e8-17529

FR Doc E8-17529[Federal Register: August 1, 2008 (Volume 73, Number 149)]

[Proposed Rules]

[Page 44939-44945]

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

[DOCID:fr01au08-11]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 40, 41, and 145

RIN 3038-AC44

Confidential Information and Commission Records and Information

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking, reproposal.

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SUMMARY: On July 20, 2007, the Commission published in the Federal

Register a notice of proposed rulemaking to amend the procedures under

which designated contract markets (DCMs), derivatives clearing

organizations (DCOs), and derivatives transaction execution facilities

(DTEFs) (collectively, ``registered entities'') may request

confidential treatment for products and rules submitted via

certification procedures or for Commission review and approval under

parts 40 and 41 of the Commission's regulations.\1\ Under the proposed

amendments to Commission regulation 40.8, registered entities filing

product and rule submissions would follow a procedure separate from the

customary Freedom of Information Act (FOIA) confidential treatment

procedures specified in Commission regulation 145.9, 17 CFR 145.9. As

proposed to be amended, regulation 40.8(c) provided that: registered

entities submitting material under parts 40 and 41 would be required to

file a detailed written justification simultaneously with the request

for confidential treatment; registered entities submitting material

under parts 40 and 41 would be required to segregate material for which

confidential treatment is requested in an appendix to the submission;

and Commission staff may make an initial determination to grant or deny

confidential treatment to such material before receiving a request

under the FOIA. Regulation 40.8(c) is being reproposed to clarify that

an initial determination by staff to deny confidential treatment may be

appealed to the Commission's Office of General Counsel and that such an

appeal will stay release of the material. The Commission believes these

amendments, by creating a separate confidential treatment review

process for filings under parts 40 and 41, will enhance the

Commission's ability to provide the public with immediate access to

non-confidential information.

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\1\ 72 FR 39764 (July 20, 2007).

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The Commission received comments from three registered entities in

response to the proposed rulemaking.\2\ Two commenters expressed

concerns with the amendments themselves and questioned the adequacy of

the Commission's explanation for proposing the changes. In response to

those comments, the Commission has determined to re-propose the

amendments to regulation 40.8 to: clarify the procedure for seeking

review of an adverse determination; amend appendix D to part 40 by

adding to the submission cover sheet a box to be checked if

confidential treatment is requested for any part of the underlying

submission, in order to assist staff in efficiently and accurately

posting publicly available information on the Commission's Web site;

and amend Commission regulation 145.9(b) to clarify that its procedures

for requesting confidential treatment do not apply to submissions filed

under parts 40 and 41. The Commission further intends in this

reproposal to more fully address its reasons for the proposed

amendments and to explain the distinction between the proposed

procedure and the procedures specified in regulation 145.9.

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\2\ Letter dated August 20, 2007 from CME Group (CME); Letter

dated August 20, 2007 from CBOE Futures Exchange (CFE); Letter dated

August 23, 2007 from New York Mercantile Exchange, Inc. (NYMEX).

DATES: Submit comments on or before September 2, 2008. Comments

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previously submitted need not be resubmitted.

ADDRESSES: You may submit comments by any of the following methods:

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

Mail/Hand Deliver: David Stawick, Secretary of the

Commission, Commodity Futures Trading Commission, Three Lafayette

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

E-mail: [email protected]

FOR FURTHER INFORMATION CONTACT: Susan Nathan, Senior Special Counsel,

(202) 418-5133, Division of Market Oversight, Commodity Futures Trading

Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,

DC 20581. Electronic mail: [email protected] This document is also

available at http://www.regulations.gov.

SUPPLEMENTARY INFORMATION:

I. Background

A. Overview

Part 40 of the Commission's regulations sets forth the standards

and procedures to be followed by registered entities \3\ for listing

products for trading by certification to the Commission; voluntary

submission of new products for Commission review and approval;

amendments to terms or conditions of enumerated agricultural contracts;

voluntary submission of rules for Commission review and approval; and

self-certification of rules by DCMs and DCOs. Part 41 of the

regulations provides standards and procedures for filing required

information with respect to security futures products. Although much of

the information required by parts 40 and 41 is made public by statute,

regulation or agency practice, the Commission has observed an increase

over the past several years in the number of confidential treatment

requests for filings submitted under these parts. Most, but not all of

these requests for confidential treatment have been submitted to the

Commission in connection with market maker and other incentive programs

(collectively, incentive programs).\4\

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\3\ A registered entity is defined in section 1a(29) of the

Commodity Exchange Act (Act) as a DCM under section 5 of the Act

(including section 5f), a DTEF registered under section 5a of the

Act, and a DCO registered under section 5b of the Act. Section 5f of

the Act, along with part 41 of the Commission's regulations,

establishes requirements for national securities exchanges, national

securities associations and alternative trading systems registered

with the Securities and Exchange Commission to notice register with

the Commission in order to list security futures products (i.e.,

futures on a single equity security and futures on narrow-based

security indexes).

\4\ Incentive programs typically are created by a registered

entity to increase volume of trading and liquidity for new product

launches or in markets that for other reasons have low trading

volume. In general, registered entities have requested confidential

treatment for the name of the market maker(s), the compensation

arrangements provided by the registered entity, trade priorities

(i.e., percentage of the order flow), and the bid/ask spread level.

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B. Freedom of Information Act

Most requests for confidential treatment are made pursuant to the

Freedom of Information Act, 5 U.S.C. 552 (FOIA), which provides

generally that the public has a right of access to federal agency

records except to the extent such records, or portions of them, are

protected from disclosure by one or

[[Page 44940]]

more of nine exemptions.\5\ A registered entity requesting confidential

treatment under the FOIA typically asserts that the information

submitted to the Commission should be protected from disclosure

pursuant to FOIA exemption (b)(4), 5 U.S.C. 552(b)(4), because its

release will cause commercial or competitive harm to the submitter.\6\

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\5\ 5 U.S.C. 552(b)(1)-(9).

\6\ Exemption (b)(4) of the FOIA protects trade secrets and

commercial or financial information obtained from a person that is

privileged or confidential. See also Commission regulation

145.9(d)(ii).

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C. The Commission's Implementing Regulations

All agencies subject to the FOIA are required to establish rules,

procedures and standards for implementing that statute.\7\ The

Commission's FOIA rules are codified in part 145 of its regulations.

Commission regulation 145.9 sets forth the procedures for requesting

confidential treatment under the FOIA for information furnished to the

Commission and for challenging adverse determinations of such requests.

Under these provisions, a submitter must make, at the time of

submission, a written request for confidential treatment which

specifies the basis on which it believes confidential treatment is

warranted. Unless and until a FOIA request is made for the material,

however, no determination is made with respect to any request for

confidential treatment.\8\ When a FOIA request is received, the

submitter of the requested information is required to file a detailed

written justification of the confidential treatment request.\9\ If

staff initially determines that the request should be denied,

regulation 145.9 permits the submitter to file an appeal of that

initial decision with the Commission's Office of General Counsel.

Likewise, if staff initially determines to grant the request for

confidential treatment, a subsequent FOIA requester may appeal that

decision to the Office of General Counsel.

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\7\ The FOIA requires that each agency promulgate regulations

governing, inter alia, the methods whereby the public may obtain

information, make submissions or obtain decisions as well as other

substantive and procedural FOIA regulations. 5 U.S.C. 552(a).

\8\ See 17 CFR 145.9(d)(10).

\9\ The guidelines and standards for preparing and filing a

detailed written justification are found in Commission regulation

145.9(e).

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Commission regulation 145.9 also permits the Commission to specify

``alternative procedures'' for ``a particular study, report,

investigation, or other matter.''\10\ Consistent with that authority,

the Commission is proposing to specify alternative procedures for

processing requests for confidential treatment of filings submitted

under parts 40 and 41 of the Commission's regulations.

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\10\ Commission regulation 145.9(b).

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II. The Proposed Amendments

A. Procedures for Requesting Confidential Treatment Under Parts 40 and

41

The Commission is proposing to add paragraph (c) to Commission

regulation 40.8 to establish the exclusive procedure to be followed by

registered entities when requesting confidential treatment for

information required to be filed under parts 40 and 41.\11\ The

Commission is also proposing to add paragraph (d) to regulation 40.8 to

make clear the circumstances under which requests for confidential

treatment will not be considered. Under the new procedure, the request

for confidential treatment and a detailed written justification must be

filed simultaneously with the submission, in the form and manner

prescribed by Commission regulation 145.9(e). Further, the material for

which confidentiality is claimed must be separated from the remainder

of the submission and filed as an appendix. Proposed regulation 40.8(c)

would permit Commission staff immediately to make an initial

determination to grant or deny confidential treatment rather than

deferring consideration until a FOIA request is received for the

information, and would allow the submitter to appeal an adverse

decision to the Commission's Office of General Counsel in the manner

prescribed by Commission regulation 145.9(g). Proposed regulation

40.8(c) would not preclude reconsideration of a confidential treatment

decision made under this regulation if a request for the material is

subsequently made under the FOIA. In such circumstances, the process

would be governed by the part 145 regulations.

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\11\ The proposal also would add new regulations 40.2(a)(3)(iv),

40.6(a)(3)(vi), 41.23(a)(7), and 41.24(a)(6), and amend regulations

40.3(a)(7) and 40.5(a)(8) to direct the registered entity requesting

confidential treatment for submissions made under part 40 or 41 to

follow the new procedures specified in Commission regulation

40.8(c).

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The FOIA addresses tensions between the public's interest in access

to certain information and the government's (or in some circumstances,

the submitter's) interest in nondisclosure of sensitive information.

Accordingly, that statute generally is triggered by a request for

information from a member of the public, and the Commission's FOIA

regulation provides that submitters of information who have properly

requested confidential treatment need not file a detailed written

justification supporting that request unless they receive notice from

the Commission that it has received a FOIA request for that

information.\12\ Those tensions are not present here. On the contrary,

Congress included in the Act's core principles applicable to registered

entities requirements that DCMs, DCOs and DTEFs make certain

information available to the public,\13\ and the Commission

demonstrated its commitment to transparency by adopting a regulation

describing the types of information it considered publicly

available.\14\ In the Commission's view, the FOIA does not protect

public information, and the absence of a FOIA request should not be

permitted to delay or hinder its release of such information to the

public. Accordingly, under proposed regulation 40.8(c), Commission

staff may immediately analyze the merits of a detailed written

justification and balance the submitter's interest in confidentiality

against the Commission's interest in fostering transparency. The

Commission intends, and the re-proposed regulation clarifies, that the

procedure described in proposed regulation 40.8(c)(1) would expedite

the release of information to the public while continuing to afford a

registered entity the opportunity to challenge the denial of a

confidential treatment request. As re-proposed, regulation 40.8(c)

makes plain that the registered entity may follow the procedures

outlined in the Commission's general FOIA regulation to appeal a staff

denial of confidential treatment to the Commission's Office of General

Counsel.\15\ The re-proposed regulation further clarifies that a grant

of any part of a request for confidential treatment may be reconsidered

if a FOIA request for the same material subsequently is received by the

Commission.

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\12\ See Commission regulation 145.9(e)(1), 17 CFR 145.9(e)(1).

\13\ See section 5(a)(7) (DCM Core Principle 7); section

5b(2)(L) (DCO Core Principle L); and section 5a(d)(5) (DTEF Core

Principle 5).

\14\ See regulation 40.8(a).

\15\ See regulation 145.9(g), 17 CFR 145.9(g).

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When a registered entity requests confidential treatment for an

entire submission filed under part 40 or 41, Commission staff

frequently asks the entity to amend its original submission by

segregating out the material for which it claims confidentiality so

that remaining materials can be made public without delay.\16\

Registered entities

[[Page 44941]]

generally have been receptive to these informal staff requests.

Proposed regulation 40.8(c)(2), which would require that material

deemed confidential be segregated in an appendix to the submission,

would codify this staff practice and enable the Commission to make

plainly non-confidential material immediately available to the public

while staff evaluates the registered entity's claims of confidentiality

for the segregated material.

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\16\ The Commission's policy is to provide public availability

of submission information by posting submissions filed under parts

40 and 41 on the Commission's Web site as efficiently and accurately

as possible.

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B. Public Availability of Terms and Conditions of Products and

Mechanisms for Executing Transactions on or Through the Facilities of

the Contract Market

As noted, substantial portions of the material filed pursuant to

parts 40 and 41 are required by statute to be made publicly available

by registered entities. Section 5(d)(7) of the Act--DCM Core Principle

7--requires that the terms and conditions of contracts and the

mechanisms for executing transactions on or through a DCM be made

available by the DCM to market authorities, market participants, and

the public.\17\ Similarly, DTEF Core Principle 5 requires that boards

of trade publicly disclose specified information, and Core Principle L

requires that DCOs make available to market participants information

concerning the rules and operating systems of clearing and settlement

systems. In 2004, the Commission added paragraph (a) to regulation 40.8

to specify the portions of DTEF, DCO and DCM applications which are

publicly available.\18\

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\17\ Mechanisms for executing transactions generally include

such information as trading algorithms, market maker programs and

information from an exchange's rulebook that pertain to or impact

trading.

\18\ Publicly available portions include: Transmittal letter,

proposed rules, the applicant's regulatory compliance chart,

documents establishing the applicant's legal status, and documents

setting forth the applicant's governance structure. The Commission

noted that regulation 40.8(a) is not intended to limit the

information that may be released, but to specify the portions of an

application that are automatically public and therefore would not be

granted confidential treatment under any circumstances. 69 FR 67503

(Nov. 18, 2004).

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Furthermore, regulations 40.3(a)(7) and 40.5(a)(8) specify that a

product's terms and conditions are publicly available at the time of

their submission. Product terms and conditions made publicly available

at the time of submission enable the Commission to obtain the views of

market participants and others to ascertain whether the proposed

product would be readily susceptible to manipulation or would otherwise

violate the Act. To this end, Commission staff routinely conduct trade

interviews when reviewing novel instruments to ascertain the relative

susceptibility of a product to manipulation. To be meaningful, these

interviews require the release of the proposed instrument's terms and

conditions.\19\

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\19\ In cases of new products for which Commission approval has

been requested, the Commission generally intends to continue its

long-standing practice of requesting public comment on the terms and

conditions by publication of notices in the Federal Register. Where

notice in the Federal Register is impracticable or otherwise

unnecessary, notice of a submission for voluntary approval and of

the public availability of the proposed product's terms and

conditions will be through the Commission's internet Web site

(http://www.cftc.gov). The terms and conditions of products eligible

for trading by self-certification will be available from the

Commission at the time that the exchange legally could commence

trading: The beginning of the business day following certification

to the Commission.

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The Commission wishes to ensure that registered entities are fully

aware that staff will summarily deny requests for confidential

treatment of information that is publicly-available pursuant to statute

or regulation. Accordingly, the Commission proposes also to amend part

40 by adding new paragraph (d) to regulation 40.8 to provide that staff

will not consider requests for confidential treatment of information

that is subject to section 5(d)(7) or regulations 40.3(a)(7) and

40.5(a)(8).

C. Comments Received

In response to its original proposal, the Commission received

comment letters from CME Group, CBOE Futures Exchange (CFE), and the

New York Mercantile Exchange (NYMEX). These comments raised several

related concerns.

1. Market Maker Programs and Mechanisms for Executing Transactions

CFE generally supported proposed regulation 40.8(c) but urged that

it be further amended to specify that the terms and conditions of

market maker programs and other compensation and incentive plans will

be denied confidential treatment because they are rules as defined in

Commission regulation 40.1. The CME, on the other hand, asserted that

DCMs have a legitimate commercial and competitive interest in

maintaining the confidentiality of specific information about the

contractual obligations of, and incentives offered to, their market

makers.

Market maker and incentive programs are considered ``rules'' under

Commission regulations and are presumptively public. Accordingly, it is

agency practice to post compensation and incentive information promptly

on the Commission's Web site. The Commission believes that market

participants should have the opportunity to evaluate the compensation

structures of incentive programs since these arrangements may affect

the quality of price quotations provided by market makers as well as

liquidity in the market. Because material of this kind routinely is

made public, disclosure will not create a competitive disadvantage for

any exchange.\20\ Incentive programs may, however, include information

for which confidential treatment is appropriate. Commission staff has,

for example, withheld information relating to participant names, bid-

ask spreads and minimum size requirements of bid/ask spreads because

access to this information could give an unfair advantage to potential

counterparties of market makers as well as providing other markets with

a competitive edge when setting up their own market maker programs and

negotiating agreements with potential market makers. In these

circumstances, the Commission believes that while incentive programs

may presumptively be public, those programs may from time to time

include commercially valuable information which may be entitled to

protection. Accordingly, summary denial of confidential treatment to

all information in incentive programs would be inappropriate.

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\20\ As CFE observed, the Commission's Office of General Counsel

so reasoned in rejecting an exchange's claim that its market maker

information was proprietary and protected under FOIA exemption

(b)(4), which protects under certain circumstances commercial or

financial information where its release could cause competitive harm

to the submitter. Letter dated October 27, 2005 from Office of

General Counsel regarding Freedom of Information Act Nos. 05-0138

and 05-0139.

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NYMEX made a similar argument in connection with the Commission's

determination not to process confidential treatment requests covering,

inter alia, the mechanisms for executing transactions on or through the

facilities of the contract market. NYMEX claims that a trading tool

could potentially qualify as proprietary intellectual property for

which a registered entity may seek protection under patent or trademark

laws. The Commission notes that mechanisms for executing transactions

on or through the facilities of a contract market are required by

statute to be made publicly available.\21\ The Commission also

recognizes the importance to a registered entity of protecting what it

believes to be commercially sensitive

[[Page 44942]]

information, and invites public comment with respect to specific types

of trading tools that should be given consideration under a request for

confidential treatment.

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\21\ See Section 7(d)(8) of the CEA, 7 U.S.C. 7(d)(8) (DCM Core

Principle 8).

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2. Limited Applicability of Proposed Regulation to Registered Entities

In its comment letter, NYMEX questioned why the proposed regulation

singles out registered exchanges and clearing organizations for the new

requirements, while other submitters of information would continue to

follow the FOIA procedures in regulation 145.9 when requesting

confidential treatment of submissions to the Commission. On the

contrary, the proposed rule does not target a specific group of

submitters but rather is directed toward specific categories of

submissions--those filed pursuant to parts 40 and 41--for which

confidential treatment is frequently claimed despite requirements in

the Commodity Exchange Act and Commission regulations that those

submissions be made available to the public. The harm to be remedied is

the frequently unwarranted delay in making public information filed

pursuant to these regulations. When registered entities have occasion

to submit other types of information to the Commission, they would

continue to follow the procedures provided in Commission regulation

145.9 for requesting confidential treatment under the FOIA of those

submissions.

3. Relationship of the Proposed Procedures to the FOIA Process

Other concerns raised by the commenters may spring from a

misunderstanding of the relationship between the proposed regulation

and the FOIA. NYMEX, for example, appears to believe that all

confidentiality issues arise in the context of the FOIA and must be

made ``ripe'' by a FOIA request.\22\ On the contrary, confidentiality

issues frequently arise outside the scope of the FOIA and are resolved

without reference to that statute.\23\ As noted above, the Commission's

responsibility to provide transparency with respect to certain

information exists separately from its duty to implement the FOIA. The

latter obligation is addressed by the Commission's part 145

regulations, which deal with disclosure issues in the context of public

requests for information under the FOIA and are not necessarily

relevant or useful outside that context. In contrast, while registered

entities' interest in having their part 40 and 41 submissions protected

from disclosure may implicate the FOIA, it is separately in tension

with their statutory responsibility to make certain information

publicly available and with the Commission's commitment to providing

transparency where appropriate. It is this tension, not the filing of a

FOIA request, that signifies ``ripeness.'' As discussed above, the

Commission's obligations are in some instances statutory. In other

circumstances, the Commission has concluded as a matter of policy that

public access information about products and trading mechanisms

generally outweighs the asserted right of a registered entity to keep

its information confidential. Without the measures provided by the

proposed rulemaking, the Commission's ability fully to consider the

impact of a rule on the public would continue to be dependent on the

filing of a FOIA request to trigger the resolution of confidentiality

and disclosure issues.

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\22\ The CME similarly cites a perceived burden on Commission

staff, which may be ``inundated'' with detailed written

justifications for every confidential treatment request where no

FOIA request is pending.

\23\ The Commission notes that the SEC specifies one procedure

for requesting confidential treatment under the FOIA (17 CFR 200.83)

and a separate procedure where the FOIA is not implicated. (17 CFR

240.24b-2) The latter applies to such filings as registration

statements, reports, applications, statements or other documents

filed pursuant to the Securities Exchange Act of 1934. Like the rule

proposed by the Commission, the SEC regulation requires that a

written justification be submitted simultaneously with the filing.

An initial decision to grant or disallow a request for nondisclosure

of information is not triggered by a FOIA request, and a submitter

objecting to an initial decision to deny confidential treatment may

petition the SEC for review of that decision.

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CME's observation that such a request ``is likely never to be

received'' \24\ highlights the necessity for the proposed regulation.

The Commission frequently has been hobbled in its efforts to make

information public by confidential treatment requests which, while

perhaps not calculated to do so, can create a lengthy delay in the

disclosure of information the Commission believes should be publicly

available. The amendments we have proposed will permit the Commission

to quickly resolve confidentiality issues in connection with material

submitted pursuant to parts 40 and 41.

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\24\ Letter dated August 20, 2007 from CME Group, at 2 and 3.

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In that regard, the CME questioned the fairness of the proposed

regulation, asserting that it would prejudice FOIA requesters who would

not have an opportunity to respond to an appeal under the procedures

specified in the proposal. Similarly, the exchange expressed concern

that because the Commission may reconsider a grant of confidential

treatment if a FOIA request is subsequently made for the material, the

registered entity would be required to submit a ``new updated detailed

written justification based on possible changed circumstances at the

time of the appeal.'' \25\

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\25\ Id. at 3.

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The Commission believes these concerns are unwarranted. If an

appeal were filed by a registered entity under the procedures specified

in proposed regulation 40.8(c), no FOIA requester's rights would be

compromised, because the appeal would be based on staff's initial

determination to disclose the subject information prior to the filing

of a FOIA request. Should a FOIA requester subsequently seek

information given confidential treatment under regulation 40.8(c), the

process would be governed by FOIA regulation 145.9, and both the FOIA

requester and the submitter would have the appeal rights provided by

regulation 145.9. In these circumstances, the Commission believes that

fairness requires that the registered entity be given an opportunity to

update its detailed written justification based on ``possible changed

circumstances at the time of the appeal'' and to respond to specific

arguments raised by the requester. An updated detailed written

justification is not required, however, and the registered entity may

opt instead to rely on its original justification. In such cases, the

Commission's decision would consider the registered entity's detailed

written justification submitted under regulation 40.8(c) and the FOIA

requester's response to it, if any. Because the comments reflect some

confusion in this regard, the Commission proposes to further amend

proposed regulation 40.8(c) to clarify that appeal rights and

subsequent FOIA requests in which confidential treatment is an issue

will continue to be governed by regulation 145.9.

Finally, the Commission is not persuaded by CME's argument that the

proposed regulation would impose numerous costs on the Commission,

registered entities and FOIA requesters. All of the purported costs and

burdens cited by the exchange appear to be premised on its

misunderstanding that issues of disclosure exist only in the context of

the FOIA and that their resolution prior to receipt of a FOIA request

would be premature as well as duplicative. As discussed above, it is

the Commission's view that its ability to make information publicly

available cannot depend upon circumstances outside its control--such as

receipt of a FOIA request. Further, the registered

[[Page 44943]]

entity may choose not to assume the burden and cost, if any, of

updating its original detailed written justification in the event a

subsequent FOIA request is received. The Commission nonetheless

believes that fundamental fairness dictates that the registered entity

be given the opportunity to do so. Finally, the exchange has not

explained its claim that the proposed procedures would disadvantage

FOIA requesters, either financially or otherwise.

D. Proposed Amendment to Appendix D--Submission Cover Sheet and

Instructions

In 2004, the Commission amended the part 40 and 41 regulations to

specify the portions of DTEF, DCO and DCM applications that are

publicly available. At that time, the Commission also added Appendix D

to the part 40 regulations prescribing a Submission Cover Sheet to

accompany all self-certified rules, self-certified products, rules

submitted for Commission approval, notifications of rule amendments,

and non-material agricultural rule changes.\26\ To this end, Appendix D

included a copy of the Submission Cover Sheet along with step-by-step

instructions for completing and returning the form to the Commission.

The cover sheet assists Commission staff in preparing and maintaining

the accuracy of the submissions being published on the Commission's Web

site. In order to alert staff that a submission contains material that

should not be published, the Commission proposes to amend the

Submission Cover Sheet to include a prominently placed box to be

checked when confidential treatment is being requested for any part of

a submission filed pursuant to part 40 or 41. The Commission also

proposes to amend Appendix D to part 40 to add an instruction to ensure

that registered entities are fully aware that checking the

``confidential treatment requested'' box on the Submission Cover Sheet

in no way obviates the submitter's responsibility to comply with the

confidential treatment requirements established in proposed regulation

40.8(c) and will not substitute either for notice or for full

compliance with those requirements.

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\26\ 69 FR 67503 (Nov. 18, 2004).

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E. Freedom of Information Act Amendments

Commission regulation 145.9(b) defines the scope of the

Commission's confidential treatment regulations: Its provisions apply

only where the Commission has not specified that an alternative

procedure be utilized in connection with a particular study, report,

investigation, or other matter. The Commission proposes to amend

regulation 145.9(b) to reference the alternative procedure provided in

regulation 40.8(c) for submissions filed under parts 40 and 41.

III. Cost-Benefit Analysis

Section 15(a) of the Act, as amended by section 119 of the CFMA,

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(a) as amended does not require the Commission to quantify

the costs and benefits of a new regulation or to determine whether the

benefits of a regulation outweigh its costs. Rather, section 15(a)

simply requires the Commission to ``consider the costs and benefits''

of its action.

Section 15(a) of the Act further specifies that costs and benefits

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

concern: Protection of market participants and the public; efficiency,

competitiveness, and financial integrity of futures markets; price

discovery; sound risk management practices; and other public interest

considerations. Accordingly, the Commission could, in its discretion,

give greater weight to any one of the five enumerated areas and could,

in its discretion, determine that, notwithstanding its costs, a

particular regulation was 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 is considering the costs and benefits of these

proposed regulations in light of the specified provisions of section

15(a) of the Act:

1. Protection of market participants and the public. The proposed

amendments should have no effect on the Commission's ability to protect

market participants and the public.

2. Efficiency and competition. The proposed amendments are expected

to benefit efficiency by making the non-confidential information from

registered entity submissions available to the public in a more timely

manner. The Commission anticipates that the costs of compliance with

the confidential treatment procedures will be minimal. The proposed

amendments should have no effect, from the standpoint of imposing costs

or creating benefits, on competition in the futures and options

markets.

3. Financial integrity of futures markets and price discovery. The

amendments should have no effect, from the standpoint of imposing costs

or creating benefits, on the financial integrity or price discovery

function of the futures and options markets.

4. Sound risk management practices. The amendments being proposed

herein should have no effect on the risk management practices of the

futures and options industry.

5. Other public considerations. No additional public considerations

could be determined.

After considering these factors, the Commission has determined to

propose the rules and rule amendments set forth below. The Commission

invites public comment on its application of the cost-benefit

provision. Commenters also are invited to submit with their comment

letters any data that they may have quantifying the costs and benefits

of the proposal.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq. (2000),

requires federal agencies, in proposing regulations, to consider the

impact of those regulations on small entities. The regulations proposed

herein would affect derivatives transaction execution facilities,

designated contract markets, and derivatives clearing organizations.

The Commission previously has determined that the foregoing entities

are not small entities for purposes of the RFA.\27\ Accordingly, the

Acting Chairman, on behalf of the Commission, hereby certifies pursuant

to 5 U.S.C. 605(b) that the proposed regulations will not have a

significant economic impact on a substantial number of small entities.

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\27\ 47 FR 18618, 18619 (April 30, 1982), discussing contract

markets; 66 FR 42256, 42268 (August 10, 2001), discussing exempt

boards of trade, exempt commercial markets and derivatives

transaction execution facilities; 66 FR 45605, 45609 (August 29,

2001), discussing derivatives clearing organizations.

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B. Paperwork Reduction Act of 1995

This proposed rulemaking contains information collection

requirements. As required by the Paperwork Reduction Act (PRA) of 1995,

44 U.S.C. 3504(h), the Commission has submitted a copy of this section

to the Office of Management and Budget (OMB) for its review.

Collection of Information: Rules Relating to part 40, Provisions

Common to DCMs, DTEFs and DCOs, OMB Control Number 3038-0022.

The expected effect of the proposed amended regulations will be to

increase the burden previously approved by OMB for this collection of

information by 16 hours as it will result in the filing

[[Page 44944]]

of approximately five additional pages when a registered entity files a

detailed written justification and confidential appendix under

Commission Regulations 40.2, 40.4, 40.5, and 40.6.

The estimated burden was calculated as follows:

Estimated number of respondents: 12.

Annual responses by each respondent: .30.

Total annual responses: 4.

Estimated average hours per response: 4.

Annual reporting burden: 16.

Collection of Information: Rules Relating to part 41, Security

Futures Products, OMB Control Number 3038-0059.

The expected effect of the proposed amended regulations will be to

increase the burden previously approved by OMB for this collection of

information by 3.6 hours as it will result in the filing of

approximately five additional pages when a registered entity files a

detailed written justification and confidential appendix under

Commission regulations 41.23 and 41.24.

Estimated number of respondents: 3.

Annual responses by each respondent: .30.

Total annual responses: .90.

Estimated average hours per response: 4.

Annual reporting burden: 3.6.

Organizations and individuals desiring to submit comments on the

information collection requirements should direct them to the Office of

Information and Regulatory Affairs, Office of Management and Budget,

Room 10202, New Executive Office Building, 725 17th Street, NW.,

Washington, DC 20503; Attention: Desk Officer for the Commodity Futures

Trading Commission.

In Compliance with the PRA, the Commission, through these proposed

regulations, solicits comments to: (1) Evaluate whether the proposed

collection of information is necessary for the proper performance of

the functions of the Commission, including whether the information will

have a practical use; (2) evaluate the accuracy of the Commission's

estimate of the burden of the proposed collection of information,

including the validity of the methodology and assumptions used; (3)

enhance the quality, usefulness, and clarity of the information to be

collected; and (4) minimize the burden of collecting information on

those who are to respond, including through the use of appropriate

automated electronic, mechanical, or other technological collection

techniques or other forms of information technology, e.g., permitting

electronic submission responses.

OMB is required to make a decision concerning the collection of

information contained in these proposed regulations between 30 and 60

days after publication of this document in the Federal Register. This

does not affect the deadline for the public to comment to the

Commission on the proposed regulations. Copies of the information

collection submission to OMB are available from the CFTC Clearance

Officer, 1155 21st Street, NW., Washington, DC 20581, (202) 418-5160.

List of Subjects

17 CFR Part 40

Commodity futures, Contract markets, Designation application,

Reporting and recordkeeping requirements.

17 CFR Part 41

Security Futures.

17 CFR Part 145

Commission records and information.

For the reasons stated in the preamble, the Commission proposes to

amend 17 CFR parts 40, 41, and 145 as follows:

PART 40--PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES

TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING

ORGANIZATIONS

1. The authority citation for part 40 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 8 and 12a, as

amended by appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

2. Section 40.2 is amended by adding paragraph (a)(3)(v) to read as

follows:

Sec. 40.2 Listing Products for trading by certification.

(a) * * *

(3) * * *

(v) A request for confidential treatment as permitted under the

procedures of Sec. 40.8.

* * * * *

3. Section 40.3 is amended by revising paragraph (a)(7) to read as

follows:

Sec. 40.3 Voluntary submission of new products for Commission review

and approval.

(a) * * *

(7) Include a request for confidential treatment as permitted under

the procedures of Sec. 40.8.

* * * * *

4. Section 40.5 is amended by revising paragraph (a)(8) to read as

follows:

Sec. 40.5 Voluntary submission of rules for Commission review and

approval.

(a) * * *

(8) Include a request for confidential treatment as permitted under

the procedures of Sec. 40.8.

* * * * *

5. Section 40.6 is amended by adding new paragraph (a)(3)(vi) to

read as follows:

Sec. 40.6 Self-certification of rules by designated contract markets

and registered derivatives clearing organizations.

(a) * * *

(3) * * *

(vi) A request for confidential treatment as permitted under the

procedures of Sec. 40.8.

* * * * *

6. Section 40.8 is amended by adding new paragraphs (c) and (d) to

read as follows:

Sec. 40.8 Availability of public information.

* * * * *

(c) A registered entity's filing of new products under the self-

certification procedures, new products for Commission review and

approval, new rules and rule amendments for Commission review and

approval, and new rules and rule amendments submitted under the self-

certification procedures will be treated as public information unless

covered by a request for confidential treatment. If a registered entity

files a request for confidential treatment, the following procedures

will apply:

(1) A detailed written justification of the confidential treatment

request must be filed simultaneously with the request for confidential

treatment. The form and content of the detailed written justification

shall be governed by Sec. 145.9(e) of this chapter;

(2) All material for which confidential treatment is requested must

be segregated in an appendix to the submission;

(3) The submission itself must indicate that material has been

segregated and, as appropriate, redacted;

(4) Commission staff may make an initial determination with respect

to the request for confidential treatment without regard to whether a

request for the information has been sought under the Freedom of

Information Act;

(5) A submitter of information under this Part may appeal an

adverse decision by staff to the Commission's Office of General

Counsel. The form and content of such appeal shall be governed by Sec.

145.9(g) of this chapter.

(6) The grant of any part of a request for confidential treatment

under this section may be reconsidered if a subsequent request under

the Freedom of Information Act is made for the information.

[[Page 44945]]

(d) Commission staff will not consider requests for confidential

treatment of information that is required to be made public under

Section 5(d)(7) of the Act or Commission Regulations 40.3(a)(7) or

40.5(a)(8).

6. Appendix D is amended by adding a new sentence to the end of

section 8, ``Other requirements,'' to read as follows:

Appendix D to Part 40--Submission Cover Sheet and Instructions

* * * * *

(8) Other requirements--* * * Checking the box marked

``confidential treatment requested'' on the Submission Cover Sheet

does not obviate the submitter's responsibility to comply with all

applicable requirements for requesting confidential treatment in

Rule 40.8(c) and, where appropriate, Rule 145.9, and will not

substitute for notice or full compliance with such requirements.

* * * * *

PART 41--SECURITY FUTURES PRODUCTS

7. The authority citation for part 41 continues to read as follows:

Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat.

2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).

8. Section 41.23 is amended by adding new paragraph (a)(7) to read

as follows:

Sec. 41.23 Listing of security futures products for trading.

(a) * * *

(7) Includes a request for confidential treatment as permitted

under the procedures of Sec. 40.8.

* * * * *

9. Section 41.24 is amended by adding new paragraph (a)(6) to read

as follows:

Sec. 41.24 Rule amendments to security futures products.

(a) * * *

(6) Includes a request for confidential treatment as permitted

under the procedures of Sec. 40.8.

* * * * *

PART 145--COMMISSION RECORDS AND INFORMATION

10. The authority for part 145 continues to read as follows:

Authority: Pub. L. 99-570, 100 Stat. 3207; Pub. L. 89-554, 80

Stat. 383; Pub. L. 90-23, 81 Stat. 54; Pub. L. 98-502, 88 Stat.

1561-1564 (5 U.S.C. 552); Sec. 101(a), Pub. L. 93-463, 88 Stat. 1389

(5 U.S.C. 4a(j)); unless otherwise noted.

11. Section 145.9 is amended by revising paragraph (b) to read as

follows:

Sec. 145.9 Petition for confidential treatment of information

submitted to the Commission.

* * * * *

(b) Scope. The provisions of this section shall apply only where

the Commission has not specified that an alternative procedure be

utilized in connection with a particular study, report, investigation,

or other matter. See Sec. 40.8 for procedures to be utilized in

connection with filing information required to be filed pursuant to 17

CFR parts 40 and 41.

* * * * *

Issued in Washington, DC on July 23, 2008, by the Commission.

David Stawick,

Secretary of the Commission.

[FR Doc. E8-17529 Filed 7-31-08; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: August 1, 2008