[Federal Register: April 22, 1999 (Volume 64, Number 77)]
[Rules and Regulations]
[Page 19711-19713]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



17 CFR Parts 1, 5 and 31

Fees for Applications for Contract Market Designation, Audits of
Leverage Transaction Merchants, and Reviews of the Rule Enforcement
Programs of Contract Markets and Registered Futures Associations

AGENCY: Commodity Futures Trading Commission.

ACTION: Final schedule of fees.


SUMMARY: The Commission periodically adjusts fees charged for certain
program services to assure that they stay in line with current
Commission costs. In this regard, the staff recently reviewed the
Commission's actual costs of processing applications for contract
market designations (17 CFR Part 5, Appendix B), audits of leverage
transactions merchants (17 CFR Part 31, Appendix B) and reviews of the
rule enforcement programs of contract markets and registered futures
associations (17 CFR Part 1, Appendix B). As a result of this review,
the Commission is adopting final fees for applications for contract
market designation for a futures contract, submitted to the Commission
for review and approval by contract markets, which will be reduced from
$7,900 to $6,800; contract market designation for an option contract
which will be reduced from $1,600 to $1,200; and simultaneous
applications for contract market designation for a futures contract and
an option on that futures contract, which will be reduced from a
combined fee of $8,500 to a combined fee of $7,500.
    In addition, the Commission is adopting the final fees for 1999 for
the Commission's review of the rule enforcement program at the
registered futures association and the contract markets regulated by
the Commission as described under SUPPLEMENTARY INFORMATION.
    Finally, the Commission is eliminating the list of fees for audits
of leverage transaction merchants because there have been no leverage
transaction merchants registered with the Commission for a number of
years and none is expected to register in the near future.

DATES: The fee schedule for reviews of the programs of listed contract
markets and the registered futures association must be paid by the
named entities no later than June 21, 1999. The reduced fee for filing
futures and option contracts singly or simultaneously is effective
April 22, 1999. The list of fees for audits of Leverage Transaction
Merchants is no longer provided upon publication in the Federal

FOR FURTHER INFORMATION CONTACT: Donald L. Tendick, Office of the
Executive Director, (202) 418-5160, Paul Bjarnason, Division of Trading
and Markets, (202) 418-5459, or Richard Shilts, Division of Economic
Analysis, (202) 418-5275, Three Lafayette Centre, 1155 21st Street,
N.W., Washington, D.C. 20581.


I. Computation of Fees

    The Commission has established fees for certain activities and
functions it performs, including processing applications for contract
market designation and performing reviews of the rule enforcement
programs of contract markets and the registered futures association.\1\
The starting point for the determination of all fees, including both
contract market designations and reviews of rule enforcement programs,
is the average of the previous three years' actual costs incurred for
each of the above-mentioned activities. However, as explained below in
section II, all contract markets pay a uniform fee for filing
applications with the Commission for the designation of new contracts.
With respect to the Commission's review of programs of rule
enforcement, a unique fee is assessed each entity, based upon the
actual costs of the particular review conducted at each entity. The
costs of performing a rule enforcement review at a contract market or
registered futures association vary according to the size and
complexity of the entity's program. To ensure that high fees do not
unduly burden small exchanges, the Commission's formula provides for
some reduction in the fee assessed, as explained in section II below.

    \1\ See Section 237 of the Futures Trading Act of 1982, 7 U.S.C.
16a and 31 U.S.C. 9701.

    Actual costs include the direct salaries of the personnel assigned
to each activity plus overhead. The overhead added to the direct salary
costs is based upon various indirect costs including: indirect
personnel costs (leave and benefits), rent, communications, travel/
transportation, contract services, utilities, equipment

[[Page 19712]]

and supplies. All costs are accounted for by the Commission's
Management Accounting Structure Codes (MASC) system, which is an
agency-wide time accounting system. Overhead is calculated according to
a government-wide standard established by the Office of Management and
Budget. The overhead rate applied usually differs each year due to
fluctuations in the component costs included in overhead. The overhead
rate for fiscal year 1996 was 98%, for fiscal year 1997 was 91% and for
fiscal year 1998 was 104% (rounded to nearest whole percent). As stated
above, once the total direct personnel costs for each fee item have
been determined for each year, the overhead factor for that year is
applied, and the three-year costs are averaged. The three-year annual
average of costs is used to compute the fee schedule amounts, as
explained in detail below.

II. Applications for Contract Market Designation

A. 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
designation applications were for futures contracts as opposed to
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
applications for both a futures contract and an option on that futures
contract were submitted simultaneously, the cost for reviewing both
together was lower than for reviewing the contracts separately. Based
upon 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.

B. Fees for Applications for Contract Market Designation

    The Commission staff reviewed the actual costs of processing
applications for contract market designation for a futures contract for
fiscal years 1996, 1997 and 1998 and found that the average cost over
the three-year period was $6,810 per contract. The review of actual
costs of processing applications for contract market designation for an
option contract for fiscal years 1996, 1997 and 1998 revealed that the
average cost over the same period was $1,268 per contract. Accordingly,
the Commission has determined that the final fee for applications for
contract market designations as a futures contract will be reduced to
$6,800, and the final fee for applications for contract market
designation as an option contract will be reduced to $1,200 in
accordance with the Commission's regulations (17 CFR Part 5, Appendix
B). In addition, the final combined fee for contract markets
simultaneously submitting designation applications for a futures
contract and an option contract on that futures contract will be
reduced to $7,500 per combined filing.
    The fee for futures contract applications also applies to options
on physicals applications. Because the requirements for designation of
an option on a physical are substantially identical to those of futures
contracts, the same fee will apply to both types of filings.\2\

    \2\ In this regard, under the Commission's Guideline No. 1,
which details the information an application for contract market
designation must include, all of the requirements for futures
contract applications (whether providing for physical delivery or
cash settlement) also apply to options on physicals applications,
plus several additional requirements that apply uniquely to options.
See, for example, 63 FR 38537, July 17, 1998.

    The Commission is also today publishing separately in the Federal
Register a proposal to establish reduced fees for a limited class of
simultaneously submitted multiple contract market designation
application filings.

III. Rule Enforcement Reviews of Contract Markets and Registered
Futures Associations

    Under the formula adopted in 1993 (58 FR 42643 (August 11, 1993),
which appears in 17 CFR Part 1, Appendix B), the Commission calculates
the fee for its review of rule enforcement programs based on its actual
costs. The Commission has provided for a downward adjustment to reduce
an exchange's fee below actual costs if actual costs (as a percentage
of total rule enforcement review program costs) are greater for the
particular exchange than that exchange's pro-rata portion of contracts
traded industry-wide (total contract volume for the exchange as a
percentage of total U.S. futures industry contract volume). As noted
above, this feature of the formula generally reduces the fee burden on
the smaller exchanges.
    Specifically, the fee required of each contract market is equal to
the lesser of: average annual costs based upon the three-year
historical average of costs for that contract market or one-half the
average annual costs incurred by the Commission pertaining to each
contract market for the most recent three-years, plus a pro-rata share
(based upon average trading volume for the most recent three years) of
the aggregate of average annual costs of all the contract markets for
the most recent three years. The formula for calculating the second
factor mentioned above is 0.5a + 0.5vt = current fee. In the formula,
``a'' equals the average annual costs, ``v'' equals the percentage of
total volume across exchanges over the last three years and ``t''
equals the average annual cost for all exchanges. The one registered
futures association regulated by the Commission, National Futures
Association (NFA), has no contracts traded, and thus, NFA's fee is
based simply on the average costs for the most recent three fiscal
    Following is a summary of data used in the calculations and the
resultant fee for each entity:

                                                                                  3-year average
                                                                  3-year average   percentage of     1999 fee
                                                                   annual costs       volume          amount
Chicago Board of Trade..........................................        $259,841         46.0317        $259,841
Chicago Mercantile Exchange.....................................         228,215         35,6595         228,215
New York Mercantile Exchange....................................         204,627         15.1517         174,062
Coffee, Sugar & Cocoa Exchange..................................          66,814          2.2468          44,046

[[Page 19713]]

New York Cotton Exchange........................................         155,338          1,2997          83,824
Kansas City Board of Trade......................................          15,055          0.4074           9,457
Minneapolis Grain Exchange......................................          16,558          0.1979           9,216
Philadelphia Board of Trade.....................................             624          0.0054             338
    Subtotal....................................................         947,072        100.0000         808,999
National Futures Association....................................         327,551             N/A         327,551
    Total.......................................................       1,274,624        100,0000       1,136,550

    Below is an example of how the fee was calculated for one exchange,
the Minneapolis Grain Exchange:

    (i) Average annual costs are $16,558;
    (ii) Alternative computation is:

(.5)($16,558) + (.5)(.1979%) (947,042) = $8,279 + $937 = $9,216

    (iii) The fee is the lesser of (i) and (ii) = $9,216.

    As noted above, NFA, a registered futures association, has no
contracts and, therefore, is billed for average annual costs. The
Commission's average annual cost for conducting oversight review of the
NFA rule enforcement program during fiscal years 1996 through 1998 was
$327,551 (\1/3\ of $982,654). Therefore, the fee to be paid by NFA
pertaining to fiscal year 1998 is $327, 551.

    Issued in Washington, D.C. on April 15, 1999, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-9939 Filed 4-21-99; 8:45 am]

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