[Federal Register: March 10, 2004 (Volume 69, Number 47)]
[Page 11386-11388]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



Fees for Product Review and Approval

AGENCY: Commodity Futures Trading Commission.

ACTION: Annual update of fees for product approval.


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 approval of products. The
calculation of the fees to be charged for the upcoming year is based on
an average of actual program costs, as explained below. The new fee
schedule is set forth below.

EFFECTIVE DATE: March 10, 2004.

FOR FURTHER INFORMATION CONTACT: Richard A. Shilts, Deputy Director for
Market and Product Review, Division of Market Oversight, 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
    • 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
    • A submission of multiple related options on
futures contracts--$1,000 for

[[Page 11387]]

the first contract, plus $100 for each additional contract;
    • 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 each year the fees it charges with the
intention of recovering the costs of operating 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 historical program costs, plus an overhead factor.

    \1\ See Section 237 of the Futures Trading Act of 1982, 7 USC
16a and 31 USC 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): 117 percent for fiscal year 2001, 129 percent for
fiscal year 2002, and 113 percent for fiscal year 2003. 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 the approval of certain markets or trading facilities
on which futures and options are traded, as opposed to approval of a
specific contract or product. Commission rules that implemented the
CFMA, therefore, charged a fee for the contract review where 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
has 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, Mexican peso, 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. The
Commission determined that a 10 percent marginal fee for additional
contracts in a filing would be appropriate for simultaneously submitted
contracts eligible for the multiple contract filing fee.
    In 2001, Congress passed the CFMA which provided that exchanges no
longer need to obtain prior Commission approval before listing a
futures or option contract for trading. Under the CEA as amended by the
CFMA, exchanges can list new products under certification procedures,
whereby the exchange files notice with the Commission no later than the
day before the new product is to be listed for trading. The filing must
include the rules of the new products as well as a certification that
the product complies with all requirements of the Act and Commission
regulations. The CFMA provides exchanges with the right to request
Commission approval of new products. A request for approval may be made
in lieu of certification, or it may be made in addition to a
certification. The Commission's filing fee for new products applies
only to new products for which an exchange has requested Commission
    Most new products submitted to the Commission since 2001 have been
filed under certification procedures. This has had the effect of
dramatically reducing the number of new product approvals included in
the three-year average upon which the fee computations traditionally
were made. In some cases, the number of contracts included in the
calculation may be too small to be representative of actual processing
costs. Accordingly, the Commission has revised its fee calculation
procedure to reflect this reality and to preclude the setting of fees
that may be greater than actual costs. The Commission believes, that,
for a fee to be representative of actual costs, it should include
actual processing costs for 20 or more contracts. Accordingly, in cases
where the number of new product approvals included in the three-year
moving average, for either futures or options, is fewer than 20
contracts, the fee will not be changed but will remain at the prior
year's level. The Commission believes that the prior year's fee would
be equal to or less than actual costs given increased salary levels and
overhead over time.
    Commission staff compiled data on the actual number of contract
approval requests reviewed and the hours worked on processing these
approval requests

[[Page 11388]]

for the past three fiscal years. The calculations revealed that the
number of contracts that would be included in the three-year moving
averages were 22 futures contracts but only one option contract.
Accordingly, for options, the Commission is not revising the option
contract approval fee for 2004, consistent with the policy noted above.
For the 22 futures contracts, a review of actual costs of processing
these contract approval requests reveal that the average cost over the
period was $6,000 per contract, including overhead.
    In accordance with its regulations as codified at 17 CFR Part 40
Appendix B, the Commission has determined that the fee for an approval
request of a futures contract will be set at $6,000 and the fee for an
approval request of an option contract will remain at $1,000. 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 as
indicated in the schedule set forth in the Summary of Fees above.

III. Cost-Benefit Analysis

    Section 15 of the Act, as amended by section 119 of the CFMR,
requires the Commission to consider the costs and benefits of its
action before issuing a new regulation under the Act. 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 its action, 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 of concern and could in its discretion
determine that, notwithstanding its costs, a particular rule 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 submission of new products for Commission review and approval
by designated contract markets or DTEFs is voluntary. The Commission
has therefore concluded that those entities choosing to make such
submissions find that the benefits of doing so equal or exceed the
fees, which, as explained above, are derived from the Commission's
actual processing costs.

IV. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 USC 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
DTEFs. The Commission has previously determined that contract markets
and registered DTEFs are not ``small entities'' for purposes of the
Regulatory Flexibility Act. Accordingly, the Chairman, on behalf of the
Commission, certifies pursuant to 5 USC 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 March 2, 2004, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 04-5102 Filed 3-9-04; 8:45 am]