[Federal Register: August 10, 2001 (Volume 66, Number 155)]
[Rules and Regulations]
[Page 42289-42291]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



17 CFR Part 40

Fees for Product Review and Approval

AGENCY: Commodity Futures Trading Commission.

ACTION: Establishment of a new schedule of fees.


SUMMARY: The Commission charges fees to designated contract markets and
registered derivatives transaction execution facilities to recover the
costs of its review of requests for product review and approval. The
calculation of the fee amounts to be charged for the upcoming year is
based on an average of actual program costs incurred in the most recent
three full fiscal years, as explained below. The new fee schedule is
set forth below.

EFFECTIVE DATE: August 10, 2001.

FOR FURTHER INFORMATION CONTACT: Richard A. Shilts, Acting Director,
Division of Economic Analysis, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,
(202) 418-5260.


I. Summary of Fees

    Fees charged for processing requests for product review and
    Single Applications:
     A single futures contract or an option on a physical--
    A single option on a previously-approved futures
    A combined submission of a futures contract and an option
on the same futures contract--$6,500.
    Multiple Applications:
    For multiple contract filings containing related contracts, the
product review and approval fees are:
    A submission of multiple related futures contracts--$6,000
for the first contract, plus $600 for each additional contract;
    A submission of multiple related options on futures
contracts--$1,100 for the first contract, plus $110 for each additional
    A combined submission of multiple futures contracts and
options on those futures contracts--$6,500 for the first combined
futures and option contract, plus $650 for each additional futures and
option contract.

II. Background Information

1. General

    The Commission recalculates the fees charged each year with the
intention of recovering the costs of operating certain programs.\1\ All
costs are accounted for by the Commission's Management Accounting
Structure Codes (MASC) system operated according to a government-wide
standard established by the Office of Management and Budget. The fees
are set each year based on direct program costs, plus an overhead

    \1\ See Section 237 of the Futures Trading Act of 1982, 7 U.S.C.
16a and 31 U.S.C. 9701. For a broader discussion of the history of
Commission fees, see 52 FR 46070 (Dec. 4, 1987).

2. Overhead Rate

    The fees charged by the Commission are designed to recover program
costs, including direct labor costs and overhead. The overhead rate is
calculated by dividing total Commission-wide direct program labor costs
into the total amount of the Commission-wide overhead pool. For this
purpose, direct program labor costs are the salary costs of personnel
working in all Commission programs. Overhead costs consist generally of
the following Commission-wide costs: indirect personnel costs (leave
and benefits), rent, communications, contract services, utilities,
equipment, and supplies. This formula has resulted in the following
overhead rates for the most recent three years (rounded to the nearest
whole percent): 104 percent for fiscal year 1998, 105 percent for
fiscal year 1999, and 105 percent for fiscal year 2000. These overhead
rates are applied to the direct labor costs to calculate the costs of
reviewing contract approval requests.

3. Processing Requests for Contract Approval

    Calculations of the fees for processing requests for product review
and approval have become more refined over the years as the types of
contracts being reviewed have changed.
    On August 23, 1983, the Commission established a fee for Contract
Market Designation (48 FR 38214). Prior to its recent amendment, the
Commodity Exchange Act (Act) provided for ``designation'' of each new
contract as a ``contract market.'' The Commodity Futures Modernization
Act (CFMA) amended the Act to limit the concept of ``contract market
designation'' to approval of certain markets or trading facilities on
which futures and options are traded, as opposed to approval of the
product. The Commission has adopted rules, published elsewhere in this
edition of the Federal Register, that implement the CFMA and the
Commission's new regulatory framework. The implementing rules charge a
fee for product review where

[[Page 42290]]

approval has been requested by a designated contract market or
registered derivatives transaction execution facility (DTF). No fee is
charged for the initial designation of a contract market or
registration of a DTF.
    The fee, as originally adopted in 1983, was based on a three-year
moving average of the actual costs expended and the number of contracts
reviewed by the Commission during that period. The formula for
determining the fee was revised in 1985. At that time, most designation
applications were for futures contracts and no separate fee was set for
option contracts.
    In 1992, the Commission reviewed its data on the actual costs for
reviewing applications for both futures and option contracts and
determined that the percentage of applications pertaining to options
had increased and that the cost of reviewing a futures contract
designation application was much higher than the cost of reviewing an
application for an option contract. The Commission also determined that
when applications for a futures contract and an option on that futures
contract are submitted simultaneously, the cost is much lower than when
the contracts are separately reviewed. To recognize this cost
difference, three separate fees were established: one for futures; one
for options; and one for combined futures and option contract
applications (57 FR 1372, Jan. 14, 1992).
    The Commission refined its fee structure further in fiscal year
1999 to recognize the unique processing cost characteristics of a class
of contracts--cash-settled based on an index of non-tangible
commodities. The Commission determined to charge a reduced fee for
related simultaneously submitted contracts for which the terms and
conditions of all contracts in the filing are identical, except in
regard to a specified temporal or spatial pricing characteristic or the
multiplier used to determine the size of each contract. Contracts on
major currencies (defined as the Australian dollar, British pound, Euro
(and its component currencies), Japanese yen, Canadian dollar, Swiss
franc, New Zealand dollar, Swedish krona, and the Norwegian krone)
(including contracts based on currency cross rates) are also eligible
for the reduced multiple contract fees.
    Contracts having differentiated spatial features include contracts
which are identical in all respects, including the cash settlement
mechanism, but which may be based on 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 spatial

    \2\ Submissions containing a number of similar cash-settled
contracts based on the 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
require separate analysis.

    Contracts having differentiated temporal features include contracts
that are the same in all respects except for the time to maturity of
the individual underlying instruments. This may include cash-settled
interest rate futures contracts within a specific segment of the yield
curve, provided that for each contract the cash settlement mechanism
and derivation procedure is identical, and the integrity of the cash
settlement mechanism is not dependent on the individual temporal
specifications. Examples include short-term interest rate contracts
having monthly maturities ranging up to one year.\3\

    \3\ Cash-settled contracts covering various segments of the
yield curve would not be eligible for the reduced fee, since the
underlying instruments may be priced differently and have different
trading characteristics, and the manipulation potential of each
contract would be related to the liquidity of the underlying
instruments and require separate analysis.

    The Commission determined that a 10 percent marginal fee for
additional contracts in a filing is appropriate for simultaneously
submitted contracts eligible for the multiple contract filing fee.
Because the eligible related contracts are based on indices of non-
tangible commodities not traded in the cash market, the Commission's
review need not require a separate analysis of the different contracts
in a filing related to the liquidity of the underlying cash markets or
the reliability or transparency of prices for the individual
commodities. Because each contract must use an identical cash
settlement procedure and all other material terms and conditions must
be identical (except for the differentiated spatial or temporal term or
the 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 all of the contracts in a related group are
differentiated from each other only with respect to a spatial or
temporal feature that has no bearing on the characteristics of the cash
settlement mechanism, each contract would not require a separate
analysis to ascertain its compliance with the requirements for
designation. Hence, the Commission's analysis of the cash settlement
procedure in general and its review of the other material terms and
conditions would be applicable equally to all related contracts in the
filing. Only a limited supplemental analysis is required for each
additional contract in such a filing, resulting in a substantially
reduced marginal cost for reviewing and processing the additional
    Multiple contract filings of related futures and option contracts
on major currencies are eligible for the multiple contract fees for the
same reasons that reduced fees are appropriate for multiple related
cash-settled contract filings. While currency contracts may not be cash
settled, per se, issues related to physical delivery contracts do not
arise for currencies, since like contracts providing for cash
settlement, future delivery and payment involve simply the exchange of
cash (one currency for another). Moreover, the Commission has found
that major currencies (as defined here) have nearly inexhaustible
deliverable supplies, exhibit extremely deep and liquid markets, are
not subject to convertibility or delivery restrictions and are easily
arbitraged between cash and futures markets and it has exempted
contracts based on major currencies from speculative limits. Therefore,
no separate analysis is required of the manipulation potential of each
contract based on a major currency in a multiple contract filing.
Moreover, delivery and payment procedures and all other terms and
conditions are identical for currency contracts; the difference is
limited to the actual currency transferred in the delivery and payment
process. Since only an incremental analysis is needed for each
additional contract in a multiple contract filing, lower fees are more
in line with actual processing costs.
    The Commission's experience in reviewing new contracts indicates
that for simultaneous submission of multiple related major currency or
cash-settled contracts, a fee for each additional contract equal to 10
percent of the single contract fee reflects the Commission's expected
review costs for these reviews. The Commission's fee for simultaneous
submission of such related contracts is equal to the prevailing single
contract fee applicable to the first contract plus 10 percent for each
additional contract in the filing. This marginal cost-based fee
structure is an extension of the policy adopted by the Commission in
1992 when it established reduced fees

[[Page 42291]]

for option filings and for combined futures and option filings.
    For multiple, simultaneously submitted, major currency or cash-
settled contract filings to be eligible for the reduced fees, the
contracts in the filing must meet the following criteria:
    a. each contract must be based on a major currency or be cash-
settled based on an index representing measurements of physical
properties or financial characteristics which are not traded per se in
the cash market, except in regard to the specified currency or the
temporal or spatial pricing characteristics of the cash settlement
price or the multiplier used to determine the size of each contract;
    b. the currency delivery procedures or the cash settlement
procedure must be the same for each contract in the filing;
    c. all other terms and conditions of the contracts must be the same
in all respects; and
    d. the filing must contain a claim for the reduced fee and a
representation that the terms a through c above have been met.
    The Commission also notes that the fees for futures contract
filings apply to filings for options on physical commodities, and that
the reduced option fee applies only to applications for options on
existing futures contracts. The requirements for approval of an option
on a physical commodity are substantially similar to those of futures
and so the same fee applies to both types of filings.\4\

    \4\ The Commission's Guideline No. 1 details the information
that must be included in a request for approval of a contract; all
requirements for futures contracts (physical delivery or cash
settlement) also apply to options on physicals applications (several
additional requirements apply only to options). 63 FR 38537 (July
17, 1998).

    Commission staff compiled the actual costs of processing a request
for product review and contract approval for a futures contract for
fiscal years 1998, 1999, and 2000, and found that the average cost over
the three-year period was $6,000, including overhead. Review of actual
costs of processing contract approval reviews for an option contract
for fiscal years 1998, 1999, and 2000 reveal that the average cost over
the period was $1,100 per contract, including overhead.
    In accordance with its regulations recodified elsewhere in this
edition of the Federal Register as 17 CFR Part 40 Appendix B, the
Commission has determined that the fee for approval of a futures
contract will be set at $6,000 and the fee for approval of an option
contract will be set at $1,100. The fee for simultaneously submitted
futures contracts and option contracts on those futures contracts and
the fees for filings containing multiple cash-settled indices on non-
tangible commodities have been set similarly and as indicated in the
schedule set forth in the Summary of Fees above.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., requires
agencies to consider the impact of rules on small business. The fees
implemented in this release affect contract markets and registered
DTFs. The Commission has previously determined that contract markets
and registered DTFs are not ``small entities'' for purposes of the
Regulatory Flexibility Act. Accordingly, the Acting Chairman, on behalf
of the Commission, certifies pursuant to 5 U.S.C. 605(b), that the fees
implemented here will not have a significant economic impact on a
substantial number of small entities.

    Issued in Washington, DC on July 30, 2001 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 01-19497 Filed 8-9-01; 8:45 am]