Font Size: AAA // Print // Bookmark

e9-25181

  • FR Doc E9-25181[Federal Register: October 20, 2009 (Volume 74, Number 201)]

    [Notices]

    [Page 53728-53730]

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

    [DOCID:fr20oc09-42]

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

    COMMODITY FUTURES TRADING COMMISSION

    Notice of Intent, Pursuant to the Authority in Section 2(h)(7) of

    the Commodity Exchange Act and Commission Rule 36.3(c)(3), To Undertake

    a Determination Whether the Fuel Oil-180 Singapore Swap Contract,

    Offered for Trading on the IntercontinentalExchange, Inc., Performs a

    Significant Price Discovery Function

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice of action and request for comment.

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

    SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or

    ``Commission'') is undertaking a review to determine whether the Fuel

    Oil--180 Singapore Swap (``SZS'') contract, offered for trading on the

    IntercontinentalExchange, Inc. (``ICE''), an exempt commercial market

    (``ECM'') under Sections 2(h)(3)-(5) of the Commodity Exchange Act

    (``CEA'' or the ``Act''), perform a significant price discovery

    function. Authority for this action is found in section 2(h)(7) of the

    CEA and Commission rule 36.3(c) promulgated thereunder. In connection

    with this evaluation, the Commission invites comment from interested

    parties.

    DATES: Comments must be received on or before November 4, 2009.

    ADDRESSES: Comments may be submitted by any of the following methods:

    Follow the instructions for submitting comments. Federal

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

    E-mail: secretary@cftc.gov. Include Fuel Oil--180

    Singapore Swap (SZS) Contract in the subject line of the message.

    Fax: (202) 418-5521

    Mail: Send to David A. Stawick, Secretary, Commodity

    Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,

    NW., Washington, DC 20581

    Courier: Same as mail above.

    All comments received will be posted without change to http://

    www.CFTC.gov/.

    FOR FURTHER INFORMATION CONTACT: Gregory K. Price, Industry Economist,

    Division of Market Oversight, Commodity Futures Trading Commission,

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

    Telephone: (202) 418-5515. E-mail: gprice@cftc.gov; or Susan Nathan,

    Senior Special Counsel, Division of Market Oversight, same address.

    Telephone: (202) 418-5133. E-mail: snathan@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Introduction

    On March 16, 2009, the CFTC promulgated final rules implementing

    provisions of the CFTC Reauthorization Act of 2008 (``Reauthorization

    Act'') \1\ which subjects ECMs with significant price discovery

    contracts (``SPDCs'') to self-regulatory and reporting requirements, as

    well as certain Commission oversight authorities, with respect to those

    contracts. Among other things, these rules and rule amendments revise

    the information-submission requirements applicable to ECMs, establish

    procedures and standards by which the Commission will determine whether

    an ECM contract performs a significant price discovery function, and

    provide guidance with respect to compliance with nine statutory core

    principles applicable to ECMs with

    [[Page 53729]]

    SPDCs. These rules became effective on April 22, 2009.

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

    \1\ 74 FR 12178 (Mar. 23, 2009); these rules became effective on

    April 22, 2009.

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

    In determining whether an ECM's contract is or is not a SPDC, the

    Commission will evaluate the contract's material liquidity, price

    linkage to other contracts, potential for arbitrage with other

    contracts traded on designated contract markets or derivatives

    transaction execution facilities, use of the ECM contract's prices to

    execute or settle other transactions, and other factors.

    In order to facilitate the Commission's identification of possible

    SPDCs, Commission rule 36.3(c)(2) requires that an ECM operating in

    reliance on section 2(h)(3) promptly notify the Commission and provide

    supporting information or data concerning any contract: (i) That

    averaged five trades per day or more over the most recent calendar

    quarter; and (ii)(A) for which the ECM sells price information

    regarding the contract to market participants or industry publications;

    or (B) whose daily closing or settlement prices on 95 percent or more

    of the days in the most recent quarter were within 2.5 percent of the

    contemporaneously determined closing, settlement, or other daily price

    of another agreement.

    II. Determination of a SPDC

    A. The SPDC Determination Process

    Commission rule 36.3(c)(3) establishes the procedures by which the

    Commission makes and announces its determination on whether a specific

    ECM contract serves a significant price discovery function. Under those

    procedures, the Commission will publish a notice in the Federal

    Register that it intends to undertake a determination as to whether the

    specified agreement, contract, or transaction performs a significant

    price discovery function and to receive written data, views, and

    arguments relevant to its determination from the ECM and other

    interested persons.\2\ After prompt consideration of all relevant

    information,\3\ the Commission will, within a reasonable period of time

    after the close of the comment period, issue an order explaining its

    determination. Following the issuance of an order by the Commission

    that the ECM executes or trades an agreement, contract, or transaction

    that performs a significant price discovery function, the ECM must

    demonstrate, with respect to that agreement, contract, or transaction,

    compliance with the core principles under section 2(h)(7)(C) of the CEA

    \4\ and the applicable provisions of Part 36. If the Commission's order

    represents the first time it has determined that one of the ECM's

    contracts performs a significant price discovery function, the ECM must

    submit a written demonstration of its compliance with the core

    principles within 90 calendar days of the date of the Commission's

    order. For each subsequent determination by the Commission that the ECM

    has an additional SPDC, the ECM must submit a written demonstration of

    its compliance with the core principles within 30 calendar days of the

    Commission's order.

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

    \2\ The Commission may commence this process on its own

    initiative or on the basis of information provided to it by an ECM

    pursuant to the notification provisions of Commission rule

    36.3(c)(2).

    \3\ Where appropriate, the Commission may choose to interview

    market participants regarding their impressions of a particular

    contract. Further, while they may not provide direct evidentiary

    support with respect to a particular contract, the Commission may

    rely for background and context on resources such as its October

    2007 Report on the Oversight of Trading on Regulated Futures

    Exchanges and Exempt Commercial Markets (``ECM Study''). http://

    www.cftc.gov/stellent/groups/public/@newsroom/documents/file/pr5403-

    07_ecmreport.pdf.

    \4\ 7 U.S.C. 2(h)(7)(C).

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

    B. Fuel Oil-180 Singapore Swap Contract

    The SZS contract specifies 1,000 metric tons of 180 CentiStokes

    (cst) Singapore high-sulfur fuel oil. The contract is cash-settled

    based on the arithmetic average of the means between the daily high and

    low price quotations for ``HSFO 180 CST'' delivered in the specified

    calendar month, published under the ``Singapore'' heading within

    Platts' Asia-Pacific/Arab Gulf Marketscan. The SZS contract is listed

    for up to 60 consecutive calendar months beginning with the next

    calendar month.

    Based upon a required quarterly notification filed on July 27, 2009

    (mandatory under Rule 36.3(c)(2)), the ICE reported that, with respect

    to the SZS contract, the total number of trades was 1,957 in the second

    quarter of 2009, resulting in a daily average of 30.6 trades. During

    the same period, the SZS contract had a total trading volume of 13,170

    contracts and an average daily trading volume of 205.8 contracts.

    Additionally, as of June 30, 2009, open interest was 11,356 contracts.

    It appears that the SZS contract may satisfy the material liquidity

    and material price reference factors for SPDC determination. With

    respect to material liquidity, as noted above, trading in the ICE SZS

    contract averaged over 200 contracts on a daily basis, with more than

    30 separate transactions each day. In regard to material price

    reference, while it did not specify which contracts served a

    significant price discovery function or reference this particular

    contract, the Commission's ECM Study stated that, in general, market

    participants view the ICE as a price discovery market for certain

    energy contracts. Energy contracts based on actively-traded locations

    are transacted heavily on the ICE's electronic trading platform, with

    the remainder being completed over-the-counter and potentially

    submitted for clearing by voice brokers. In addition, ICE sells its

    price data to market participants in a number of different packages

    which vary in terms of the hubs covered, time periods, and whether the

    data are daily only or historical. For example, the ICE offers ``OTC

    Oil End of Day'' data packages with access to all price data or just

    12, 24, 36, or 48 months of historical data.

    III. Request for Comment

    In evaluating whether an ECM's agreement, contract, or transaction

    performs a significant price discovery function, section 2(h)(7) of the

    CEA directs the Commission to consider, as appropriate, four specific

    criteria: Price linkage, arbitrage, material price reference, and

    material liquidity. As it explained in Appendix A to the Part 36

    rules,\5\ the Commission, in making SPDC determinations, will apply and

    weigh each factor, as appropriate, to the specific contract and

    circumstances under consideration.

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

    \5\ 17 CFR Part 36, Appendix A.

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

    As part of its evaluation, the Commission will consider the written

    data, views, and arguments from any ECM that lists the potential SPDC

    and from any other interested parties. Accordingly, the Commission

    requests comment on whether the ICE's SZS contract performs a

    significant price discovery function. Commenters' attention is directed

    particularly to Appendix A of the Commission's Part 36 rules for a

    detailed discussion of the factors relevant to a SPDC determination.

    The Commission notes that comments which analyze the contracts in terms

    of these factors will be especially helpful to the determination

    process. In order to determine the relevance of comments received, the

    Commission requests that commenters explain in what capacity are they

    knowledgeable about the subject contract.

    [[Page 53730]]

    IV. Related Matters

    A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \6\ 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. Certain provisions of final

    Commission rule 36.3 impose new regulatory and reporting requirements

    on ECMs, resulting in information collection requirements within the

    meaning of the PRA; OMB previously has approved and assigned OMB

    control number 3038-0060 to this collection of information.

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

    \6\ 44 U.S.C. 3507(d).

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

    B. Cost-Benefit Analysis

    Section 15(a) of the CEA \7\ requires the Commission to consider

    the costs and benefits of its actions before issuing an order under the

    Act. By its terms, section 15(a) does not require the Commission to

    quantify the costs and benefits of such an order or to determine

    whether the benefits of such an order outweigh its costs; rather, it

    requires that the Commission ``consider'' the costs and benefits of its

    action. Section 15(a) further specifies that the costs and benefits

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

    concern: (1) Protection of market participants and the public; (2)

    efficiency, competitiveness, and financial integrity of futures

    markets; (3) price discovery; (4) sound risk management practices; and

    (5) other public interest considerations.

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

    \7\ 7 U.S.C. 19(a).

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

    The bulk of the costs imposed by the requirements of Commission

    Rule 36.3 relate to significant and increased information-submission

    and reporting requirements adopted in response to the Reauthorization

    Act's directive that the Commission take an active role in determining

    whether contracts listed by ECMs qualify as SPDCs. The enhanced

    requirements for ECMs will permit the Commission to acquire the

    information it needs to discharge its newly-mandated responsibilities

    and to ensure that ECMs with SPDCs are identified as entities with the

    elevated status of registered entity under the CEA and are in

    compliance with the statutory terms of the core principles of section

    2(h)(7)(C) of the Act. The primary benefit to the public is to enable

    the Commission to discharge its statutory obligation to monitor for the

    presence of SPDCs and extend its oversight to the trading of SPDCs.

    Issued in Washington, DC, on October 14, 2009 by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. E9-25181 Filed 10-19-09; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: October 20, 2009



See Also:

OpenGov Logo

CFTC's Commitment to Open Government

Gavel and Book

Follow the Status of Enforcement Actions