[Federal Register: October 21, 2002 (Volume 67, Number 203)]
[Rules and Regulations]
[Page 64522-64525]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21oc02-4]

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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: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is amending its rules to establish a reporting level for TRAKRS futures
contracts traded on the Chicago Mercantile Exchange (CME). The
reporting level is 25,000 contracts. This rule will help ensure that
the Commission receives adequate information to carry out its market
surveillance program.

EFFECTIVE DATE: November 20, 2002.

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), Public
Law 106-554, which extensively revises the Commodity Exchange Act
(Act). Among other things, the CFMA

[[Page 64523]]

facilitated the introduction of new futures products by the exchanges.
In August 2002, the CME introduced a series of new products, called
TRAKRS, which are low notional value futures contracts based on broad
based indices of stocks, bonds, currencies, or other financial
instruments. The first TRAKRS futures contract (the long-short
technology TRAKRS), which began trading in August 2002, has traded
between $26 and $22.\1\
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    \1\ Securities broker-dealers and their registered
representatives may offer and sell TRAKRS futures contracts 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's Web site at http://www.cftc.gov.
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    TRAKRS, like all other commodities traded on Commission-designated
markets, are 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.
    On August 5, 2002, the Commission proposed establishing a reporting
level for TRAKRS futures contracts of 25,000.\2\ The proposed reporting
level was based on the Commission's 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 did not receive any comments on its proposal.
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    \2\ 67 FR 50608.
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    The Commission is adopting a reporting level of 25,000 contracts
for TRAKRS futures contracts as proposed. The Commission intends to
review this level over time to determine whether it provides adequate
coverage. Furthermore, since the reporting level is significantly
influenced by the relatively low value of the initial TRAKRS contract
(in the mid-$20 range), the Commission intends to reconsider this
reporting level if new TRAKRS contracts are introduced at a
substantially higher price or any TRAKRS contract begins to trade at a
substantially higher price.
    As noted in the proposed rule,\3\ 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,\4\ and
similar limitations in the CME's own large trader reporting system, the
final rule provides for TRAKRS positions to be reported under 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.\5\
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    \3\ 67 FR at 50609.
    \4\ See 17 CFR 17.00(g)(1).
    \5\ Contract markets should continue to report under 17 CFR part
16, the actual TRAKRS position without regard to the reporting
convention applied for reports under part 17.
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    The Commission has granted no-action relief to futures commission
merchants, members of contracts markets and foreign brokers that comply
with the requirements of the proposed rule prior to its final
adoption.\6\ No-action relief was granted because, in its absence, the
Commission's default reporting level of 25 contracts would apply to
TRAKRS contracts. The Commission is continuing the no-action relief for
futures commission merchants, members of contracts markets and foreign
brokers that comply with the requirements of the proposed rule prior to
the time this final rule becomes effective. 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 proposed rule (which is identical to the final rule being
adopted today).
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    \6\ 67 FR at 50609.
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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
costs 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 Commission's proposed rule contained an analysis of its
consideration of these costs and benefits and solicited public comment
thereon.\7\ The Commission specifically invited commenters to submit
any data that they may have quantifying the costs and benefits of the
proposed rules. The Commission did not receive any comments on its
proposal.
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    \7\ 67 FR at 50609.
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    After considering the costs and benefits of these revisions to part
15, the Commission has decided to adopt them as discussed above.

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
purposes of the RFA.\8\ These amendments to the Commission's reporting
requirements primarily impact 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.
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    \8\ 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 defined by the PRA, does not apply to this
rule. As noted in the proposed rule, the Commission believes that the
rule amendment does not contain information requirements which require
the approval of the Office of

[[Page 64524]]

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 amends 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: 7 U.S.C. 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. 106-554, 114 Stat.
2763 (2000); 5 U.S.C. 552 and 552(b).


    2. Section 15.03 is 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-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
    Security Futures Products:
        Individual Equity Security.........................        1,000
        Narrow-Based Index of Equity Securities............          200
    TRAKRS.................................................   \1\ 25,000
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.



[[Page 64525]]

    Issued in Washington, DC, this 15th day of October, 2002, by the
Commission.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 02-26714 Filed 10-18-02; 8:45 am]
BILLING CODE 6351-01-P