[Federal Register: April 22, 1999 (Volume 64, Number 77)]
[Proposed Rules]
[Page 19730-19732]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



17 CFR Part 5

Fees for Applications for Contract Market Designation

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed reduction of schedule of fees.


SUMMARY: The staff reviews periodically the Commission's actual costs
of processing applications for contract market designation (17 CFR Part
5, Appendix B) and adjusts its schedule of fees accordingly. As a
result of the most recent review, the Commission is proposing to
establish reduced fees for a limited class of simultaneously submitted
multiple contract designation application filings.

DATES: Comments must be received by May 24, 1999.

ADDRESSES: Interested persons should submit their views and comments to
Jean A., Webb, Secretary of the Commission, Commodity Futures Trading
Commission, 1155 21st Street, N.W., Washington, D.C. 20581. In
addition, comments may be sent by facsimile transmission to facsimile
number (202) 418-5521, or by electronic mail to secretary@cftc.gov.
Reference should be made to Designation Fee Proposal.

FOR FURTHER INFORMATION CONTACT: Richard Shilts, Division of Economic
Analysis, (201) 418-5275, Three Lafayette Centre, 1155 21st Street,
N.W., Washington, D.C. 20581.


I. History

    On August 23, 1983, the Commission established a fee for contract
market designation (48 FR 38214). The fee was based upon a three-year
moving average of the actual costs and the number of contracts reviewed
by the Commission during that period of time. The formula for
determining the fee was revised in 1985. At that time, most of the
designation applications were for futures contracts rather than option
contracts, and the same fee was applied to both futures and option
designation applications.
    In 1992, the Commission reviewed its data on the actual costs for
reviewing designation applications for both futures and option
contracts and determined that the cost of reviewing a futures contract
designation application was much higher than the cost of reviewing an
option contract designation. It also determined that, when designation

[[Page 19731]]

applications for both a futures contract and an option on that futures
contract are submitted simultaneously, the cost for reviewing both
together was lower than for reviewing the contracts separately. Based
on that finding, three separate fees were established--one for futures
alone, one for options alone, and one for combined futures and option
contract applications (57 FR 1372). The combined futures/option
designation application fee is set at a level that is less than the
aggregate fee for separate futures and option applications to reflect
the fact that the cost for review of an option is lower when submitted
simultaneously with the underlying future and to create an incentive
for contract markets to submit simultaneously applications for futures
and options on that future.

II. Proposed Further Modifications to Fee Structure

    The Commission is proposing to further modify its fees structure
for a limited class of multiple designation applications submitted
simultaneously relating to contracts: (i) which are cash settled based
on an index representing measurements to physical properties or
financial characteristics which are not traded per se in the cash
market; (ii) which use the same procedures for determining the cash-
settlement values for all contracts in the filing; (iii) as to which
the procedure for determining the values which vary for the individual
cash settlement prices is objective and the individual contract values
represent a spatial or other variant of that procedure or a larger of
smaller multiplier; and (iv) as to which all other terms and conditions
are the same.\1\ Commission fees for simultaneous submission of such
multiple cash-settled contracts would be equal to the prevailing fee
for the the first contract plus 10 percent of that fee for each
additional contract in the filing. This fee structure represents an
extension of the policy adopted by the Commission in 1992 when it
established reduced fees for option applications and for combined
futures and option applications and would be consistent with the
Commission's responsibility under the Independent Offices
Appropriations Act (31 U.S.C. 9107 (1982)) to base fees on the costs to
the Government.

    \1\ In this regard, contracts having differentiated spatial
features include contracts that are identical in all respects
including the cash settlement mechanism but which may be based on
the application of differing objectively determined values for
different geographical areas. These may include contracts on
weather-related data or vacancy rates for rental properties, where
each individual contract is based on the value--temperature, local
vacancy rate, etc.--for a specific city. To be eligible for the
multiple contract filing fee, each contract must be cash-settled
based on the same underlying data source and derived under identical
calculation procedures such that the integrity of the cash
settlement mechanism is not dependent on the individual contract
specifications and that values which vary are derived objectively
using the same source of type of data. Thus, for example,
applications containing a number of similar cash-settled contracts
based on indexes of government debt of different foreign countries
would not be eligible for the reduced fee since the manipulation
potential of each contract would be related to the liquidity of the
underlying instruments and the individual trading practices and
governmental oversight in each specific country, requiring separate

    The Commission believes that a 10 percent marginal fee for
additional contracts in a filing is appropriate for applications
submitted simultaneously that are eligible for the proposed multiple-
contract filing fee. Because the multiple-contract filing fee applies
only to cash-settled contracts based on objectively determined index
values such that each separate contract represents only a spatial or
other variant of that process and because the index is a measurement of
a physical property or a financial characteristic which is not traded
per se in the cash market, the Commission's review likely will not
require a separate detailed analysis of each of the contracts in the
filing. Moreover, for contracts meeting the standard for the multiple
contract filing fee, the Commission's review of the cash settlement
mechanism would involve a single analysis of the nature of the index
and the process by which the underlying index values are determined.
Separate comprehensive evaluations for each individuals index would not
be required since the same calculations apply to each. Since the
underlying instruments are not traded in the cash market, the
Commission need not conduct separate reviews of the underlying cash
markets or the reliability or transparency of prices for the individual
commodities. Because each contract much use an identical case-
settlement procedure and all other material terms and conditions must
be the same (except for the differentiated term of the specified
contract multiplier), the analysis of the cash settlement procedure for
one contract would apply in large part to each of the additional
contracts. Finally, because each contract in a filing must be
differentiated only with respect to a single term or contract size
feature that is not likely to affect the integrity of the cash
settlement mechanism, each separate contract would not require a
separate comprehensive analysis to ascertain its compliance with
requirements for designation.
    The Commission notes that, regardless of the fee assessed for
designation applications, the Commission will continue to conduct the
same comprehensive review to ensure that each proposed contract meets
all requirements for designation set forth in Guideline No. 1. However,
as explained above, for the types of applications covered by the
multiple contract filing fee, the Commission's analysis of the cash
settlement procedure in general and its review of the other material
terms and conditions likely would be applicable to each contract in the
filing. Only a limited incremental analysis would be required to assess
whether each additional contract in such a filing meets the designation
requirements of Guideline No. 1, resulting in a much higher degree of
efficiency in reviewing the applications and substantially reducing the
marginal cost for reviewing and processing the additional contracts.
The Commission's extensive experience in reviewing new contract
designation applications indicates that, for simultaneously submitted
multiple contract filings meeting the specified standards, a fee for
each additional contract equal to 10 percent of the single contract
application fee would reflect the Commission's expected review costs
for these types of applications. To the extent the Commission finds
otherwise, this fee will be adjusted in subsequent years.
    The Commission wishes to make clear that the reduced option fee for
the limited class of multiple-designation applications applies only to
options on futures applications and not to options on physicals
    Under the new procedures noted above, the Commission's proposed
multiple contract designation application fees for filings meeting the
standard discussed above would be as follows: For filings involving
multiple cash-settled futures--$6,800 for the first contract, plus $680
for each additional contract; for filings involving multiple options on
case-settled futures--$1,200 for the first contract, plus $120 for each
additional contract; and for filings involving multiple combined cash-
settled futures and options on those futures--$7,500 for the first
futures and option contract, plus $750 for each additional futures and
option contract. To be eligible for the reduced fees, contract markets
must label the submission as a multiple contract filing and identify
the cash settlement procedure to be used and the nature of the
differentiated term or the different contract size specifications and
justify why the application qualifies for this

[[Page 19732]]

reduced fee. The Commission is seeking comment on this multi-contract
designation application fee proposal.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires agencies, in proposing rules, to consider the impact of those
rules on small businesses. The fees implemented in this release affect
contract markets (also referred to as ``exchanges'') and a registered
futures association. The Commission has previously determined that
contract markets and registered futures associations are not ``small
entities'' for purposes of the Regulatory Flexibility Act, 5 U.S.C. 601
et seq., 47 FR 18618 (April 30, 1982). Therefore, the Chairperson, on
behalf of the Commission, certifies, pursuant to 5 U.S.C. 605(b), that
the fees proposed herein will not have a significant economic impact on
a substantial number of small entities.

    Issued in Washington, D.C. on April 15, 1999, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-9940 Filed 4-21-99; 8:45 am]

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