[Federal Register: February 3, 1999 (Volume 64, Number 22)] [Proposed Rules] [Page 5200-5206] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr03fe99-26] ======================================================================= ----------------------------------------------------------------------- COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 15 and 17 Changes in Reporting Levels for Large Trader Reports AGENCY: Commodity Futures Trading Commission. ACTION: Proposed Rulemaking. ----------------------------------------------------------------------- SUMMARY: As part of its regulatory reform initiative, the Commodity Futures Trading Commission (Commission or CFTC) is proposing to amend Parts 15 and 17 of its rules, 17 CFR Parts 15 and 17. The proposed amendments to Part 15 would raise the reporting levels at which futures commission merchants (FCMs), clearing members, foreign brokers,\1\ and traders must file large trader reports in certain commodities. The Commission is also proposing to delete the requirement that where an independent account controller trades for a number of commodity pools, the carrying firm must identify separately each such commodity pool. In addition, the proposed amendments would delete current reporting Rule 17.01(c) under which a reporting firm must identify the number and name of other accounts not included in the special account that are controlled or owned by the trader. --------------------------------------------------------------------------- \1\ FCMs, clearing members and foreign brokers are referred to herein collectively as ``firms.'' --------------------------------------------------------------------------- The Commission is also proposing to reorganize the identifying information reported by large traders on CFTC Form 40 ``Statement of Reporting Trader'' to obtain and present data more useful to the Commission's market surveillance activities. The proposed amendments would streamline the reporting process and would substantially lessen the burden on persons reporting, as well as the processing workload of the Commission, without compromising the integrity of the Commission's large trader reporting system, its market surveillance activities or its oversight responsibilities. DATES: Comments on this proposed rulemaking should be submitted on or before April 5, 1999. ADDRESSES: Comments should be mailed to the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, attention: [[Page 5201]] Office of the Secretariat; transmitted by facsimile at (202) 418-5521; or transmitted electronically at [[email protected]]. Reference should be made to ``Large Trader Reporting Rules.'' FOR FURTHER INFORMATION CONTACT: Lamont L. Reese, or Kimberly A. Browning, Attorney/Advisor, Division of Economic Analysis, Three Lafayette Centre, 1155 21st Street, NW, Washington, D.C. 20581, telephone (202) 418-5600, or electronically [[email protected]] or [[email protected]]. SUPPLEMENTARY INFORMATION: I. Background Over the past two years, the Commission has implemented a program of regulatory reform and modernization to reduce unnecessary burdens on the futures industry while maintaining the important public protections embodied in the Commodity Exchange Act. In particular, the Commission has eliminated duplicative regulatory requirements, reduced unnecessary paperwork burdens and updated its regulatory scheme to reflect changes in the market place. In doing so, the Commission has sought to maintain the regulatory safeguards relied upon by the public. The rule reform initiatives have included a fast-track procedure for Commission review and approval of new contract market designations and exchange rule amendments, 62 FR 10434 (March 7, 1997). The Commission is also considering a proposal to streamline designation applications and to modify its speculative position limits. See, 63 FR 38537 (July 17, 1998) and 63 FR 38525 (July 17, 1998), respectively. As part of its regulatory reform program, the Commission has re-examined its rules regarding its large-trader reporting system. The Commission's large- trader reporting system is an important Commission oversight tool. These rules require FCMs to report to the Commission position information of the largest futures and options traders and require the traders themselves to provide certain identifying information. Reporting levels are set in the designated futures and option markets under the authority of sections 4i and 4c of the Act to ensure that the Commission receives adequate information to carry out its market surveillance programs. These market surveillance programs are designed to detect and to prevent market congestion and price manipulation and to enforce speculative position limits. They also provide information regarding the overall hedging and speculative use of, and foreign participation in, the futures markets and other matters of public interest. Generally, large trader reports are filed by the firm carrying the reportable trader's position.\2\ --------------------------------------------------------------------------- \2\ Specifically, Parts 17 and 18 of the regulations require reports from firms and traders, respectively, when a trader holds a ``reportable position.'' A reportable position is any open contract position that at the close of the market on any business day equals or exceeds the quantity specified in Commission Rule 15.03 in either: (1) Any one future of any commodity on any one contract market, excluding futures contracts against which notices of delivery have been stopped by a trader or issued by the clearing organization of a contract market; or (2) Long or short put or call options that exercise into the same future of any commodity on any one contract market. 17 CFR 15.00 and Part 150. The firms which carry accounts for traders holding ``reportable positions'' are required to identify those accounts by filing a CFTC Form 102, discussed infra, and to report all reportable positions in the accounts to the Commission. The individual trader who holds or controls the reportable position, however, is required to report to the Commission only in response to a special call. --------------------------------------------------------------------------- The Commission periodically reviews information concerning trading volume, open interest, and the number and position sizes of individual traders relative to the reporting levels for each market to determine if coverage of open interest is adequate for effective market surveillance. In this regard, the Commission also is mindful of the paperwork burden associated with these reporting requirements and reviews them with an eye to streamlining that burden to the extent compatible with its responsibilities for rigorous surveillance of the futures and option markets. The Commission's most recent review of reporting levels indicates that the size of trading volume, open interest, and position of individual traders would enable the Commission to raise reporting levels as follows: (1) Lean Hogs from 50 to 100 contracts, (2) Rough Rice from 25 to 50 contracts, (3) Goldman Sachs Commodity Index from 25 to 100 contracts, (4) Soybean Oil from 175 to 200 contracts, (5) Soybean Meal from 175 to 200 contracts, (6) 1-Month LIBOR from 100 to 300 contracts, (7) 30-Day Fed Funds from 100 to 300 contracts, (8) 3-Month Eurodollars from 850 to 1000 contracts, (9) 3-Month Euroyen from 25 to 100 contracts, (10) 2-Year US Treasury Notes from 200 to 500 contracts, (11) 5-Year US Treasury Notes from 300 to 800 contracts, (12) 10-Year US Treasury Notes from 500 to 1000 contracts, (13) 30-Year US Treasury Bonds from 500 to 1000 contracts, (14) Municipal Bond Index from 100 to 300 contracts, (15) Dow Jones Industrial Average Index from 25 to 100 contracts, (16) NASDAQ 100 Stock Index from 25 to 100 contracts, (17) NIKKEI Stock Average from 50 to 100 contracts, (18) Russell 2000 Stock Index from 25 to 100 contracts, (19) S&P 400 Midcap Stock Index from 25 to 100 contracts, (20) S&P 500 Stock Index from 600 to 1000 contracts, (21) Crude Oil from 300 to 350 contracts, (22) Natural Gas from 100 to 175 contracts, and (23) Sugar 11 from 300 to 400 contracts.\3\ --------------------------------------------------------------------------- \3\ The Commission also is proposing to delete Rule 15.03's separate reference to ``GNMA,'' a contract that is now currently dormant. See, 17 CFR 5.2(a). Under this proposal, if trading in GNMAs were to be reactivated, the reporting level would be 25 contracts. --------------------------------------------------------------------------- Reporting levels for foreign currencies would also be modified. Currently, Commission Rule 15.03 does not distinguish among foreign currencies, setting a uniform standard for all. However, surveillance of contracts on currencies of the major economies requires fewer large trader reports than for contracts on the currencies of the emerging markets. Accordingly, the Commission is proposing to amend Rule 15.03 to classify the European currency unit (and its successor, the Euro) and the currencies of Japan, Germany, the UK, France, Italy, Canada, Australia, Switzerland, Sweden, Belgium, and the Netherlands as ``Major Foreign Currencies'' and to raise the reporting level applicable to them to 400 from the current level of 200 contracts. In addition, the Commission is proposing to lower the reporting level for all other foreign currencies \4\ to 100 contracts in order to obtain needed information in surveilling these contracts.\5\ In addition, the Commission is proposing a 100 contract reporting level for any contract having one of the other foreign currencies as a constituent part of a crossrate contract.\6\ --------------------------------------------------------------------------- \4\ Futures contracts classified in ``Other Foreign Currencies'' with open interest during the first two weeks in December 1998 included the Mexican Peso, Russian Ruble, Brazilian Real, New Zealand Dollar and the South African Rand. All currencies had positions reportable at the current, 200-contract level. \5\ Because exchange large trader reporting levels for these currencies presently are either at or below 100 contracts, the Commission anticipates that there will be a small additional cost to reporting firms to provide the information to the Commission. The Commission specifically invites comments from interested persons on the extent of this additional reporting burden. \6\ Cross-rate contracts which are composed of two major currencies would also be considered to be a major currency. --------------------------------------------------------------------------- The Commission is also proposing to list the reporting levels for the grains and soybeans in terms of contracts rather than bushels. Prior to January 1998, it was industry practice to express open interest and volume data, as well as required position reports, for the [[Page 5202]] grain and soybean futures contracts, in terms of thousands of bushels. Beginning in 1998, however, industry practice for the grains and soybean contracts changed to express data for these contracts in contract units, which is consistent with the data for all other futures and option contracts. The Commission is proposing to conform its reporting levels to this practice. The Commission's long-standing administrative practice has been to set reporting levels by commodity and not by individual contract market. Consistent with this long-standing policy, although contracts on the MidAmerica Commodity Exchange (MACE) are smaller in size than those traded on other exchanges,\7\ the Commission is not proposing to adjust the reporting level for MACE contracts to compensate for the smaller bushel-size of its contracts. This will result in a MACE trader's reporting level being set at a lower absolute number of bushels than the number of bushels underlying a reportable position on the exchanges that trade larger-sized contracts.\8\ Although the number of reporting traders on MACE contracts may increase by expressing the reporting level in contracts rather than bushels, existing data cannot precisely gauge whether, or to what degree, the reporting burden will be changed as a result. Of course, the Commission would propose to amend these reporting levels if, based upon actual experience after their adoption, the proposed MACE levels resulted in too many or too few reports. The Commission specifically invites comments on this matter from interested persons. --------------------------------------------------------------------------- \7\ Specifically, for example, the contract size for wheat, corn, oats and soybean futures contracts traded on MACE is 1,000 bushels, rather than the 5,000 bushel size contract traded on other exchanges. \8\ The current convention of expressing reporting levels for all of the contract markets in bushels does not raise this issue. --------------------------------------------------------------------------- The Commission estimates that these proposed amendments to adjust reporting levels will decrease the number of daily position reports (i.e., CFTC Series '01 Reports and CFTC Form 102s) required to be filed by reporting firms by about 14 percent. (The number of CFTC Form 40s required to be filed by large traders will also decrease). However, the percent of total market open interest reported through the large trader system would remain at the level deemed sufficient for rigorous market surveillance based upon the Commission's administrative experience. Not all reporting firms may elect to avail themselves of this relief. In this regard, the exchanges also maintain large trader reporting systems that are similar in most respects to the Commission's. The exchanges set their own reporting level, which for particular contracts may vary from Commission levels. When exchange levels are lower than the Commission's, firms may report to the Commission at the lower exchange level, thereby saving any cost associated with reprogramming their reporting systems to reflect the proposed increases to the Commission's levels. The Commission, however, accepts information on CFTC Forms 40 and 102 only for positions that exceed its levels. Since these forms are filed manually, raising the reporting levels will always result in reducing firm costs by reducing the amount of paperwork firms must generate. II. Proposed Amendments to Special Account Information (CFTC Form 102) In addition to the daily large trade position data discussed above, Part 17 of the Commission's regulations requires that firms report to the Commission when an account first becomes reportable. When a trade first exceeds a reporting level, the firm labels the account a ``special account.'' \9\ The firm must also file with the Commission Form 102.\10\ CFTC Form 102 identifies persons who have a financial interest in or trading control of a special account, informs the Commission of the type of account that is being reported and gives preliminary information whether positions and transactions are commercial or noncommercial in nature. Certain information included on the Form 102 no longer is needed for the operation of the Commission's surveillance data systems or by routine report from firms. --------------------------------------------------------------------------- \9\ The firm assigns a reporting number to the special account and reports all information to the Commission using this number. \10\ Commission Rule 17.01, 17 CFR 17.01. The CFTC Form 102 must also be updated when information concerning financial interest in, or control of, the special account changes. 17 CFR 17.02. --------------------------------------------------------------------------- Specifically, Commission Rule 17.01(b)(3) provides that a firm identify on Form 102 each pool, the pool's account number and name, as well as the name and location of the commodity pool for which the account controller trades. In addition, Commission Rule 17.01(c) requires that a trader identify on a Form 102 the names and account numbers of all other separate accounts that the reporting trader controls or in which the trader has a ten percent or greater financial interest. (``other accounts'').\11\ --------------------------------------------------------------------------- \11\ For example, when an individual shares control of and has a financial interest in an account with one or more persons, and that individual also has his or her own account that he or she solely controls, these accounts would not be reported as a single account for special account/Form 102 reporting purposes. See, Commission Rule 17.00(b)(ii). --------------------------------------------------------------------------- These requirements are duplicative of more complete information on account ownership and control filed by the traders themselves on CFTC Form 40, as required by Commission rule Sec. 18.04. Based upon the information reported on the Form 40, the Commission's compliance programs are able to make the necessary account aggregations without the need for firms to furnish the above information, as well. Because neither of these categories of information, as reported routinely by firms, any longer facilitates the Commission's market surveillance program in any significant respect, and their deletion may substantially reduce the over all burden of the firm's required reporting on the Form 102, the Commission is proposing to streamline the reporting process by deleting the requirements under 17.01(b)(3) and (c) as described above. Of course, the proposed deletion of these routine requirements will not in any way affect the Commission's authority to obtain complete account information from either or both the firm and the individual trader in those individual cases where additional information is necessary to the Commission's conduct of market surveillance or to the enforcement of its rules. Nor does it affect the manner in which accounts are aggregated for calculation of compliance with speculative position limits and for other compliance purposes. Accordingly, the Commission is proposing that Sec. 17.01 be amended by deleting those sections of the rule requiring that special account data reflected on Form 102s must include specific information on commodity pools and pool operators, as well as ``other account'' data required by Sec. 17.01(c). The Commission believes that these proposed amendments to streamline Sec. 17.01 would reduce the reporting burden on the public and the processing workload of the Commission. III. Proposed Changes to Statement of Reporting Trader (CFTC Form 40) Under Part 18 of the Commission's regulations, traders who own or control reportable positions are required to file a CFTC Form 40 on call by the Commission or its delegee disclosing information about the ownership or [[Page 5203]] control of their futures and option positions. The Commission is proposing to reorganize the Form 40 to present data in a more useful manner. In particular, the commission is proposing to redesign ``Schedule 1'' to clarify information regarding the reporting trader's hedging activities. This information includes the types of futures or options contracts used to hedge, the commercial occupations or merchandising activities of traders and the futures or option markets used for hedging. Although the information required would remain essentially the same, the Commission is proposing that the data reflected on Schedule 1 be reorganized to emphasize occupations and merchandising activities of the traders rather than the markets in which they trade.\12\ In addition, the Commission is proposing to divide the Schedule 1 ``Investment Groups'' category, which currently includes all professionally managed funds, into distinct, more descriptive subcategories. These subcategories would include hedge funds, college endowments, managed accounts and commodity pools, trusts, foundations, pension funds, mutual funds and insurance companies. This proposed reorganization would provide information of greater use for surveillance activities. The proposed Schedule 1 is included below and the Commission invites comments from the public regarding its readability and overall structure: --------------------------------------------------------------------------- \12\ Slight changes would also be made to the list of merchandising activities to reflect those of greater surveillance importance to the Commission. BILLING CODE 6351-01-M [[Page 5204]] [GRAPHIC] [TIFF OMITTED] TP03FE99.053 BILLING CODE 6351-01-C [[Page 5205]] IV. Related Matters A. The Regulatory Flexibility Act The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., requires that agencies, in proposing rules, consider the impact of those rules on small businesses. The Commission has previously determined that large traders and FCMs are not ``small entities'' for purposes of the RFA. 47 FR 18618-18621 (April 30, 1982). The proposed amendments to reporting requirements fall mainly upon FCMs. Similarly, foreign brokers and foreign traders report only if carrying or holding reportable, i.e., large positions. In addition, these proposed amendments relieve a regulatory burden. Therefore, the Chairperson, on behalf of the Commission, hereby certifies, pursuant to 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. The Commission invites comments from any firm believing that these rules would have a significant economic impact upon its operations. B. Paperwork Reduction Act When publicizing proposed rules, the Paperwork Reduction Act (PRA) of 1995 (Pub. L. 104-13 (May 13, 1995)) 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. In compliance with the PRA, the Commission through these rule proposals solicits comments to: (1) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including the validity of the methodology and assumptions used; (2) evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information including the validity of the methodology and assumptions used; (3) enhance the quality, utility, and clarity of the information to be collected; and (4) minimize the burden of the collection on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission responses. The Commission has submitted these proposed rules and their associated information collection requirements to the Office of Management and Budget. The burdens associated with this entire collection (3038-0009), including these proposed rules, is as follows: Average Burden Hours Per Response: 0.35 Number of Respondents: 5391 Frequency of Response: Daily Persons wishing to comment on the information which would be required by these proposed rules should contact the Desk Officer, CFTC, Office of Management and Budget, Room 10202, NEOB, Washington, DC 20503, (202) 395-7340. Copies of the information collection submission to OMB are available from the CFTC Clearance Officer, 1155 21st Street, NW, Washington, DC 20581, (202) 418-5160. Copies of the OMB-approved information collection package associated with the rulemaking may be obtained from the Desk Officer, Commodity Futures Trading Commission, Office of Management and Budget, Room 10202, NEOB, Washington, DC 20503, (202) 395-7340. List of Subjects 17 CFR Part 15 Brokers, Reporting and recordkeeping requirements. 17 CFR Part 17 Brokers, Commodity futures, Reporting and recordkeeping requirements. In consideration of the foregoing, and pursuant to the authority contained in the act, and, in particular, sections 4g, 4i, 5 and 8a of the Act, 7 U.S.C. 6g, 6i, 7 and 12a (1994), the Commission hereby proposes to amend Parts 15 and 17 of Chapter I of Title 17 of the Code of Federal Regulations as follows: PART 15--REPORTS--GENERAL PROVISIONS 1. The authority citation for part 15 continues to read as follows: Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, (a)-(d), 6f, 6g, 6i, 6k, 6m, 6n, 7, 9, 12a, 19 and 21; 5 U.S.C. 552 and 552(b). 2. Section 15.03 is revised to read as follows: Sec. 15.03 Reporting Levels. (a) Definitions. For purposes of this section, the term major foreign currency means the currencies and cross-rates between the currencies of Japan, Germany, the U.K., France, Italy, Canada, Australia, Switzerland, Sweden, Belgium, and the Netherlands and the Euro. (b) The quantities for the purpose of reports filed under Parts 17 and 18 of this chapter are as follows: ------------------------------------------------------------------------ Number of Commodity contracts ------------------------------------------------------------------------ Agricultural: Wheat............................................... 100 Corn................................................ 150 Oats................................................ 60 Soybeans............................................ 100 Soybean Oil......................................... 200 Soybean Meal........................................ 200 Cotton.............................................. 50 Frozen Concentrated Orange Juice.................... 50 Rough Rice.......................................... 50 Live Cattle......................................... 100 Feeder Cattle....................................... 50 Lean Hogs........................................... 100 Sugar No. 11........................................ 400 Sugar No. 14........................................ 100 Cocoa............................................... 100 Coffee.............................................. 50 Natural Resources: Copper.............................................. 100 Gold................................................ 200 Silver Bullion...................................... 150 Platinum............................................ 50 [[Page 5206]] No. 2 Heating Oil................................... 250 Crude Oil, Sweet.................................... 350 Unleaded Gasoline................................... 150 Natural Gas......................................... 175 Financial: Municipal Bond Index................................ 300 3-month (13-Week) U.S. Treasury Bills............... 150 30-Year U.S. Treasury Bonds......................... 1,000 10-Year U.S. Treasury Notes......................... 1,000 5-Year U.S. Treasury Notes.......................... 800 2-Year U.S. Treasury Notes.......................... 500 3-Month Eurodollar Time Deposit Rates............... 1,000 30-Day Fed Funds.................................... 300 1-month LIBOR Rates................................. 300 3-month Euroyen..................................... 100 Major-Foreign Currencies............................ 400 Other Foreign Currencies............................ 100 U.S. Dollar Index................................... 50 S&P 500 Stock Price Index........................... 1,000 E-Mini S&P Stock Price Index........................ 300 S&P 400 Midcap Stock Index.......................... 100 Dow Jones Industrial Average Index.................. 100 New York Stock Exchange Composite Index............. 50 Amex Major Market Index, Maxi....................... 100 NASDAQ 100 Stock Index.............................. 100 Russell 2000 Stock Index............................ 100 Value Line Average Index............................ 50 NIKKEI Stock Index.................................. 100 Goldman Sachs Commodity Index....................... 100 All Other Commodities................................... 25 ------------------------------------------------------------------------ PART 17--REPORTS BY FUTURES COMMISSION MERCHANTS, MEMBERS OF CONTRACT MARKETS AND FOREIGN BROKERS 3. The authority citation for part 17 continues to read as follows: Authority: 7 U.S.C. 6a, 6c, 6d, 6f, 6g, 6i, 7 and 12a unless otherwise noted. 4. Section 17.01 is proposed to be amended by removing and reserving paragraphs (b)(3)(ii) and (c) and by revising paragraph (b)(3)(iii) to read as follows: Sec. 17.01 Special account designation and identification. * * * * * (b) * * * (3) * * * (iii) If fewer than ten accounts are under control of the independent advisor, for each account the account number and the name and location of each person having a ten percent or more financial interest in the account; and * * * * * Issued in Washington, D.C., this 28th day of January, 1999 by the Commission. Jean A. Webb, Secretary of the Commission. [FR Doc. 99-2435 Filed 2-2-99; 8:45 am] BILLING CODE 6351-01-M
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