Comprehensive Review of the Commitments of Traders Reporting Program, 35627-35632 [E6-9722]
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Federal Register / Vol. 71, No. 119 / Wednesday, June 21, 2006 / Notices
Comments must be received by
July 21, 2006.
ADDRESSES: The draft Prospectus is
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site. The web addresses to access the
draft Prospectus is:
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DATES:
Dated: June 15, 2006.
Conrad C. Lautenbacher, Jr.,
Vice Admiral, U.S. Navy (Ret.), Under
Secretary of Commerce for Oceans and
Atmosphere.
[FR Doc. E6–9745 Filed 6–20–06; 8:45 am]
BILLING CODE 3510–12–S
DEPARTMENT OF COMMERCE
Patent and Trademark Office
[Docket No. PTO–P–2006–0035]
Grant of Interim Extension of the Term
of U.S. Patent No. 4,826,811;
PolyHeme (Acellular Red Blood Cell
Substitute)
United States Patent and
Trademark Office, DOC.
ACTION: Notice of interim patent term
extension.
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AGENCY:
SUMMARY: The United States Patent and
Trademark Office has issued a
certificate under 35 U.S.C. 156(d)(5) for
a fourth one-year interim extension of
the term of U.S. Patent No. 4,826,811.
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FOR FURTHER INFORMATION CONTACT:
Mary C. Till by telephone at (571) 272–
7755; by mail marked to her attention
and addressed to the Commissioner for
Patents, Mail Stop Patent Ext., P.O. Box
1450, Alexandria, VA 22313–1450; by
fax marked to her attention at (571) 273–
7755, or by e-mail to
Mary.Till@uspto.gov.
Section
156 of Title 35, United States Code,
generally provides that the term of a
patent may be extended for a period of
up to five years if the patent claims a
product, or a method of making or using
a product, that has been subject to
certain defined regulatory review, and
that the patent may be extended for
interim periods of up to a year if the
regulatory review is anticipated to
extend beyond the expiration date of the
patent.
On May 31, 2006, patent owner,
Northfield Laboratories Inc., timely filed
an application under 35 U.S.C. 156(d)(5)
for an interim extension of the term of
U.S. Patent No. 4,826,811. The patent
claims the human biological product
PolyHeme (acellular red blood cell
substitute), a method of use of the
biological product, and a method of
manufacturing the biological product.
The application indicates, and the Food
and Drug Administration has confirmed,
that an investigational new drug
application for the human biological
product PolyHeme has been filed and
is currently undergoing regulatory
review before the Food and Drug
Administration for permission to market
or use the product commercially.
Review of the application indicates
that, except for permission to market or
use the product commercially, the
subject patent would be eligible for an
extension of the patent term under 35
U.S.C. 156, and that the patent should
be extended for an additional year as
required by 35 U.S.C. 156(d)(5)(B).
Because it is apparent that the
regulatory review period will continue
beyond the extended expiration date of
the patent (June 20, 2006), interim
extension of the patent term under 35
U.S.C. 156(d)(5) is appropriate.
An interim extension under 35 U.S.C.
156(d)(5) of the term of U.S. Patent No.
4,826,611 is granted for a period of one
year from the extended expiration date
of the patent, i.e., until June 20, 2007.
SUPPLEMENTARY INFORMATION:
Dated: June 15, 2006.
Jon W. Dudas,
Under Secretary of Commerce for Intellectual
Property and Director of the United States
Patent and Trademark Office.
[FR Doc. E6–9767 Filed 6–20–06; 8:45 am]
COMMODITY FUTURES TRADING
COMMISSION
Comprehensive Review of the
Commitments of Traders Reporting
Program
Commodity Futures Trading
Commission.
AGENCY:
ACTION:
Request for comments.
SUMMARY: The Commitments of Traders
(‘‘COT’’) reports are weekly reports,
published by the Commodity Futures
Trading Commission (‘‘CFTC’’ or
‘‘Commission’’), showing aggregate
trader positions in certain futures and
options markets. Over time, both the
trading activity that is the subject of the
COT reports, and the reports
themselves, have continued to change
and evolve. As part of its ongoing efforts
both to maintain an information system
that reflects changing market
conditions, and to provide the public
with useful information regarding
futures and options markets, the
Commission is undertaking a
comprehensive review of the COT
reporting program. This release is
intended to: (1) Provide useful
background information regarding the
COT reports; (2) lay out various issues
and questions regarding the COT
reports; and (3) solicit public comment
regarding the reports, including
suggestions as to possible changes in the
COT reporting system.
Responses must be received by
August 21, 2006.
DATES:
Written responses should be
sent to Eileen Donovan, Acting
Secretary, Commodity Futures Trading
Commission, Three Lafayette Center,
1155 21st Street, NW., Washington, DC
20581. Responses may also be submitted
via e-mail at secretary@cftc.gov. ‘‘COT
reports’’ must be in the subject field of
responses submitted via e-mail, and
clearly indicated in written
submissions. This document is also
available for comment at https://
www.regulations.gov.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Donald H Heitman, Senior Special
Counsel, Division of Market Oversight,
Commodity Futures Trading
Commission, Three Lafayette Center,
1155 21st Street, NW., Washington, DC
20581. Telephone: 202–418–5041. Email: dheitman@cftc.gov.
SUPPLEMENTARY INFORMATION:
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Federal Register / Vol. 71, No. 119 / Wednesday, June 21, 2006 / Notices
I. Background
A. The COT Reports
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The COT reports provide a breakdown
of each Tuesday’s open interest 1 for all
futures and option markets in which 20
or more traders hold positions equal to
or above the reporting levels 2
established by the CFTC. The weekly
reports for Futures-Only Commitments
of Traders and for Futures-and-OptionsCombined Commitments of Traders are
released every Friday at 3:30 p.m.
Eastern time. Reports are available in
both a short and long format. The short
report shows open interest separately by
reportable and nonreportable 3
positions. For reportable positions,
additional data are provided for
1 Open interest is the total of all futures and/or
option contracts entered into and not yet offset by
a transaction, by delivery, by exercise, etc. The
aggregate of all long open interest is equal to the
aggregate of all short open interest. Open interest
held or controlled by a trader is referred to as that
trader’s position. For the COT Futures & Options
Combined report, option open interest and traders’
option positions are computed on a futuresequivalent basis using delta factors supplied by the
exchanges. Long-call and short-put open interest are
converted to long futures-equivalent open interest.
Likewise, short-call and long-put open interest are
converted to short futures-equivalent open interest.
For example, a trader holding a long put position
of 500 contracts with a delta factor of 0.50 is
considered to be holding a short futures-equivalent
position of 250 contracts. A trader’s long and short
futures-equivalent positions are added to the
trader’s long and short futures positions to give
‘‘combined-long’’ and ‘‘combined-short’’ positions.
Open interest, as reported to the Commission and
as used in the COT report, does not include open
futures contracts against which notices of deliveries
have been stopped by a trader or issued by the
clearing organization of an exchange.
2 Clearing members, futures commission
merchants, and foreign brokers (collectively called
‘‘reporting firms’’) file daily reports with the
Commission. Those reports show the futures and
option positions of traders that hold positions above
specific reporting levels set by CFTC regulations.
These reporting levels range from 25 contracts for
new or relatively small markets to 3,000 contracts
for three-month Eurodollar time deposit rates (See
17 CFR 15.03). If, at the daily market close, a
reporting firm has a trader with a position at or
above the Commission’s reporting level in any
single futures month or option expiration, it reports
that trader’s entire position in all futures and
options expiration months in that commodity,
regardless of size. The aggregate of all traders’
positions reported to the Commission usually
represents 70 to 90 percent of the total open interest
in any given market. From time to time, the
Commission will raise or lower the reporting levels
in specific markets to strike a balance between
collecting sufficient information to oversee the
markets and minimizing the reporting burden on
the futures industry.
3 The long and short open interest shown as
‘‘Nonreportable Positions’’ are derived by
subtracting total long and short ‘‘Reportable
Positions’’ from the total open interest.
Accordingly, for ‘‘Nonreportable Positions,’’ the
number of traders involved and the commercial/
non-commercial classification of each trader are
unknown.
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commercial and non-commercial
holdings.
When an individual reportable trader
is identified to the Commission, the
trader is classified either as
‘‘commercial’’ or ‘‘non-commercial.’’ All
of a trader’s reported futures positions
in a commodity are classified as
commercial if the trader uses futures
contracts in that particular commodity
for hedging as defined in the
Commission’s regulations (17 CFR
1.3(z)). A trading entity generally gets
classified as a ‘‘commercial’’ by filing a
statement with the Commission (on
CFTC Form 40) that it is commercially
‘‘ * * * engaged in business activities
hedged by the use of the futures or
option markets.’’ In order to ensure that
traders are classified with accuracy and
consistency, the Commission staff
reviews this self-classification and may
re-classify a trader if the staff has
additional information about the
trader’s use of the markets. A trader may
be classified as a commercial in some
commodities and as a non-commercial
in other commodities. A single trading
entity cannot be classified as both a
commercial and non-commercial in the
same commodity. Nonetheless, a multifunctional organization that has more
than one trading entity may have each
trading entity classified separately in a
commodity. For example, a financial
organization trading in financial futures
may have a banking entity whose
positions are classified as commercial
and have a separate money-management
entity whose positions are classified as
non-commercial.
The short report also provides
additional data for reportable positions
regarding spreading,4 changes from the
previous report,5 percent of open
interest by category,6 and numbers of
traders.7 The long report, in addition to
4 For the futures-only report, spreading measures
the extent to which each non-commercial trader
holds equal long and short futures positions. For
the options-and-futures-combined report, spreading
measures the extent to which each non-commercial
trader holds equal combined-long and combinedshort positions. For example, if a non-commercial
trader in Eurodollar futures holds 5,000 long
contracts and 4,500 short contracts, 500 contracts
will appear in the ‘‘Long’’ category and 4,500
contracts will appear in the ‘‘Spreading’’ category.
These figures do not include intermarket spreading
(e.g., spreading Eurodollar futures against Treasury
Note futures).
5 Changes in commitments from the previous
report represent the differences between the data for
the current report date and the data published in
the previous report.
6 Percents are calculated against the total open
interest for the futures-only report and against the
total futures-equivalent open interest for the
options-and-futures-combined report. Percents less
than 0.05 are shown as 0.0, and the percents may
not add to exactly 100.0 due to rounding.
7 To determine the total number of reportable
traders in a market, a trader is counted only once
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the information in the short report, also
groups the data by crop year,8 where
appropriate, and shows the
concentration of positions held by the
largest four and eight reportable traders,
without regard to whether they are
classified as commercial or noncommercial. Current COT data are
available on the internet at the
Commission’s Web site, https://
www.cftc.gov.9
B. Evolution of the COT Reports and the
Marketplace
The COT reports can trace their
antecedents all the way back to 1924. In
that year, the U.S. Department of
Agriculture’s (‘‘USDA’’) Grain Futures
Administration, predecessor of the
USDA’s Commodity Exchange
Authority, which is in turn the
predecessor of the Commission,
published its first comprehensive
annual report. The report was published
pursuant to the provisions of the Grain
Futures Act of 1922,10 the predecessor
statute of today’s Commodity Exchange
Act (‘‘CEA’’ or ‘‘the Act’’), which was
enacted in 1936.11
The Grain Futures Administration
noted that the general objectives of the
Grain Futures Act included ‘‘[t]o obtain
for the use of Congress and the
enlightenment of the public authentic
and comprehensive information
regarding trading in grain futures.’’12 To
that end, that legislation imposed
recordkeeping and reporting
requirements on boards of trade. One
requirement of the implementing
regulations was that records should be
made in such a manner as to show
whether the persons for whom
transactions were executed were
‘‘engaged in the cash grain business.’’13
The express purpose of this requirement
was
regardless whether the trader appears in more than
one category (non-commercial traders may be long
or short only and may be spreading; commercial
traders may be long and short). To determine the
number of traders in each category, however, a
trader is counted in each category in which the
trader holds a position. Therefore, the sum of the
numbers of traders in each category will often
exceed the ‘‘Total’’ number of traders in that
market.
8 For selected commodities where there is a welldefined marketing season or crop year, the COT
data are broken down by ‘‘old’’ and ‘‘other’’ crop
years.
9 Also available at that site are historical COT data
going back to 1986 for futures-only reports and to
1995 for option-and-futures-combined reports.
10 42 Stat. 998, September 21, 1922.
11 49 Stat. 1491, June 15, 1936, 7 U.S.C. 1 et seq..
12 Annual Reports of the Department of
Agriculture for 1924, Report of the Grain Futures
Administration on Administration of the Grain
Futures Act, at 2, September 9, 1924.
13 Id. at 6.
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Federal Register / Vol. 71, No. 119 / Wednesday, June 21, 2006 / Notices
to insure that the basic records of all
transactions in grain futures will contain
information which can be utilized for
distinguishing transactions originating with
persons engaged in the cash grain business
(and therefore presumably representing in
considerable part ‘‘hedging’’) from
transactions originating with persons not so
engaged (and therefore presumably
representing for the most part
‘‘speculation’’).14
The report characterized the
distinction between hedging and
speculation as being of ‘‘fundamental
significance from the public point of
view’’ and one that ‘‘deserves systematic
reflection in the records kept of
transactions in grain futures.’’
Over the years, the Grain Futures
Administration and, after 1936, its
successor organization the Commodity
Exchange Authority, continued to
publish annual statistics concerning
hedging versus speculative transactions.
Beginning with the adoption of the
Commodity Exchange Act in 1936, and
as part of amendments to that Act on a
number of subsequent occasions, the
Commodity Exchange Authority’s
jurisdiction was expanded beyond
grains to cover additional agricultural
commodities. The Commodity Exchange
Authority designated the exchanges
where futures contracts in those
commodities were traded as ‘‘contract
markets’’ in such commodities.15 As
contract markets in additional
commodities were designated, the
Authority expanded its annual reports
of hedging and speculative positions in
futures markets to include additional
commodities.16
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14 Id.
15 In this context, a ‘‘contract market designation’’
refers to designating an exchange where futures
contracts on a particular commodity are traded as
a ‘‘contract market’’ in that commodity. For
example, after the 1936 Act brought a number of
additional agricultural commodities within the
Commodity Exchange Authority’s jurisdiction, the
Authority designated the New York Cotton
Exchange as a contract market in cotton and the
Chicago Mercantile Exchange as a contract market
in butter, eggs and potatoes. As subsequent
amendments brought additional commodities
within the scope of the Act, further contract market
designations followed, including soybeans (1940),
soybean oil (1950), soybean meal (1951), frozen
concentrated orange juice (1968), and livestock
futures (live and feeder cattle, live hogs and frozen
pork bellies—all in 1968). Under the Commodity
Futures Modernization Act of 2000 (‘‘CFMA’’),
however, a ‘‘contract market designation’’ refers to
the Commission designating (licensing) a board of
trade (exchange) as a ‘‘designated contract market’’
(‘‘DCM’’). Once designated, a DCM can trade any
number of commodities. A DCM can list any new
product by filing with the Commission a copy of
the rules pursuant to which the product will trade,
along with a certification that the product complies
with the Act and the Commission’s rules
thereunder.
16 In addition, starting in 1942, the Commodity
Exchange Authority began issuing ‘‘Commodity
Futures Statistics’’ as a separate publication,
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In 1962, the Commodity Exchange
Authority took what it called ‘‘another
step forward in the policy of providing
the public with current and basic data
on futures market operations’’ by
moving beyond an annual statistical
recap and initiating the publication of
monthly COT reports. The original COT
reports were compiled on an end-ofmonth basis and published on the 11th
or 12th calendar day of the following
month. The first COT report, covering
13 agricultural commodities, was
published on June 13, 1962.
Over the 44 years since then, both the
COT reports and the underlying futures
markets have undergone a number of
significant changes. With respect to the
COT reports, the number of
commodities covered in the COT reports
has continued to expand. In April 1975,
the newly formed CFTC succeeded the
Commodity Exchange Authority. The
Commission continued to publish the
COT reports, but expanded the reports’
content to include new commodities
first brought under the Commission’s
jurisdiction by the Commodity Futures
Trading Commission Act of 1974.17 In
the years since then, scores of new
futures and option products have been
listed for trading on designated futures
exchanges. As noted above, not all these
commodities are included in the COT
reports, since reports are published only
for commodities in which 20 or more
traders hold reportable positions. The
most recent COT reports published
cover 85 to 90 commodities trading on
six different DCMs.18
In addition to covering additional
commodities, the Commission has
improved the COT reports in several
other ways as well. The Commission has
changed the publication schedule
several times to provide information to
the public more frequently—switching
publication from monthly to twice
monthly (mid-month and month-end) in
1990, to every two weeks in 1992, and
to weekly in 2000. The Commission has
also acted to improve the timeliness of
the reports—moving publication to the
sixth business day after the ‘‘as of’’ date
in 1990, and then to the third business
distinct from the USDA annual report. The
Commodity Futures Statistics were also expanded
to include monthly data, but were still published
only on an annual basis.
17 Public Law 93–463, 88 Stat. 1389, October 23,
1974. The new commodities added in 1974
included coffee, sugar, cocoa, metals, energy
products and financial products, among other
things.
18 The COT reports are the most frequently visited
section of the Commission’s Web site. During 2005,
nearly half of the visitors to the Commission’s Web
site were there primarily to access the COT reports,
with approximately 460,000 visitors viewing the
reports.
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day after the ‘‘as of’’ date in 1992. The
Commission has also expanded the
scope of the information included in the
reports—adding data on the numbers of
traders in each category, a crop-year
breakout and concentration ratios in the
early 1970s and adding data on option
positions in 1992. Finally, the
Commission has made the COT reports
more widely available—moving from a
paid subscription-based mailing list to
fee-based electronic access in 1993 and,
since 1995, making the COT data freely
available on the Commission’s internet
website.
C. Issues Regarding COT Data
1. Elimination of the Series ’03 Reports
One of the historical changes in the
COT reports has raised questions with
respect to the usage of the COT data in
today’s market environment. In 1981,
the Commission adopted regulations 19
to eliminate the routine filing of series
’03 reports by large traders.20 The
purpose of these rules was to reduce
paperwork burdens on large traders and
the Commission.
Because the series ’03 reports
included both position information for
all reportable traders and the traders’
classification of how much of their
positions was speculative and how
much was hedging, the series ’03 reports
had provided the data that went to make
up the COT reports. In its rulemaking
eliminating the series ’03 reports, the
Commission stated its intention to
continue publishing the COT reports
using data from the series ’01 reports
and Form 102,21 as well as the Form 40,
19 46
FR 59960, December 8, 1981.
’03 reports were required to be filed with
the Commission by any trader who owned or
controlled a reportable futures position. Once
traders acquired a reportable position in a
commodity, they were required to report trades,
positions, exchanges of futures for physicals and
delivery information regarding that commodity on
series ’03 reports, and to classify how much of their
position was speculative and how much was
hedging.
21 Series ’01 reports are reports filed by futures
commission merchants (‘‘FCMs’’), foreign brokers
and exchange clearing members clearing their own
trades, with respect to all customer or (for the
exchange clearing members) proprietary accounts
that attain a reportable position. A series ’01 report
itemizes the account number and certain positions,
deliveries and exchanges of futures (including
exchanges of futures for physicals [‘‘EFPs’’], swaps
[‘‘EFSs’’], risk [‘‘EFRs’’] and options [‘‘EFOs’’] or
other exchanges of futures for a commodity or for
a derivatives position) associated with each account
carrying a reportable position (See 17 CFR 17.00).
The name, address and occupation of the person or
persons who own such accounts are separately
identified on Form 102 (See 17 CFR 17.01). By
aggregating the series ’01 and Form 102 information
filed with respect to traders with accounts at
multiple FCMs or foreign brokers, the Commission
can determine the size of each reportable trader’s
overall position.
20 Series
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Federal Register / Vol. 71, No. 119 / Wednesday, June 21, 2006 / Notices
Statement(s) of Reporting Trader.22
However, publication of the COT
reports was suspended for
approximately 18 months in order to
implement computer system changes
that would enable the Commission to
generate COT data under the revised
reporting system.23 When the COT
reports resumed, reportable positions
were no longer classified as ‘‘hedging’’
or ‘‘speculative’’ (the series ’03 forms
that required traders to make these
classifications no longer being
available). Rather, reportable positions
were classified as ‘‘commercial’’ or
‘‘non-commercial,’’ based on the
declarations made in the reporting
traders’’ Form 40 statements.
The Commission believes that the
public perception was, and is, that the
‘‘commercial vs. non-commercial’’
classification in current COT reports is
analogous (if not identical) to the
‘‘hedging vs. speculation’’ distinction in
the pre-1982 COT reports. Over time,
however, derivatives markets (including
both exchange-traded and over-thecounter [’’OTC’’] markets), as well as
derivatives trading patterns and
practices, have evolved tremendously.
Changes have been particularly evident
over the last 15 years. As a result of
these changes in markets and trading
practices, questions have been raised as
to whether the ‘‘commercial’’ and ‘‘noncommercial’’ categories of today’s COT
reports appropriately classify trading
practices that were not contemplated
when the ‘‘hedging vs. speculation’’
categories were removed in 1982.
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2. The Impact of Speculative Position
Limit and Hedge Exemption Rules
To protect futures markets from
excessive speculation that can cause
unreasonable or unwarranted price
fluctuations, and to reduce the potential
threat of market manipulation, the Act
22 Each person that holds or controls a reportable
position is required to file a Form 40. The Form 40
requires a trader to list its principal business or
occupation and to state whether it is ‘‘commercially
engaged in business activities hedged by the use of
the futures or option markets.’’ If the trader answers
‘‘yes,’’ it is instructed to complete a separate
schedule ‘‘listing the futures or option contract
used, the cash commodity(ies) hedged, or the risk
exposure covered, and the marketing occupations
associated with hedging uses.’’
23 The Commission notes that eliminating the
series ’03 forms as the basis for the COT reports
improved the timing and accuracy of the COT
reports because: (1) Series ’03 forms were mostly
mailed to the Commission from wherever the trader
resided, in some cases taking several days to arrive
and be processed, whereas series ’01 reports are
filed electronically by the following morning; and
(2) series ’03 forms were only required to be filed
when a reportable trader’s position changed, so that
a trader’s delay or failure to file a report often led
to an erroneous assumption that the position had
not changed.
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and Commission regulations require the
Commission 24 and the exchanges 25 to
impose limits on the size of speculative
positions in futures markets. For certain
agricultural markets, the speculative
limits are determined by the
Commission and set out in federal
regulations.26 For all other markets, the
speculative limits are determined as
necessary by the exchanges according to
standards established by the
Commission.27 The Commission and
exchanges grant exemptions from their
respective speculative position limits
for ‘‘bona fide hedging.’’ A hedge is a
futures or option transaction or position
that normally represents a substitute for
transactions to be made or positions to
be taken at a later time in a physical
marketing channel. Hedges must be
‘‘economically appropriate to the
reduction of risks in the conduct and
management of a commercial
enterprise’’ [emphasis supplied] and
must arise from a change in the value of
a hedger’s (current or anticipated) assets
or liabilities.28
3. Hedge Exemptions and the COT
Reports
Because both the hedge exemption
rules and the standards whereby
positions are classified for purposes of
the COT reports refer to ‘‘commercial’’
positions, the Commission has
considered the classification of a
position as ‘‘commercial’’ under the
hedge exemption rule as being an
appropriate indicator for how the
position, and the trader holding it,
should be classified for COT purposes.
In other words, if an entity holding a
particular futures or option position has
received a hedge exemption with
respect to that position, the position is,
by definition, held by a ‘‘commercial
enterprise.’’ Accordingly, that position
should be reported (via the series ’01
reports, Forms 102 and Forms 40) to the
Commission as a ‘‘commercial’’
position, and it would be included
within the ‘‘commercial’’ category on
the COT reports. Entities in the same
type of business, holding similar hedge
positions (as reported on their Form 40)
are likewise treated as commercials for
purposes of the COT reports, even
though the entities may not have sought
hedge exemptions because they are
24 See
section 4a of the Act.
section 5(d)(5) of the Act and 17 CFR 150.5.
26 Speculative position limits for corn, oats,
wheat, soybeans, soybean oil, soybean meal, and
cotton are set out at 17 CFR 150.2.
27 Pursuant to those standards, some markets are
subject to position accountability rules in lieu of
speculative position limits.
28 See 17 CFR 1.3(z) for the full regulatory
definition of ‘‘bona fide hedging.’’
25 See
PO 00000
Frm 00024
Fmt 4703
Sfmt 4703
trading below the level of the position
limit so no exemption is required.
As trading practices in the derivatives
markets (both exchange and OTC) have
continued to evolve over the past 5
years, the Commission has granted
hedge exemptions from the Commission
speculative limits for certain
agricultural commodities to entities
whose futures positions reflected
various innovative, non-traditional risk
management strategies. Based on their
classification for hedge exemption
purposes, positions based on these nontraditional strategies have been
classified in the COT reports as
‘‘commercial.’’ The result is that, over
time, the nature of the positions carried
in the COT reports for some
commodities has changed significantly,
raising questions as to whether the COT
reports should be reviewed to determine
if revisions are needed to reflect
changing market conditions.
This issue may be illustrated by
reviewing the history of hedge
exemption requests.29 For example, in
1991, the Commission received a
request from a ‘‘large commodity
merchandising firm,’’ that ‘‘engage[d] in
commodity related swaps 30 as a part of
a commercial line of business.’’ The
firm, through an affiliate, wished to
enter into an OTC swap transaction,
with a qualified counterparty (a large
pension fund), involving an index based
on the returns afforded by investments
in exchange-traded futures contracts on
certain non-financial commodities
meeting specified criteria. The
commodities making up the index
included wheat, corn and soybeans, all
of which were (and still are) subject to
Commission speculative position limits.
As a result of the swap, the swap
dealing firm would, in effect, be going
short the index. In other words, it would
be required to make payments to the
counterparty if the value of the index
was higher at the end of the swap
payment period than at the beginning.
29 Specific requests, and the Commission’s
responses granting or denying those requests, by
their very nature, include information regarding the
nature of the requesting entity’s trading activities.
The express terms of the Act prohibit the
Commission from publicly disclosing such
information. Section 8(a)(1) of the Act provides in
relevant part that ‘‘the Commission may not publish
data and information that would separately disclose
the business transactions or market positions of any
person and trade secrets or names of customers.’’
However, it is possible, without disclosing
prohibited information, to provide an overview of
certain hedge exemption letters that will illustrate
how the nature of the information included in the
COT reports has changed over time.
30 A swap is a privately negotiated exchange of
one asset or cash flow for another asset or cash
flow. In a commodity swap, at least one of the
assets or cash flows is related to the price of one
or more commodities.
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In order to hedge itself against this risk,
the swap dealer planned to establish a
portfolio of long futures positions in the
commodities making up the index, in
such amounts as would replicate its
exposure under the swap transaction.
By design, the index did not include
contract months that had entered the
delivery period and the swap dealer, in
replicating the index, stated that it
would not maintain futures positions
based on index-related swap activity
into the delivery month. The result of
the hedge was that the composite return
on the futures portfolio would offset the
net payments the swap dealer would be
required to make to the counterparty.
Because the futures positions the
swap dealer would have to establish to
hedge its exposure on the swap
transaction would be in excess of the
speculative position limits on wheat,
corn and soybeans, it requested, and
was granted, a hedge exemption for
those positions. As discussed above,
when those reportable futures positions
were incorporated into the COT reports,
they were reported as ‘‘commercial’’
positions. Similar hedge exemptions
were subsequently granted in other
cases where the futures positions clearly
offset risks related to swaps or similar
OTC positions involving both
individual commodities and commodity
indexes. These non-traditional hedges
were all subject to the same limitations
as the original hedge exemption—that
the futures positions must offset specific
price exposure on a non-discretionary
basis (i.e., would not over-weight or
under-weight the size or mix of futures
based upon a market outlook), would be
of equal dollar value to the underlying
risk (i.e., be unleveraged), and would
not be carried into the delivery month.
4. The Effect on the COT Report
The effect of the entry of these nontraditional hedgers into the marketplace
has been to change the composition of
the COT reports. Prior to 1991, both the
long and the short side of the
commercial open interest listed in the
COT reports represented traditional
hedgers (producers, processors,
manufacturers or merchants handling
the commodity or its products or
byproducts). Since that time, though,
trading practices have evolved to such
an extent that today, a significant
proportion of the long side open interest
in a number of major physical
commodity futures contracts is held by
non-traditional hedgers (e.g., swap
dealers), while the traditional hedgers
may be either net long or net short
(more often, the latter). This has raised
questions as to whether the COT report
can reliably be used to assess futures
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18:26 Jun 20, 2006
Jkt 208001
hedging activity by persons hedging
exposure in the underlying physical
commodity markets.
It should be noted that the
Commission’s treatment of
professionally managed funds31 in the
COT reports generally does not raise the
same issue. Professionally managed
funds, although they may be
appropriately treated as commercials
with respect to markets in financial
commodities,32 are usually treated as
non-commercials for COT purposes in
the markets for physical commodities
(including not only agricultural
commodities, but energy products,
metals and other physical commodities
as well).
II. Alternatives in Addressing Issues
Related to the COT Reports
In view of the changes in markets and
trading patterns described above, the
Commission is now seeking public
comment concerning whether it should
adopt any changes to the way data are
presented in the COT reports. Such
action could be taken as part of the
Commission’s ongoing efforts both to
maintain an information system that
reflects changing market conditions, and
to provide the public with useful
information regarding futures and
option markets. In addition, the
Commission is seeking comment as to
whether it should stop publishing the
COT reports altogether if it is
determined that either: (1) There are
data anomalies in the reports for which
no satisfactory solution can be found; or
(2) the data in the reports provide no
public benefit.33
III. Questions
The Commission has formulated the
following questions based upon its
initial review of issues relating to the
COT reports. Responses from interested
parties will advance the Commission’s
understanding of these issues and, it is
hoped, point the way to a satisfactory
resolution of any problems that are
31 For these purposes, ‘‘professionally managed
funds’’ includes traders registered as commodity
trading advisors and commodity pool operators, as
well as funds commonly referred to as ‘‘hedge
funds.’’ A hedge fund has been described as a
private investment fund or pool that trades and
invests in various assets such as securities,
commodities, currency, and derivatives on behalf of
its clients.
32 A professionally managed fund trading in
futures markets for financial products (equity, debt
or foreign currency) might very well be hedging
various OTC or exchange-traded products.
33 The COT reporting program is not mandated by
either the Act or Commission regulations.
Therefore, if, after reviewing the comments received
in response to this notice, the Commission decides
to take any action with respect to the COT reporting
program, it can do so without further notice or
opportunity for comment.
PO 00000
Frm 00025
Fmt 4703
Sfmt 4703
35631
identified regarding the COT reports.
Each enumerated question should be
addressed individually. Interested
parties are also welcome to address
other topics or issues that they believe
are relevant to the COT reports.
1. What types of traders in the futures
and option markets use the COT reports
in their current form, and how are they
using the COT data? More specifically:
(a) How do traders use the COT
information on commercial positions?
(b) How do they use the COT
information on non-commercial
positions?
(c) In particular, with respect to
information on non-commercial
positions, what information or insights
do traders gain from the COT reports
regarding the possible impact of futures
trading on the underlying cash market?
2. Are other individuals or entities
(academic researchers or others) using
the COT reports and, if so, how?
3. Do the COT reports, in their current
form, provide any particular segment of
traders with an unfair advantage?
4. Should the Commission continue to
publish the COT reports?
5. If the Commission continues to
publish the COT reports, should the
reports be revised to include additional
categories of data—for example, nontraditional commercial positions, such
as those held by swap dealers?
6. As a general matter, would creating
a separate category in the COT report for
‘‘non-traditional commercials’’
potentially put swap dealers or other
non-traditional commercials at a
competitive disadvantage (since other
market participants would generally
know that their positions are usually
long, are concentrated in a single futures
month, and are typically rolled to a
deferred month on a specific schedule
before the spot month)?
7. More specifically, if the data in the
COT reports are made subject to further,
and finer, distinctions, such as adding a
category for non-traditional
commercials:
(a) Would it increase the likelihood
that persons reading the reports would
be able to deduce the identity of the
position holders, or other proprietary
information, from the reports?
(b) Could such persons use
information gleaned from the reports to
gain a trading advantage over the
reported position holders?
(c) In such case, in order to reduce the
likelihood of publishing categories with
few traders, which might provide
information giving other traders a
competitive advantage over the reported
traders, should the Commission
consider raising the threshold number
of reportable traders needed to publish
E:\FR\FM\21JNN1.SGM
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35632
Federal Register / Vol. 71, No. 119 / Wednesday, June 21, 2006 / Notices
data for a market from 20 traders to
some larger number of traders?
8. If the data in the COT reports are
made subject to further, and finer,
distinctions, should the reports be
revised for all commodities, or only for
those physical commodity markets in
which non-traditional commercials
participate?
9. If a non-traditional commercial
category were added to markets in
physical commodities, what should be
done with financial commodities, where
‘‘non-traditional commercials’’ would
be essentially an empty category (since,
in financial commodities, swap dealers
would fall within the pre-existing
‘‘commercial’’ category)?
10. The Commission has observed
that the non-traditional commercials
tend to be long only and tend not to
shift their futures positions
dramatically—even in the face of
substantial price movements. If the data
in the COT reports are made subject to
further, and finer, distinctions, would
issuing the additional data on a periodic
basis, in the form of a quarterly or
monthly supplement, be sufficient?
11. Some reportable traders engage in
both traditional (physical) and nontraditional (financial) commercial
activity in the same commodity market.
If the data in the COT reports are made
subject to further, and finer,
distinctions, such traders would have to
break out their non-traditional
commercial OTC hedging activity into a
separate account. Would such a
requirement represent an undue burden
to those traders?
Issued in Washington, DC, on June 15,
2006, by the Commission.
Eileen Donovan,
Acting Secretary of the Commission.
[FR Doc. E6–9722 Filed 6–20–06; 8:45 am]
received that would result in a contrary
determination.
ADDRESSES: Send comments to OSD
Privacy Act Coordinator, Records
Management Section, Washington
Headquarters Services, 1155 Defense
Pentagon, Washington, DC 20301–1155.
FOR FURTHER INFORMATION CONTACT: Ms.
Juanita Irvin at (703) 696–4940.
SUPPLEMENTARY INFORMATION: The Office
of the Secretary of Defense notices for
systems of records subject to the Privacy
Act of 1974 (5 U.S.C. 552a), as amended,
have been published in the Federal
Register and are available from the
address above.
The proposed systems reports, as
required by 5 U.S.C. 552a(r) of the
Privacy Act of 1974, as amended, were
submitted on June 14, 2006, to the
House Committee on Government
Reform, the Senate Committee on
Homeland Security and Governmental
Affairs, and the Office of Management
and Budget (OMB) pursuant to
paragraph 4c of Appendix I to OMB
Circular No. A–130, ‘‘Federal Agency
Responsibilities for Maintaining
Records About Individuals,’’ dated
February 8, 1996 (February 20, 1996, 61
FR 6427).
Dated: June 15, 2006.
C.R. Choate,
Alternate, OSD Federal Register Liaison
Officer, Department of Defense.
DHA14
SYSTEM NAME:
Computer/Electronic
Accommodations Program for People
with Disabilities.
SYSTEM LOCATION:
Computer/Electronic
Accommodations Program (CAP) Data
Management System (eCMDS), 5109
Leesburg Pike, Sky 6, Suite 504, Falls
Church, VA 22041–3891.
BILLING CODE 6351–01–P
DEPARTMENT OF DEFENSE
CATEGORIES OF INDIVIDUALS COVERED BY THE
SYSTEM:
Office of the Secretary
Prospective DoD and other Federal
agency employees, current DoD and
other Federal agency employees, and
members of the Armed Forces.
[DOD–2006–OS–0150]
Privacy Act of 1974; System of
Records
CATEGORIES OF RECORDS IN THE SYSTEM:
Office of the Secretary, DoD.
ACTION: Notice to add a system of
records.
AGENCY:
The Office of the Secretary of
Defense proposes to add a system of
records to its inventory of record
systems subject to the Privacy Act of
1974 (5 U.S.C. 552a), as amended.
DATES: The changes will be effective on
July 21, 2006 unless comments are
jlentini on PROD1PC65 with NOTICES
SUMMARY:
VerDate Aug<31>2005
18:26 Jun 20, 2006
Jkt 208001
Information includes but is not
limited to name, address, phone
number, medical and disability data,
history of accommodations being sought
and their disposition, and other
documentation, e.g., CAP Speech Form,
Telework Agreement, etc., used in
support of the request for an assistive
technology solution. Product and
vendor contact information to include
order/invoices/declination/cancellation
PO 00000
Frm 00026
Fmt 4703
Sfmt 4703
data for the product and identification
of vendors, vendor products used, and
product costs.
AUTHORITY FOR MAINTENANCE OF THE SYSTEM:
Rehabilitation Act of 1973, as
amended; EEOC Enforcement Guidance:
Reasonable Accommodation and Undue
Hardship Under the Americans with
Disabilities Act, March 1, 1999 and
Special Work Arrangements As
Accommodations for Individuals with
disabilities, USD(P&R) Memorandum,
February 26, 1999; E.O. 13160, 23 June
2000.
PURPOSE(S):
To administer the Computer/
Electronic Accommodations Program, a
centrally funded Federal program,
which provides assistive (computer/
electronic) technology solutions to
individuals who have disabilities so that
an accessible work environment is
provided to individuals with hearing,
visual, dexterity, cognitive, and/or
communications impairments. The
system identifies the computer/
electronic accommodations being
provided and tracks all such
accommodations for DoD as well as 64
partner agencies.
ROUTINE USES OF RECORDS MAINTAINED IN THE
SYSTEM, INCLUDING CATEGORIES OF USERS AND
THE PURPOSE OF SUCH USES:
In addition to those disclosures
generally permitted under 5 U.S.C.
552a(b) of the Privacy Act , these
records or information contained
therein may specifically be disclosed
outside the DoD as a routine use
pursuant to U.S.C. 552a(b)(3) as follows:
To Federal agencies participating in
the Computer/Electronic
Accommodations Program for purposes
of providing information as necessary to
permit the agency to carry out its
responsibilities under the program.
To commercial vendors for purposes
of providing information as necessary to
permit the vendor to identify and
provide assistive technology solutions
for individuals with disabilities.
The DoD ‘‘Blanket Routine uses’’ set
forth at the beginning of OSD’s
compilation of systems of records
notices apply to this system.
POLICIES AND PRACTICES FOR STORING,
RETRIEVING, ACCESSING, RETAINING, AND
DISPOSING OF RECORDS IN THE SYSTEM:
STORAGE:
Records are maintained on electronic
storage media.
RETRIEVABILITY:
Records are retrieved by employee
name address, telephone, and disability
information.
E:\FR\FM\21JNN1.SGM
21JNN1
]]>Agencies
[Federal Register Volume 71, Number 119 (Wednesday, June 21, 2006)]
[Notices]
[Pages 35627-35632]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-9722]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
Comprehensive Review of the Commitments of Traders Reporting
Program
AGENCY: Commodity Futures Trading Commission.
ACTION: Request for comments.
-----------------------------------------------------------------------
SUMMARY: The Commitments of Traders (``COT'') reports are weekly
reports, published by the Commodity Futures Trading Commission
(``CFTC'' or ``Commission''), showing aggregate trader positions in
certain futures and options markets. Over time, both the trading
activity that is the subject of the COT reports, and the reports
themselves, have continued to change and evolve. As part of its ongoing
efforts both to maintain an information system that reflects changing
market conditions, and to provide the public with useful information
regarding futures and options markets, the Commission is undertaking a
comprehensive review of the COT reporting program. This release is
intended to: (1) Provide useful background information regarding the
COT reports; (2) lay out various issues and questions regarding the COT
reports; and (3) solicit public comment regarding the reports,
including suggestions as to possible changes in the COT reporting
system.
DATES: Responses must be received by August 21, 2006.
ADDRESSES: Written responses should be sent to Eileen Donovan, Acting
Secretary, Commodity Futures Trading Commission, Three Lafayette
Center, 1155 21st Street, NW., Washington, DC 20581. Responses may also
be submitted via e-mail at secretary@cftc.gov. ``COT reports'' must be
in the subject field of responses submitted via e-mail, and clearly
indicated in written submissions. This document is also available for
comment at https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Donald H Heitman, Senior Special
Counsel, Division of Market Oversight, Commodity Futures Trading
Commission, Three Lafayette Center, 1155 21st Street, NW., Washington,
DC 20581. Telephone: 202-418-5041. E-mail: dheitman@cftc.gov.
SUPPLEMENTARY INFORMATION:
[[Page 35628]]
I. Background
A. The COT Reports
The COT reports provide a breakdown of each Tuesday's open interest
\1\ for all futures and option markets in which 20 or more traders hold
positions equal to or above the reporting levels \2\ established by the
CFTC. The weekly reports for Futures-Only Commitments of Traders and
for Futures-and-Options-Combined Commitments of Traders are released
every Friday at 3:30 p.m. Eastern time. Reports are available in both a
short and long format. The short report shows open interest separately
by reportable and nonreportable \3\ positions. For reportable
positions, additional data are provided for commercial and non-
commercial holdings.
---------------------------------------------------------------------------
\1\ Open interest is the total of all futures and/or option
contracts entered into and not yet offset by a transaction, by
delivery, by exercise, etc. The aggregate of all long open interest
is equal to the aggregate of all short open interest. Open interest
held or controlled by a trader is referred to as that trader's
position. For the COT Futures & Options Combined report, option open
interest and traders' option positions are computed on a futures-
equivalent basis using delta factors supplied by the exchanges.
Long-call and short-put open interest are converted to long futures-
equivalent open interest. Likewise, short-call and long-put open
interest are converted to short futures-equivalent open interest.
For example, a trader holding a long put position of 500 contracts
with a delta factor of 0.50 is considered to be holding a short
futures-equivalent position of 250 contracts. A trader's long and
short futures-equivalent positions are added to the trader's long
and short futures positions to give ``combined-long'' and
``combined-short'' positions. Open interest, as reported to the
Commission and as used in the COT report, does not include open
futures contracts against which notices of deliveries have been
stopped by a trader or issued by the clearing organization of an
exchange.
\2\ Clearing members, futures commission merchants, and foreign
brokers (collectively called ``reporting firms'') file daily reports
with the Commission. Those reports show the futures and option
positions of traders that hold positions above specific reporting
levels set by CFTC regulations. These reporting levels range from 25
contracts for new or relatively small markets to 3,000 contracts for
three-month Eurodollar time deposit rates (See 17 CFR 15.03). If, at
the daily market close, a reporting firm has a trader with a
position at or above the Commission's reporting level in any single
futures month or option expiration, it reports that trader's entire
position in all futures and options expiration months in that
commodity, regardless of size. The aggregate of all traders'
positions reported to the Commission usually represents 70 to 90
percent of the total open interest in any given market. From time to
time, the Commission will raise or lower the reporting levels in
specific markets to strike a balance between collecting sufficient
information to oversee the markets and minimizing the reporting
burden on the futures industry.
\3\ The long and short open interest shown as ``Nonreportable
Positions'' are derived by subtracting total long and short
``Reportable Positions'' from the total open interest. Accordingly,
for ``Nonreportable Positions,'' the number of traders involved and
the commercial/non-commercial classification of each trader are
unknown.
---------------------------------------------------------------------------
When an individual reportable trader is identified to the
Commission, the trader is classified either as ``commercial'' or ``non-
commercial.'' All of a trader's reported futures positions in a
commodity are classified as commercial if the trader uses futures
contracts in that particular commodity for hedging as defined in the
Commission's regulations (17 CFR 1.3(z)). A trading entity generally
gets classified as a ``commercial'' by filing a statement with the
Commission (on CFTC Form 40) that it is commercially `` * * * engaged
in business activities hedged by the use of the futures or option
markets.'' In order to ensure that traders are classified with accuracy
and consistency, the Commission staff reviews this self-classification
and may re-classify a trader if the staff has additional information
about the trader's use of the markets. A trader may be classified as a
commercial in some commodities and as a non-commercial in other
commodities. A single trading entity cannot be classified as both a
commercial and non-commercial in the same commodity. Nonetheless, a
multi-functional organization that has more than one trading entity may
have each trading entity classified separately in a commodity. For
example, a financial organization trading in financial futures may have
a banking entity whose positions are classified as commercial and have
a separate money-management entity whose positions are classified as
non-commercial.
The short report also provides additional data for reportable
positions regarding spreading,\4\ changes from the previous report,\5\
percent of open interest by category,\6\ and numbers of traders.\7\ The
long report, in addition to the information in the short report, also
groups the data by crop year,\8\ where appropriate, and shows the
concentration of positions held by the largest four and eight
reportable traders, without regard to whether they are classified as
commercial or non-commercial. Current COT data are available on the
internet at the Commission's Web site, https://www.cftc.gov.\9\
---------------------------------------------------------------------------
\4\ For the futures-only report, spreading measures the extent
to which each non-commercial trader holds equal long and short
futures positions. For the options-and-futures-combined report,
spreading measures the extent to which each non-commercial trader
holds equal combined-long and combined-short positions. For example,
if a non-commercial trader in Eurodollar futures holds 5,000 long
contracts and 4,500 short contracts, 500 contracts will appear in
the ``Long'' category and 4,500 contracts will appear in the
``Spreading'' category. These figures do not include intermarket
spreading (e.g., spreading Eurodollar futures against Treasury Note
futures).
\5\ Changes in commitments from the previous report represent
the differences between the data for the current report date and the
data published in the previous report.
\6\ Percents are calculated against the total open interest for
the futures-only report and against the total futures-equivalent
open interest for the options-and-futures-combined report. Percents
less than 0.05 are shown as 0.0, and the percents may not add to
exactly 100.0 due to rounding.
\7\ To determine the total number of reportable traders in a
market, a trader is counted only once regardless whether the trader
appears in more than one category (non-commercial traders may be
long or short only and may be spreading; commercial traders may be
long and short). To determine the number of traders in each
category, however, a trader is counted in each category in which the
trader holds a position. Therefore, the sum of the numbers of
traders in each category will often exceed the ``Total'' number of
traders in that market.
\8\ For selected commodities where there is a well-defined
marketing season or crop year, the COT data are broken down by
``old'' and ``other'' crop years.
\9\ Also available at that site are historical COT data going
back to 1986 for futures-only reports and to 1995 for option-and-
futures-combined reports.
---------------------------------------------------------------------------
B. Evolution of the COT Reports and the Marketplace
The COT reports can trace their antecedents all the way back to
1924. In that year, the U.S. Department of Agriculture's (``USDA'')
Grain Futures Administration, predecessor of the USDA's Commodity
Exchange Authority, which is in turn the predecessor of the Commission,
published its first comprehensive annual report. The report was
published pursuant to the provisions of the Grain Futures Act of
1922,\10\ the predecessor statute of today's Commodity Exchange Act
(``CEA'' or ``the Act''), which was enacted in 1936.\11\
---------------------------------------------------------------------------
\10\ 42 Stat. 998, September 21, 1922.
\11\ 49 Stat. 1491, June 15, 1936, 7 U.S.C. 1 et seq..
---------------------------------------------------------------------------
The Grain Futures Administration noted that the general objectives
of the Grain Futures Act included ``[t]o obtain for the use of Congress
and the enlightenment of the public authentic and comprehensive
information regarding trading in grain futures.''\12\ To that end, that
legislation imposed recordkeeping and reporting requirements on boards
of trade. One requirement of the implementing regulations was that
records should be made in such a manner as to show whether the persons
for whom transactions were executed were ``engaged in the cash grain
business.''\13\ The express purpose of this requirement was
---------------------------------------------------------------------------
\12\ Annual Reports of the Department of Agriculture for 1924,
Report of the Grain Futures Administration on Administration of the
Grain Futures Act, at 2, September 9, 1924.
\13\ Id. at 6.
[[Page 35629]]
---------------------------------------------------------------------------
to insure that the basic records of all transactions in grain
futures will contain information which can be utilized for
distinguishing transactions originating with persons engaged in the
cash grain business (and therefore presumably representing in
considerable part ``hedging'') from transactions originating with
persons not so engaged (and therefore presumably representing for
the most part ``speculation'').\14\
---------------------------------------------------------------------------
\14\ Id.
---------------------------------------------------------------------------
The report characterized the distinction between hedging and
speculation as being of ``fundamental significance from the public
point of view'' and one that ``deserves systematic reflection in the
records kept of transactions in grain futures.''
Over the years, the Grain Futures Administration and, after 1936,
its successor organization the Commodity Exchange Authority, continued
to publish annual statistics concerning hedging versus speculative
transactions. Beginning with the adoption of the Commodity Exchange Act
in 1936, and as part of amendments to that Act on a number of
subsequent occasions, the Commodity Exchange Authority's jurisdiction
was expanded beyond grains to cover additional agricultural
commodities. The Commodity Exchange Authority designated the exchanges
where futures contracts in those commodities were traded as ``contract
markets'' in such commodities.\15\ As contract markets in additional
commodities were designated, the Authority expanded its annual reports
of hedging and speculative positions in futures markets to include
additional commodities.\16\
---------------------------------------------------------------------------
\15\ In this context, a ``contract market designation'' refers
to designating an exchange where futures contracts on a particular
commodity are traded as a ``contract market'' in that commodity. For
example, after the 1936 Act brought a number of additional
agricultural commodities within the Commodity Exchange Authority's
jurisdiction, the Authority designated the New York Cotton Exchange
as a contract market in cotton and the Chicago Mercantile Exchange
as a contract market in butter, eggs and potatoes. As subsequent
amendments brought additional commodities within the scope of the
Act, further contract market designations followed, including
soybeans (1940), soybean oil (1950), soybean meal (1951), frozen
concentrated orange juice (1968), and livestock futures (live and
feeder cattle, live hogs and frozen pork bellies--all in 1968).
Under the Commodity Futures Modernization Act of 2000 (``CFMA''),
however, a ``contract market designation'' refers to the Commission
designating (licensing) a board of trade (exchange) as a
``designated contract market'' (``DCM''). Once designated, a DCM can
trade any number of commodities. A DCM can list any new product by
filing with the Commission a copy of the rules pursuant to which the
product will trade, along with a certification that the product
complies with the Act and the Commission's rules thereunder.
\16\ In addition, starting in 1942, the Commodity Exchange
Authority began issuing ``Commodity Futures Statistics'' as a
separate publication, distinct from the USDA annual report. The
Commodity Futures Statistics were also expanded to include monthly
data, but were still published only on an annual basis.
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In 1962, the Commodity Exchange Authority took what it called
``another step forward in the policy of providing the public with
current and basic data on futures market operations'' by moving beyond
an annual statistical recap and initiating the publication of monthly
COT reports. The original COT reports were compiled on an end-of-month
basis and published on the 11th or 12th calendar day of the following
month. The first COT report, covering 13 agricultural commodities, was
published on June 13, 1962.
Over the 44 years since then, both the COT reports and the
underlying futures markets have undergone a number of significant
changes. With respect to the COT reports, the number of commodities
covered in the COT reports has continued to expand. In April 1975, the
newly formed CFTC succeeded the Commodity Exchange Authority. The
Commission continued to publish the COT reports, but expanded the
reports' content to include new commodities first brought under the
Commission's jurisdiction by the Commodity Futures Trading Commission
Act of 1974.\17\ In the years since then, scores of new futures and
option products have been listed for trading on designated futures
exchanges. As noted above, not all these commodities are included in
the COT reports, since reports are published only for commodities in
which 20 or more traders hold reportable positions. The most recent COT
reports published cover 85 to 90 commodities trading on six different
DCMs.\18\
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\17\ Public Law 93-463, 88 Stat. 1389, October 23, 1974. The new
commodities added in 1974 included coffee, sugar, cocoa, metals,
energy products and financial products, among other things.
\18\ The COT reports are the most frequently visited section of
the Commission's Web site. During 2005, nearly half of the visitors
to the Commission's Web site were there primarily to access the COT
reports, with approximately 460,000 visitors viewing the reports.
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In addition to covering additional commodities, the Commission has
improved the COT reports in several other ways as well. The Commission
has changed the publication schedule several times to provide
information to the public more frequently--switching publication from
monthly to twice monthly (mid-month and month-end) in 1990, to every
two weeks in 1992, and to weekly in 2000. The Commission has also acted
to improve the timeliness of the reports--moving publication to the
sixth business day after the ``as of'' date in 1990, and then to the
third business day after the ``as of'' date in 1992. The Commission has
also expanded the scope of the information included in the reports--
adding data on the numbers of traders in each category, a crop-year
breakout and concentration ratios in the early 1970s and adding data on
option positions in 1992. Finally, the Commission has made the COT
reports more widely available--moving from a paid subscription-based
mailing list to fee-based electronic access in 1993 and, since 1995,
making the COT data freely available on the Commission's internet
website.
C. Issues Regarding COT Data
1. Elimination of the Series '03 Reports
One of the historical changes in the COT reports has raised
questions with respect to the usage of the COT data in today's market
environment. In 1981, the Commission adopted regulations \19\ to
eliminate the routine filing of series '03 reports by large
traders.\20\ The purpose of these rules was to reduce paperwork burdens
on large traders and the Commission.
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\19\ 46 FR 59960, December 8, 1981.
\20\ Series '03 reports were required to be filed with the
Commission by any trader who owned or controlled a reportable
futures position. Once traders acquired a reportable position in a
commodity, they were required to report trades, positions, exchanges
of futures for physicals and delivery information regarding that
commodity on series '03 reports, and to classify how much of their
position was speculative and how much was hedging.
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Because the series '03 reports included both position information
for all reportable traders and the traders' classification of how much
of their positions was speculative and how much was hedging, the series
'03 reports had provided the data that went to make up the COT reports.
In its rulemaking eliminating the series '03 reports, the Commission
stated its intention to continue publishing the COT reports using data
from the series '01 reports and Form 102,\21\ as well as the Form 40,
[[Page 35630]]
Statement(s) of Reporting Trader.\22\ However, publication of the COT
reports was suspended for approximately 18 months in order to implement
computer system changes that would enable the Commission to generate
COT data under the revised reporting system.\23\ When the COT reports
resumed, reportable positions were no longer classified as ``hedging''
or ``speculative'' (the series '03 forms that required traders to make
these classifications no longer being available). Rather, reportable
positions were classified as ``commercial'' or ``non-commercial,''
based on the declarations made in the reporting traders'' Form 40
statements.
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\21\ Series '01 reports are reports filed by futures commission
merchants (``FCMs''), foreign brokers and exchange clearing members
clearing their own trades, with respect to all customer or (for the
exchange clearing members) proprietary accounts that attain a
reportable position. A series '01 report itemizes the account number
and certain positions, deliveries and exchanges of futures
(including exchanges of futures for physicals [``EFPs''], swaps
[``EFSs''], risk [``EFRs''] and options [``EFOs''] or other
exchanges of futures for a commodity or for a derivatives position)
associated with each account carrying a reportable position (See 17
CFR 17.00). The name, address and occupation of the person or
persons who own such accounts are separately identified on Form 102
(See 17 CFR 17.01). By aggregating the series '01 and Form 102
information filed with respect to traders with accounts at multiple
FCMs or foreign brokers, the Commission can determine the size of
each reportable trader's overall position.
\22\ Each person that holds or controls a reportable position is
required to file a Form 40. The Form 40 requires a trader to list
its principal business or occupation and to state whether it is
``commercially engaged in business activities hedged by the use of
the futures or option markets.'' If the trader answers ``yes,'' it
is instructed to complete a separate schedule ``listing the futures
or option contract used, the cash commodity(ies) hedged, or the risk
exposure covered, and the marketing occupations associated with
hedging uses.''
\23\ The Commission notes that eliminating the series '03 forms
as the basis for the COT reports improved the timing and accuracy of
the COT reports because: (1) Series '03 forms were mostly mailed to
the Commission from wherever the trader resided, in some cases
taking several days to arrive and be processed, whereas series '01
reports are filed electronically by the following morning; and (2)
series '03 forms were only required to be filed when a reportable
trader's position changed, so that a trader's delay or failure to
file a report often led to an erroneous assumption that the position
had not changed.
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The Commission believes that the public perception was, and is,
that the ``commercial vs. non-commercial'' classification in current
COT reports is analogous (if not identical) to the ``hedging vs.
speculation'' distinction in the pre-1982 COT reports. Over time,
however, derivatives markets (including both exchange-traded and over-
the-counter [''OTC''] markets), as well as derivatives trading patterns
and practices, have evolved tremendously. Changes have been
particularly evident over the last 15 years. As a result of these
changes in markets and trading practices, questions have been raised as
to whether the ``commercial'' and ``non-commercial'' categories of
today's COT reports appropriately classify trading practices that were
not contemplated when the ``hedging vs. speculation'' categories were
removed in 1982.
2. The Impact of Speculative Position Limit and Hedge Exemption Rules
To protect futures markets from excessive speculation that can
cause unreasonable or unwarranted price fluctuations, and to reduce the
potential threat of market manipulation, the Act and Commission
regulations require the Commission \24\ and the exchanges \25\ to
impose limits on the size of speculative positions in futures markets.
For certain agricultural markets, the speculative limits are determined
by the Commission and set out in federal regulations.\26\ For all other
markets, the speculative limits are determined as necessary by the
exchanges according to standards established by the Commission.\27\ The
Commission and exchanges grant exemptions from their respective
speculative position limits for ``bona fide hedging.'' A hedge is a
futures or option transaction or position that normally represents a
substitute for transactions to be made or positions to be taken at a
later time in a physical marketing channel. Hedges must be
``economically appropriate to the reduction of risks in the conduct and
management of a commercial enterprise'' [emphasis supplied] and must
arise from a change in the value of a hedger's (current or anticipated)
assets or liabilities.\28\
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\24\ See section 4a of the Act.
\25\ See section 5(d)(5) of the Act and 17 CFR 150.5.
\26\ Speculative position limits for corn, oats, wheat,
soybeans, soybean oil, soybean meal, and cotton are set out at 17
CFR 150.2.
\27\ Pursuant to those standards, some markets are subject to
position accountability rules in lieu of speculative position
limits.
\28\ See 17 CFR 1.3(z) for the full regulatory definition of
``bona fide hedging.''
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3. Hedge Exemptions and the COT Reports
Because both the hedge exemption rules and the standards whereby
positions are classified for purposes of the COT reports refer to
``commercial'' positions, the Commission has considered the
classification of a position as ``commercial'' under the hedge
exemption rule as being an appropriate indicator for how the position,
and the trader holding it, should be classified for COT purposes. In
other words, if an entity holding a particular futures or option
position has received a hedge exemption with respect to that position,
the position is, by definition, held by a ``commercial enterprise.''
Accordingly, that position should be reported (via the series '01
reports, Forms 102 and Forms 40) to the Commission as a ``commercial''
position, and it would be included within the ``commercial'' category
on the COT reports. Entities in the same type of business, holding
similar hedge positions (as reported on their Form 40) are likewise
treated as commercials for purposes of the COT reports, even though the
entities may not have sought hedge exemptions because they are trading
below the level of the position limit so no exemption is required.
As trading practices in the derivatives markets (both exchange and
OTC) have continued to evolve over the past 5 years, the Commission has
granted hedge exemptions from the Commission speculative limits for
certain agricultural commodities to entities whose futures positions
reflected various innovative, non-traditional risk management
strategies. Based on their classification for hedge exemption purposes,
positions based on these non-traditional strategies have been
classified in the COT reports as ``commercial.'' The result is that,
over time, the nature of the positions carried in the COT reports for
some commodities has changed significantly, raising questions as to
whether the COT reports should be reviewed to determine if revisions
are needed to reflect changing market conditions.
This issue may be illustrated by reviewing the history of hedge
exemption requests.\29\ For example, in 1991, the Commission received a
request from a ``large commodity merchandising firm,'' that ``engage[d]
in commodity related swaps \30\ as a part of a commercial line of
business.'' The firm, through an affiliate, wished to enter into an OTC
swap transaction, with a qualified counterparty (a large pension fund),
involving an index based on the returns afforded by investments in
exchange-traded futures contracts on certain non-financial commodities
meeting specified criteria. The commodities making up the index
included wheat, corn and soybeans, all of which were (and still are)
subject to Commission speculative position limits. As a result of the
swap, the swap dealing firm would, in effect, be going short the index.
In other words, it would be required to make payments to the
counterparty if the value of the index was higher at the end of the
swap payment period than at the beginning.
[[Page 35631]]
In order to hedge itself against this risk, the swap dealer planned to
establish a portfolio of long futures positions in the commodities
making up the index, in such amounts as would replicate its exposure
under the swap transaction. By design, the index did not include
contract months that had entered the delivery period and the swap
dealer, in replicating the index, stated that it would not maintain
futures positions based on index-related swap activity into the
delivery month. The result of the hedge was that the composite return
on the futures portfolio would offset the net payments the swap dealer
would be required to make to the counterparty.
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\29\ Specific requests, and the Commission's responses granting
or denying those requests, by their very nature, include information
regarding the nature of the requesting entity's trading activities.
The express terms of the Act prohibit the Commission from publicly
disclosing such information. Section 8(a)(1) of the Act provides in
relevant part that ``the Commission may not publish data and
information that would separately disclose the business transactions
or market positions of any person and trade secrets or names of
customers.'' However, it is possible, without disclosing prohibited
information, to provide an overview of certain hedge exemption
letters that will illustrate how the nature of the information
included in the COT reports has changed over time.
\30\ A swap is a privately negotiated exchange of one asset or
cash flow for another asset or cash flow. In a commodity swap, at
least one of the assets or cash flows is related to the price of one
or more commodities.
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Because the futures positions the swap dealer would have to
establish to hedge its exposure on the swap transaction would be in
excess of the speculative position limits on wheat, corn and soybeans,
it requested, and was granted, a hedge exemption for those positions.
As discussed above, when those reportable futures positions were
incorporated into the COT reports, they were reported as ``commercial''
positions. Similar hedge exemptions were subsequently granted in other
cases where the futures positions clearly offset risks related to swaps
or similar OTC positions involving both individual commodities and
commodity indexes. These non-traditional hedges were all subject to the
same limitations as the original hedge exemption--that the futures
positions must offset specific price exposure on a non-discretionary
basis (i.e., would not over-weight or under-weight the size or mix of
futures based upon a market outlook), would be of equal dollar value to
the underlying risk (i.e., be unleveraged), and would not be carried
into the delivery month.
4. The Effect on the COT Report
The effect of the entry of these non-traditional hedgers into the
marketplace has been to change the composition of the COT reports.
Prior to 1991, both the long and the short side of the commercial open
interest listed in the COT reports represented traditional hedgers
(producers, processors, manufacturers or merchants handling the
commodity or its products or byproducts). Since that time, though,
trading practices have evolved to such an extent that today, a
significant proportion of the long side open interest in a number of
major physical commodity futures contracts is held by non-traditional
hedgers (e.g., swap dealers), while the traditional hedgers may be
either net long or net short (more often, the latter). This has raised
questions as to whether the COT report can reliably be used to assess
futures hedging activity by persons hedging exposure in the underlying
physical commodity markets.
It should be noted that the Commission's treatment of
professionally managed funds\31\ in the COT reports generally does not
raise the same issue. Professionally managed funds, although they may
be appropriately treated as commercials with respect to markets in
financial commodities,\32\ are usually treated as non-commercials for
COT purposes in the markets for physical commodities (including not
only agricultural commodities, but energy products, metals and other
physical commodities as well).
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\31\ For these purposes, ``professionally managed funds''
includes traders registered as commodity trading advisors and
commodity pool operators, as well as funds commonly referred to as
``hedge funds.'' A hedge fund has been described as a private
investment fund or pool that trades and invests in various assets
such as securities, commodities, currency, and derivatives on behalf
of its clients.
\32\ A professionally managed fund trading in futures markets
for financial products (equity, debt or foreign currency) might very
well be hedging various OTC or exchange-traded products.
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II. Alternatives in Addressing Issues Related to the COT Reports
In view of the changes in markets and trading patterns described
above, the Commission is now seeking public comment concerning whether
it should adopt any changes to the way data are presented in the COT
reports. Such action could be taken as part of the Commission's ongoing
efforts both to maintain an information system that reflects changing
market conditions, and to provide the public with useful information
regarding futures and option markets. In addition, the Commission is
seeking comment as to whether it should stop publishing the COT reports
altogether if it is determined that either: (1) There are data
anomalies in the reports for which no satisfactory solution can be
found; or (2) the data in the reports provide no public benefit.\33\
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\33\ The COT reporting program is not mandated by either the Act
or Commission regulations. Therefore, if, after reviewing the
comments received in response to this notice, the Commission decides
to take any action with respect to the COT reporting program, it can
do so without further notice or opportunity for comment.
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III. Questions
The Commission has formulated the following questions based upon
its initial review of issues relating to the COT reports. Responses
from interested parties will advance the Commission's understanding of
these issues and, it is hoped, point the way to a satisfactory
resolution of any problems that are identified regarding the COT
reports. Each enumerated question should be addressed individually.
Interested parties are also welcome to address other topics or issues
that they believe are relevant to the COT reports.
1. What types of traders in the futures and option markets use the
COT reports in their current form, and how are they using the COT data?
More specifically:
(a) How do traders use the COT information on commercial positions?
(b) How do they use the COT information on non-commercial
positions?
(c) In particular, with respect to information on non-commercial
positions, what information or insights do traders gain from the COT
reports regarding the possible impact of futures trading on the
underlying cash market?
2. Are other individuals or entities (academic researchers or
others) using the COT reports and, if so, how?
3. Do the COT reports, in their current form, provide any
particular segment of traders with an unfair advantage?
4. Should the Commission continue to publish the COT reports?
5. If the Commission continues to publish the COT reports, should
the reports be revised to include additional categories of data--for
example, non-traditional commercial positions, such as those held by
swap dealers?
6. As a general matter, would creating a separate category in the
COT report for ``non-traditional commercials'' potentially put swap
dealers or other non-traditional commercials at a competitive
disadvantage (since other market participants would generally know that
their positions are usually long, are concentrated in a single futures
month, and are typically rolled to a deferred month on a specific
schedule before the spot month)?
7. More specifically, if the data in the COT reports are made
subject to further, and finer, distinctions, such as adding a category
for non-traditional commercials:
(a) Would it increase the likelihood that persons reading the
reports would be able to deduce the identity of the position holders,
or other proprietary information, from the reports?
(b) Could such persons use information gleaned from the reports to
gain a trading advantage over the reported position holders?
(c) In such case, in order to reduce the likelihood of publishing
categories with few traders, which might provide information giving
other traders a competitive advantage over the reported traders, should
the Commission consider raising the threshold number of reportable
traders needed to publish
[[Page 35632]]
data for a market from 20 traders to some larger number of traders?
8. If the data in the COT reports are made subject to further, and
finer, distinctions, should the reports be revised for all commodities,
or only for those physical commodity markets in which non-traditional
commercials participate?
9. If a non-traditional commercial category were added to markets
in physical commodities, what should be done with financial
commodities, where ``non-traditional commercials'' would be essentially
an empty category (since, in financial commodities, swap dealers would
fall within the pre-existing ``commercial'' category)?
10. The Commission has observed that the non-traditional
commercials tend to be long only and tend not to shift their futures
positions dramatically--even in the face of substantial price
movements. If the data in the COT reports are made subject to further,
and finer, distinctions, would issuing the additional data on a
periodic basis, in the form of a quarterly or monthly supplement, be
sufficient?
11. Some reportable traders engage in both traditional (physical)
and non-traditional (financial) commercial activity in the same
commodity market. If the data in the COT reports are made subject to
further, and finer, distinctions, such traders would have to break out
their non-traditional commercial OTC hedging activity into a separate
account. Would such a requirement represent an undue burden to those
traders?
Issued in Washington, DC, on June 15, 2006, by the Commission.
Eileen Donovan,
Acting Secretary of the Commission.
[FR Doc. E6-9722 Filed 6-20-06; 8:45 am]
BILLING CODE 6351-01-P
