[Federal Register: March 7, 1997 (Volume 62, Number 45)]
[Rules and Regulations]
[Page 10427-10434]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07mr97-10]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
Final Rulemaking Concerning Contract Market Rule Review
Procedures
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'') has
adopted amendments to Commission Regulation 1.41(c) that establish
procedures for the Commission's review of contract market rules that do
not relate to contract terms and conditions. The amendments shorten the
Commission's time frame for reviewing complex rules and streamline the
rule review process such that rule changes generally can be deemed
approved or permitted to be put into effect without Commission
approval.
Specifically, all non-term and condition rule changes that meet the
form and content requirements will be deemed approved or be permitted
to be put into effect without approval ten days after Commission
receipt, unless the Commission takes action to commence review of the
proposal for a 45-day period (or a 75-day period in the case of rules
published for comment in the Federal Register) or the contract market
agrees to another, specified review period. At the end of the 45-day
(or 75-day) review period, a proposed rule meeting the form and content
requirements will be deemed approved or become effective without
approval unless the Commission informs the submitting contract market
of its intention to initiate disapproval proceedings, the contract
market withdraws the proposal, or the contract market requests that the
review period be extended to the current 180-day period.
EFFECTIVE DATE: April 7, 1997.
FOR FURTHER INFORMATION CONTACT: David P. Van Wagner, Special Counsel,
Division of Trading and Markets, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
Telephone: (202) 418-5490.
SUPPLEMENTARY INFORMATION:
I. Introduction
On December 17, 1996, the Commission published for public comment
in the Federal Register <SUP>1 proposed amendments to Commission
Regulation 1.41 revising the Commission's procedures for the review of
contract market rules that do not relate to terms and conditions.<SUP>2
The original comment period was scheduled to end on January 16, 1997,
but was extended by the Commission until January 31, 1997.<SUP>3
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\1\ 61 FR 66241 (December 17, 1996).
\2\ On November 22, 1996, the Commission published a separate
proposed rulemaking establishing similar ``fast-track'' review
procedures for contract market designation applications and proposed
rules relating to contract terms and conditions under Regulation
1.41(b). (61 FR 59386.) The Commission also is adopting that
rulemaking today in a separate Federal Register release with slight
modifications from the original proposed rulemaking (the ``fast-
track'' rulemaking). The two rulemakings establish similar rule
review procedures and any differences between the two schemes
generally reflect differences set forth in the statute with respect
to term and condition rule proposals and non-term and condition rule
proposals.
\3\ 62 FR 2334 (January 16, 1997).
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[[Page 10428]]
II. Comments Received
The Commission received seven comment letters. The comment letters
were submitted by four futures exchanges (the Chicago Board of Trade
(``CBT''), the Chicago Mercantile Exchange (``CME''), the Coffee, Sugar
& Cocoa Exchange, Inc. (``CSC''), and the New York Mercantile Exchange
(``NYMEX'')); two futures trade associations (the Futures Industry
Association (``FIA'') and the Managed Futures Association (``MFA''));
and, a registered futures association (the National Futures Association
(``NFA'').
The Commission has carefully reviewed the comments received and has
decided to issue amended Regulation 1.41(c) as final with three
modifications from the original proposal.<SUP>4 The comments and an
explanation of the Commission's decision to adopt amended Regulation
1.41(c) are discussed below.
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\4\ The Commission's original proposal regarding non-term and
condition rule changes also proposed to revise the heading to
Commission Regulation 1.41(b) so that it expressly applied to term
and condition rule changes. That revision has been incorporated in
the Commission's separate fast-track rulemaking for term and
condition rule changes.
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III. Commission Regulation 1.41(c)
A. Overview
The following description consists of a section-by-section analysis
of the Commission's final rulemaking. Each section describes a
provision of the Commission's proposed rulemaking, discusses relevant
suggestions made by the commenters, and indicates how the provision has
been adopted in the final rulemaking.
In addition to commenting on specific sections of proposed
Regulation 1.41(c), several commenters questioned the necessity for
Regulation 1.41's basic requirement that contract market rules receive
Commission review before being put into effect. As discussed in more
detail in the fast-track rulemaking, the Commission believes that prior
review of proposed contract market rule changes can be essential to
ensuring the financial integrity of the markets and to protecting the
public interest. Contract market actions can affect the interests of a
large number of non-member market participants and the general public.
As self-regulatory organizations, contract markets have a
responsibility to comply with and enforce the requirements of the Act
and the Commission's regulations. As member organizations, however,
contract markets may not always be cognizant of, or sensitive to, the
impact of particular rule changes on the general public or on market
participants who are not contract market members and who are not
involved directly in the contract markets' formulation of such rules.
The Commission believes that its prior review procedures help to ensure
that contract markets meet their self-regulatory responsibilities with
respect to all market participants and that rule changes are not
inconsistent with the public interest.
The Commission's prior review procedures also ensure that the
Commission is able to solicit the views of market users, other
regulators, and other interested parties with respect to rule
proposals. These parties often provide valuable insights concerning the
impact of rule proposals that are essential to the Commission's
completing meaningful analyses of contract market submissions. The
Commission believes such oversight also provides additional incentives
for the contract markets to take market users' needs and the public
interest into account in the first instance, thereby improving the
functioning of the self-regulatory process.
The Commission concurs with FIA's comment that Commission
disapproval of contract market rule changes after their implementation
is not a viable alternative to prior Commission review and approval.
The Commission believes that this approach would be inefficient and
could impact market users or the public adversely during the pendency
of a disapproval proceeding by increasing uncertainty in the
marketplace.
Several commenters contended that the Commission's current rule
review procedures cause unwarranted delays in the implementation of
contract market rule changes and put the contract markets at a
competitive disadvantage to foreign futures exchanges and over-the-
counter markets. No evidence was provided, however, to suggest that the
time frames provided for by the proposed rulemaking would create
competitive disadvantages. Notably, all of the commenters conceded that
the Commission's proposed rulemaking would further the goal of
implementing contract market rule changes more promptly. The commenters
differed, however, on whether contract markets would be able to
implement their rule changes promptly enough under the proposed
rulemaking. The Commission believes that its streamlined procedures
will allow contract markets to implement their rule proposals in an
expeditious manner, while still ensuring that the public is protected
from rules that are discriminatory, anti-competitive, or illegal or
that create serious concerns with respect to financial or market
integrity.
NFA stated in its comment letter that the need for timely rule
review and approval is as important to registered futures associations
as it is to contract markets. Accordingly, NFA recommended that the
Commission extend proposed Regulation 1.41(c)'s rule review procedures
to cover the rule changes of registered futures associations. While the
Commission agrees with NFA that it should adopt a streamlined rule
review scheme for registered futures associations, it does not believe
that it would be appropriate to include registered futures associations
within the terms of this rulemaking. Regulation 1.41 was established
expressly for contract market rule proposals and includes procedures
that are inapplicable to registered futures association rules. However,
although the Commission has determined not to make amended Regulation
1.41(c) applicable to registered futures associations, the Commission
will propose a rulemaking in the near future to establish similar rule
review procedures tailored to the types of rules adopted by registered
futures associations. In the interim, the Commission intends to follow
Regulation 1.41(c)'s basic review procedures and deadlines when
reviewing registered futures association rule changes.
B. Regulation 1.41(c)(1)(i)--Form and Content of Submissions
Proposed Commission Regulation 1.41(c)(1)(i) established form and
content requirements for all rules submitted to the Commission pursuant
to Regulation 1.41(c). That proposal preserved the form and content
requirements that currently apply to rules submitted to the Commission
pursuant to Regulation 1.41(b) and Regulation 1.41(c). Proposed
Regulation 1.41(c)(1)(i) also required that Regulation 1.41(c)
submissions include certain other information to help expedite the
Commission's review of such submissions.
Under the current form and content requirements of Commission
Regulation 1.41, contract markets must include in their rule
submissions any substantive views expressed by their members or others
in opposition to a proposed rule.<SUP>5 As a clarification of this
requirement, proposed amended Regulation 1.41(c)(1)(i)(E) specified
that the views
[[Page 10429]]
of opposing governing board members also must be included in proposed
rule submissions. In addition, proposed amended Regulation
1.41(c)(1)(i)(E) provided that the currently-required description of
opposing views must indicate the membership interest categories <SUP>6
of persons who were opposed to the proposed contract market rule.
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\5\ Current Commission Regulation 1.41(b)(5) requires that rule
submissions ``[n]ote and briefly describe any substantive opposing
views expressed by the members of the contract market or others with
respect to the proposed rule.''
\6\ See Section 5a(a)(14)(A) of the Act and Commission
Regulation 1.64(a)(4).
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Proposed Regulation 1.41(c)(1)(i)(F) required that contract markets
specify in their submissions any sections of the Act or the
Commission's regulations that relate to a proposed rule, particularly
citing any such provisions that require Commission approval of the
rule. To the extent a submission was potentially inconsistent with a
provision of the Act or the Commission's regulations, the proposal
required that the submission contain a reasoned analysis addressing
that issue and supporting adoption of the rule. Proposed Regulation
1.41(c)(1)(i)(G) required that contract markets indicate in their
submissions whether they were requesting Commission approval for a
proposed rule.
The CBT, CME, and CSC each objected to proposed amended Regulation
1.41(c)(1)(i)(E)'s requirement that contract market rule submissions
identify the membership interest categories of persons who opposed a
rule proposal. They contended that the provision intruded upon their
internal decision making processes without providing any information
that would be useful to the Commission in its rule review process. CME
and CSC particularly stated that the proposal would force revisions to
their boards' deliberative and voting procedures.
FIA supported the proposed amendment to Commission Regulation
1.41(c)(1)(i)(E). The FIA believed that opposing view information is
especially important given the fact that contract market rules that are
submitted to the Commission pursuant to Regulation 1.41(c) are rarely
published for public comment.
The Commission believes that information about the views and
categories of persons who oppose rule proposals will help the
Commission to ascertain whether others believe that a proposal raises
important issues and to identify rules that should be published for
comment and, thus, will generally benefit the rule review process
overall. Upon receipt, Commission staff now often requests contract
markets submitting rule proposals to supplement their submissions with
information about the views and identities of persons who have
expressed opposition to rule proposals, whether they be board members
or members of the contract market. This information helps alert
Commission staff to potential regulatory issues that are not apparent
from the text of a proposed rule and, thus, helps to focus the staff's
analysis of the proposal. In addition, this information allows the
Commission to avoid the time-consuming process of publishing rule
proposals for public comment, since Commission staff can contact
representative members of the appropriate membership interest category
to obtain their views on particular rule proposals.<SUP>7
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\7\ For example, there have been a number of occasions when
contract market submissions have indicated that a rule proposal was
the subject of a membership vote and that a substantial minority of
members opposed the measure. Based on this information, Commission
staff made further inquiries to determine the views of those
opposing members and took those views into account while reviewing
the rule proposal.
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The Commission agrees with the CME's comment that board members do
not necessarily vote on issues based upon the membership interest
categories they represent. However, the Commission's experience has
been that persons from the same membership interest category often have
common business circumstances which influence their views on contract
market regulatory matters. Accordingly, contract market directors and
members who oppose new rule proposals often express views that reflect
their membership interest categories. The fact that a contract market
member might have views on rule proposals that are particular to his or
her membership interest category is recognized in section 5a(a)(14)(A)
of the Act and Regulation 1.64 which require that contract markets
provide board representation for a diversity of membership interests.
The provision will ensure that the Commission will have opposing
view information when it initiates its review of a rule proposal, thus
obviating the need for Commission staff to obtain such information from
the submitting contract market during the course of a rule's review,
which will be especially helpful to assuring that the Commission will
meet the compressed time frames established by the proposed rulemaking.
The CME contended that proposed amended Regulation 1.41(c)(1)(i)(E)
will put an additional burden on contract market staffs to speak with
each board member who votes against a proposed rule to determine the
reasons for his or her opposition. To clarify, the proposed rulemaking
only will require contract markets to record the views of board members
opposing a rule proposal when such views are openly expressed during
board deliberations. Contract market staffs will not be required to
ascertain the views of an opposing board member when the member does
not express any rationale for his or her opposition.
In its comment letter, NYMEX characterized proposed amended
Regulation 1.41(c)(1)(i) (E) through (G) as informational burdens that
will add to the length of time expended by contract market staff to
prepare a submission and will provide Commission staff with additional
reasons for remitting a rule submission for failing to meet form and
content requirements.
As indicated above, each of these provisions will require contract
markets to include in their initial submissions to the Commission
information which Commission staff often requests of contract markets
during the course of rule reviews. Including this information in
Regulation 1.41(c)'s form and content requirements should speed up the
rule review process considerably by reducing the need to request such
information after a rule is submitted.
For the reasons stated above, the Commission has determined to
adopt amended Regulation 1.41(c)(1)(i) (A) through (E) as proposed. The
Commission has determined, however, to adopt a revised version of
proposed amended Regulation 1.41(c)(1)(F) and not to adopt proposed
amended Regulation 1.41(c)(1)(i)(G).
In its final rulemaking, the Commission has revised Regulation
1.41(c)(1)(i)(F) to require that contract markets identify in their
submissions any provisions of the Act or the Commission's regulations
that may require amendment or interpretation in order to implement a
proposed rule change. Under this requirement, contract markets must
provide the Commission with a reasoned analysis of why such an
amendment or interpretation is necessary. The requirement will permit
the Commission to focus on and to address speedily rules which may
violate provisions of the Act or regulations or require their amendment
or interpretation. The Commission believes that this requirement not
only will facilitate its consideration of various contract market rule
proposals, but also will enable it, to the extent consistent with the
Act and the public interest, to amend its regulations as needed to
permit contract market innovation in an evolving marketplace.
The Commission also believes that proposed amended Regulation
[[Page 10430]]
1.41(c)(1)(i)(G), which required a contract market to indicate
expressly whether it was requesting approval of a proposed rule, is not
necessary and may be deleted from the final rulemaking. Commission
staff will review each rule proposal to determine whether or not it
requires Commission approval under any provision of the Act or the
regulations and will treat it accordingly. Of course, to the extent
that a proposed rule does not require Commission approval, but the
submitting contract market desires approval, the contract market must
clearly request approval in its submission.
C. Regulation 1.41(c)(1)(ii)--Failure To Meet Form and Content
Requirements
Proposed Regulation 1.41(c)(1)(ii) permitted the Commission to
remit rule proposals that did not comply with the form and content
requirements of Regulation 1.41(c)(1)(i). This provision simply
replicated the remittal authority set forth in current Regulation
1.41(b) and Regulation 1.41(c). The CBT, CME, and CSC each objected to
this provision on the grounds that the Commission uses its remittal
authority to delay and to prevent the implementation of contract market
rule proposals. The CBT in particular stated that Commission staff uses
its remittal authority to raise questions that are unrelated to the
threshold question of whether a rule proposal would violate the Act or
the Commission's regulations.
The Commission believes that retaining the authority to remit
incomplete submissions is essential to its ability to make reasoned
analyses as to whether proposed contract market rules are consistent
with the Act and the Commission's regulations. The Commission believes
that it is sometimes impossible to determine the operation, purpose and
effect of proposed rules based solely on their text. Regulation 1.41's
form and content requirements have been formulated accordingly. The
Commission believes that reserving the authority to remit incomplete
submissions disciplines the submission process by assuring that
contract markets adequately explain their proposals at the outset. This
discipline is even more essential under the proposed rulemaking's
compressed time frames.
As previously noted, the public comment process frequently
identifies or focuses issues. The Commission's remittal authority also
helps to ensure that contract markets will supplement their submissions
where necessary to address issues identified by commenters during the
comment process.
For the reasons stated above, the Commission has determined to
adopt amended Regulation 1.41(c)(1)(ii) as proposed.
D. Regulation 1.41(c)(1)(iii)--Extension of Review Period
Proposed Regulation 1.41(c)(2) provided that proposed non-term and
condition rule changes would be deemed approved or be allowed to go
into effect without approval, as appropriate, ten days after their
receipt by the Commission unless they were retained by the Commission
for further review. Proposed Regulation 1.41(c)(1)(iii) specified that
the Commission could extend the ten-day review period to 45 days (75
days when a rule was published for public comment), if the Commission
determined within ten days of receipt that the rule ``raises novel or
complex issues which require additional time for review or is of major
economic significance'' and so notified the submitting contract market.
Such types of rule proposals might include:
(1) Rules relating to the financial integrity of markets or their
participants (e.g., CME establishment of Globex Foreign Exchange
Facility to serve as market maker for certain CME foreign currency
futures contracts traded through the Globex system (approved by the
Commission on August 9, 1996)); (2) rules establishing novel trading
procedures or providing for non-competitive trading (e.g., CME LOX
program which substitutes an electronic order execution facility for
open outcry execution of large lot currency contracts (approved by the
Commission on March 18, 1993), CME rule amendment restricting exchange
for physical transactions in Eurodollar futures contracts (approved by
the Commission on November 29, 1995), CME rule amendment establishing
all-or-none order-filling procedures whereby certain designated orders
can only be executed in their entirety (approved by the Commission on
May 2, 1996)); (3) rules providing for the differential treatment of
different classes of market participants (e.g., broker incentive
programs at various contract markets); (4) rules establishing linkages
among exchanges (e.g., establishment of mutual offset system between
CME and Singapore Monetary Exchange (approved by the Commission on
August 28, 1989)); (5) rules relating to the application of new
technology to the marketplace (e.g., CME's Globex trading system
(approved by the Commission on February 8, 1989), CBT's Project A
trading system (approved by the Commission on October 19, 1992),
NYMEX's ACCESS trading system (approved by the Commission on December
17, 1992)); and, (6) rules raising customer protection issues (e.g.,
CME rules allocating liability in connection with the operation of the
Globex trading system (allowed to go into effect without approval by
the Commission on September 27, 1991), CBT rule establishing post
settlement trading sessions (allowed to go into effect without approval
by the Commission on April 14, 1992)).
CME commented that the proposed bases for extending Commission
review of a rule proposal would not necessarily have any nexus with a
determination of whether the proposal would violate the Act or the
Commission's regulations. To the contrary, Commission review always is
directed towards making such a determination. The Commission believes
that these are the types of rules that the Commission may require
additional time to review carefully.<SUP>8 Indeed, FIA pointed out in
its comment letter that the types of rules listed in the Commission's
proposed rulemaking release as possibly needing more than ten days of
review are precisely the types of rules that FIA saw as raising
sufficiently important issues to require it to submit comments to the
Commission in the past. Similarly, MFA commented that Commission
retention of rule proposals that raise novel or complex issues for
further review would be beneficial as it would enable the Commission to
focus its inquiries, while still permitting the contract markets to
implement rule changes in an efficient manner.
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\8\ Of course, proposed Regulation 1.41(c)(1)(iii) would not
mandate Commission retention of all rules that raise such novel or
complex issues or that are of major economic significance. The
Commission would only have the discretion to retain such rules for
further review.
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As the CBT pointed out in its comment letter, under section
5a(a)(12)(A) of the Act, Commission staff may not itself extend the
ten-day review period for non-term and condition rule changes that do
not require approval. Absent the consent of the submitting contract
market, the Commission may only retain such rule proposals for further
review if ``the Commission notifies such contract market in writing of
its determination to review such rules for approval.'' This
determination is not delegable to Commission staff.
For the reasons stated above, the Commission has determined to
adopt amended Regulation 1.41(c)(1)(iii) as proposed.
[[Page 10431]]
E. Regulation 1.41(c)(2)--Action Within Ten Days
Proposed Regulation 1.41(c)(2) provided that proposed non-term and
condition rule changes that required approval or that could be placed
into effect without approval would ``be deemed approved or be placed
into effect, as appropriate, ten days after Commission receipt,''
unless the Commission notified the submitting contract market
otherwise.
NFA in its comment letter requested clarification as to the meaning
of ``as appropriate'' in this provision. Rule changes submitted to the
Commission pursuant to proposed Regulation 1.41(c) generally would be
deemed approved or be allowed to go into effect without approval, as
requested in the contract market's submission, at the conclusion of the
ten-day review period. In those instances where a submitting contract
market did not request particular treatment for a rule proposal or
requested improper treatment (i.e., requested that the Commission allow
into effect without approval a rule change that required Commission
approval), the Commission would determine what treatment would be
appropriate for the submission and would deem approved those rules that
required approval and allow into effect those rules that did not
require approval.<SUP>9 The Commission's use of the term ``as
appropriate'' in proposed Regulation 1.41(c)(2) is intended to cover
these various possible applications.
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\9\ Regulation 1.41(c) would apply to all non-term and condition
rule changes. Accordingly, the provision would cover: (1) Rule
changes that do not require Commission approval under section
5a(a)(12)(A) of the Act and may be placed into effect ten days after
Commission receipt; (2) rule changes that require approval under a
provision of the Act other than section 5a(a)(12)(A); (3) rule
changes as to which the submitting contract market requests
approval; and (4) changes which the Commission determines to review
for approval.
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The Commission has determined to adopt amended Regulation
1.41(c)(2) as proposed.
F. Regulation 1.41(c)(3)--Action Within 45 or 75 days
Under proposed Regulation 1.41(c)(3), any proposed rule that the
Commission retained for further review under Regulation 1.41(c)(1)(iii)
generally would be ``deemed approved or placed into effect, as
determined by the Commission,'' 45 days after Commission receipt (or 75
days in the case of rules that were published for comment in the
Federal Register).
NFA requested clarification as to the meaning of ``as determined by
the Commission'' in proposed Regulation 1.41(c)(3). Any rule proposal
that was retained for the extended 45-day (or 75-day) review period
would necessarily be considered for Commission approval.<SUP>10 Under
section 5a(a)(12)(A) of the Act, rule proposals that are being
considered for approval must either be approved by the Commission or be
subjected to a disapproval proceeding within 180 days of Commission
receipt.<SUP>11 If the Commission does not take either course of action
within 180 days, the proposed rule ``may be made effective by the
contract market until such time as the Commission disapproves such
rule.''
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\10\ As indicated in footnote 9 above, the Commission would
consider two types of rules under proposed Regulation 1.41(c)--rules
which would receive Commission approval (based upon either the
submitter's request, the Commission's discretion, or a statutory
requirement) and rules which could be placed into effect without
Commission approval. Under section 5a(a)(12)(A) of the Act, the
Commission must act upon rules which may be placed into effect
without Commission approval within ten days of receipt. Absent the
consent of the submitting contract market, the only way to extend
the review period for such types of rule submissions is if the
Commission itself decides to review the submission for approval, in
which case the Commission has 180 days to act on the rule proposal.
\11\ Under section 5a(a)(12)(A), the Commission must
``institute'' disapproval proceedings within 180 days of receipt.
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By providing the Commission with the discretion to ``determine''
either to approve a proposed rule or to allow it into effect at the end
of the 45-day (or 75-day) review period, proposed Regulation 1.41(c)(3)
would replicate the options currently available to the Commission under
section 5a(a)(12)(A) of the Act at the end of the 180-day review
period. The proposed rulemaking would simply compress the time frame
for this determination from 180 to 45 (or 75) days.
The CBT suggested in its comment letter that the Commission does
not need to use the public comment process for exchange rule proposals
and, therefore, the Commission's proposed rulemaking need not provide
for an extended review period for rules published in the Federal
Register. By contrast, FIA stated that it was essential to retain this
process to provide an opportunity for the public to comment on rule
proposals that raise novel or complex issues.
The Commission notes that, under section 5a(a)(12)(A) of the Act,
it is required to publish in the Federal Register for public comment
any proposed rule of major economic significance. The Commission also
publishes significant rule changes, from time to time, when it believes
that it is in the public interest to do so.
The Commission rarely publishes Regulation 1.41(c) proposals for
comment.<SUP>12 Nonetheless, the Commission believes that it is
important for it to solicit the views of persons and entities that
might be affected by significant contract market rule proposals. By
providing a 30-day extension of the review period for rules that are
published in the Federal Register, the proposed rulemaking would
provide the Commission with a reasonable amount of time to review and
analyze contract market rule proposals in light of any comments
received. The Commission believes that the ability to extend review to
accommodate public comment should balance the need of contract markets
to adapt to new circumstances with the Commission's need to assure that
the public's concerns and views are considered in appropriate cases.
Under revised Regulation 1.41(c), the review period for proposed rules
which are published for comment would still be considerably shorter
than the current 180-day statutory review period.
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\12\ Since January 1, 1995, the Commission has published only
the following three Regulation 1.41(c) submissions for public
comment in the Federal Register: (1) A CME proposal to revise margin
requirements for certain CME members (60 FR 54339 (October 23,
1995)); (2) a CME proposal to establish a wholly-owned subsidiary
which would function as a market maker for certain CME foreign
exchange currency futures contracts traded through the Globex system
(61 FR 9678 (March 11, 1996)); and (3) a CME proposal to permit
commodity trading advisors to obtain Globex terminals to trade for
their proprietary accounts and the accounts that they manage (61 FR
21162 (May 9, 1996)).
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For the reasons stated above, the Commission has determined to
adopt amended Regulation 1.41(c)(3) as proposed.
G. Regulation 1.41(c)(4)--Disapproval Proceedings
Under proposed Regulation 1.41(c)(4), any Commission notice to a
contract market that the Commission intended to commence disapproval
proceedings with respect to a proposed rule change would be required to
specify the nature of the issues raised by the proposal and the
sections of the Act or the Commission's regulations that the rule
appeared to violate. Under the provision, the submitting contract
market would have 15 days from the issuance of the notification either
to withdraw the proposal or to request that the Commission consider the
proposal pursuant to the regular 180-day review procedures of section
5a(a)(12)(A) of the Act. If the submitting contract market chose
neither of these options, the Commission would commence disapproval
proceedings no later than
[[Page 10432]]
30 days after its issuance of the notification. Thus, under the
proposed rulemaking, disapproval proceedings would commence no later
than 75 days after a rule's submission (or 105 days in the case of
rules that were published for comment in the Federal Register).
The Commission received a number of comments asking for
clarifications of how proposed Regulation 1.41(c)(4) would be applied.
NFA questioned whether a Commission notice to a contract market to
institute disapproval proceedings under Regulation 1.41(c)(4) should be
issued publicly. NFA believed that public notification at this stage
would be inappropriate given that the submitting contract market might
withdraw its proposal or grant the Commission additional review time.
Under Regulation 1.41(c)(3), if the Commission decided to institute a
disapproval proceeding for a rule proposal, it would notify the
submitting contract market no later than 45 days after the rule's
submission (or 75 days if the rule was published for comment). While
the Commission would not publicize this notice in the Federal Register,
it would be a matter of public record under Regulation 145.2 and
Appendix A to the Part 145 Regulations, unless subject to the
confidentiality restrictions of Regulation 145.5. If the contract
market did not withdraw its proposal or extend the proposal's review
period within 15 days of the issuance of such notice, the Commission
would commence formal disapproval proceedings consistent with the
procedures required by the Act and the Commission's regulations.<SUP>13
When commencing such proceedings, the Commission would provide the
submitting contract market and any other possibly interested parties
with an opportunity to present their views on the matter to the
Commission. However, if the submitting contract market withdrew the
rule and offered to amend it, the Commission would not commence such a
proceeding while the contract market attempted to resolve any
regulatory issues.
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\13\ A contract market also could choose to amend its rule
proposal and have it considered pursuant to the 180-day review
procedures of section 5a(a)(12)(A) of the Act. A contract market
could, of course, choose to withdraw its proposal and re-submit an
amended version, thereby resetting the time for review.
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NFA also commented that the Commission and submitting contract
markets may want to extend any of proposed Regulation 1.41(c)(4)'s
various deadlines for disapproval proceedings in order to reach
compromise agreements on the disposition of rule proposals. The
Commission agrees with NFA and believes that Regulation 1.41(c)'s
deadlines, including disapproval proceeding deadlines, could be
extended upon the mutual agreement of the Commission and the subject
contract market.
FIA asked for clarification on Regulation 1.41(c)(4)'s deadline for
the conclusion of a disapproval proceeding. Upon the commencement of a
disapproval proceeding under this provision, the Commission would
follow the procedures currently mandated by section 5a(a)(12)(A) of the
Act. That provision states that the Commission must ``conclude a
disapproval proceeding with respect to any rule within one year after
receipt or within such longer period as the contract market may agree
to.'' If such a proceeding is not concluded within the prescribed time,
the rule proposal may be deemed effective until such time as the
Commission disapproves the rule.
For the reasons stated above, the Commission has determined to
adopt Regulation 1.41(c)(4) with one clarification. Under the final
rulemaking, a contract market would have 15 days from the receipt of a
disapproval proceedings notice to withdraw or to extend the review
period for its proposal. Under the proposed rulemaking, a contract
market had to respond within 15 days from the date of issuance of such
a notice.
IV. Conclusion
The Commission has determined to adopt Regulation 1.41(c) with
three modifications from the original proposed rulemaking.
Specifically, Regulation 1.41(c)(1)(i)(F) has been revised to require
that contract markets identify any provisions of the Act or the
Commission's regulations that may require amendment or interpretation
in order to implement a proposed rule change. In addition, the
Commission has deleted proposed Regulation 1.41(c)(1)(i)(G) and its
requirement that contract markets expressly indicate in their
submissions whether they are requesting rule approval. Finally,
Regulation 1.41(c)(4) has been revised to clarify when contract markets
must respond to notices to institute disapproval proceedings.
Although Commission Regulation 1.41(c), by its own terms, applies
only to Commission review of contract market rule proposals, the
Commission will propose a regulation with similar rule review
procedures for registered futures associations in the near future. In
the interim, the Commission will abide by the requirements of
Regulation 1.41(c) when reviewing rule proposals from registered
futures associations.
In formulating these new rule amendments, the Commission has
attempted to balance the objective of meaningful review of contract
market rule proposals under the Act with the contract markets'
reasonable desire to implement their proposals as expeditiously as
possible. Upon the implementation of amended Regulation 1.41(c), the
Commission will continue to monitor the rule review process closely
and, based upon its experience, may consider further refinements to
these procedures in the future.
Amended Commission Regulation 1.41(c) will become effective 30 days
after its publication in the Federal Register. All contract market rule
proposals submitted to the Commission after that date will be subject
to Regulation 1.41(c)'s new review procedures. Contract market rules
that are pending with the Commission at the time of amended Regulation
1.41(c)'s effective date will continue to be subject to Regulation
1.41's current review procedures.
V. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires that agencies, in promulgating rules, consider the impact of
those rules on small businesses. The Commission has previously
determined that contract markets are not ``small entities'' for
purposes of the RFA.<SUP>14 This rulemaking establishes streamlined
procedures for the review of contract market proposed non-term and
condition rule changes. Accordingly, the Chairperson, on behalf of the
Commission, hereby certifies, pursuant to section 3(a) of the RFA, 5
U.S.C. 605(b), that the action taken herein will not have a significant
economic impact on a substantial number of small entities.
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\14\ See 47 FR 18618, 18619 (April 30, 1982).
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B. Agency Information Activities: Proposed Collection; Comment Request
The Paperwork Reduction Act of 1980 (``PRA''), 44 U.S.C. 3501 et
seq., imposes certain requirements on federal agencies (including the
Commission) in connection with their conducting or sponsoring any
collection of information as defined by the PRA. While this rulemaking
has no burden, the group of rules (3038-0022) of which it is a part has
the following burden:
Average burden hours per response--3,546.26
Number of respondents--10,971.00
[[Page 10433]]
Frequency of response--On Occasion
Copies of the information collection submission to Office of
Management and Budget are available from Gerald P. Smith, Clearance
Officer, Commodity Futures Trading Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC 20581. Telephone: (202) 418-5160.
List of Subjects in 17 CFR Part 1
Commodity exchanges, Contract markets, Rule review procedures.
In consideration of the foregoing, and based on the authority
contained in the Commodity Exchange Act and, in particular, sections
4c, 5, 5a, 6 and 8a thereof, 7 U.S.C. 6c, 7, 7a, 8 and 12a, the
Commission hereby amends title 17, chapter I, part 1 of the Code of
Federal Regulations as follows:
PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT
1. The authority citation for part 1 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a, 6b, 6c, 6d, 6e, 6f,
6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 8, 9, 12, 12a, 12c,
13a, 13a-1, 16, 16a, 19, 21, 23, and 24.
2. Section 1.41(c) is revised to read as follows:
Sec. 1.41 Contract market rules; submission of rules to the
Commission; exemption of certain rules.
* * * * *
(c) Rules that do not relate to terms and conditions. (1)(i) Except
as provided in paragraphs (d) and (f) of this section (exempt or
temporary emergency rules), each contract market shall submit to the
Commission pursuant to section 5a(a)(12)(A) of the Act prior to the
proposed effective dates all proposed rules that do not relate to terms
and conditions. One copy of the rule shall be furnished to the
Commission at its Washington, DC headquarters, and one copy shall be
transmitted by the contract market to the regional office of the
Commission having local jurisdiction over the contract market. Each
such submission under this paragraph (c) shall, in the following order:
(A) State that it is being submitted pursuant to Commission
regulation 1.41(c);
(B) Set forth the text of the proposed rule (in the case of any
change in, addition to, or deletion from any current rule of the
contact market, the current rule shall be fully set forth, with
brackets used to indicate words to be deleted and underscoring used to
indicate words to be added);
(C) Describe the proposed effective date of the proposed rule and
any action taken or anticipated to be taken to adopt the proposed rule
by the contract market, or by the governing board thereof or any
committee thereof, and cite the rules of the contract market which
authorize the adoption of the proposed rule;
(D) Explain the operation, purpose, and effect of the proposed
rule, including, as applicable, a description of the anticipated
benefits to market participants or others, any potential
anticompetitive effects on market participants, or others, how the rule
fits into the contract market's scheme of self-regulation, information
which demonstrates that the proposed rule is not inconsistent with the
policies and purposes of the Act, and any other information which may
be beneficial to the Commission in analyzing the proposed rule. If a
proposed rule affects, directly or indirectly, the application of any
other rule of the contract market, set forth the pertinent text of any
such rule and describe the anticipated effect;
(E) Note and briefly describe any substantive opposing views
expressed by governing board members, members of the contract market,
or others with respect to the proposed rule which were not incorporated
into the proposed rule prior to its submission to the Commission. Any
such description also should identify the membership interest
categories, as that term is defined by Commission regulation
1.64(a)(4), of persons who were opposed to the proposed rule; and,
(F) Identify any sections of the Act or the Commission's
regulations that the Commission may need to amend or interpret in order
to approve or allow into effect the proposed rule. To the extent that
such an amendment or interpretation is necessary to accommodate a
proposed rule, the contract market must provide a reasoned analysis
supporting its submission.
(ii) The Commission may remit to the contract market, with an
appropriate explanation where practicable, and not accept for review
any rule submission that does not comply with the form and content
requirements of paragraphs (c)(1)(i) (A) through (F) of this section.
(iii) The Commission may notify the contract market within ten days
after receipt of a submission filed pursuant to paragraph (c)(1) of
this section, that the proposed rule raises novel or complex issues
which require additional time for review or is of major economic
significance and therefore that the review period has been extended as
specified in paragraph (c)(3) of this section. This notification will
briefly specify the nature of the issues for which additional time for
review is required.
(2) All proposed contract market rules submitted for review under
paragraph (c) of this section may be deemed approved or be placed into
effect, as appropriate, ten days after Commission receipt (or at such
earlier time as may be determined by the Commission) unless:
(i) The Commission notifies the contract market that the submission
does not comply with the form and content requirements of paragraph
(c)(1)(i) of this section;
(ii) The Commission notifies the contract market that the review
period for the submission has been extended pursuant to paragraph
(c)(1)(iii) of this section; or
(iii) The contract market agrees to another, specified review
period.
(3) Any rule for which the Commission extends the review period
pursuant to paragraph (c)(1)(iii) of this section may be deemed
approved or be placed into effect, as determined by the Commission,
forty-five days after Commission receipt of such rule or seventy-five
days after Commission receipt in the case of rules that have been
published for comment in the Federal Register (or at such earlier time
as may be determined by the Commission) unless the Commission notifies
the contract market that:
(i) The submission, including any supplementary materials and in
consideration of any comments from the public or other government
agencies, does not comply with the form and content requirements of
paragraph (c)(1)(i) of this section; or
(ii) The Commission intends to institute a proceeding to disapprove
the rule pursuant to the procedures specified in section 5a(a)(12)(A)
of the Act.
(4) A notice of intention to commence a disapproval proceeding
issued pursuant to paragraph (c)(3) of this section will:
(i) Identify the nature of the issues raised by the proposed rule
and the specific sections of the Act or the Commission's regulations
that the rule appears to violate; and,
(ii) State that the Commission may commence disapproval proceedings
for the proposed rule within thirty days after the Commission's
issuance of the notification, unless within fifteen days of receipt of
such notice the contract market:
(A) Withdraws the rule, or
(B) Requests the Commission to review the rule pursuant to the one
[[Page 10434]]
hundred and eighty day review procedures set forth in section
5a(a)(12)(A) of the Act.
* * * * *
Issued in Washington, D.C. on February 27, 1997, by the
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-5568 Filed 3-6-97; 8:45 am]
BILLING CODE 6351-01-P
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