[Federal Register: August 5, 2002 (Volume 67, Number 150)]
[Proposed Rules]
[Page 50608-50610]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05au02-13]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 15

RIN 3038-AB91


Reporting Levels for Large Trader Reports; TRAKRS

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is proposing to amend its regulations to establish a reporting level
for TRAKRS futures contracts to be traded on the Chicago Mercantile
Exchange (CME). The reporting level being proposed is 25,000 contracts.

DATES: Comments must be received by September 4, 2002.

ADDRESSES: Comments should be sent to the Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,
DC 20581, attention: Office of the Secretariat. Comments may be sent by

[[Page 50609]]

facsimile transmission to (202) 418-5521 or by e-mail to
secretary@cftc.gov. Reference should be made to "Reporting Levels for
TRAKRS.''

FOR FURTHER INFORMATION CONTACT: Gary J. Martinaitis, Deputy Associate
Director, Market Surveillance Section, Division of Market Oversight,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581. Telephone: (202) 418-5260. E-mail:
[GMartinaitis@cftc.gov].

SUPPLEMENTARY INFORMATION: On December 21, 2000, the President signed
into law the Commodity Futures Modernization Act of 2000 (CFMA), Pub.
L. No. 106-544, which extensively revises the Commodity Exchange Act
(Act). Among other things, the CFMA facilitated the introduction of new
futures products by the exchanges. The CME intends to introduce a new
product, called TRAKRS, which are low notional value futures contracts
based on broad based indices of stocks, bonds, currencies, or other
financial instruments. The value of the first TRAKRS futures contract,
with is scheduled to begin regular trading sessions on August 1, 2002,
will be less than $25 at the start of trading.\1\
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    \1\ Securities broker-dealers and their registered
representatives may offer and sell TRAKRS futures contract pursuant
to a no-action letter issued by Commission staff on July 11, 2001.
See CFTC Letter 02-22, Division of Trading and Markets, CFTC (July
11, 2001), available on the Commission website at http://www.cftc.gov.
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    TRAKRS, like all other commodities traded on Commission-designated
markets, will be subject to the Commission's large trader reporting
rules. Those rules require futures commission merchants, members of
contract markets and foreign brokers to report to the Commission
position information of the largest futures and options traders and,
upon special call by the Commission, require the traders themselves to
file reports with the Commission. 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.
    Based upon its experience in administering a large trader reporting
system that is designed to provide adequate market coverage in light of
positions traded or expected to be traded, the Commission is proposing
to establish a reporting level for TRAKRS of 25,000 contracts. The
Commission intends to review this level over time to determine whether
it provides adequate coverage. Furthermore, since the proposed
reporting level is significantly influenced by the relatively low value
of the initial TRAKRS contract (which will be less than $25), the
Commission intends to reconsider this reporting level if new TRAKRS
contracts are introduced at a substantially higher price or any TRAKRS
contract begin to trade at a substantially higher price.
    The Commission notes that the low value of TRAKRS contracts could
result in very large positions being reported. Due to current
limitations in the Commission's large trader record format,\2\ and
similar limitations in the CME's own large trader reporting system, the
Commission is proposing that TRAKRS positions be reported under Part 17
of its rules, 17 CFR Part 17, only after they have been rounded down to
the nearest 1000 and then divided by 1000. For example, a position of
27, 955 contracts would be rounded down to 27,000, divided by 1000 and
reported as 27.\3\
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    \2\ See 17 CFR 17.00(g)(1).
    \3\ Contract markets should continue to report under Part 16, 17
CFR Part 16, the actual TRAKRS position without regard to the
reporting convention proposed to be applied for reports under part
17.
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    Because, in the absence of this rule amendment, the Commission's
default reporting level of 25 contracts would apply, the Commission
hereby is granting no-action relief to futures commission merchants,
members of contracts markets and foreign brokers that comply with the
requirements on this proposed rule prior to its final adoption.
Accordingly, the Commission will not bring any enforcement action
against any futures commission merchant, member of a contract market or
foreign broker who complies with the rule as proposed herein. Such
futures commission merchants, members of contract markets and foreign
brokers will, however, be required to bring their conduct into
compliance with the final rule to the extent that the final rule
differs from the proposed rule.

Cost Benefit Analysis

    Section 15 of the Act 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 does not require the Commission to
quantify the costs and benefits of a new regulation or to determine
whether the benefits of the proposed regulation outweigh its costs.
Rather, section 15 simply requires the Commission to "consider the
cost and benefits'' of the subject rule.
    Section 15(a) further specifies that the costs and benefits of the
proposed rule 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. The Commission
may, in its discretion, give greater weight to any one of the five
enumerated areas of concern and may, in its discretion, determine that,
notwithstanding its costs, a particular rule is 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 proposed rule imposes limited costs in terms of reporting
requirements, particularly since most entities that trade on U.S.
futures markets already file large trader reports with the Commission.
Moreover, to reduce the cost of reporting, the Commission will
periodically review the reporting level for TRAKRS, as it generally
does for reporting levels for all commodities.\4\ The countervailing
benefits of these costs are that the Commission will have the necessary
information to perform its market surveillance function and thus carry
out its mandate of assuring the continued existence of competitive and
efficient markets, protecting their price discovery function and
protecting market participants and the public interest therein.
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    \4\ See, e.g., 65 FR 14452 (Mar. 17, 2000).
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    After considering these factors, the Commission has determined to
propose the revision to part 15 set forth below.
    The Commission specifically invites public comment on its
application of the criteria contained in the Act for consideration.
Commenters are also invited to submit any quantifiable date that they
may have concerning the costs and benefits of the proposed rule with
their comment letters.

Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires that federal agencies, in proposing rules, consider the impact
of those rules on small entities. The Commission has previously
determined that large traders and FCMs are not "small entities'' for

[[Page 50610]]

purposes of the RFA.\5\ The proposed amendment to reporting
requirements primarily impacts FCMs. Similarly, members of contract
markets and foreign brokers report only if carrying or holding
reportable, i.e., large positions. Therefore, the Chairman, 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 on its operation.
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    \5\ 47 FR 18618-20 (Apr. 30, 1982).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) (PRA),
which imposes certain requirements on federal agencies (including the
Commission) in connection with their conducting or sponsoring any
collection of information as fined by the PRA, does not apply to this
rule. The Commission believes that the proposed rule amendment does not
contain information requirements which require the approval of the
Office of Management and Budget. The purpose of this rule is to
establish a specific reporting level for TRAKRS.

List of Subjects in 17 CFR Part 15

    Brokers, 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, 5a and 8a
of the Act, 7 U.S.C. 6g, 6i, 7, 7a and 12a, as amended, the Commission
hereby proposes to amend Part 15 of Chapter I of Title 17 of the Code
of Federal Regulations as follows:

PART 15--REPORTS--GENERAL PROVISIONS

    1. The authority section for part 15 continues to read as follows:

    Authority: U.S.C. Secs. 2, 5, 6a 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7,
7a, 9, 12a, 19, and 21, as amended by the Commodity Futures
Modernization Act of 2000, Appendix E of Pub. L. No. 106-554, 114
Stat. 2763 (2000); 5 U.S.C. 552 and 552(b).

    2. Section 15.03 is proposed to be amended by revising paragraph
(b) to read as follows:


Sec. 15.03  Reporting levels.

* * * * *
    (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
  No. 2 Heating Oil..........................................        250
  Crude Oil, Sweet...........................................        350
  Unleaded Gasoline..........................................        150
  Natural Gas................................................        175
Financial:
  Municipal Bond Index.......................................        300
  3-month (13-seek) 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
  Security Futures Products:
      Individual Equity Security.............................      1,000
      Narrow-Based Index of Equity Securities................        200
  TRAKRS.....................................................  \1\ 25,00
                                                                       0
All Other Commodities........................................        25
------------------------------------------------------------------------
\1\ For purposes of part 17, positions in TRAKRS should be reported by
  rounding down to the nearest 1000 and dividing by 1000.


    Issued in Washington, DC this 30th day of July, 2002, by the
Commission.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 02-19608 Filed 8-2-02; 8:45 am]
BILLING CODE 6351-01-M