special
account or a consolidated account. A special account or a
consolidated account may have more than one controller.
Derivatives--futures, options on futures, and swaps.
Omnibus volume threshold account--means any trading account
that, on an omnibus basis, carries reportable trading volume on or
subject to the rules of a reporting market that is a board of trade
designated as a contract market under section 5 of the Act or a swap
execution facility registered under section 5h of the Act.
Parent--for purposes of Form 40, a person is a parent of a
reporting trader if it has a direct or indirect controlling interest
in the reporting trader; and a person has a controlling interest if
such person has the ability to control the reporting trader through
the ownership of voting equity, by contract, or otherwise.
Person--an individual, association, partnership, corporation,
trust, or government agency and/or department.
Reportable sub-account--means any trading sub-account of an
omnibus volume threshold account or omnibus reportable sub-account,
which sub-account executes reportable trading volume.
Reportable sub-account controller--means a natural person who by
power of attorney or otherwise actually directs the trading of a
reportable sub-account. A reportable sub-account may have more than
one controller.
Reportable trading volume--means contract trading volume that
meets or exceeds the level specified in 17 CFR 15.04.
Reporting trader--a person who must file a Form 40, whether
pursuant to 17 CFR 18.04(a), 17 CFR 18.04(b), or 17 CFR 20.05.
Subsidiary--for purposes of Form 40, a person is a subsidiary of
a reporting trader if the reporting trader has a direct or indirect
controlling interest in the person; and a reporting trader has a
controlling interest if such reporting trader has the ability to
control the person through the ownership of voting equity, by
contract, or otherwise.
Volume threshold account--means any trading account that carries
reportable trading volume on or subject to the rules of a reporting
market that is a board of trade designated as a contract market
under section 5 of the Act or a swap execution facility registered
under section 5h of the Act.
Volume threshold account controller--means a natural person who
by power of attorney or otherwise actually directs the trading of a
volume threshold account. A volume threshold account may have more
than one controller.
CFTC Form 40
General Information for Reporting Trader:
For question 1, please provide the name, contact information and
other requested information regarding the reporting trader. If the
reporting trader is an individual, provide their full legal name and
the name of the reporting trader's employer.
1. Indicate whether the reporting trader is a legal entity or a
natural person:
Legal entity: [ballot]
Natural person: [ballot]
Name of Reporting Trader
Street Address
City
State
Country
Zip/Postal Code
Phone Number \4\
---------------------------------------------------------------------------
\4\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
---------------------------------------------------------------------------
Email Address
Web site
NFA ID (if any)
Legal Entity Identifier (if any)
Name of Employer
Employer NFA ID (if any)
Employer Legal Entity Identifier (if any)
Contact Information
For questions 2, 3, and 4, provide the name and contact
information as requested.
2. Individual to contact regarding the derivatives trading of
the reporting trader (this individual should be able to answer
specific questions about the reporting trader's trading activity
when contacted by Commission staff):
Check here if this individual has the same contact information
as that of the reporting trader.
[[Page 69262]]
Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \5\
---------------------------------------------------------------------------
\5\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
---------------------------------------------------------------------------
Email Address
NFA ID (if any)
3. Individual to contact regarding the risk management
operations of the reporting trader (this individual should be able
to answer specific questions about the reporting trader's risk
management operations, including account margining, when contacted
by Commission staff):
Check here if this individual has the same contact information
as that of the reporting trader.
Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \6\
---------------------------------------------------------------------------
\6\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
---------------------------------------------------------------------------
Email Address
NFA ID (if any)
4. Individual responsible for the information on the Form 40
(this individual should be able to verify, clarify, and explain the
answers submitted by a reporting trader on the Form 40):
Check here if this individual has the same contact information
as that of the reporting trader.
Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \7\
---------------------------------------------------------------------------
\7\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
---------------------------------------------------------------------------
Email Address
NFA ID (if any)
Omnibus Account Identification
For question 5, indicate whether the reporting trader has a
customer omnibus account with a futures commission merchant,
clearing member, or foreign broker (NOTE: For the purpose of this
question, an omnibus account is an account that one futures
commission merchant, clearing member or foreign broker carries for
another in which the transactions of multiple individual accounts
are combined. The identities of the holders of the individual
accounts are not generally known or disclosed to the carrying firm.
In addition, the Commission has traditionally identified omnibus
accounts as either house or customer omnibus accounts. House omnibus
accounts exclusively contain the proprietary accounts of the omnibus
account originator. Customer omnibus accounts contain the accounts
of customers of the omnibus account originator. It is the obligation
of the omnibus account originator to correctly identify the omnibus
account type to the reporting entity):
5. Does the reporting trader have a customer omnibus account
with a futures commission merchant, clearing member, or foreign
broker? YES/NO
IF YES, Give the name(s) of the futures commission merchant,
clearing member, or foreign broker carrying the account(s) of the
reporting trader.
Foreign Government Affiliation
For question 6, please complete the following (NOTE: For the
purpose of this question, affiliation can include, but is not
limited to, a situation (1) where the foreign government directly or
indirectly controls the reporting trader's assets, operations, and/
or derivatives trading, or (2) where the reporting trader operates
as a direct or indirect subsidiary of a foreign government, its
agencies or departments, or any investment program of the foreign
government):
6. Is the reporting trader directly or indirectly affiliated
with a government other than that of the United States? YES/NO
IF YES, give the name of the government(s).
IF YES, explain the nature of the affiliation between the
reporting trader and the government(s) listed above.
Non-Domestic Entity Indicator
For question 7, if the Reporting Trader is a legal entity,
please complete the following.
7. Is the reporting trader organized under the laws of a country
other than the United States? YES/NO
IF YES, give the name of the country or countries under whose
laws the reporting trader is organized.
Ownership Structure of the Reporting Trader
For questions 8 and 9, provide the requested ownership
information only as applicable.
If the Reporting Trader is a commodity pool, also provide the
requested information in questions 8i, 8ii, and 8iii. If the
Reporting Trader is reporting commodity pools in which it has an
ownership interest, also provide the requested information in
questions 9i, 9ii, and 9iii.
8. List all the parents of the reporting trader (including the
immediate parent and any parent(s) of its parent) and, separately,
all persons that have a 10 percent or greater ownership interest in
the reporting trader (commodity pool investors are deemed to have an
ownership interest in the pool). For each such parent or 10 percent
or greater owner include the following information:
Indicate whether the party identified below is a legal entity or
a natural person:
Legal entity: [ballot]
Natural person: [ballot]
Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \8\
---------------------------------------------------------------------------
\8\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
---------------------------------------------------------------------------
Web site \9\
---------------------------------------------------------------------------
\9\ The Web site and NFA ID requested in this question are only
required to be reported to the extent the respondent has this
information available in its records. Respondents are not required
to poll customers or other parties for the Web site and NFA ID if
this information has not been previously collected.
---------------------------------------------------------------------------
Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Parent Company/10% Owner/or Both Indicator
8i. For each person identified in question 8 that is a limited
partner, shareholder, or other similar type of pool participant,
indicate if they are a principal or affiliate of the operator of the
commodity pool.
Principal/Affiliate Indicator
8ii. For each person identified in question 8 that is a limited
partner, shareholder, or other similar type of pool participant,
indicate if they are also a commodity pool operator of the pool.
Commodity Pool Operator Indicator
8iii. For each person identified in question 8 that is a limited
partner, shareholder, or other similar type of pool participant and
where the operator of the commodity pool is exempt from registration
under Sec. 4.13 of the Commission's regulations, indicate if that
person has an ownership or equity interest of 25 percent or greater
in the commodity pool.
25% Ownership Indicator
9. List all the subsidiaries of the reporting trader (including
the immediate subsidiary and any subsidiaries of those subsidiaries)
and, separately, all persons in which the reporting trader has a 10
percent or greater ownership interest (including a 10 percent or
greater interest in a commodity pool(s)). Only list subsidiaries and
persons that engage in derivatives trading. For each such subsidiary
and/or person include the following information:
Indicate whether the party identified below is a legal entity or
a natural person:
Legal entity: [ballot]
Natural person: [square]
Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \10\
---------------------------------------------------------------------------
\10\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
---------------------------------------------------------------------------
Web site \11\
---------------------------------------------------------------------------
\11\ The Web site and NFA ID requested in this question are only
required to be reported to the extent the respondent has this
information available in its records. Respondents are not required
to poll customers or other parties for the Web site and NFA ID if
this information has not been previously collected.
---------------------------------------------------------------------------
Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
[[Page 69263]]
Subsidiary/10% Ownership/or Both Indicator
9i. For each person identified in question 9 that is a commodity
pool and for which you are a limited partner, shareholder or other
similar type of pool participant, indicate if you are a principal or
affiliate of the operator of the commodity pool.
Principal/Affiliate Indicator
9ii. For each person identified in question 9 that is a
commodity pool and for which you are a limited partner, shareholder
or other similar type of pool participant, indicate if you are the
commodity pool operator for the pool.
Commodity Pool Operator Indicator
9iii. For each person identified in question 9 that is a
commodity pool and for which you are a limited partner, shareholder
or other similar type of pool participant and for which the operator
of the commodity pool is exempt from registration under Sec. 4.13
of the Commission's regulations, indicate if you have an ownership
or equity interest of 25 percent or greater in the commodity pool.
25% Ownership Indicator
Control of Trading
For questions 10, 11, 12, and 13 provide the requested control
information only as applicable.
10. List all persons outside of the reporting trader that
control some or all of the derivatives trading of the reporting
trader (including persons that may have been previously identified
as a parent, above):
Indicate whether the party identified below is a legal entity or
a natural person:
Legal entity: [ballot]
Natural person: [ballot]
Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \12\
---------------------------------------------------------------------------
\12\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
---------------------------------------------------------------------------
Web site \13\
---------------------------------------------------------------------------
\13\ The Web site and NFA ID requested in this question are only
required to be reported to the extent the respondent has this
information available in its records. Respondents are not required
to poll customers or other parties for the Web site and NFA ID if
this information has not been previously collected.
---------------------------------------------------------------------------
Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Some/All Indicator
11. List all persons for which the reporting trader controls
some or all of the derivatives trading (including persons that may
have been previously identified as a subsidiary, above):
Indicate whether the party identified below is a legal entity or
a natural person:
Legal entity: [square]
Natural person: [square]
Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \14\
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\14\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
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Web site \15\
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\15\ The Web site and NFA ID requested in this question are only
required to be reported to the extent the respondent has this
information available in its records. Respondents are not required
to poll customers or other parties for the Web site and NFA ID if
this information has not been previously collected.
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Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Some/All Indicator
12. List any other person(s) that directly or indirectly
influence, or exercise authority over, some or all of the trading of
the reporting trader, but who do not exercise ``control'' as defined
in this Form: Indicate whether the party identified below is a legal
entity or a natural person:
Legal entity: [ballot]
Natural person: [ballot]
Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \16\
---------------------------------------------------------------------------
\16\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
---------------------------------------------------------------------------
Web site \17\
---------------------------------------------------------------------------
\17\ The Web site and NFA ID requested in this question are only
required to be reported to the extent the respondent has this
information available in its records. Respondents are not required
to poll customers or other parties for the Web site and NFA ID if
this information has not been previously collected.
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Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Some/All Indicator
13. Is some or all of the derivatives trading of the reporting
trader subject to an express or implied agreement or understanding
with any other person(s) not addressed in questions 10, 11, or 12,
above? YES/NO
If yes, provide the following information:
Indicate whether the party identified below is a legal entity or
a natural person:
Legal entity: [ballot]
Natural person: [ballot]
Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \18\
---------------------------------------------------------------------------
\18\ Please provide a direct number, without any telephone
extension. Non-U.S. respondents should also provide the applicable
international area code.
---------------------------------------------------------------------------
Web site \19\
---------------------------------------------------------------------------
\19\ The Web site and NFA ID requested in this question are only
required to be reported to the extent the respondent has this
information available in its records. Respondents are not required
to poll customers or other parties for the Web site and NFA ID if
this information has not been previously collected.
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Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Some/All Indicator
Commodity Index Trading Indicator
For question 14, please answer the following:
14i. Is the reporting trader engaged in commodity index trading
as defined in paragraph (a) of the definition of CIT above? YES/NO
14ii. Is the reporting trader engaged in commodity index trading
as defined in paragraph (b) of the definition of CIT above? YES/NO
a. If the reporting trader is engaged in CIT (as defined in
paragraph (b)) with respect to one or more commodities or commodity
groups appearing on Supplemental List II, indicate whether the
reporting trader is, in the aggregate, pursuing long exposure or
short exposure with respect to such commodities or commodity groups.
It is not necessary to respond to this question with respect to CIT
that tracks the performance of multiple unrelated commodities or
commodity groups (e.g., an investment in an exchange-traded fund
that tracks the performance of an index representing commodities
spanning multiple commodity groups).
14iii. If the reporting trader is currently engaged in commodity
index trading as defined in paragraphs (a) or (b) of the CIT
definition above, indicate the month and year on which the reporting
trader first became engaged in commodity index trading.
Swaps Participation Indicators
For questions 15 and 16, please indicate if the reporting trader
meets the specified definition:
15. Is the reporting trader a Swap Dealer, as defined in Sec.
1.3(ppp) of regulations under the Commodity Exchange Act? YES/NO
16. Is the reporting trader a Major Swap Participant, as defined
in Sec. 1.3(qqq) of regulations under the Commodity Exchange Act?
YES/NO
Nature of Business and of Derivatives Trading Activities
For questions 17, 18, and 19 provide the requested information
only as applicable.
17. Select all business sectors and subsectors that pertain to
the business activities or occupation of the reporting trader. If
more than one business subsector is selected, indicate which
business subsector primarily describes the nature of the reporting
trader's business.
Choose From Supplemental List I
18. Select all commodity groups and individual commodities that
the reporting trader presently trades or expects to trade in the
near future in derivative markets.
Choose From Supplemental List II
19. For each selected individual commodity identified in
question 18, indicate the business purpose(s) for which the
reporting trader uses derivative markets.
[[Page 69264]]
If the reporting trader has more than one business purpose for
trading in an individual commodity, also indicate the predominant
business purpose.
Choose From Supplemental List III
Signature/Authentication, Name, and Date
20. Please sign/authenticate the Form 40 prior to submitting.
Signature/Electronic Authentication:
[ballot] By checking this box and submitting this form (or by
clicking ``submit,'' ``send,'' or any other analogous transmission
command if transmitting electronically), I certify that I am duly
authorized by the reporting trader identified below to provide the
information and representations submitted on this Form 40, and that
the information and representations are true and correct.
Reporting Trader Authorized Representative (Name and Position):
-------------------- (Name)
-------------------- (Position)
Submitted on behalf of:
---------- (Reporting Trader Name)
Date of Submission:
--------------------
Supplemental List I: List of Business Sectors and Subsectors
Business Sector
Subsector
Agriculture and Forestry
Oilseed Farming
Grain Farming
Fruit and Tree Nut Farming
Other Crop Farming (Specify)
Cattle Ranching and Farming
Hog and Pig Farming
Poultry and Egg Production
Sheep and Goat Farming
Other Animal Production
Forestry, Logging, or Timber Production
Cooperative
Other (Specify)
Mining, Oil and Natural Gas Extraction
Oil Exploration/Production
Natural Gas Exploration/Production
Coal Mining
Precious Metal Mining
Non-Precious Metal Mining
Other (Specify)
Utilities
Utility/Cooperative
Electric Power Generation
Local Distribution Company
Natural Gas Distribution
Other (Specify)
Construction
Building Construction
Heavy and Civil Engineering Construction
Other (Specify)
Manufacturing, Refining and Processing
Animal Food Manufacturing
Grain Milling
Oilseed Milling
Sugar and Confectionery Product Manufacturing
Fruit and Vegetable Preserving and Specialty Food Manufacturing
Dairy Product Manufacturing
Animal Slaughtering and Processing
Bakeries
Other Food Manufacturing
Beverage Manufacturing Textile Mills
Textile Product Mills
Apparel Manufacturing
Wood Product Manufacturing
Paper Manufacturing
Pulp, Paper, and Paperboard Mills
Petroleum and Coal Products Manufacturing
Renewable Fuels Manufacturing
Petrochemical/Chemical Manufacturing
Plastics and Rubber Products Manufacturing
Natural Gas Processing
Precious Metal Processor/Smelter
Non-Precious Metal Processor
Metals Fabricator
Other (Specify)
Wholesale Trade
Lumber and Other Construction Materials Merchant Wholesalers
Metal and Mineral Merchant Dealer
Grocery and Related Product Merchant Wholesaler
Farm Product Raw Material Merchant Wholesalers
Chemical and Allied Products Merchant Wholesalers
Petroleum and Petroleum Products Merchant Wholesalers
Natural Gas, Power Marketer
Importer/Exporter (specify commodities)
Other (Specify)
Retail Trade
Building Materials and Supplies Dealers
Food and Beverage Stores
Jeweler/Precious Metals Retailer
Vehicle Fuel Retailer/Convenience Store Operator
Fuel Dealers
Other (Specify)
Transportation and Warehousing
Air Transport
Trucking
Pipeline Transportation of Crude Oil
Pipeline Transportation of Natural Gas
Farm Product Warehousing and Storage
Energy Distributor (warehousing, storage)
Other (Specify)
End User (NOTE: May not be the only/primary subsector selected)
Metals End User (Construction Co., Brass Mill, Steel Mill)
Emissions End User (Factory, Industrial Cos.)
Petroleum End User (Airline Cos. Municipalities, Industrial
Cos., Trucking Cos.)
Information
Other (Specify)
Financial Institutions and Investment Management
Dealers and Financial Intermediaries
Broker/Dealer
Bank Holding Company
Investment/Merchant Bank
Non-US Commercial Bank
US Commercial Bank
Swaps/Derivatives Dealer
Universal Bank
Asset/Investment/Fund Management:
Asset/Investment Manager
Institutional Clients
Retail Clients
Managed Accounts and Pools (CTAs, CPOs, etc.)
Institutional Clients
Retail Clients
College Endowment, Trust, Foundation
Fund of Hedge Funds
Hedge Fund
Mutual Fund
Pension Fund
Private Wealth Management
Private Bank
Exchange Traded Fund Issuer
Exchange Traded Note Issuer
Government Financial Institution:
Central Bank
Sovereign Wealth Fund
Government Sponsored Enterprise (GSE)
Other Governmental Entity (Specify)
Other Financial or Trading Entities:
Arbitrageur
Individual Trader/Investor
Floor Broker
Floor Trader
Market Maker
Proprietary Trader
Corporate Treasury
Mortgage Originator
Savings Bank
Credit Union
Insurance Company
Other (Specify)
Real Estate
Other (Specify)
Arts, Entertainment, and Recreation
Performing Arts Companies
Promoters of Performing Arts
Agents and Managers for Artists and Entertainers
Independent Artists, Writers, Performers
Other (Specify)
Accommodation and Food Services
Food Services
Other (Specify)
Public Administration
Administration of Environmental Quality Programs
Administration of Economic Programs
Other (Specify)
Supplemental List II: Commodity Groups and Individual Commodities
Commodity Group
Individual Commodity
GRAINS
OATS
WHEAT
CORN
RICE
LIVESTOCK/MEAT PRODUCTS
LIVE CATTLE
PORK BELLIES
FEEDER CATTLE
LEAN HOGS
DAIRY PRODUCTS
MILK
BUTTER
CHEESE
OILSEED AND PRODUCTS
SOYBEAN OIL
SOYBEAN MEAL
SOYBEANS
FIBER
COTTON
FOODSTUFFS/SOFTS
COFFEE
FROZEN CONCENTRATED ORANGE JUICE
SUGAR
[[Page 69265]]
COCOA
OTHER AGRICULTURAL
REAL ESTATE
CURRENCY
EQUITIES AND EQUITY INDICIES
INTEREST RATES
TREASURY COMPLEX
OTHER INTEREST RATE PRODUCTS
OTHER FINANCIAL INSTRUMENTS
PETROLEUM AND PRODUCTS
JET FUEL
ETHANOL
BIODIESEL
FUEL OIL
HEATING OIL
GASOLINE
NAPHTHA
CRUDE OIL
DIESEL
NATURAL GAS AND PRODUCTS
NATURAL GAS LIQUIDS
NATURAL GAS
ELECTRICITY AND SOURCES
COAL
ELECTRICITY
URANIUM
PRECIOUS METALS
PALLADIUM
PLATINUM
SILVER
GOLD
BASE METALS
STEEL
COPPER
WOOD PRODUCTS
LUMBER
PULP
CHEMICALS
PLASTICS
EMISSIONS
WEATHER
OTHER (SPECIFY)
Supplemental List III: Business Purposes of Commodity Derivatives
Trading
Business Purpose
Definition
Example
Offsetting Cash or Spot Market Input Price Risk
Using derivative markets for commodities that are direct inputs
or purchases for your business so as to offset price risk associated
with your purchase of these inputs.
E.g. You are a grain processor, so you use wheat futures to
offset the price risk incidental to your cash purchases of wheat.
Offsetting Cash or Spot Market Output Price Risk
Using derivative markets for commodities that are direct outputs
or sales of your business so as to offset price risk associated with
your sale of these outputs.
E.g. You are a gasoline refiner, so you use gasoline futures to
offset price risk associated with your production of gasoline.
Offsetting Other Cash or Spot Market Price Risks (Cross Price Risk)
Using derivative markets for a commodity that is not a direct
input or output of your business, but which has significant price
correlations with the direct inputs or outputs of your business.
E.g. You manufacture ethanol which is used as an additive in and
competitor for gasoline as a combustive fuel. While you neither
directly consume nor produce gasoline, you may find that the price
you receive for your ethanol product is highly correlated with the
price of gasoline, and therefore you reduce ethanol price risk by
using gasoline futures contracts.
Other Physical Risk Management Strategies
Managing other price risks incidental to the operation of your
business or physical assets through the use of commodity derivative
markets.
E.g. You are a manufacturer with significant international
sales, so you use foreign currency futures to offset risks
associated with changes in the competitiveness of your exports and
therefore the value of your physical assets such as production
plants, land, machinery, etc.
Client Futures/Options on Futures Trading
Fulfilling customer/client desire for portfolio diversification
or exposure to various asset classes through your activity as a
Commodity Pool Operator, Commodity Trading Advisor, or other similar
role.
E.g. You collect funds and execute trading strategies through
the use of futures/options on futures markets at the expressed
intent and for the sole benefit of clients.
Managing Client Swaps Exposure
Reducing risk stemming from holding or executing swaps contracts
on behalf of clients or customers through the use of futures/options
on futures markets.
E.g. You sell crude oil swaps to a client and agree to accept
the risk inherent in the index price. You offset this risk through
purchases of crude oil futures, in effect transferring price risk
from the client to another market participant.
Making Markets/Providing Liquidity
Engaging in derivatives transactions to assume risk and help
transfer ownership of derivative positions from one market
participant to another, realizing the bid-ask spread as the return.
E.g. You accept risk by buying and selling futures/options on
futures contracts so that other traders can move into and out of
positions when they wish. You then find other traders willing to
take the other side of those transactions.
Arbitrage
Using derivative markets as part of a strategy designed to
realize risk-free profit from pricing anomalies.
E.g. You realize that the wheat futures contract is trading at a
discount (even after considering storage, transport, etc.) relative
to the wheat cash price, and therefore find it profitable to
purchase the wheat futures contract, take delivery, and then resell
the wheat in the cash market for a risk-free profit.
Establishing Price Exposure
Using derivative markets as a way to express your belief in the
future movement of market prices. This strategy does not involve
offsetting risks incidental to your business, but instead involves
directional trading.
E.g. You conduct research and believe that crude oil prices are
due to rise, so you take long futures positions in crude oil to
profit from your predictions.
Financial Asset Management
Using derivatives to diversify, rebalance, or otherwise allocate
financial assets so that risks to the value of the investment
portfolio are reduced. This strategy is used by entities such as
pension funds and endowments to manage overall risk to their
financial portfolios.
E.g. You hold Treasury bonds as a component of your investment
portfolio, and use futures contracts to reduce overall portfolio
risk that would result from falling bond prices.
Managing Proprietary Swaps Exposure
Reducing risk stemming from your proprietary holding or
execution of swaps contracts through the use of futures/options on
futures markets.
E.g. You trade interest rate swaps as part of your business or
investment strategy, and offset some of the risk inherent in those
swaps through your use of Eurodollar futures markets.
Other: Specify
List and explain your business purpose if the above categories
do not adequately describe the reason you trade in a particular
commodity derivative market.
PART 20--LARGE TRADER REPORTING FOR PHYSICAL COMMODITY SWAPS
0
17. The authority citation for part 20 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19, as
amended by Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).
0
18. Amend Sec. 20.5 to:
0
a. Revise paragraphs (a)(1) and (a)(2); and
0
b. Add paragraphs (a)(4) and (a)(5)
The revisions and additions to read as follows:
Sec. 20.5 Series S filings.
(a) * * *
(1) When a counterparty consolidated account first becomes
reportable, the reporting entity shall submit a 102S filing, in
accordance with the form instructions and as specified in this section.
(2) A reporting entity may submit a 102S filing only once for each
counterparty, even if such persons at various times have multiple
reportable positions in the same or different paired swaps or
swaptions.
* * * * *
(4) Change updates. If any change causes the information filed by a
[[Page 69266]]
clearing member or swap dealer on a Form 102 for a consolidated account
to no longer be accurate, then such clearing member or swap dealer
shall file an updated Form 102 with the Commission no later than 9 a.m.
on the business day after such change occurs, or on such other date as
directed by special call of the Commission, provided that, a clearing
member or swap dealer may stop providing change updates for a Form 102
that it has submitted to the Commission for any consolidated account
upon notifying the Commission or its designee that the account in
question is no longer reportable as a consolidated account and has not
been reportable as a consolidated account for the past six months.
Unless otherwise specified by the Commission or its designee, the
stated time is eastern time for information concerning markets located
in that time zone, and central time for information concerning all
other markets.
(5) Refresh updates. For Consolidated Accounts--Starting on a date
specified by the Commission or its designee and at the end of each
annual increment thereafter (or such other date specified by the
Commission or its designee that is equal to or greater than six
months), each clearing member or swap dealer shall resubmit every Form
102 that it has submitted to the Commission for each of its
consolidated accounts, provided that, a clearing member or swap dealer
may stop providing refresh updates for a Form 102 that it has submitted
to the Commission for any consolidated account upon notifying the
Commission or its designee that the account in question is no longer
reportable as a consolidated account and has not been reportable as a
consolidated account for the past six months.
* * * * *
Issued in Washington, DC, on November 5, 2013, by the
Commission.
Melissa D. Jurgens,
Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Ownership and Control Reports, Forms 102/102S, 40/40S,
and 71--Commission Voting Summary and Statement of Chairman
Appendix 1--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Chilton,
O'Malia, and Wetjen voted in the affirmative; no Commissioner voted
in the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the final rule on ownership and control reporting as
it provides the Commission with greater detail on both who owns
accounts and who controls accounts in the futures, options on
futures, and swaps markets.
The reforms require, for the first time, that accounts which
trade more than a certain volume in a day have to disclose who owns
or controls them. Previously, the Commission only had a window into
the ownership of those accounts that had large positions at the end
of the day. This new information is critical in today's world of
high frequency trading, as many accounts trade often throughout the
day but end the day without reportable positions. Thus, with these
reforms, the Commission will get additional tools to oversee the
markets' largest day traders and high frequency traders.
There is also flexibility built into the rule such that if some
of the required information on accounts has already been reported
through a legal entity identifier, the market participant does not
have to submit it twice.
Further this rule modernizes the reporting by requiring
electronic submission of information, rather than by mailing or
faxing forms.
These reforms enhance the Commission's ability to oversee the
markets, as well as detect market manipulation and abusive or
disruptive trading practices.
[FR Doc. 2013-26789 Filed 11-15-13; 8:45 am]
BILLING CODE 6351-01-P