Market and Large Trader Reporting, 74246-74259 [05-23977]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 70, Number 240 (Thursday, December 15, 2005)]
[Proposed Rules]
[Pages 74246-74259]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-23977]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 15, 16, 17, 18, 19 and 21

RIN 3038-AC22


Market and Large Trader Reporting

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing several amendments to its market and large trader 
reporting rules. First, the Commission is proposing to establish a new 
reporting level for futures and option contracts based on 3-Year U.S. 
Treasury Notes. Second, the Commission is proposing to clarify the 
application of the reporting rules to registered derivatives 
transaction execution facilities (DTEFs). Third, the Commission is 
proposing to require designated contract markets to publicly 
disseminate integrated volume data that separately identifies the 
volume generated from block trades. Fourth, the Commission is proposing 
to adopt a reporting framework for contracts that are exclusively self-
cleared. Finally, the Commission is proposing a number of conforming, 
clarifying, and technical amendments.

DATES: Comments must be received by February 13, 2006.

ADDRESSES: Comments should be sent to the Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, attention: Office of the Secretariat. Comments may be sent by 
facsimile to 202.418.5521, or by e-mail to secretary@cftc.gov. 
Reference should be made to the ``Market and Large Trader Reporting.'' 
Comments may also be submitted through the Federal eRulemaking Portal 
at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Gary Martinaitis, Associate Deputy 
Director for Market Information, Market Surveillance Section (telephone 
202.418.5209, e-mail gmartinaitis@cftc.gov), or Bruce Fekrat, Special 
Counsel, Office of the Director (telephone 202.418.5578, e-mail 
bfekrat@cftc.gov), Division of Market Oversight, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. The Commission's Authority To Implement the Reporting Rules

    The market and large trader reporting rules (reporting rules) are 
contained in parts 15 through 21 of the Commission's regulations.\1\ 
Together, the reporting rules are structured to ensure that the 
Commission receives adequate information to carry out its market and 
financial surveillance programs.\2\ The reporting rules are implemented 
by the Commission partly pursuant to the authority of sections 4a, 
4c(b), 4g, and 4i of the Commodity Exchange Act (CEA or Act).\3\ 
Section 4a of the Act permits the Commission to set, approve exchange-
set, and enforce speculative position limits.\4\ Section 4c(b) of the 
Act gives the Commission plenary authority to regulate transactions 
that involve commodity options.\5\ Section 4g of the Act imposes 
reporting and recordkeeping obligations on registered entities, and 
requires each registrant, whether a futures commission merchant (FCM), 
introducing broker, floor broker, or floor trader, to file such reports 
as the Commission may require on proprietary and customer positions 
executed on any board of trade in the United States or elsewhere.\6\ 
Lastly, section 4i of the Act requires the filing of such reports as 
the Commission may require when positions made or obtained on contract 
markets or DTEFs equal or exceed Commission-set levels.\7\
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    \1\ 17 CFR parts 15 to 21.
    \2\ The market surveillance programs analyze market information 
to detect and prevent market disruptions and enforce speculative 
position limits. The financial surveillance programs combine market 
information with financial data to assess the financial risks 
presented by large customer positions to Commission registrants and 
clearing organizations. See 69 FR 76392 (December 21, 2004).
    \3\ 7 U.S.C. 1 et seq.
    \4\ 7 U.S.C. 6a.
    \5\ 7 U.S.C. 6c(b).
    \6\ 7 U.S.C. 6g.
    \7\ 7 U.S.C. 6i. In addition, CEA section 8a(5) is an enabling 
provision that grants to the Commission the authority to adopt rules 
that in its judgment are reasonably necessary to accomplish any of 
the purposes of the Act. 7 U.S.C. 12a(5). Pursuant to CEA section 
3(b), the Act seeks to ensure the financial integrity of regulated 
transactions and to prevent price manipulation and other disruptions 
to market integrity. 7 U.S.C. 5(b). Collectively, these purposes 
warrant the maintenance of an effective and vigorous system of 
market and financial surveillance.
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II. Establishing a Reporting Level for Contracts Based on 3-Year U.S. 
Treasury Notes

    The Commission's reporting rules, among other things, require FCMs, 
foreign brokers, and clearing members (collectively reporting firms) to 
report position and identifying information of the largest futures and 
option traders to the Commission.\8\ Upon special call, traders must 
separately provide position and identifying information to the 
Commission.\9\ For both reporting firms and traders, the obligation to 
report under parts 17 and 18 of the Commission's regulations is 
triggered when traders hold or control reportable positions.\10\
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    \8\ See 17 CFR part 17.
    \9\ See 17 CFR part 18.
    \10\ A reportable position is any open contract position, as 
further defined in the rules, that at the close of the market equals 
or exceeds the quantity specified in Commission rule 15.03. See 17 
CFR 15.00 and 15.03. The firms that carry accounts for traders 
holding reportable positions are required to identify those accounts 
on Form 102 and to report positions in the accounts to the 
Commission. See 17 CFR 17.00 and 17.01. The individual traders who 
hold or control reportable positions are required to report position 
and identifying information to the Commission only in response to a 
special call. See 17 CFR part 18.
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    Commission rule 15.03(b) delineates contract reporting levels for 
commodity futures and option contracts.\11\ Rule 15.03(b) applies a 
default reporting level of 25 contracts to contracts not specifically 
itemized by the rule. Notably, rule 15.03 does not specify a reporting 
level for futures or option contracts based on 3-Year U.S. Treasury 
Notes (3-Year T-Notes).
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    \11\ The Commission typically calibrates contract reporting 
levels to ensure that the aggregate of all positions reported to the 
Commission represents approximately 70 to 90 percent of the open 
interest in any given contract. The Commission periodically analyzes 
contract terms, trading volume, open interest, the number and 
position sizes of individual traders, and its surveillance 
experience with specific contracts, to determine if coverage of open 
interest is adequate for effective market surveillance. 69 FR 76392, 
76393 (December 21, 2004).
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    At the present time, 3-Year T-Notes are listed solely by the U.S. 
Futures Exchange, LLC (Eurex US). On January 26, 2005, the Division of 
Market Oversight (staff) issued no-action relief to Eurex US, FCMs, 
foreign brokers, clearing members, and traders that complied with all 
regulatory obligations arising from a contract reporting level of 750 
contracts instead of the otherwise applicable default reporting level 
of 25 contracts.\12\ The staff based its grant of relief primarily on 
the conclusion that historical trading in 2-Year T-Notes served as 
precedent for trading in 3-Year

[[Page 74247]]

T-Notes.\13\ Based upon the staff's surveillance experience with 2-Year 
T-Notes, the liquidity of the securities underlying treasury futures 
and option contracts, and the securities available for delivery against 
3-Year T-Notes,\14\ the Commission is herein proposing to adopt a 3-
Year T-Notes reporting level of 750 contracts.
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    \12\ CFTC Staff Letter 05-03 Comm. Fut. L. Rep. (CCH) ] 30,024 
(January 26, 2005).
    \13\ Id. The contract reporting level for 2-Year T-Notes is 
currently 1,000 contracts. 17 CFR 15.03.
    \14\ The deliverable supply for the March 2005 3-Year T-Notes 
had a value of approximately $95 billion.
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III. Derivatives Transaction Execution Facilities

A. The Commission's Authority To Subject DTEFs to the Reporting Rules

    The CEA, as amended by the Commodity Futures Modernization Act of 
2000 (CFMA),\15\ gives the Commission the statutory authority to 
subject DTEFs and transactions on DTEFs to the reporting rules.\16\ 
First, as noted above, section 4c(b) of the Act, regardless of the 
venue of trading, gives the Commission plenary authority to regulate 
transactions that involve commodity options. Second, sections 4a and 4i 
of the Act explicitly reference transactions executed on or subject to 
the rules of DTEFs. Finally, section 4g of the Act imposes reporting 
and recordkeeping obligations on registered entities and certain 
Commission registrants trading on registered entities and boards of 
trade. A registered entity is defined by CEA section 1a(29) to include 
DTEFs.\17\ A board of trade is defined by section 1a(2) of the Act to 
include ``any organized exchange or other trading facility.'' \18\
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    \15\ CFMA, Appendix E of Pub. L. 106-554, 114 Stat. 2763.
    \16\ Although the Commission has received indications of 
interest from potential DTEF applicants, no board of trade has 
registered with the Commission as a DTEF, and there are no presently 
pending applications for such registration.
    \17\ 7 U.S.C. 1a(29).
    \18\ 7 U.S.C. 1a(2).
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B. Proposed Rules

1. Current Commission Rule 37.2
    The current language of Commission rule 37.2, which is designed to 
exempt DTEFs from the bulk of Commission regulations otherwise 
pertinent to trading facilities, reserves the applicability of parts 15 
to 21 to DTEFs, but does so through incorporation by reference and 
without substantial clarity.\19\ Specifically, rule 37.2 provides that 
DTEFs are not, as applicable to the market, exempt from parts 15 to 21, 
and further provides that parts 15 to 21, when applicable to DTEFs, 
shall be viewed as though they were set forth in rule 37.2 and included 
specific reference to DTEFs.
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    \19\ 17 CFR 37.2.
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    As part of the Commission's continuing effort to better implement 
the amendments introduced to the Act by the CFMA, the Commission is now 
proposing to define DTEFs directly into rules 15.00 to 15.04 and parts 
16 through 21 of the Commission's regulations. The proposed amendments 
are not in any way designed to alter the existing reporting obligations 
of DTEFs or their market participants.
2. The Replacement of Terms
    The current provisions of parts 15 to 21, with the exception of 
Commission rule 15.05, focus only on contract markets.\20\ The 
Commission is proposing to define the new term reporting market in 
Commission rule 15.00(m) to include DTEFs in addition to designated 
contract markets. In order to directly effectuate the applicability of 
rules 15.00 to 15.04 and parts 16 through 21 of the Commission's 
regulations to DTEFs, the Commission is next proposing to replace 
certain references to contract markets in those rules and parts with 
references to reporting markets.\21\
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    \20\ Commission rule 15.05 relates to the appointment of an 
agent for service of process for foreign persons. 17 CFR 15.05. Rule 
15.05 is self-effectuating and permits the Commission to 
expeditiously communicate with foreign persons and entities that 
trade on the domestic commodity exchanges. See 45 FR 30426 (May 8, 
1980). The rule was amended in 2001 to explicitly apply to 
designated contract markets and registered derivatives transaction 
execution facilities. See 66 FR 42256 (August 10, 2001).
    \21\ Specifically, the Commission is proposing to replace the 
term contract market with the term reporting market in the rule 
15.00 definition of a reportable position, in rules 15.01(a), 16.06, 
18.05, and 21.01, and throughout the provisions of rules 16.00, 
16.01, 16.07, 17.00, 17.04, 18.00, 21.02, and 21.03. In addition, 
the Commission is proposing to replace the term contract market with 
the term reporting market in the heading of part 16, part 17, and 
the heading of sections 21.02 and 21.03. Other proposed amendments 
reconciling existing rules with the proposed replacement of terms 
are discussed in Section VI of this notice of rulemaking.
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3. Operational Flexibility and the Definition of Reporting Market
    In comparison with designated contract markets, DTEFs are required 
to comply with a less comprehensive set of Core Principles.\22\ Thus, 
in certain respects, DTEFs have greater operational flexibility than 
designated contract markets. For example, pursuant to section 5(d)(11) 
of the Act, transactions on designated contract markets, with the 
exception of security futures products, must be cleared through 
Commission registered derivatives clearing organizations.\23\ In 
contrast, pursuant to section 5a(c)(4) of the Act, transactions on 
DTEFs may be cleared through clearing organizations other than 
Commission registered clearing organizations.\24\
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    \22\ Compare 7 U.S.C. 7(d) (Core Principles for designated 
contract markets) with 7a(d) (Core Principles for DTEFs).
    \23\ See 7 U.S.C. 7(d)(11) and guidance on Core Principle 11 in 
Appendix B to 17 CFR part 38.
    \24\ See 7 U.S.C. 7a(c)(4) and guidance on Registration 
Criterion 4 in Appendix A to 17 CFR part 37.
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    Despite this potential for greater operational flexibility, DTEFs 
must comply with statutory safeguards that restrict the contracts that 
they may list and the manner in which certain market participants may 
exercise trading privileges.\25\ For example, a DTEF may permit trading 
access to all eligible contract participants, as that term is defined 
by section 1a(13) of the Act,\26\ and all retail traders that trade 
through FCMs having at least $20 million in net capital, but only in 
futures and option contracts that are based on commodities that have no 
cash market, are security futures products, or are highly unlikely to 
be susceptible to the threat of manipulation.\27\ As an additional 
example, a DTEF may list any futures or option contract on any 
underlying commodity, except one based on the agricultural commodities 
enumerated in section 1a(4) of the Act,\28\ but only if trading access 
is limited to eligible commercial entities, as that term is defined by 
section 1a(11) of the Act.\29\
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    \25\ 7 See U.S.C. 7a(b).
    \26\ 7 U.S.C. 1a(13).
    \27\ See 7 U.S.C. 7a(b). Pursuant to section 5a(b)(2)(E) of the 
Act, the Commission may also make contract suitability 
determinations on an individualized basis. 7 U.S.C. 7a(b)(2)(E).
    \28\ 7 U.S.C. 1a(4).
    \29\ 7 U.S.C. 1a(11) and 7a(b)(2)(F).
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    As proposed, rule 15.00(m) would define a reporting market to mean 
a designated contract market and, unless determined otherwise by the 
Commission with respect to the facility or a specific contract listed 
by the facility, a DTEF. The determination requirement in the proposed 
definition of reporting market is designed to reconcile the 
Commission's responsibility to adequately surveil transactions on DTEFs 
with the Congressional directive to permit DTEFs to operate, in certain 
respects, more flexibly than designated contract markets. Accordingly, 
in determining that a DTEF is not a reporting market, and thereby 
rendering some or all of the provisions of the reporting rules 
inapplicable to the facility or a specific contract listed by the 
facility, the Commission would consider on a case by case basis, 
several non-exhaustive

[[Page 74248]]

factors.\30\ These factors include a DTEF's surveillance capabilities, 
the characteristics of commodities underlying specific DTEF 
transactions, the surveillance history of trading with precedential 
value, potential defects in the pricing of DTEF transactions, the value 
of market data to market participants, the value of market data to 
commercial entities, and the impact that market disruptions may have on 
Commission registrants and other registered entities.
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    \30\ When the Commission adopted rule 37.2 in August of 2001, it 
specifically determined to defer the extension of routine large 
trader reporting requirements to DTEF transactions involving 
Treasury instruments. See 66 FR 42256, 42261 (August 10, 2001). When 
the Commission adopted rule 41.25 in November of 2001, it 
specifically determined to require part 16 reports from all DTEFs 
listing security futures products. See 66 FR 55078 (November 1, 
2001). Under the proposed rules, the Commission would, without 
exception, deem such DTEFs to be part 16 reporting markets for 
security futures products.
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4. Market Data
    Commission rule 16.01 requires that contract markets submit 
directly to the Commission data on trading volume, open interest, 
futures delivery notices, exchanges of futures, option deltas, prices, 
and critical dates on a daily basis.\31\ As with the other provisions 
of the reporting rules, and with the exception of the public 
dissemination requirement of rule 16.01 that is discussed below, the 
proposed amendments to rule 16.01 would require DTEFs to submit market 
data to the Commission unless determined otherwise by the Commission.
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    \31\ 17 CFR 16.01.
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    As mentioned above, in addition to submitting data directly to the 
Commission, rule 16.01 requires contract markets to publicly 
disseminate data on trading volume, open interest, futures delivery 
notices, exchanges of futures, option deltas, and prices on a daily 
basis. Unlike designated contract markets, however, DTEFs are 
statutorily obligated to publicly disseminate information on settlement 
prices, volume, open interest, and opening and closing ranges on a 
daily basis when the Commission determines that a DTEF contract 
performs a significant price discovery function for transactions in the 
cash market for the commodity underlying the contract.\32\
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    \32\ Compare 7 U.S.C. 7(d)(8) (designated contract market Core 
Principle 8), with 7 U.S.C. 7a(d)(5) (DTEF Core Principle 5).
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    The language triggering the public dissemination requirement for 
DTEFs is similar to the language triggering the same requirement for 
exempt boards of trade \33\ and exempt commercial markets.\34\ The 
Commission therefore believes that DTEFs should not of necessity be 
subject to the same public dissemination requirement as designated 
contract markets.\35\ The proposed amendments to rule 16.01 would 
require both designated contract markets and DTEFs to record and submit 
market data to the Commission, but would only obligate designated 
contract markets to comply with the rule's public dissemination 
requirement. As a result, the public dissemination requirement for DTEF 
contracts would be implemented under the rubric of DTEF Core Principle 
5, including any Commission regulation adopted thereunder and 
subsequent Commission statements providing additional guidance and 
establishing acceptable practices for the manner of compliance with 
that core principle.\36\ Proposed paragraph (e) of Commission rule 
16.01 emphasizes this result.
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    \33\ 7 U.S.C. 7a-3(d).
    \34\ 7 U.S.C. 2(h)(4)(D). Aside from the requirement to comply 
with minimal notice and reporting obligations, exempt boards of 
trade and exempt commercial markets are generally not subject to 
Commission oversight. See 17 CFR part 36.
    \35\ The Commission recently proposed to apply to DTEFs and 
exempt boards of trade the same standard that currently applies to 
exempt commercial markets for determining whether a contract 
performs a significant price discovery function for transactions in 
the cash market for an underlying commodity. 70 FR 39672, 39674 
(July 11, 2005). Specifically, in making such a determination with 
respect to DTEFs and exempt boards of trades, the Commission has 
proposed to consider (1) whether cash market bids, offers or 
transactions are directly based on, or quoted at a differential to, 
the prices generated on the market on a more than occasional basis; 
or (2) whether market prices are routinely disseminated in a widely 
distributed industry publication and are routinely consulted by 
industry participants in pricing cash market transactions. Id.
    \36\ See Commission rule 37.6(d)(4) and guidance on DTEF Core 
Principle 5 in Appendix B to part 37 of the Commission's 
regulations. 17 CFR 37.6(d)(4) and Appendix B to 17 CFR part 37.
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IV. Block Trade Volume and the Publication of Market Data

    On December 21, 2000, the President signed into law the CFMA, 
extensively revising the Act, and facilitating the availability of 
transactions, such as block trades, that are subject to the rules of an 
exchange, but lawfully negotiated and executed away from the 
centralized marketplace.\37\ Block trades are typically subject to 
exchange rules that establish minimum size thresholds, participant 
eligibility requirements, pricing limits, and trade reporting 
parameters.\38\ It is generally believed that market participants 
execute large orders through block trades in order to achieve greater 
price and execution certainty than otherwise attainable in the 
centralized marketplace.
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    \37\ For example, the CFMA specifically permitted designated 
contract markets to establish trading rules that authorize the 
exchange of futures for swaps, or allow a futures commission 
merchant, acting as principal or agent, to enter into or confirm the 
execution of a contract for the purchase or sale of a commodity for 
future delivery if the contract is reported, recorded, or cleared in 
accordance with the rules of a designated contract market or 
derivatives clearing organization. See 7 U.S.C. 7(b)(3).
    \38\ See 69 FR 39880, 39882 (July 1, 2004).
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    In order to recognize the growing importance and use of off-
centralized market transactions, the Commission adopted final rules in 
December of 2004 that required designated contract markets to 
separately identify, report, and publish the volume generated from 
trades involving the exchange of futures for a commodity or for a 
derivatives position.\39\ To more comprehensively recognize the growing 
use and importance of off-centralized market transactions, the 
Commission is now similarly proposing to amend rule 16.01 to require 
designated contract markets to record and make readily available to the 
news media and the general public, as part of the total mix of market 
data publicly disseminated pursuant to rule 16.01, the volume generated 
from trades that are block trades.
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    \39\ 69 FR 76392, 76394 (December 21, 2004).
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    Commission rule 1.38(b) currently requires designated contract 
markets to separately identify and mark all off-centralized market 
transactions, including block trades.\40\ In addition, several 
designated contract markets disseminate public reports that separately 
account for the volume generated from block trades.\41\ The proposed 
amendments to rule 16.01 seek to codify this industry practice, and 
require all designated contract markets to record the volume generated 
from block trades for each contract, and make that information readily 
available to the news media and the general public as a part of the 
total mix of market data publicly disseminated on a daily basis.\42\
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    \40\ 17 CFR 1.38(b).
    \41\ For example, the Chicago Board of Trade publicly 
disseminates daily block trade volume data for eligible contracts in 
a category of volume termed Wholesale Trades. See CBOT Delayed 
Charts, available at https://cbt.com/cbot/pub/page/
0,3181,801,00.html. The Chicago Mercantile Exchange also 
disseminates daily volume data through its Web site that separately 
accounts for the volume generated from block trades.
    \42\ As previously discussed, DTEFs, unlike designated contract 
markets, are statutorily obligated to publicly disseminate volume 
data on a daily basis when the Commission determines that a DTEF 
contract performs a significant price discovery function for 
transactions in the cash market for the commodity underlying the 
contract. Under the proposed rules, the public dissemination 
requirement for DTEF contracts, including the reporting of 
particularized block trade volume data, would be implemented under 
the rubric of DTEF Core Principle 5.

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[[Page 74249]]

    Given the current stage of technological development, the 
Commission believes that designated contract markets must generally 
satisfy their obligation to make market data readily available to the 
news media and the general public through the Internet and on Web pages 
that are conveniently accessed and easily navigable. In order to 
further emphasize the obligation to disseminate market data in a manner 
that is both useful and accessible, proposed rule 16.01(e) would 
introduce two additional requirements. First, proposed rule 16.01(e) 
would specifically require the integrated publication of volume data. 
The Commission believes that the integrated publication of volume data, 
along with the public dissemination of block trade volume data, will 
enhance the ability of market participants and the general public to 
effectively analyze the determinants of market prices, the depth of 
market liquidity, and the utility of contracts as hedging and pricing 
tools. Second, proposed rule 16.01(e) would require designated contract 
markets to present market data in a format that would readily enable 
members of the news media and the general public to consider such data. 
This presentation requirement would ensure that designated contract 
markets are fully aware of their present obligation to publicly 
disseminate market data in a user friendly format.
    With regard to the publication of volume data, the Commission notes 
that the proposed amendments to rule 16.01 would require the 
publication of data on the total volume of trading, the volume 
generated by exchanges of futures, and the volume generated from block 
trades, for each contract. The Commission herein solicits comment on 
whether using a catch-all category to identify trading volume generated 
from all off-centralized market trades that are not exchanges of 
futures is preferable to identifying the volume generated from specific 
off-centralized market transactions such as block trades. The 
Commission also solicits comment on whether, in the alternative, any 
further refinement of volume data, beyond the proposed breakdown into 
the categories listed above, is desirable, or necessary, for the proper 
analysis of market prices and liquidity.
    In addition, as proposed, the amendments to rule 16.01 would 
require designated contract markets to publicly disseminate separate 
block trade volume data, but would not require the submission of such 
data to the Commission. The Commission has assessed the cost to the 
Commission of integrating separate block trade volume data into its 
information systems, and has determined that cost to be considerable. 
The Commission will therefore independently derive or compile such data 
as necessary to fulfill its market and financial surveillance 
responsibilities.

V. Self-Cleared Contracts

A. Market Structure

    In February of 2004, the Commission designated HedgeStreet, Inc. 
(HedgeStreet or Exchange) as a contract market pursuant to sections 5 
and 6(a) of the Act.\43\ In its application for designation, 
HedgeStreet presented a market structure that was substantially 
different from other active designated contract markets. For example, 
the market structure presented by HedgeStreet did not permit 
intermediaries to handle the orders or funds of traders in connection 
with the purchase or sale of listed contracts.\44\ Consequently, the 
Exchange sought to directly hold, at all times, sufficient trader funds 
to cover the maximum possible loss that could be sustained by market 
participants.\45\ The Exchange also offered products with appeal to 
members of the general public. For example, HedgeStreet sought to 
offer, and currently does offer, European style binary options on 
various commodities that pay a fixed $10.00 if in the money upon 
expiration.\46\
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    \43\ 7 U.S.C. 7 and 8(a); Order of Designation as a Contract 
Market (February 18, 2004).
    \44\ See Order of Registration as a Derivatives Clearing 
Organization (February 18, 2004); see also Staff Designation 
Memorandum from the Division of Market Oversight (Staff Memorandum) 
at 47 (February 10, 2004).
    \45\ Id.
    \46\ Staff Memorandum at 29. In September of 2005, HedgeStreet 
submitted to the Commission new and amended rules to support a 
request to offer larger size contracts that could be intermediated 
and cleared by members of The Clearing Corporation. Letter and 
related submissions from Stephanie Ford, Vice-President, 
HedgeStreet, Inc. to Jean A. Webb, Secretary of the Commission 
(September 6, 2005)(on file with the Commission), available at 
https://www.cftc.gov/dea/deapendingindustryfilings.htm.
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    The market structure initially established by HedgeStreet does not, 
in certain respects, comport well with the obligations imposed by the 
Commission's reporting rules. Presently, the reporting rules are 
designed to collect information from heavily intermediated markets that 
permit un-intermediated trading and clearing access only to well 
capitalized members.\47\ In anticipation of the adoption of comparable 
market structures by other exchanges, the Commission is herein 
proposing an alternative reporting approach that would apply to markets 
that do not permit intermediaries to handle the funds of traders in 
connection with the sale or purchase of specific contracts. For ease of 
reference, the term exclusively self-cleared contracts is used herein, 
and defined by proposed Commission rule 15.00(f), to refer to such 
contracts.\48\
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    \47\ See 17 CFR parts 16 to 18.
    \48\ The term exclusively self-cleared contract is devised for 
use in parts 15 through 21 only and is not meant to give meaning to 
the terms intermediary or intermediation (or any variant of those 
terms) in any way as used by the Commission, in the Act, or in 
Commission regulations promulgated under the Act.
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B. Proposed Rules

1. Background on Commission Rules 17.00 and 17.01
    The Commission employs a comprehensive reporting system to enforce 
speculative position limits and assess the activities and potential 
market power of traders. Pursuant to Commission rule 17.00, FCMs, 
foreign brokers, and clearing members file daily reports with the 
Commission particularizing futures and option positions when such 
positions are at or above the contract reporting levels delineated in 
rule 15.03.\49\ If, at the close of the market on any business day, an 
FCM, foreign broker, or clearing member carries a position at or above 
the Commission's reporting level in any single futures month or option 
expiration, the firm reports the entire position on the same exchange 
in all futures and option expiration months in that commodity, 
regardless of size.\50\ Since traders frequently hold positions through 
multiple brokers and have financial interests in multiple accounts, the 
Commission, pursuant to rule 17.01, routinely collects information that 
enables its surveillance staff to aggregate related accounts.\51\ 
Specifically, FCMs, foreign brokers, and clearing members file Forms 
102 to identify the name, address, and occupation of the person or 
persons who own each new account that acquires a reportable 
position.\52\
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    \49\ See 17 CFR 15.00, 15.03 and 17.00.
    \50\ 17 CFR 17.00(a).
    \51\ 17 CFR 17.01.
    \52\ See id.
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2. Exclusively Self-cleared Contracts
    An FCM, by definition, is a person that accepts the property of 
customers to ``margin, guarantee, or secure'' customer trades.\53\ 
Likewise, a foreign broker is a person located outside the United 
States or its territories ``who carries an account'' for any other 
person.\54\ With respect to transactions in exclusively

[[Page 74250]]

self-cleared contracts, there are no intermediaries who handle customer 
funds, and therefore, there are no FCMs or foreign brokers with 
reporting obligations under part 17 of the Commission's regulations.
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    \53\ 7 U.S.C. 1a(20).
    \54\ 17 CFR 15.00(a)(1).
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    In contrast, the term clearing member is defined by Commission rule 
1.3(c) to include ``any person who is a member of, or enjoys the 
privileges of clearing trades in his own name through, the clearing 
organization of a contract market.'' \55\ As such, all traders of 
exclusively self-cleared contracts squarely fit within the regulatory 
definition of a clearing member, and thereby have reporting obligations 
under part 17 of the Commission's regulations.
---------------------------------------------------------------------------

    \55\ 17 CFR 1.3(h). The Commission herein is proposing to amend 
the regulatory definition of a clearing member in rule 1.3 to 
explicitly extend to members of DTEFs.
---------------------------------------------------------------------------

    Pursuant to rule 17.00, clearing members, including all traders who 
are clearing members, must file daily reports with the Commission 
particularizing futures and option positions when such positions are at 
or above the contract reporting levels set by rule 15.03. Pursuant to 
rule 17.01, clearing members, including all traders who are clearing 
members, must file Forms 102 with the Commission to identify the name, 
address, and occupation of the person or persons who own each new 
account that acquires a reportable position. With respect to 
exclusively self-cleared contracts, all traders, by virtue of their 
status as clearing members, have to submit large trader position and 
identifying data to the Commission in compliance with rules 17.00 and 
17.01 on a daily basis.
    The reporting rules, however, are not designed to impose routine 
position and identifying reporting obligations on traders.\56\ In 1981, 
the Commission explicitly disposed of routine trader reporting 
obligations in order to ``substantially decrease certain paperwork 
burdens on large traders and on the Commission itself.''\57\ Instead, 
the Commission looked to intermediaries and well capitalized clearing 
members to ``facilitate the Commission's market surveillance efforts'' 
in the absence of routine trader reporting.\58\ Since 1981, the design 
of the reporting rules has been to place the burden of reporting 
particularized position and identifying data on a routine basis in the 
first instance on market intermediaries and well capitalized persons 
that clear customer or proprietary positions.\59\
---------------------------------------------------------------------------

    \56\ See 17 CFR parts 16 to 18.
    \57\ 46 FR 59960 (December 8, 1981).
    \58\ Id.
    \59\ See id.
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    In accordance with the system of reporting fashioned by the 
reporting rules, the Commission believes that routine reporting 
obligations should not be placed on persons trading in exclusively 
self-cleared contracts. Intermediaries and clearing members typically 
are Commission registrants with vigorous internal controls, substantial 
resources, and extensive experience with regulatory compliance. With 
respect to exclusively self-cleared contracts, and in particular with 
respect to retail oriented exclusively self-cleared contracts, traders 
in general would not have the resources or regulatory experience to 
comply with large trader reporting obligations as a matter of routine.
    In order to not place any daily reporting burden on traders of 
exclusively self-cleared contracts, the Commission is herein proposing 
rules that would effectively place the exchange listing exclusively 
self-cleared contracts in the regulatory position of its clearing 
members with respect to compliance with part 17 of the Commission's 
regulations.\60\ As discussed above, all traders in exclusively self-
cleared contracts are effectively clearing members. Under the proposed 
rules, reporting markets, a term which includes designated contract 
markets and DTEFs, with respect to exclusively self-cleared contracts, 
would be obligated to submit reportable position data under rule 17.00, 
and reportable identifying data under rule 17.01, on behalf of all 
clearing members.\61\
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    \60\ The Commission, through an order, has employed this 
approach for HedgeStreet. See Order of Designation as a Contract 
Market, paragraph 5 (February 18, 2004).
    \61\ The proposed reporting scheme for exclusively self-cleared 
contracts is narrowly tailored to be contract specific. In other 
words, a reporting market may list both exclusively self-cleared and 
other contracts. The alternative reporting approach, however, would 
apply only to exclusively self-cleared contracts.
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    The Commission believes that this is a desirable result since 
reporting markets, by virtue of their regulated status, substantial 
resources, systems of regulatory compliance, and lines of communication 
with the Commission are in better position to routinely submit position 
and identifying data to the Commission.\62\ As proposed by rules 
17.00(i) and 17.01(h), reporting markets listing exclusively self-
cleared contracts would be required, unless determined otherwise by the 
Commission, to provide the data required by rule 17.00(a) through (h) 
and 17.01(a) through (g) to the Commission on behalf of all traders of 
these contracts. Traders, nevertheless, would still be required to 
submit position and identifying data upon special call under part 18 of 
the Commission's regulations.
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    \62\ The Commission may, at some future date, consider amending 
the reporting obligations of clearing members with respect to 
contracts with low notional values that are not exclusively self-
cleared. The Commission would consider amending these reporting 
obligations when retail market participants that self-clear are 
responsible for a substantial proportion of a contract's trading 
volume.
---------------------------------------------------------------------------

3. Clearing Member Reports
    Pursuant to Commission rule 16.00, exchanges must submit 
confidential information to the Commission on the aggregate positions 
and trading activity of each clearing member. The exchanges, on a daily 
basis, report each clearing member's open long and short positions, 
purchases and sales, exchanges of futures, and futures delivery 
notices.\63\ The data is reported separately by proprietary and 
customer accounts by futures month and, for options, by puts and calls 
by expiration date and strike price.\64\
---------------------------------------------------------------------------

    \63\ 17 CFR 16.00(a).
    \64\ Id.
---------------------------------------------------------------------------

    As proposed, all traders holding positions in exclusively self-
cleared contracts on reporting markets would squarely fit within the 
regulatory definition of a clearing member. Hence, reporting markets 
listing such contracts would be required by rule 16.00 to submit 
position data for every single trader on a daily basis, regardless of 
the position size of a trader. The Commission believes that the 
submission of voluminous disaggregated clearing member data pursuant to 
rule 16.00(a), with respect to exclusively self-cleared contracts, 
could place an undue burden on reporting markets, and would not 
generally further the Commission's market or financial surveillance 
efforts.
    The Commission's staff uses clearing member data submitted by the 
exchanges to identify large cleared positions, to audit large trader 
reports filed by intermediaries and clearing members, and to identify 
account aggregation issues. Under the proposed alternative reporting 
scheme, clearing member reports for exclusively self-cleared contracts 
typically would not serve an audit function since clearing member and 
large trader reports would be submitted by the same person. 
Furthermore, under the proposed alternative reporting approach, 
reporting markets would be submitting disaggregated large trader 
reports in the

[[Page 74251]]

place of traders pursuant to Commission rules 17.00 and 17.01. Clearing 
member reports would therefore be generally unnecessary for the purpose 
of identifying large cleared positions. Lastly, clearing member reports 
would not normally assist in the identification of account aggregation 
issues. For exclusively self-cleared contracts, account aggregation 
issues may be analyzed by directly issuing appropriately worded special 
calls to traders for further position and identifying data pursuant to 
part 18 of the Commission's regulations. Based upon the foregoing 
reasons, proposed rule 16.00(c) provides that no clearing member 
reports need be submitted to the Commission for exclusively self-
cleared contracts, unless the Commission determines otherwise.

VI. Conforming, Clarifying and Technical Amendments

    The Commission has identified a number of other provisions and sets 
of provisions that should be revised to reconcile them with the 
substantive rules proposed herein, to update and better organize the 
layout of the reporting rules, or to correct certain non-substantive 
errors. These proposed amendments are categorized below by their 
respective parts.

A. Part 1 of the Commission's Regulations

    Commission rule 1.3(c) defines clearing member in terms of a member 
of a contract market. Commission rule 1.3(d) defines a clearing 
organization in terms of an entity associated with a contract market. 
In conformity with the intent of this proposed rulemaking, the 
Commission is proposing to amend rules 1.3(c) and 1.3(d) to make 
specific reference to DTEFs.

B. Part 15 of the Commission's Regulations

    The Commission is proposing to further amend rule 15.00, the 
definitional section for parts 15 through 21 of the Commission's 
regulations, to present the definitions contained in that section 
alphabetically. The Commission is proposing to enumerate the contract 
reporting levels and categories delineated in rule 15.03, for certain 
reporting levels and categories, in alphabetical order. The Commission 
is proposing to amend paragraph (a) of rule 15.05 to clarify that the 
provisions of that rule currently apply to all regulated transactions 
executed on or subject to the rules of DTEFs.\65\ Since the thrust of 
rule 15.05 relates to the appointment of an agent for service of 
process on foreign brokers and foreign customers, the term foreign 
broker in proposed rule 15.00(g) has been defined to explicitly extend 
to transactions on DTEFs.
---------------------------------------------------------------------------

    \65\ See note 20, supra.
---------------------------------------------------------------------------

    Commission rule 15.01 provides a list of the persons that may be 
required to report pursuant to parts 15 through 21 of the Commission's 
regulations. Proposed paragraph (a) of rule 15.01 clarifies that both 
designated contract markets, and when applicable DTEFs, are required to 
provide reports to the Commission pursuant to part 16, and that 
pursuant to this proposed rulemaking, reporting markets may be required 
to provide reports under part 17 if they list exclusively self-cleared 
contracts. Proposed paragraph (b) of rule 15.01 clarifies that part 17 
applies to all clearing members and that part 21 may require reports 
from introducing brokers and traders in addition to FCMs, clearing 
members, and foreign brokers. Proposed paragraph (b) of rule 15.01 also 
deletes the reference to part 20 since that part is reserved and 
contains no operative provisions.

C. Part 16 of the Commission's Regulations

    The current heading for part 16 only references contract markets. 
As proposed, the heading for part 16 would specifically refer to 
reporting markets. Current rule 16.07(b) incorrectly references rule 
16.00(d)(1) as a provision that gives the Commission the authority to 
approve the form and manner of filing reports with the Commission. The 
correct reference, as provided in proposed rule 16.07(b), is Commission 
rule 16.01(d)(1). Paragraph (a) of current rule 16.01 refers to the 
total quantity of futures exchanged for commodities or for derivatives 
positions. Since exchanges of futures generate trading volume, proposed 
rule 16.01(a)(5) now refers to the total volume of futures exchanged 
for commodities or for derivatives positions instead of the total 
quantity of such transactions.

D. Part 17 of the Commission's Regulations

    The Commission is proposing to conform the capitalization format of 
rule 17.00(b)(2) and 17.00(g)(2)(iv) with the format used in the other 
paragraphs of that rule, and to capitalize the word form when used to 
refer to Form 102 throughout the provisions of rules 17.01, 17.02, and 
17.03. Proposed rule 17.01(f) clarifies that Form 102 is alternatively 
referred to as a report. Proposed rules 17.01(a), 17.01(b), and 
17.01(d) provide the appropriate italicization format for each rule's 
introductory phrase. The proposed heading to part 17 and proposed rule 
17.02 reflect the possibility that under the alternative reporting 
approach for exclusively self-cleared contracts, reporting markets may 
be required to file reports with the Commission on behalf of their 
clearing members. Proposed rule 17.01(a) also replaces the second 
instance of the term identifier with the term designator. Lastly, the 
Commission is proposing to amend the introductory text of rule 17.03 to 
correctly refer to paragraph (d) of that section.

E. Part 19 of the Commission's Regulations

    As a result of the proposed alphabetization of rule 15.00, the 
Commission is proposing to amend paragraph (a) of rule 19.00 to 
correctly refer to the re-ordered sections defining the term reportable 
position in rule 15.00. The proposed amendment to rule 19.00(b) 
correctly refers to rule 19.01 instead of rule 19.10, which is 
inoperative and reserved. Lastly, paragraph (a) of rule 19.01 
capitalizes the word form when used to refer to Form 204.

F. Part 21 of the Commission's Regulations

    A proposed amendment to rule 21.01, which was last updated in 1983, 
extends the rule's requirement that each FCM and introducing broker 
file with the Commission upon special call the names and addresses of 
all persons who exercise trading control over a customer's account in 
commodity futures to all persons who also exercise trading control over 
a customer's account in commodity options. A proposed amendment to 
paragraph (d) of rule 21.03 replaces the phrase ``by telex or a 
similarly expeditious means of communication'' with the phrase ``by e-
mail or a similarly expeditious means of communication''.

VII. Related Matters

A. Cost Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its actions before issuing new regulations under 
the Act. By its terms, section 15(a) does not require the Commission to 
quantify the costs and benefits of new regulations or to determine 
whether the benefits of the proposed regulations outweigh their costs. 
Rather, section 15(a) requires the Commission to ``consider the cost 
and benefits'' of the subject rules.

[[Page 74252]]

    Section 15(a) further specifies that the costs and benefits of the 
proposed rules shall be evaluated in light of five broad areas of 
market and public concern: (1) Protection of market participants and 
the public; (2) efficiency, competitiveness, and financial integrity of 
futures markets; (3) price discovery; (4) sound risk management 
practices; and (5) other public interest considerations. The Commission 
may, in its discretion, give greater weight to any one of the five 
enumerated areas of concern and may, in its discretion, determine that, 
notwithstanding its costs, a particular rule is 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.
    Collectively, the proposed rules tend to reduce the aggregate 
burden associated with the reporting obligations of parts 15 through 21 
of the Commissions regulations. The proposed contract reporting level 
of 750 contracts for 3-Year T-Notes, for example, is significantly 
higher than the default reporting level that would be applicable in the 
absence of Commission rulemaking or regulatory relief. Contract 
reporting levels trigger reporting obligations that permit the 
Commission to be aware of significant positions that may affect the 
integrity and efficiency of the marketplace. The information collected 
develops the Commission's understanding of the marketplace, and gives 
the Commission the opportunity to prevent the occurrence, and contain 
the effects, of financial disturbances. Based upon the staff's 
surveillance experience with 2-Year T-Notes, the liquidity of the 
securities underlying treasury futures and option contracts, and the 
securities available for delivery against 3-Year T-Notes, the 
Commission believes that a 3-Year T-Notes reporting level of 750 
contracts will allow it to adequately protect market participants and 
the integrity of the marketplace, while limiting the regulatory burden 
of reporting.
    With respect to transactions executed on or subject to the rules of 
DTEFs, the proposed rules merely clarify the existing reporting 
obligations of exchanges, intermediaries, and traders and are not 
intended to in any way alter their existing reporting obligations. The 
current language of Commission rule 37.2 reserves the applicability of 
parts 15 to 21 to DTEFs, but does so through incorporation by reference 
and without clarity. As part of the Commission's continuing effort to 
better implement the amendments introduced to the Act by the CFMA, the 
Commission has proposed amendments that define DTEFs directly into 
rules 15.00 to 15.04 and parts 16 through 21 without generally altering 
the present reporting obligations of DTEFs or their market 
participants. The Commission believes that the proposed amendments 
serve the public's interest by enhancing regulatory clarity.
    The proposed amendments to rule 16.01 relating to block trades and 
contract volume recognize the growing importance and use of off-
centralized market transactions in general, and block trades in 
particular. The proposed rules require all reporting markets to record 
the volume generated from block trades for each contract, and require 
designated contract markets to make that information readily available 
to the news media and the general public as a part of the total mix of 
market data publicly disseminated on a daily basis. In order to 
emphasize the obligation to disseminate market data in a manner that is 
both useful and accessible, the proposed rules would also require 
designated contract markets to publish integrated volume data, and 
present all market data in a format that would readily enable members 
of the news media and the general public to consider such data. The 
Commission believes that the format requirement would ensure that 
designated contract markets are fully aware of their present obligation 
to publicly disseminate market data in a user friendly manner. In 
addition, the integrated publication of volume data, along with the 
public dissemination of block trade volume data, would benefit market 
participants and the general public by facilitating their ability to 
effectively analyze the key determinants of market prices and market 
depth.
    Pursuant to paragraphs (a) and (b) of rule 16.01, designated 
contract markets are presently required to publicly disseminate certain 
market data, including the volume generated from trades involving the 
exchange of futures for a commodity or for a derivatives position, on a 
daily basis. Commission rule 1.38(b) also requires designated contract 
markets to separately identify and mark all block trades. In addition, 
several designated contract markets publicly disseminate integrated 
volume data that separately accounts for contract volume generated from 
block trades. In light of this, the cost of compliance with the 
proposed amendments to rule 16.01 is likely to be minimal.
    Finally, the Commission has proposed rules that concern exclusively 
self-cleared contracts. The proposed rules protect market participants 
and strengthen the financial integrity of the futures marketplace by 
shifting the reporting responsibilities of traders, who are also 
clearing members, onto regulated markets that are able to comply with 
routine reporting obligations. The reporting rules are presently 
designed to collect information from heavily intermediated markets that 
permit un-intermediated trading and clearing access only to well 
capitalized members. Intermediaries and clearing members typically are 
Commission registrants with vigorous internal controls, substantial 
resources, and extensive experience with regulatory compliance. Traders 
of exclusively self-cleared contracts, and in particular traders of 
retail oriented exclusively self-cleared contracts, would not in 
general have the resources or regulatory experience to comply with 
large trader reporting obligations as a matter of routine. In the 
absence of rulemaking or Commission relief, reporting obligations for 
exclusively self-cleared contracts would be placed on individual 
traders that do not have the ability to comply with those requirements. 
The Commission's proposed rulemaking addresses this deficiency and 
ensures that the Commission will receive the trading data it needs in a 
timely manner to protect market participants, the public, and the 
integrity of the futures marketplace.
    After considering these factors, the Commission has determined to 
propose the revisions to parts 15, 16, 17, 18, 19, and 21 as set forth 
below. The Commission specifically invites public comment on its 
application of the criteria contained in section 15(a) of the Act for 
consideration. Commenters are also invited to submit any quantifiable 
data that they may have concerning the costs and benefits of the 
proposed rule with their comment letters.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires that agencies consider the impact of their rules on small 
businesses. The Commission has previously determined that exchanges, 
futures commission merchants and large traders are not ``small 
entities'' for the purposes of the RFA.\66\ The requirements related to 
the proposed amendments fall mainly on exchanges and FCMs. Similarly, 
foreign brokers and traders report only if carrying or holding large 
positions. In addition, these proposed amendments, collectively, tend 
to relieve regulatory burdens. Accordingly, the Chairman, on behalf of 
the Commission, hereby

[[Page 74253]]

certifies, pursuant to 5 U.S.C. 605(b), that the actions proposed to be 
taken herein will not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \66\ 47 FR 18618 (April 30, 1982).
---------------------------------------------------------------------------

C. The Paperwork Reduction Act

    When publicizing proposed rules, the Paperwork Reduction Act (PRA) 
\67\ imposes certain requirements on Federal agencies, including the 
Commission, in connection with conducting or sponsoring any collection 
of information as defined by the PRA. In compliance with the PRA, the 
Commission through these proposed rules solicits comments to: (1) 
Evaluate whether the proposed collection of information is necessary 
for the proper performance of the functions of the agency, including 
the validity of the methodology and assumptions used; (2) evaluate the 
accuracy of the agency's estimate of the burden of the proposed 
collection of information including the validity of the methodology and 
assumptions used; (3) enhance the quality, utility, and clarity of the 
information to be collected; and (4) minimize the burden of the 
collection 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. The 
Commission has submitted the proposed rules and its associated 
information collection requirements to the Office of Management and 
Budget (OMB). The proposed rules are a part of two approved collections 
of information. The estimated burden associated with large trader 
reporting obligations (OMB Control No. 3038-0009) is as follows:
---------------------------------------------------------------------------

    \67\ Public Law 104-13 (May 13, 1995).
---------------------------------------------------------------------------

    Average Burden Hour Per Response: .29.
    Number of Respondents: 2,946.
    Frequency of Response: Daily.
    The estimated burden associated with the reporting obligations of 
the exchanges (OMB Control No. 3038-0012) is as follows:
    Average Burden Hour Per Response: .5.
    Number of Respondents: 12.
    Frequency of Response: Daily.
    Persons wishing to comment on the information which would be 
required by these proposed rules should contact the Desk Officer, CFTC, 
Office of Management and Budget, Room 10202, NEOB, Washington, DC 
20503, 202.395.7340. 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. Copies of the OMB-approved 
information collection package associated with the rulemaking may be 
obtained from the Desk Officer, Commodity Futures Trading Commission, 
Office of Management and Budget, Room 10202, NEOB, Washington, DC 
20503, 202.395.7340.

List of Subjects

17 CFR Part 15

    Brokers, Commodity futures, Reporting and recordkeeping 
requirements.

17 CFR Part 16

    Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 17

    Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 18

    Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 19

    Brokers, Commodity futures, Reporting and recordkeeping 
requirements.

17 CFR Part 21

    Brokers, Commodity futures, Reporting and recordkeeping 
requirements.

    In consideration of the foregoing, and pursuant to the authority 
contained in the Act, and, in particular, sections 4a, 4c, 4g, 4i, 5, 
5a and 8a of the Act, the Commission hereby proposes to amend Chapter I 
of Title 17 of the Code of Federal Regulations as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

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

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 
6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a, 
13a-1, 16, 16a, 19, 21, 23, and 24, as amended by the Commodity 
Futures Modernization Act of 2000, Appendix E of Pub. L. 106-554, 
114 Stat. 2763 (2000).

    2. Revise paragraphs (c) and (d) of Sec.  1.3 to read as follows:


Sec.  1.3  Definitions.

* * * * *
    (c) Clearing member. This term means any person who is a member of, 
or enjoys the privilege of clearing trades in his own name through, the 
clearing organization of a designated contract market or registered 
derivatives transaction execution facility.
    (d) Clearing organization. This term means the person or 
organization which acts as a medium for clearing transactions in 
commodities for future delivery or commodity option transactions, or 
for effecting settlements of contracts for future delivery or commodity 
option transactions, for and between members of any designated contract 
market or registered derivatives transaction execution facility.
* * * * *

PART 15--REPORTS--GENERAL PROVISIONS

    3. The authority citation for part 15 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 
7a, 9, 12a, 19 and 21, as amended by the Commodity Futures 
Modernization Act of 2000, Appendix E of Pub. L. 106-554, 114 Stat. 
2763 (2000); 5 U.S.C. 552 and 552(b).

    4. Revise Sec.  15.00 to read as follows:


Sec.  15.00  Definitions of terms used in parts 15 to 21 of this 
chapter.

    As used in parts 15 to 21 of this chapter:
    (a) Cash or Spot, when used in connection with any commodity, means 
the actual commodity as distinguished from a futures or option contract 
in such commodity.
    (b) Compatible data processing media means data processing media 
approved by the Commission or its designee. The Commission hereby 
delegates, until the Commission orders otherwise, the authority to 
approve data processing media for data submissions to the Executive 
Director to be exercised by such Director or by such other employee or 
employees of such Director as designated from time to time by the 
Director. The Executive Director may submit to the Commission for its 
consideration any matter which has been delegated in this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph.
    (c) Custom