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e8-17529

  • FR Doc E8-17529[Federal Register: August 1, 2008 (Volume 73, Number 149)]

    [Proposed Rules]

    [Page 44939-44945]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr01au08-11]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Parts 40, 41, and 145

    RIN 3038-AC44

    Confidential Information and Commission Records and Information

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice of proposed rulemaking, reproposal.

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    SUMMARY: On July 20, 2007, the Commission published in the Federal

    Register a notice of proposed rulemaking to amend the procedures under

    which designated contract markets (DCMs), derivatives clearing

    organizations (DCOs), and derivatives transaction execution facilities

    (DTEFs) (collectively, ``registered entities'') may request

    confidential treatment for products and rules submitted via

    certification procedures or for Commission review and approval under

    parts 40 and 41 of the Commission's regulations.\1\ Under the proposed

    amendments to Commission regulation 40.8, registered entities filing

    product and rule submissions would follow a procedure separate from the

    customary Freedom of Information Act (FOIA) confidential treatment

    procedures specified in Commission regulation 145.9, 17 CFR 145.9. As

    proposed to be amended, regulation 40.8(c) provided that: registered

    entities submitting material under parts 40 and 41 would be required to

    file a detailed written justification simultaneously with the request

    for confidential treatment; registered entities submitting material

    under parts 40 and 41 would be required to segregate material for which

    confidential treatment is requested in an appendix to the submission;

    and Commission staff may make an initial determination to grant or deny

    confidential treatment to such material before receiving a request

    under the FOIA. Regulation 40.8(c) is being reproposed to clarify that

    an initial determination by staff to deny confidential treatment may be

    appealed to the Commission's Office of General Counsel and that such an

    appeal will stay release of the material. The Commission believes these

    amendments, by creating a separate confidential treatment review

    process for filings under parts 40 and 41, will enhance the

    Commission's ability to provide the public with immediate access to

    non-confidential information.

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    \1\ 72 FR 39764 (July 20, 2007).

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    The Commission received comments from three registered entities in

    response to the proposed rulemaking.\2\ Two commenters expressed

    concerns with the amendments themselves and questioned the adequacy of

    the Commission's explanation for proposing the changes. In response to

    those comments, the Commission has determined to re-propose the

    amendments to regulation 40.8 to: clarify the procedure for seeking

    review of an adverse determination; amend appendix D to part 40 by

    adding to the submission cover sheet a box to be checked if

    confidential treatment is requested for any part of the underlying

    submission, in order to assist staff in efficiently and accurately

    posting publicly available information on the Commission's Web site;

    and amend Commission regulation 145.9(b) to clarify that its procedures

    for requesting confidential treatment do not apply to submissions filed

    under parts 40 and 41. The Commission further intends in this

    reproposal to more fully address its reasons for the proposed

    amendments and to explain the distinction between the proposed

    procedure and the procedures specified in regulation 145.9.

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    \2\ Letter dated August 20, 2007 from CME Group (CME); Letter

    dated August 20, 2007 from CBOE Futures Exchange (CFE); Letter dated

    August 23, 2007 from New York Mercantile Exchange, Inc. (NYMEX).

    DATES: Submit comments on or before September 2, 2008. Comments

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    previously submitted need not be resubmitted.

    ADDRESSES: You may submit comments by any of the following methods:

    Federal eRulemaking Portal: http://www.regulations.gov.

    Mail/Hand Deliver: David Stawick, Secretary of the

    Commission, Commodity Futures Trading Commission, Three Lafayette

    Centre, 1155 21st Street, NW., Washington, DC 20581.

    E-mail: secretary@cftc.gov.

    FOR FURTHER INFORMATION CONTACT: Susan Nathan, Senior Special Counsel,

    (202) 418-5133, Division of Market Oversight, Commodity Futures Trading

    Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,

    DC 20581. Electronic mail: snathan@cftc.gov. This document is also

    available at http://www.regulations.gov.

    SUPPLEMENTARY INFORMATION:

    I. Background

    A. Overview

    Part 40 of the Commission's regulations sets forth the standards

    and procedures to be followed by registered entities \3\ for listing

    products for trading by certification to the Commission; voluntary

    submission of new products for Commission review and approval;

    amendments to terms or conditions of enumerated agricultural contracts;

    voluntary submission of rules for Commission review and approval; and

    self-certification of rules by DCMs and DCOs. Part 41 of the

    regulations provides standards and procedures for filing required

    information with respect to security futures products. Although much of

    the information required by parts 40 and 41 is made public by statute,

    regulation or agency practice, the Commission has observed an increase

    over the past several years in the number of confidential treatment

    requests for filings submitted under these parts. Most, but not all of

    these requests for confidential treatment have been submitted to the

    Commission in connection with market maker and other incentive programs

    (collectively, incentive programs).\4\

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    \3\ A registered entity is defined in section 1a(29) of the

    Commodity Exchange Act (Act) as a DCM under section 5 of the Act

    (including section 5f), a DTEF registered under section 5a of the

    Act, and a DCO registered under section 5b of the Act. Section 5f of

    the Act, along with part 41 of the Commission's regulations,

    establishes requirements for national securities exchanges, national

    securities associations and alternative trading systems registered

    with the Securities and Exchange Commission to notice register with

    the Commission in order to list security futures products (i.e.,

    futures on a single equity security and futures on narrow-based

    security indexes).

    \4\ Incentive programs typically are created by a registered

    entity to increase volume of trading and liquidity for new product

    launches or in markets that for other reasons have low trading

    volume. In general, registered entities have requested confidential

    treatment for the name of the market maker(s), the compensation

    arrangements provided by the registered entity, trade priorities

    (i.e., percentage of the order flow), and the bid/ask spread level.

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    B. Freedom of Information Act

    Most requests for confidential treatment are made pursuant to the

    Freedom of Information Act, 5 U.S.C. 552 (FOIA), which provides

    generally that the public has a right of access to federal agency

    records except to the extent such records, or portions of them, are

    protected from disclosure by one or

    [[Page 44940]]

    more of nine exemptions.\5\ A registered entity requesting confidential

    treatment under the FOIA typically asserts that the information

    submitted to the Commission should be protected from disclosure

    pursuant to FOIA exemption (b)(4), 5 U.S.C. 552(b)(4), because its

    release will cause commercial or competitive harm to the submitter.\6\

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    \5\ 5 U.S.C. 552(b)(1)-(9).

    \6\ Exemption (b)(4) of the FOIA protects trade secrets and

    commercial or financial information obtained from a person that is

    privileged or confidential. See also Commission regulation

    145.9(d)(ii).

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    C. The Commission's Implementing Regulations

    All agencies subject to the FOIA are required to establish rules,

    procedures and standards for implementing that statute.\7\ The

    Commission's FOIA rules are codified in part 145 of its regulations.

    Commission regulation 145.9 sets forth the procedures for requesting

    confidential treatment under the FOIA for information furnished to the

    Commission and for challenging adverse determinations of such requests.

    Under these provisions, a submitter must make, at the time of

    submission, a written request for confidential treatment which

    specifies the basis on which it believes confidential treatment is

    warranted. Unless and until a FOIA request is made for the material,

    however, no determination is made with respect to any request for

    confidential treatment.\8\ When a FOIA request is received, the

    submitter of the requested information is required to file a detailed

    written justification of the confidential treatment request.\9\ If

    staff initially determines that the request should be denied,

    regulation 145.9 permits the submitter to file an appeal of that

    initial decision with the Commission's Office of General Counsel.

    Likewise, if staff initially determines to grant the request for

    confidential treatment, a subsequent FOIA requester may appeal that

    decision to the Office of General Counsel.

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    \7\ The FOIA requires that each agency promulgate regulations

    governing, inter alia, the methods whereby the public may obtain

    information, make submissions or obtain decisions as well as other

    substantive and procedural FOIA regulations. 5 U.S.C. 552(a).

    \8\ See 17 CFR 145.9(d)(10).

    \9\ The guidelines and standards for preparing and filing a

    detailed written justification are found in Commission regulation

    145.9(e).

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    Commission regulation 145.9 also permits the Commission to specify

    ``alternative procedures'' for ``a particular study, report,

    investigation, or other matter.''\10\ Consistent with that authority,

    the Commission is proposing to specify alternative procedures for

    processing requests for confidential treatment of filings submitted

    under parts 40 and 41 of the Commission's regulations.

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    \10\ Commission regulation 145.9(b).

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    II. The Proposed Amendments

    A. Procedures for Requesting Confidential Treatment Under Parts 40 and

    41

    The Commission is proposing to add paragraph (c) to Commission

    regulation 40.8 to establish the exclusive procedure to be followed by

    registered entities when requesting confidential treatment for

    information required to be filed under parts 40 and 41.\11\ The

    Commission is also proposing to add paragraph (d) to regulation 40.8 to

    make clear the circumstances under which requests for confidential

    treatment will not be considered. Under the new procedure, the request

    for confidential treatment and a detailed written justification must be

    filed simultaneously with the submission, in the form and manner

    prescribed by Commission regulation 145.9(e). Further, the material for

    which confidentiality is claimed must be separated from the remainder

    of the submission and filed as an appendix. Proposed regulation 40.8(c)

    would permit Commission staff immediately to make an initial

    determination to grant or deny confidential treatment rather than

    deferring consideration until a FOIA request is received for the

    information, and would allow the submitter to appeal an adverse

    decision to the Commission's Office of General Counsel in the manner

    prescribed by Commission regulation 145.9(g). Proposed regulation

    40.8(c) would not preclude reconsideration of a confidential treatment

    decision made under this regulation if a request for the material is

    subsequently made under the FOIA. In such circumstances, the process

    would be governed by the part 145 regulations.

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    \11\ The proposal also would add new regulations 40.2(a)(3)(iv),

    40.6(a)(3)(vi), 41.23(a)(7), and 41.24(a)(6), and amend regulations

    40.3(a)(7) and 40.5(a)(8) to direct the registered entity requesting

    confidential treatment for submissions made under part 40 or 41 to

    follow the new procedures specified in Commission regulation

    40.8(c).

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    The FOIA addresses tensions between the public's interest in access

    to certain information and the government's (or in some circumstances,

    the submitter's) interest in nondisclosure of sensitive information.

    Accordingly, that statute generally is triggered by a request for

    information from a member of the public, and the Commission's FOIA

    regulation provides that submitters of information who have properly

    requested confidential treatment need not file a detailed written

    justification supporting that request unless they receive notice from

    the Commission that it has received a FOIA request for that

    information.\12\ Those tensions are not present here. On the contrary,

    Congress included in the Act's core principles applicable to registered

    entities requirements that DCMs, DCOs and DTEFs make certain

    information available to the public,\13\ and the Commission

    demonstrated its commitment to transparency by adopting a regulation

    describing the types of information it considered publicly

    available.\14\ In the Commission's view, the FOIA does not protect

    public information, and the absence of a FOIA request should not be

    permitted to delay or hinder its release of such information to the

    public. Accordingly, under proposed regulation 40.8(c), Commission

    staff may immediately analyze the merits of a detailed written

    justification and balance the submitter's interest in confidentiality

    against the Commission's interest in fostering transparency. The

    Commission intends, and the re-proposed regulation clarifies, that the

    procedure described in proposed regulation 40.8(c)(1) would expedite

    the release of information to the public while continuing to afford a

    registered entity the opportunity to challenge the denial of a

    confidential treatment request. As re-proposed, regulation 40.8(c)

    makes plain that the registered entity may follow the procedures

    outlined in the Commission's general FOIA regulation to appeal a staff

    denial of confidential treatment to the Commission's Office of General

    Counsel.\15\ The re-proposed regulation further clarifies that a grant

    of any part of a request for confidential treatment may be reconsidered

    if a FOIA request for the same material subsequently is received by the

    Commission.

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    \12\ See Commission regulation 145.9(e)(1), 17 CFR 145.9(e)(1).

    \13\ See section 5(a)(7) (DCM Core Principle 7); section

    5b(2)(L) (DCO Core Principle L); and section 5a(d)(5) (DTEF Core

    Principle 5).

    \14\ See regulation 40.8(a).

    \15\ See regulation 145.9(g), 17 CFR 145.9(g).

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    When a registered entity requests confidential treatment for an

    entire submission filed under part 40 or 41, Commission staff

    frequently asks the entity to amend its original submission by

    segregating out the material for which it claims confidentiality so

    that remaining materials can be made public without delay.\16\

    Registered entities

    [[Page 44941]]

    generally have been receptive to these informal staff requests.

    Proposed regulation 40.8(c)(2), which would require that material

    deemed confidential be segregated in an appendix to the submission,

    would codify this staff practice and enable the Commission to make

    plainly non-confidential material immediately available to the public

    while staff evaluates the registered entity's claims of confidentiality

    for the segregated material.

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    \16\ The Commission's policy is to provide public availability

    of submission information by posting submissions filed under parts

    40 and 41 on the Commission's Web site as efficiently and accurately

    as possible.

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    B. Public Availability of Terms and Conditions of Products and

    Mechanisms for Executing Transactions on or Through the Facilities of

    the Contract Market

    As noted, substantial portions of the material filed pursuant to

    parts 40 and 41 are required by statute to be made publicly available

    by registered entities. Section 5(d)(7) of the Act--DCM Core Principle

    7--requires that the terms and conditions of contracts and the

    mechanisms for executing transactions on or through a DCM be made

    available by the DCM to market authorities, market participants, and

    the public.\17\ Similarly, DTEF Core Principle 5 requires that boards

    of trade publicly disclose specified information, and Core Principle L

    requires that DCOs make available to market participants information

    concerning the rules and operating systems of clearing and settlement

    systems. In 2004, the Commission added paragraph (a) to regulation 40.8

    to specify the portions of DTEF, DCO and DCM applications which are

    publicly available.\18\

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    \17\ Mechanisms for executing transactions generally include

    such information as trading algorithms, market maker programs and

    information from an exchange's rulebook that pertain to or impact

    trading.

    \18\ Publicly available portions include: Transmittal letter,

    proposed rules, the applicant's regulatory compliance chart,

    documents establishing the applicant's legal status, and documents

    setting forth the applicant's governance structure. The Commission

    noted that regulation 40.8(a) is not intended to limit the

    information that may be released, but to specify the portions of an

    application that are automatically public and therefore would not be

    granted confidential treatment under any circumstances. 69 FR 67503

    (Nov. 18, 2004).

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    Furthermore, regulations 40.3(a)(7) and 40.5(a)(8) specify that a

    product's terms and conditions are publicly available at the time of

    their submission. Product terms and conditions made publicly available

    at the time of submission enable the Commission to obtain the views of

    market participants and others to ascertain whether the proposed

    product would be readily susceptible to manipulation or would otherwise

    violate the Act. To this end, Commission staff routinely conduct trade

    interviews when reviewing novel instruments to ascertain the relative

    susceptibility of a product to manipulation. To be meaningful, these

    interviews require the release of the proposed instrument's terms and

    conditions.\19\

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    \19\ In cases of new products for which Commission approval has

    been requested, the Commission generally intends to continue its

    long-standing practice of requesting public comment on the terms and

    conditions by publication of notices in the Federal Register. Where

    notice in the Federal Register is impracticable or otherwise

    unnecessary, notice of a submission for voluntary approval and of

    the public availability of the proposed product's terms and

    conditions will be through the Commission's internet Web site

    (http://www.cftc.gov). The terms and conditions of products eligible

    for trading by self-certification will be available from the

    Commission at the time that the exchange legally could commence

    trading: The beginning of the business day following certification

    to the Commission.

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    The Commission wishes to ensure that registered entities are fully

    aware that staff will summarily deny requests for confidential

    treatment of information that is publicly-available pursuant to statute

    or regulation. Accordingly, the Commission proposes also to amend part

    40 by adding new paragraph (d) to regulation 40.8 to provide that staff

    will not consider requests for confidential treatment of information

    that is subject to section 5(d)(7) or regulations 40.3(a)(7) and

    40.5(a)(8).

    C. Comments Received

    In response to its original proposal, the Commission received

    comment letters from CME Group, CBOE Futures Exchange (CFE), and the

    New York Mercantile Exchange (NYMEX). These comments raised several

    related concerns.

    1. Market Maker Programs and Mechanisms for Executing Transactions

    CFE generally supported proposed regulation 40.8(c) but urged that

    it be further amended to specify that the terms and conditions of

    market maker programs and other compensation and incentive plans will

    be denied confidential treatment because they are rules as defined in

    Commission regulation 40.1. The CME, on the other hand, asserted that

    DCMs have a legitimate commercial and competitive interest in

    maintaining the confidentiality of specific information about the

    contractual obligations of, and incentives offered to, their market

    makers.

    Market maker and incentive programs are considered ``rules'' under

    Commission regulations and are presumptively public. Accordingly, it is

    agency practice to post compensation and incentive information promptly

    on the Commission's Web site. The Commission believes that market

    participants should have the opportunity to evaluate the compensation

    structures of incentive programs since these arrangements may affect

    the quality of price quotations provided by market makers as well as

    liquidity in the market. Because material of this kind routinely is

    made public, disclosure will not create a competitive disadvantage for

    any exchange.\20\ Incentive programs may, however, include information

    for which confidential treatment is appropriate. Commission staff has,

    for example, withheld information relating to participant names, bid-

    ask spreads and minimum size requirements of bid/ask spreads because

    access to this information could give an unfair advantage to potential

    counterparties of market makers as well as providing other markets with

    a competitive edge when setting up their own market maker programs and

    negotiating agreements with potential market makers. In these

    circumstances, the Commission believes that while incentive programs

    may presumptively be public, those programs may from time to time

    include commercially valuable information which may be entitled to

    protection. Accordingly, summary denial of confidential treatment to

    all information in incentive programs would be inappropriate.

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    \20\ As CFE observed, the Commission's Office of General Counsel

    so reasoned in rejecting an exchange's claim that its market maker

    information was proprietary and protected under FOIA exemption

    (b)(4), which protects under certain circumstances commercial or

    financial information where its release could cause competitive harm

    to the submitter. Letter dated October 27, 2005 from Office of

    General Counsel regarding Freedom of Information Act Nos. 05-0138

    and 05-0139.

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    NYMEX made a similar argument in connection with the Commission's

    determination not to process confidential treatment requests covering,

    inter alia, the mechanisms for executing transactions on or through the

    facilities of the contract market. NYMEX claims that a trading tool

    could potentially qualify as proprietary intellectual property for

    which a registered entity may seek protection under patent or trademark

    laws. The Commission notes that mechanisms for executing transactions

    on or through the facilities of a contract market are required by

    statute to be made publicly available.\21\ The Commission also

    recognizes the importance to a registered entity of protecting what it

    believes to be commercially sensitive

    [[Page 44942]]

    information, and invites public comment with respect to specific types

    of trading tools that should be given consideration under a request for

    confidential treatment.

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    \21\ See Section 7(d)(8) of the CEA, 7 U.S.C. 7(d)(8) (DCM Core

    Principle 8).

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    2. Limited Applicability of Proposed Regulation to Registered Entities

    In its comment letter, NYMEX questioned why the proposed regulation

    singles out registered exchanges and clearing organizations for the new

    requirements, while other submitters of information would continue to

    follow the FOIA procedures in regulation 145.9 when requesting

    confidential treatment of submissions to the Commission. On the

    contrary, the proposed rule does not target a specific group of

    submitters but rather is directed toward specific categories of

    submissions--those filed pursuant to parts 40 and 41--for which

    confidential treatment is frequently claimed despite requirements in

    the Commodity Exchange Act and Commission regulations that those

    submissions be made available to the public. The harm to be remedied is

    the frequently unwarranted delay in making public information filed

    pursuant to these regulations. When registered entities have occasion

    to submit other types of information to the Commission, they would

    continue to follow the procedures provided in Commission regulation

    145.9 for requesting confidential treatment under the FOIA of those

    submissions.

    3. Relationship of the Proposed Procedures to the FOIA Process

    Other concerns raised by the commenters may spring from a

    misunderstanding of the relationship between the proposed regulation

    and the FOIA. NYMEX, for example, appears to believe that all

    confidentiality issues arise in the context of the FOIA and must be

    made ``ripe'' by a FOIA request.\22\ On the contrary, confidentiality

    issues frequently arise outside the scope of the FOIA and are resolved

    without reference to that statute.\23\ As noted above, the Commission's

    responsibility to provide transparency with respect to certain

    information exists separately from its duty to implement the FOIA. The

    latter obligation is addressed by the Commission's part 145

    regulations, which deal with disclosure issues in the context of public

    requests for information under the FOIA and are not necessarily

    relevant or useful outside that context. In contrast, while registered

    entities' interest in having their part 40 and 41 submissions protected

    from disclosure may implicate the FOIA, it is separately in tension

    with their statutory responsibility to make certain information

    publicly available and with the Commission's commitment to providing

    transparency where appropriate. It is this tension, not the filing of a

    FOIA request, that signifies ``ripeness.'' As discussed above, the

    Commission's obligations are in some instances statutory. In other

    circumstances, the Commission has concluded as a matter of policy that

    public access information about products and trading mechanisms

    generally outweighs the asserted right of a registered entity to keep

    its information confidential. Without the measures provided by the

    proposed rulemaking, the Commission's ability fully to consider the

    impact of a rule on the public would continue to be dependent on the

    filing of a FOIA request to trigger the resolution of confidentiality

    and disclosure issues.

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    \22\ The CME similarly cites a perceived burden on Commission

    staff, which may be ``inundated'' with detailed written

    justifications for every confidential treatment request where no

    FOIA request is pending.

    \23\ The Commission notes that the SEC specifies one procedure

    for requesting confidential treatment under the FOIA (17 CFR 200.83)

    and a separate procedure where the FOIA is not implicated. (17 CFR

    240.24b-2) The latter applies to such filings as registration

    statements, reports, applications, statements or other documents

    filed pursuant to the Securities Exchange Act of 1934. Like the rule

    proposed by the Commission, the SEC regulation requires that a

    written justification be submitted simultaneously with the filing.

    An initial decision to grant or disallow a request for nondisclosure

    of information is not triggered by a FOIA request, and a submitter

    objecting to an initial decision to deny confidential treatment may

    petition the SEC for review of that decision.

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    CME's observation that such a request ``is likely never to be

    received'' \24\ highlights the necessity for the proposed regulation.

    The Commission frequently has been hobbled in its efforts to make

    information public by confidential treatment requests which, while

    perhaps not calculated to do so, can create a lengthy delay in the

    disclosure of information the Commission believes should be publicly

    available. The amendments we have proposed will permit the Commission

    to quickly resolve confidentiality issues in connection with material

    submitted pursuant to parts 40 and 41.

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    \24\ Letter dated August 20, 2007 from CME Group, at 2 and 3.

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    In that regard, the CME questioned the fairness of the proposed

    regulation, asserting that it would prejudice FOIA requesters who would

    not have an opportunity to respond to an appeal under the procedures

    specified in the proposal. Similarly, the exchange expressed concern

    that because the Commission may reconsider a grant of confidential

    treatment if a FOIA request is subsequently made for the material, the

    registered entity would be required to submit a ``new updated detailed

    written justification based on possible changed circumstances at the

    time of the appeal.'' \25\

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    \25\ Id. at 3.

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    The Commission believes these concerns are unwarranted. If an

    appeal were filed by a registered entity under the procedures specified

    in proposed regulation 40.8(c), no FOIA requester's rights would be

    compromised, because the appeal would be based on staff's initial

    determination to disclose the subject information prior to the filing

    of a FOIA request. Should a FOIA requester subsequently seek

    information given confidential treatment under regulation 40.8(c), the

    process would be governed by FOIA regulation 145.9, and both the FOIA

    requester and the submitter would have the appeal rights provided by

    regulation 145.9. In these circumstances, the Commission believes that

    fairness requires that the registered entity be given an opportunity to

    update its detailed written justification based on ``possible changed

    circumstances at the time of the appeal'' and to respond to specific

    arguments raised by the requester. An updated detailed written

    justification is not required, however, and the registered entity may

    opt instead to rely on its original justification. In such cases, the

    Commission's decision would consider the registered entity's detailed

    written justification submitted under regulation 40.8(c) and the FOIA

    requester's response to it, if any. Because the comments reflect some

    confusion in this regard, the Commission proposes to further amend

    proposed regulation 40.8(c) to clarify that appeal rights and

    subsequent FOIA requests in which confidential treatment is an issue

    will continue to be governed by regulation 145.9.

    Finally, the Commission is not persuaded by CME's argument that the

    proposed regulation would impose numerous costs on the Commission,

    registered entities and FOIA requesters. All of the purported costs and

    burdens cited by the exchange appear to be premised on its

    misunderstanding that issues of disclosure exist only in the context of

    the FOIA and that their resolution prior to receipt of a FOIA request

    would be premature as well as duplicative. As discussed above, it is

    the Commission's view that its ability to make information publicly

    available cannot depend upon circumstances outside its control--such as

    receipt of a FOIA request. Further, the registered

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    entity may choose not to assume the burden and cost, if any, of

    updating its original detailed written justification in the event a

    subsequent FOIA request is received. The Commission nonetheless

    believes that fundamental fairness dictates that the registered entity

    be given the opportunity to do so. Finally, the exchange has not

    explained its claim that the proposed procedures would disadvantage

    FOIA requesters, either financially or otherwise.

    D. Proposed Amendment to Appendix D--Submission Cover Sheet and

    Instructions

    In 2004, the Commission amended the part 40 and 41 regulations to

    specify the portions of DTEF, DCO and DCM applications that are

    publicly available. At that time, the Commission also added Appendix D

    to the part 40 regulations prescribing a Submission Cover Sheet to

    accompany all self-certified rules, self-certified products, rules

    submitted for Commission approval, notifications of rule amendments,

    and non-material agricultural rule changes.\26\ To this end, Appendix D

    included a copy of the Submission Cover Sheet along with step-by-step

    instructions for completing and returning the form to the Commission.

    The cover sheet assists Commission staff in preparing and maintaining

    the accuracy of the submissions being published on the Commission's Web

    site. In order to alert staff that a submission contains material that

    should not be published, the Commission proposes to amend the

    Submission Cover Sheet to include a prominently placed box to be

    checked when confidential treatment is being requested for any part of

    a submission filed pursuant to part 40 or 41. The Commission also

    proposes to amend Appendix D to part 40 to add an instruction to ensure

    that registered entities are fully aware that checking the

    ``confidential treatment requested'' box on the Submission Cover Sheet

    in no way obviates the submitter's responsibility to comply with the

    confidential treatment requirements established in proposed regulation

    40.8(c) and will not substitute either for notice or for full

    compliance with those requirements.

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    \26\ 69 FR 67503 (Nov. 18, 2004).

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    E. Freedom of Information Act Amendments

    Commission regulation 145.9(b) defines the scope of the

    Commission's confidential treatment regulations: Its provisions apply

    only where the Commission has not specified that an alternative

    procedure be utilized in connection with a particular study, report,

    investigation, or other matter. The Commission proposes to amend

    regulation 145.9(b) to reference the alternative procedure provided in

    regulation 40.8(c) for submissions filed under parts 40 and 41.

    III. Cost-Benefit Analysis

    Section 15(a) of the Act, as amended by section 119 of the CFMA,

    requires the Commission to consider the costs and benefits of its

    action before issuing a new regulation under the Act. By its terms,

    section 15(a) as amended does not require the Commission to quantify

    the costs and benefits of a new regulation or to determine whether the

    benefits of a regulation outweigh its costs. Rather, section 15(a)

    simply requires the Commission to ``consider the costs and benefits''

    of its action.

    Section 15(a) of the Act further specifies that costs and benefits

    shall be evaluated in light of five broad areas of market and public

    concern: Protection of market participants and the public; efficiency,

    competitiveness, and financial integrity of futures markets; price

    discovery; sound risk management practices; and other public interest

    considerations. Accordingly, the Commission could, in its discretion,

    give greater weight to any one of the five enumerated areas and could,

    in its discretion, determine that, notwithstanding its costs, a

    particular regulation was necessary or appropriate to protect the

    public interest or to effectuate any of the provisions or to accomplish

    any of the purposes of the Act.

    The Commission is considering the costs and benefits of these

    proposed regulations in light of the specified provisions of section

    15(a) of the Act:

    1. Protection of market participants and the public. The proposed

    amendments should have no effect on the Commission's ability to protect

    market participants and the public.

    2. Efficiency and competition. The proposed amendments are expected

    to benefit efficiency by making the non-confidential information from

    registered entity submissions available to the public in a more timely

    manner. The Commission anticipates that the costs of compliance with

    the confidential treatment procedures will be minimal. The proposed

    amendments should have no effect, from the standpoint of imposing costs

    or creating benefits, on competition in the futures and options

    markets.

    3. Financial integrity of futures markets and price discovery. The

    amendments should have no effect, from the standpoint of imposing costs

    or creating benefits, on the financial integrity or price discovery

    function of the futures and options markets.

    4. Sound risk management practices. The amendments being proposed

    herein should have no effect on the risk management practices of the

    futures and options industry.

    5. Other public considerations. No additional public considerations

    could be determined.

    After considering these factors, the Commission has determined to

    propose the rules and rule amendments set forth below. The Commission

    invites public comment on its application of the cost-benefit

    provision. Commenters also are invited to submit with their comment

    letters any data that they may have quantifying the costs and benefits

    of the proposal.

    IV. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq. (2000),

    requires federal agencies, in proposing regulations, to consider the

    impact of those regulations on small entities. The regulations proposed

    herein would affect derivatives transaction execution facilities,

    designated contract markets, and derivatives clearing organizations.

    The Commission previously has determined that the foregoing entities

    are not small entities for purposes of the RFA.\27\ Accordingly, the

    Acting Chairman, on behalf of the Commission, hereby certifies pursuant

    to 5 U.S.C. 605(b) that the proposed regulations will not have a

    significant economic impact on a substantial number of small entities.

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

    \27\ 47 FR 18618, 18619 (April 30, 1982), discussing contract

    markets; 66 FR 42256, 42268 (August 10, 2001), discussing exempt

    boards of trade, exempt commercial markets and derivatives

    transaction execution facilities; 66 FR 45605, 45609 (August 29,

    2001), discussing derivatives clearing organizations.

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

    B. Paperwork Reduction Act of 1995

    This proposed rulemaking contains information collection

    requirements. As required by the Paperwork Reduction Act (PRA) of 1995,

    44 U.S.C. 3504(h), the Commission has submitted a copy of this section

    to the Office of Management and Budget (OMB) for its review.

    Collection of Information: Rules Relating to part 40, Provisions

    Common to DCMs, DTEFs and DCOs, OMB Control Number 3038-0022.

    The expected effect of the proposed amended regulations will be to

    increase the burden previously approved by OMB for this collection of

    information by 16 hours as it will result in the filing

    [[Page 44944]]

    of approximately five additional pages when a registered entity files a

    detailed written justification and confidential appendix under

    Commission Regulations 40.2, 40.4, 40.5, and 40.6.

    The estimated burden was calculated as follows:

    Estimated number of respondents: 12.

    Annual responses by each respondent: .30.

    Total annual responses: 4.

    Estimated average hours per response: 4.

    Annual reporting burden: 16.

    Collection of Information: Rules Relating to part 41, Security

    Futures Products, OMB Control Number 3038-0059.

    The expected effect of the proposed amended regulations will be to

    increase the burden previously approved by OMB for this collection of

    information by 3.6 hours as it will result in the filing of

    approximately five additional pages when a registered entity files a

    detailed written justification and confidential appendix under

    Commission regulations 41.23 and 41.24.

    Estimated number of respondents: 3.

    Annual responses by each respondent: .30.

    Total annual responses: .90.

    Estimated average hours per response: 4.

    Annual reporting burden: 3.6.

    Organizations and individuals desiring to submit comments on the

    information collection requirements should direct them to the Office of

    Information and Regulatory Affairs, Office of Management and Budget,

    Room 10202, New Executive Office Building, 725 17th Street, NW.,

    Washington, DC 20503; Attention: Desk Officer for the Commodity Futures

    Trading Commission.

    In Compliance with the PRA, the Commission, through these proposed

    regulations, solicits comments to: (1) Evaluate whether the proposed

    collection of information is necessary for the proper performance of

    the functions of the Commission, including whether the information will

    have a practical use; (2) evaluate the accuracy of the Commission's

    estimate of the burden of the proposed collection of information,

    including the validity of the methodology and assumptions used; (3)

    enhance the quality, usefulness, and clarity of the information to be

    collected; and (4) minimize the burden of collecting information 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.

    OMB is required to make a decision concerning the collection of

    information contained in these proposed regulations between 30 and 60

    days after publication of this document in the Federal Register. This

    does not affect the deadline for the public to comment to the

    Commission on the proposed regulations. 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.

    List of Subjects

    17 CFR Part 40

    Commodity futures, Contract markets, Designation application,

    Reporting and recordkeeping requirements.

    17 CFR Part 41

    Security Futures.

    17 CFR Part 145

    Commission records and information.

    For the reasons stated in the preamble, the Commission proposes to

    amend 17 CFR parts 40, 41, and 145 as follows:

    PART 40--PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES

    TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING

    ORGANIZATIONS

    1. The authority citation for part 40 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 8 and 12a, as

    amended by appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

    2. Section 40.2 is amended by adding paragraph (a)(3)(v) to read as

    follows:

    Sec. 40.2 Listing Products for trading by certification.

    (a) * * *

    (3) * * *

    (v) A request for confidential treatment as permitted under the

    procedures of Sec. 40.8.

    * * * * *

    3. Section 40.3 is amended by revising paragraph (a)(7) to read as

    follows:

    Sec. 40.3 Voluntary submission of new products for Commission review

    and approval.

    (a) * * *

    (7) Include a request for confidential treatment as permitted under

    the procedures of Sec. 40.8.

    * * * * *

    4. Section 40.5 is amended by revising paragraph (a)(8) to read as

    follows:

    Sec. 40.5 Voluntary submission of rules for Commission review and

    approval.

    (a) * * *

    (8) Include a request for confidential treatment as permitted under

    the procedures of Sec. 40.8.

    * * * * *

    5. Section 40.6 is amended by adding new paragraph (a)(3)(vi) to

    read as follows:

    Sec. 40.6 Self-certification of rules by designated contract markets

    and registered derivatives clearing organizations.

    (a) * * *

    (3) * * *

    (vi) A request for confidential treatment as permitted under the

    procedures of Sec. 40.8.

    * * * * *

    6. Section 40.8 is amended by adding new paragraphs (c) and (d) to

    read as follows:

    Sec. 40.8 Availability of public information.

    * * * * *

    (c) A registered entity's filing of new products under the self-

    certification procedures, new products for Commission review and

    approval, new rules and rule amendments for Commission review and

    approval, and new rules and rule amendments submitted under the self-

    certification procedures will be treated as public information unless

    covered by a request for confidential treatment. If a registered entity

    files a request for confidential treatment, the following procedures

    will apply:

    (1) A detailed written justification of the confidential treatment

    request must be filed simultaneously with the request for confidential

    treatment. The form and content of the detailed written justification

    shall be governed by Sec. 145.9(e) of this chapter;

    (2) All material for which confidential treatment is requested must

    be segregated in an appendix to the submission;

    (3) The submission itself must indicate that material has been

    segregated and, as appropriate, redacted;

    (4) Commission staff may make an initial determination with respect

    to the request for confidential treatment without regard to whether a

    request for the information has been sought under the Freedom of

    Information Act;

    (5) A submitter of information under this Part may appeal an

    adverse decision by staff to the Commission's Office of General

    Counsel. The form and content of such appeal shall be governed by Sec.

    145.9(g) of this chapter.

    (6) The grant of any part of a request for confidential treatment

    under this section may be reconsidered if a subsequent request under

    the Freedom of Information Act is made for the information.

    [[Page 44945]]

    (d) Commission staff will not consider requests for confidential

    treatment of information that is required to be made public under

    Section 5(d)(7) of the Act or Commission Regulations 40.3(a)(7) or

    40.5(a)(8).

    6. Appendix D is amended by adding a new sentence to the end of

    section 8, ``Other requirements,'' to read as follows:

    Appendix D to Part 40--Submission Cover Sheet and Instructions

    * * * * *

    (8) Other requirements--* * * Checking the box marked

    ``confidential treatment requested'' on the Submission Cover Sheet

    does not obviate the submitter's responsibility to comply with all

    applicable requirements for requesting confidential treatment in

    Rule 40.8(c) and, where appropriate, Rule 145.9, and will not

    substitute for notice or full compliance with such requirements.

    * * * * *

    PART 41--SECURITY FUTURES PRODUCTS

    7. The authority citation for part 41 continues to read as follows:

    Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat.

    2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).

    8. Section 41.23 is amended by adding new paragraph (a)(7) to read

    as follows:

    Sec. 41.23 Listing of security futures products for trading.

    (a) * * *

    (7) Includes a request for confidential treatment as permitted

    under the procedures of Sec. 40.8.

    * * * * *

    9. Section 41.24 is amended by adding new paragraph (a)(6) to read

    as follows:

    Sec. 41.24 Rule amendments to security futures products.

    (a) * * *

    (6) Includes a request for confidential treatment as permitted

    under the procedures of Sec. 40.8.

    * * * * *

    PART 145--COMMISSION RECORDS AND INFORMATION

    10. The authority for part 145 continues to read as follows:

    Authority: Pub. L. 99-570, 100 Stat. 3207; Pub. L. 89-554, 80

    Stat. 383; Pub. L. 90-23, 81 Stat. 54; Pub. L. 98-502, 88 Stat.

    1561-1564 (5 U.S.C. 552); Sec. 101(a), Pub. L. 93-463, 88 Stat. 1389

    (5 U.S.C. 4a(j)); unless otherwise noted.

    11. Section 145.9 is amended by revising paragraph (b) to read as

    follows:

    Sec. 145.9 Petition for confidential treatment of information

    submitted to the Commission.

    * * * * *

    (b) Scope. The provisions of this section shall apply only where

    the Commission has not specified that an alternative procedure be

    utilized in connection with a particular study, report, investigation,

    or other matter. See Sec. 40.8 for procedures to be utilized in

    connection with filing information required to be filed pursuant to 17

    CFR parts 40 and 41.

    * * * * *

    Issued in Washington, DC on July 23, 2008, by the Commission.

    David Stawick,

    Secretary of the Commission.

    [FR Doc. E8-17529 Filed 7-31-08; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: August 1, 2008



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