Market and Large Trader Reporting, 37809-37822 [E6-10383]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 71, Number 127 (Monday, July 3, 2006)]
[Rules and Regulations]
[Pages 37809-37822]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-10383]



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Rules and Regulations
                                                Federal Register
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Federal Register / Vol. 71, No. 127 / Monday, July 3, 2006 / Rules 
and Regulations

[[Page 37809]]



COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 15, 16, 17, 18, 19, 21, and 37

RIN 3038-AC22


Market and Large Trader Reporting

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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SUMMARY: The Commodity Futures Trading Commission is adopting new and 
amended market and large trader reporting rules. The final rules 
accomplish the following: Codify a reporting level for contracts based 
on 3-Year U.S. Treasury Notes; clarify the reporting obligations of 
registered derivatives transaction execution facilities and their 
market participants; require designated contract markets to publicly 
disseminate integrated volume data for each contract that separately 
identifies the volume generated from block trades; establish a 
reporting framework for exclusively self-cleared contracts; and 
implement a number of conforming, clarifying, and technical amendments.

DATES: Effective July 3, 2006.

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. Market and Large Trader Reporting Rules

    The market and large trader reporting rules (reporting rules) are 
contained in parts 15 through 21 of the Commission's regulations.\1\ 
Collectively, the reporting rules effectuate the Commission's market 
and financial surveillance programs.\2\ The market surveillance 
programs analyze market data to detect and prevent market disruptions 
and enforce speculative position limits. The financial surveillance 
programs use market data to measure the financial risks that large 
contract positions may pose to Commission registrants and clearing 
organizations.
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    \1\ 17 CFR parts 15 to 21.
    \2\ See 69 FR 76392 (December 21, 2004).
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    The Commission's reporting rules are implemented partly pursuant to 
the authority of sections 4a, 4c(b), 4g, and 4i of the Commodity 
Exchange Act (Act or CEA).\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 involving commodity 
options.\5\ Section 4g of the Act imposes reporting and recordkeeping 
obligations on registered entities, and obligates futures commission 
merchants (FCMs), introducing brokers, floor brokers, and floor traders 
to file such reports as the Commission may require on proprietary and 
customer positions executed on any board of trade.\6\ Lastly, section 
4i of the Act requires the filing of such reports as the Commission may 
require when positions made or obtained on designated contract markets 
or registered derivatives transaction execution facilities (DTEFs) 
equal or exceed Commission-set levels.\7\
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    \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 prevent price manipulation and other disruptions to 
market integrity. 7 U.S.C. 5(b). Together, these purposes warrant 
the maintenance of an effective and vigorous system of market and 
financial surveillance.
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II. Procedural Background

A. The Proposed Rules

    On December 15, 2005, the Commission published a notice of proposed 
rulemaking in the Federal Register for public comment.\8\ In that 
notice, the Commission proposed new and amended reporting rules that 
addressed recent market developments and clarified the application of 
the reporting rules to transactions executed on DTEFs. The Commission 
received one comment letter from the Chicago Mercantile Exchange 
(CME).\9\ In its comment letter, the CME expressed general support for 
the Commission's proposed rules. With two minor exceptions (a technical 
amendment to Commission rule 37.2 and a revised definition of an 
exclusively self-cleared contract), the Commission is adopting the new 
and amended reporting rules as proposed. For this reason, the CME's 
comments are discussed below in tandem with an overview of the final 
reporting rules.
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    \8\ 70 FR 74246.
    \9\ Letter from Craig S. Donohue, Chief Executive Officer, 
Chicago Mercantile Exchange, to Jean A. Webb, Secretary of the 
Commission (February 13, 2006)(on file with the Commission), 
available at https://www.cftc.gov/foia/comment05/foi05_009_1.htm.
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B. Overview of the Final Reporting Rules and CME Comments

    The final rules effectuate several substantive changes to the 
Commission's reporting rules. First, the final rules codify a reporting 
level for 3-Year U.S. Treasury Note futures and option contracts (3-
Year T-Notes). The codification in Commission rule 15.03(b) is in 
response to a designated contract market's listing of 3-Year T-Notes 
and the possibility that other designated contract markets will seek to 
offer 3-Year T-Notes for trading.
    Second, the final rules clarify the application of the reporting 
rules to transactions executed on DTEFs. In the interest of regulatory 
clarity, the final rules define DTEFs directly into the reporting rules 
and emphasize the Commission's discretion to exempt DTEFs and their 
market participants from the reporting rules when necessary and 
appropriate. In its comment letter, the CME stated that defining DTEFs 
directly into the reporting rules would ``avert any ambiguity 
regarding'' the application of the reporting rules to

[[Page 37810]]

DTEFs. The CME remarked that the lack of regulatory ambiguity would 
discourage attempts to engage in regulatory arbitrage.
    Third, the final reporting rules amend the public dissemination 
requirement of Commission rule 16.01. The final reporting rules require 
designated contract markets to present publicly disseminated market 
information, when required to do so by rule 16.01, in a format that 
readily enables the consideration of the data. The final reporting 
rules also require designated contract markets to publicly disseminate, 
for each contract, integrated volume data that separately identifies 
the volume generated from block trades. In its comment letter, the CME 
noted that integrated volume data that separately identifies the volume 
generated from block trades improves the ability of market participants 
to assess material variables such as a market's liquidity and the 
utility of contracts as vehicles for hedging and price basing.
    Lastly, the final rules establish a specific reporting framework 
for contracts that are exclusively self-cleared. The final rules 
address certain aspects of the reporting rules that do not comport well 
with un-intermediated market structures. The final rules accomplish 
this by placing the exchange in the regulatory position of large 
traders with respect to any obligation to report under part 17 of the 
Commission's regulations. In its comment letter, the CME emphasized the 
relevance of large trader data to the protection of market integrity. 
Furthermore, the CME stated that the Commission's reporting framework 
struck an appropriate balance between relieving technical compliance 
burdens and requiring the timely submission of vital trading data.

III. Establishing a Contract Reporting for Level 3-Year U.S. Treasury 
Notes

    The Commission's reporting rules require FCMs, foreign brokers, and 
clearing members (collectively reporting firms) to identify and provide 
daily position reports on customer and proprietary accounts that 
maintain reportable positions.\10\ Positions in commodity futures and 
option contracts become reportable when they equal or exceed the 
reporting levels codified in Commission rule 15.03(b).\11\ Rule 
15.03(b) establishes reporting levels for all contracts that are 
subject to the Commission's reporting rules. Rule 15.03(b) applies 
specified reporting levels to certain contracts and a standard default 
reporting level of 25 to all other contracts.\12\ Since the default 
contract reporting level is strictly set at 25, its application to some 
newly listed contracts is (on occasion) inefficient from a regulatory 
surveillance perspective.
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    \10\ See 17 CFR part 17.
    \11\ See 17 CFR 15.00 and 15.03. The firms that carry accounts 
that become reportable are required to identify those accounts on 
Form 102 and report positions in the accounts to the Commission. See 
17 CFR 17.00 and 17.01. When necessary, the Commission separately 
calls upon persons that own or control reportable positions (large 
traders) to verify and supplement the submitted data in accordance 
with part 18 of the Commission's regulations. See 17 CFR part 18.
    \12\ With respect to liquid contracts, 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 analyzes factors such as the terms and conditions of a 
contract, its trading volume, its level of open interest, its 
typical open position size, and the Commission's regulatory 
experience with similar contracts prior to revising or codifying new 
contract reporting levels in Commission rule 15.03(b). See 69 FR 
76392, 76393 (December 21, 2004).
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    U.S. Futures Exchange, LLC listed 3-Year T-Notes for trading in 
January of 2005. As discussed in the proposed rules, rule 15.03(b) did 
not at that time specify a reporting level for 3-Year T-Notes. In order 
to employ regulatory resources more efficiently and lessen any undue 
burden associated with the obligation to report, staff in the Division 
of Market Oversight (DMO staff) granted no-action relief to reporting 
firms and traders holding or controlling positions in 3-Year T-Notes 
that, for the purpose of complying with the Commission's reporting 
rules, adhered to a reporting level of 750 contracts instead of the 
otherwise applicable default reporting level of 25.\13\ DMO staff 
premised its grant of relief primarily on the conclusion that 
historical trading in 2-Year T-Notes served as precedent for trading in 
3-Year T-Notes.\14\ Based on the Commission'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,\15\ the Commission is herein codifying 
a reporting level of 750 contracts for 3-Year T-Notes.
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    \13\ CFTC Staff Letter 05-03 Comm. Fut. L. Rep. (CCH) ] 30,024 
(January 26, 2005).
    \14\ Id. The contract reporting level for 2-Year T-Notes is 
currently 1,000 contracts. 17 CFR 15.03(b).
    \15\ The deliverable supply for the March 2005 3-Year T-Notes 
had a value of approximately $95 billion.
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IV. Registered Derivatives Transaction Execution Facilities

A. Authority To Subject DTEFs to the Reporting Rules

    As discussed in the proposed rules, the CEA, as amended by the 
Commodity Futures Modernization Act of 2000 (CFMA),\16\ gives the 
Commission the statutory authority to subject transactions on DTEFs to 
the reporting rules.\17\ Section 4c(b) of the Act, regardless of the 
venue of trading, gives the Commission plenary authority to regulate 
transactions involving commodity options. Sections 4a and 4i of the Act 
explicitly reference transactions executed on or subject to the rules 
of DTEFs. Lastly, 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. The 
term registered entity is defined by CEA section 1a(29) to include 
DTEFs.\18\ Likewise, section 1a(2) of the Act defines a board of trade 
to include ``any organized exchange or other trading facility.'' \19\
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    \16\ CFMA, Appendix E of Public Law 106-554, 114 Stat. 2763.
    \17\ Although the Commission has received indications of 
interest from potential DTEF applicants, no board of trade has 
registered or applied for registration with the Commission as a 
DTEF.
    \18\ 7 U.S.C. 1a(29).
    \19\ 7 U.S.C. 1a(2).
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B. Commission Rule 37.2

    In 2001, the Commission adopted a series of DTEF rules in part 37 
to effectuate the CFMA.\20\ With the exception of a limited grouping of 
reserved rules, the Commission (in rule 37.2) exempted DTEFs and 
transactions on DTEFs from all regulations otherwise pertinent to 
trading facilities. By including parts 15 to 21 in the limited grouping 
of reserved rules, the Commission, acting pursuant to its statutory 
authority, unambiguously reserved the applicability of the reporting 
rules to transactions executed on DTEFs.\21\ Although unambiguously 
reserved, Commission rule 37.2 expressed the applicability of the 
reporting rules to DTEFs and their market participants through 
incorporation by reference and without substantial clarity. More 
specifically, Commission rule 37.2 provided that DTEFs are not, as 
applicable to the market, exempt from parts 15 to 21, and further 
provided that parts 15 to 21, when applicable to DTEFs, shall be viewed 
as though they were set forth in

[[Page 37811]]

rule 37.2 and included specific reference to DTEFs.
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    \20\ 66 FR 42256 (August 10, 2001).
    \21\ 17 CFR 37.2.
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    At the time Commission rule 37.2 was adopted, the incorporation of 
the reporting rules by reference was necessary because the expressed 
provisions of parts 15 to 21, with the exception of Commission rule 
15.05, applied only to contract markets and did not mention DTEFs.\22\ 
As part of the Commission's continuing effort to better implement the 
amendments introduced to the Act by the CFMA, the Commission is herein 
defining DTEFs directly into rules 15.00 to 15.04 and parts 16 through 
21.\23\ Defining DTEFs directly into the reporting rules clarifies the 
application of the rules to transactions executed on DTEFs. The final 
rules are not designed to alter the pre-existing reporting obligations 
of DTEFs or their market participants in any way.
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    \22\ 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).
    \23\ The Commission is also implementing technical amendments to 
Commission rule 37.2 to reconcile that rule with the new and amended 
reporting rules.
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C. Clarification Through the Replacement of Terms

    The final reporting rules define DTEFs directly into rules 15.00 to 
15.04 and throughout the provisions of parts 16 through 21. The final 
rules accomplish this by replacing the term contract market with the 
new term reporting market throughout the applicable provisions of the 
reporting rules.\24\ New Commission rule 15.00(m) defines reporting 
market to mean a designated contract market and, unless determined 
otherwise by the Commission with respect to some or all of the 
contracts listed by the facility, a DTEF.
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    \24\ More specifically, the Commission is replacing 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 subparagraphs of rules 16.00, 
16.01, 16.07, 17.00, 17.04, 18.00, 21.02, and 21.03. In addition, 
the Commission is replacing 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 conforming amendments that 
reconcile existing rules with the replacement of terms are discussed 
in Section VII of this notice of rulemaking.
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    The language that defines the term reporting market emphasizes the 
Commission's authority to exempt transactions on DTEFs from the 
reporting rules when necessary and appropriate. As discussed in the 
notice of proposed rulemaking, the discretion embedded within the 
definition of reporting market reconciles the Commission's 
responsibility to diligently regulate transactions on DTEFs with the 
Congressional directive to permit DTEFs to operate more flexibly.\25\ 
In determining whether to consider DTEFs reporting markets with respect 
to particular contracts, the Commission will consider several factors, 
including a DTEF's surveillance capabilities and the characteristics of 
the commodities that underlie DTEF transactions.\26\ In all cases, the 
Commission will remain mindful of the operational flexibility granted 
to DTEFs.
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    \25\ In comparison with designated contract markets, DTEFs are 
required to comply with a less comprehensive set of Core Principles. 
Compare 7 U.S.C. 7(d) (Core Principles for designated contract 
markets) with 7a(d) (Core Principles for DTEFs). 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. See 7 U.S.C. 7(d)(11) 
and guidance on Core Principle 11 in Appendix B to 17 CFR part 38. 
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. See 7 U.S.C. 7a(c)(4) 
and guidance on Registration Criterion 4 in Appendix A to 17 CFR 
part 37.
    \26\ 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 new and amended reporting rules, the Commission 
will, without exception, deem such DTEFs to be part 16 reporting 
markets for security futures products.
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D. Market Data

    Commission rule 16.01 requires the submission of market data to the 
Commission on a daily basis.\27\ Amended rule 16.01 requires reporting 
markets, as opposed to contract markets, to 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. Unless the Commission exercises the discretion 
embedded within the definition of reporting market to determine 
otherwise, data associated with contracts on DTEFs is data associated 
with contracts on reporting markets and therefore subject to inclusion 
in market reports submitted to the Commission.
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    \27\ 17 CFR 16.01.
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    Commission rule 16.01 also requires the dissemination of market 
data to the general public. Section 5(d)(8) of the Act requires 
designated contract markets to disseminate a specific set of market 
data publicly for all actively traded contracts on a daily basis.\28\ 
In contrast, section 5a(d)(5) of the Act requires DTEFs to publicly 
disseminate the same market data only for contracts that perform a 
significant price discovery function for transactions in the cash 
market for the commodity underlying the contract.\29\ Because of the 
divergent statutory triggers, the Commission believes that designated 
contract markets and DTEFs should not of necessity be subject to the 
same public dissemination requirement. Therefore, amended rule 16.01 
only requires designated contract markets, as opposed to reporting 
markets, to publicly disseminate data on trading volume, open interest, 
futures delivery notices, exchanges of futures, option deltas, and 
prices on a daily basis.
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    \28\ 7 U.S.C. 7(d)(8).
    \29\ 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). The 
language triggering the DTEF public dissemination requirement is 
similar to the language triggering the same requirement for exempt 
boards of trade (7 U.S.C. 7a-3(d)) and exempt commercial markets (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.
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    As discussed above, section 5a(d)(5) of the Act requires DTEFs to 
publicly disseminate a specific set of market data for contracts that 
perform a significant price discovery function for transactions in the 
cash market for the commodity underlying the contract.\30\ Since 
amended rule 16.01 exempts DTEFs from its public dissemination 
requirement, the public dissemination requirement for DTEF transactions 
will be set by section 5a(d)(5) of the Act and implemented pursuant to 
any regulations adopted thereunder.\31\ New paragraph (e) of rule 16.01 
emphasizes this by clarifying that DTEFs, although exempt from the 
public dissemination

[[Page 37812]]

requirement of Commission rule 16.01, must nonetheless comply with 
section 5a(d)(5) of the Act and any regulation adopted thereunder.
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    \30\ 30 The Commission recently applied 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. 71 FR 1953, 1958 (January 12, 
2006). More specifically, in making such a determination with 
respect to DTEFs and exempt boards of trades, the Commission will 
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.
    \31\ See Commission guidance on DTEF Core Principle 5 in 
Appendix B to part 37 of the Commission's regulations. 17 CFR part 
37 Appendix B.
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V. Block Trade Volume and the Publication of Market Data

    The passage of the CFMA facilitated the availability of 
transactions, including block trades, that are subject to the rules of 
an exchange, but lawfully negotiated and executed away from the 
centralized marketplace.\32\ Block trades are typically subject to 
exchange rules that establish minimum size thresholds, participant 
eligibility requirements, pricing limits, and trade reporting 
parameters.\33\ It is generally believed that market participants trade 
within the constraints established by block trade rules to counter 
potential price and execution risks associated with the execution of 
larger sized orders in a centralized market.
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    \32\ 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 DTEF. 
See 7 U.S.C. 7(b)(3).
    \33\ See 69 FR 39880, 39882 (July 1, 2004).
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    Commission rule 1.38(b) currently requires designated contract 
markets to separately identify and mark all block trades and other off-
centralized market transactions.\34\ In December of 2004, the 
Commission recognized the growing importance and use of off-centralized 
market transactions by adopting final rules that required designated 
contract markets to separately identify, report, and publish for each 
contract the volume generated from exchanges of futures for commodities 
or for derivatives positions.\35\ To more comprehensively recognize the 
growing importance and use of off-centralized market transactions, the 
Commission is now amending 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 for each contract pursuant to rule 16.01, the volume 
generated from block trades.
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    \34\ 17 CFR 1.38(b).
    \35\ 69 FR 76392, 76394 (December 21, 2004).
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    As indicated in the proposed rules, several designated contract 
markets do disseminate public reports that separately account for the 
volume generated from block trades.\36\ The final amendments to rule 
16.01 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 daily pursuant to rule 16.01.\37\ However, final 
rule 16.01 does not separately require designated contract markets to 
submit a contract's block trade volume on a daily basis to the 
Commission. The Commission has assessed the cost 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 and compile such data as necessary to fulfill its 
market and financial surveillance responsibilities.
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    \36\ 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 CME also disseminates daily volume data 
through its Web site that separately accounts for the volume 
generated from block trades.
    \37\ As previously discussed, the final rules do not subject 
DTEFs to the public dissemination requirement of rule 16.01.
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    The Commission believes that designated contract markets must 
generally satisfy their obligation to publicly disseminate market data 
on a daily basis by making such information readily available to the 
news media and the general public through the internet and on web pages 
that are conveniently accessed and easily navigable. Final rule 
16.01(e), through two additional requirements, emphasizes the 
obligation to disseminate market data in a manner that is both useful 
and accessible. First, final rule 16.01(e) specifically requires 
designated contract markets to publish integrated volume data for each 
contract. Second, final rule 16.01(e) requires designated contract 
markets to present market data in a format that readily enables members 
of the news media and the general public to consider the data. The 
publication of a contract's total volume of trading, alongside the 
volume generated from exchanges of futures and block trades, 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. The expressed requirement to present market data in a format 
that readily enables members of the news media and the general public 
to consider the data will make designated contract markets fully aware 
of their present obligation to publicly disseminate market data in a 
format that is readily accessible and user friendly.

VI. Exclusively 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.\38\ HedgeStreet initially offered, and continues 
to offer, small sized contracts to retail traders in a market structure 
that is substantially different from the structure of other active 
designated contract markets.\39\ For example, HedgeStreet offers small 
sized and fully collateralized European style binary options on various 
commodities in a market structure that permits no intermediary to 
handle the orders or funds of traders.\40\
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    \38\ 7 U.S.C. 7 and 8(a); Order of Designation as a Contract 
Market (February 18, 2004).
    \39\ 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).
    \40\ Staff Memorandum at 29. In December of 2005, the Commission 
amended HedgeStreet's Order of Designation to permit the Exchange to 
offer larger sized contracts that could be cleared by members of The 
Clearing Corporation. See HedgeStreet's Amended Order of Designation 
as a Contract Market, paragraph B (December 5, 2005) (on file with 
the Commission), available at https://www.cftc.gov/dea/
deahedgestreet_submissions_comments.htm.
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    As discussed in the proposed rules and in more detail in the 
subsections below, market structures without clearing intermediation, 
in certain respects, do not comport well with the reporting rules. The 
reporting rules were designed to collect information from markets that 
hosted a select group of well-capitalized clearing intermediaries with 
direct access to the exchange.\41\ The Commission is therefore 
establishing an alternative reporting framework for contracts that are 
cleared only by traders to rectify this inconsistency. For ease of 
reference, the term exclusively self-cleared contract is used herein to 
refer to such contracts, and defined by new Commission rule 15.00(f) to 
mean a contract for which no person, other than a reporting market and 
its clearing organization, is permitted to accept any money, 
securities, or property (or extend credit in lieu thereof) to margin, 
guarantee, or secure any trade.
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    \41\ See 17 CFR parts 16 to 18.
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    In its prior notice of rulemaking, the Commission proposed to 
define the term exclusively self-cleared contract as a contract that 
did not involve an intermediary's handling of customer

[[Page 37813]]

funds.\42\ Final Commission rule 15.00(f), however, adopts a narrowly 
worded definition that focuses only on the absence of certain 
intermediaries. More specifically, the definition hinges on the absence 
of clearing intermediaries that accept collateral or extend credit in 
lieu thereof to secure trades. The final definition clarifies that the 
presence of executing intermediaries will have no bearing on whether a 
contract comes within the regulatory definition of an exclusively self-
cleared contract.\43\
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    \42\ See Proposed Commission rule 15.00(f), 70 FR 74246, 74254 
(December 15, 2005).
    \43\ The definition of 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, intermediation, 
principle-to-principle trading, or trading for one's own account (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. Commission Rules 17.00 and 17.01 and Exclusively Self-Cleared 
Contracts

    Pursuant to Commission rule 17.00, FCMs, foreign brokers, and 
clearing members file daily reports with the Commission particularizing 
futures and option positions when the accounts that they carry acquire 
positions that are at or above the contract reporting levels delineated 
in rule 15.03(b).\44\ An FCM, by definition, is a person that accepts 
the property of customers to ``margin, guarantee, or secure'' customer 
trades.\45\ Likewise, a foreign broker is a person located outside the 
United States or its territories ``who carries an account'' for any 
other person.\46\ With respect to transactions in exclusively self-
cleared contracts, there are no intermediaries that secure customer 
trades or carry customer accounts and therefore, there are no FCMs or 
foreign brokers with reporting obligations under part 17 of the 
Commission's regulations. 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.'' \47\ As a 
result, all traders of exclusively self-cleared contracts squarely fit 
within the regulatory definition of a clearing member, and 
consequently, can have routine reporting obligations under part 17 of 
the Commission's regulations.
---------------------------------------------------------------------------

    \44\ See 17 CFR 15.00, 15.03 and 17.00.
    \45\ 7 U.S.C. 1a(20).
    \46\ 17 CFR 15.00.
    \47\ 17 CFR 1.3(h). The Commission is amending the regulatory 
definition of a clearing member in rule 1.3 to explicitly extend the 
definition to members of DTEFs.
---------------------------------------------------------------------------

    As mentioned previously, the reporting rules were not designed to 
impose routine position and identifying reporting obligations on 
traders.\48\ 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.'' \49\ 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.\50\ Since 1981, the design of the reporting rules has been 
to place the burden of reporting large position and identifying data in 
the first instance on market intermediaries and well capitalized 
persons that clear customer or proprietary positions.\51\
---------------------------------------------------------------------------

    \48\ See 17 CFR parts 16 to 18.
    \49\ 46 FR 59960 (December 8, 1981).
    \50\ Id.
    \51\ See Id.
---------------------------------------------------------------------------

    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 
may not have the requisite resources or regulatory experience to comply 
with part 17 of the Commission's regulations. In order to not place any 
daily reporting burden on traders, the Commission is herein adopting 
final rules that place reporting markets in the regulatory position of 
market participants that trade in exclusively self-cleared 
contracts.\52\ As discussed above, all traders in exclusively self-
cleared contracts are effectively clearing members. Pursuant to the 
final reporting rules, reporting markets, a term which includes 
designated contract markets and DTEFs, with respect to exclusively 
self-cleared contracts, are obligated to submit reportable position and 
identifying data on behalf of all traders.\53\
---------------------------------------------------------------------------

    \52\ The Commission, through an order, applied this reporting 
framework to HedgeStreet. See Order of Designation as a Contract 
Market, paragraph 5 (February 18, 2004).
    \53\ The reporting framework 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 
only apply to exclusively self-cleared contracts.
---------------------------------------------------------------------------

    The Commission believes that this is a desirable result since 
reporting markets, by virtue of their regulated status, substantial 
resources, internal controls, and lines of communication with the 
Commission, are better able to submit position and identifying data to 
the Commission on a daily basis.\54\ Therefore, under final Commission 
rules 17.00(i) and 17.01(h), reporting markets listing exclusively 
self-cleared contracts must, unless determined otherwise by the 
Commission, provide the data required by Commission rules 17.00(a) 
through (h) and 17.01(a) through (g), to the Commission on behalf of 
all market participants trading in exclusively self-cleared contracts. 
Individual traders remain subject to the special call provisions of 
part 18 of the Commission's regulations.
---------------------------------------------------------------------------

    \54\ 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.
---------------------------------------------------------------------------

C. Clearing Member Reports

    Designated contract markets, on a daily basis, report each clearing 
member's open long and short positions, purchases and sales, exchanges 
of futures, and futures delivery notices.\55\ 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.\56\ 
As previously discussed, all traders holding positions in exclusively 
self-cleared contracts on reporting markets are clearing members. In 
the absence of regulatory action, reporting markets listing such 
contracts would be required by Commission rule 16.00(a) to submit 
position data for every single trader on a daily basis regardless of 
the number of contracts that individual traders hold.
---------------------------------------------------------------------------

    \55\ 17 CFR 16.00(a).
    \56\ Id.
---------------------------------------------------------------------------

    The Commission generally believes that the submission of voluminous 
and disaggregated clearing member reports for transactions in 
exclusively self-cleared contracts can place an undue burden on 
reporting markets without substantially furthering the Commission's 
market or financial surveillance efforts. The Commission typically uses 
clearing member reports to spot account aggregation issues and audit 
the filings of reporting firms. The submission of clearing member 
reports for every trader that takes a position in an exclusively self-
cleared contract will not typically facilitate the Commission's 
aggregation of large positions. For exclusively self-cleared contracts, 
issuing appropriately worded special calls directly to traders under 
part 18 of the Commission's regulations will better facilitate the 
Commission's analysis of potential aggregation issues.

[[Page 37814]]

Furthermore, since clearing member and large trader reports for 
exclusively self-cleared contracts (in the absence of regulatory 
action) would be submitted by the same person, clearing member reports 
for exclusively self-cleared contracts would not typically facilitate 
the Commission's review of large trader reports. Based upon the 
foregoing, final rule 16.00 does not by default require clearing member 
reports for contracts that are exclusively self-cleared.

VII. Conforming, Clarifying and Technical Amendments

    The Commission is amending several other provisions to reconcile 
them with the substantive rules adopted herein, to update and better 
organize the layout of the reporting rules, and to correct certain non-
substantive errors. These amendments are categorized below by their 
respective parts.

A. Part 1 of the Commission's Regulations

    Prior Commission rule 1.3(c) defined clearing member in terms of a 
member of a contract market. Prior Commission rule 1.3(d) defined a 
clearing organization in terms of an entity associated with a contract 
market. In conformity with the intent of this notice of final 
rulemaking, the Commission is amending 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 further amending rule 15.00, the definitional 
section for parts 15 through 21, to present the definitions contained 
in that section alphabetically. The Commission is also re-ordering the 
contract reporting levels and categories delineated in rule 15.03(b), 
for certain reporting levels and categories, in alphabetical order. The 
Commission is amending final paragraph (a) of rule 15.05 to clarify 
that the provisions of that rule apply to all regulated transactions 
executed on or subject to the rules of DTEFs.\57\ 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 is amended by final rule 15.00(g) to explicitly extend to 
transactions on DTEFs.
---------------------------------------------------------------------------

    \57\ See note 22, supra.
---------------------------------------------------------------------------

    Commission rule 15.01 provides a list of persons that may be 
required to report pursuant to parts 15 through 21 of the Commission's 
regulations. Final 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 final notice of rulemaking, reporting markets may be 
required to provide reports under part 17 if they list exclusively 
self-cleared contracts. Final 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. Final paragraph (b) of 
rule 15.01 deletes the reference to part 20 since that part remains 
reserved and contains no operative provisions.

C. Part 16 of the Commission's Regulations

    The prior heading to part 16 only referenced contract markets. The 
final heading to part 16 specifically refers to reporting markets. 
Prior rule 16.07(b) incorrectly referenced 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 final rule 16.07(b), is to Commission rule 
16.01(d)(1). Paragraph (a) of prior rule 16.01 referred to the total 
quantity of futures exchanged for commodities or for derivatives 
positions. Since exchanges of futures generate trading volume, final 
rule 16.01(a)(5) now refers to the total volume of futures exchanged 
for commodities or for derivatives positions.

D. Part 17 of the Commission's Regulations

    The Commission is conforming the capitalization format of rule 
17.00(b)(2) and 17.00(g)(2)(iv) with the format used in the other 
paragraphs of rule 17.00. The Commission is capitalizing the word form 
when used to refer to Form 102 throughout the provisions of rules 
17.01, 17.02, and 17.03. Final rule 17.01(f) clarifies that Form 102 is 
alternately referred to as a report. Final rules 17.01(a), 17.01(b), 
and 17.01(d) provide the appropriate italicization format for each 
rule's introductory phrase. The final heading to part 17 and 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. Final rule 17.01(a) also replaces the second instance 
of the term identifier with the term designator. Lastly, the Commission 
is amending 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 alphabetization of definitions, the Commission 
is amending paragraph (a) of rule 19.00 to correctly refer to the re-
ordered sections defining the term reportable position in rule 15.00. A 
final amendment to rule 19.00(b) correctly refers to rule 19.01 instead 
of rule 19.10, which is inoperative and reserved. Lastly, final 
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 final amendment to Commission 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. An amendment to 
paragraph (d) of rule 21.03 replaces the phrase ``by telex or a 
similarly expeditious means of communication'' with the phrase ``by 
email or a similarly expeditious means of communication.''

G. Part 37

    The limited grouping of reserved rules in rule 37.2 is amended to 
indicate that the final rules define DTEFs directly into parts 15 
through 21 of the Commission's regulations.

VIII. 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. As discussed in the notice of 
proposed rulemaking, the new and amended reporting rules tend to reduce 
the aggregate burden associated with the reporting requirements of 
parts 15 through 21 of the Commissions regulations.\58\ The reporting 
level of 750 contracts for 3-Year T-Notes, for example, is 
significantly higher than the default reporting level that would be

[[Page 37815]]

applicable in the absence of regulatory action. 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 commodity derivatives markets. The information 
collected develops the Commission's understanding of market power, and 
gives the Commission the opportunity to prevent the occurrence, and 
contain the effects, of financial disturbances. Based upon the 
Commission'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 reporting level of 750 contracts will allow 
it to adequately protect market participants and the integrity of 
regulated markets, while limiting the regulatory burden of reporting.
---------------------------------------------------------------------------

    \58\ 70 FR 74246, 74251.
---------------------------------------------------------------------------

    With respect to transactions executed on or subject to the rules of 
DTEFs, the new and amended reporting rules merely clarify the reporting 
obligations of registered entities, intermediaries, and traders and are 
not designed to alter their pre-existing reporting obligations. The 
prior language of Commission rule 37.2 reserved the applicability of 
parts 15 to 21 to DTEFs, but did 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 
new and amended reporting rules define DTEFs directly into rules 15.00 
to 15.04 and parts 16 through 21 of the Commission's regulations. The 
Commission believes that the new and amended reporting rules will serve 
the public's interest by enhancing regulatory clarity.
    The final amendments to Commission rule 16.01 relating to block 
trades and contract volume recognize the growing importance and use of 
off-centralized market transactions. The new and amended reporting 
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. In order to emphasize the obligation to disseminate 
market data in a manner that is both useful and accessible, the new and 
amended reporting rules 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 the data. The Commission believes that the format 
requirement will 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, along with the public dissemination of block trade volume data, 
will benefit market participants and the general public by facilitating 
their ability to effectively analyze the key determinants of prices and 
market depth.
    The new and amended reporting rules also establish a distinct 
reporting framework for exclusively self-cleared contracts. The new and 
amended reporting rules protect market participants and strengthen the 
financial integrity of the regulated markets by shifting the reporting 
responsibilities of traders onto reporting markets that are able to 
comply with routine reporting obligations. The reporting rules, prior 
to their amendment by this notice of rulemaking, were designed to 
collect information from heavily intermediated markets that permitted 
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, do not in general have the 
resources or regulatory experience to comply with routine large trader 
reporting obligations. In the absence of Commission action, reporting 
obligations for exclusively self-cleared contracts would be placed on 
individual traders that do not have the ability to comply with 
technical requirements. The Commission's new and amended reporting 
rules address this deficiency and ensure that the Commission will 
receive the trading data it needs to protect market participants, the 
public, and the integrity of registered entities.
    The Commission's notice of proposed rulemaking analyzed the 
aforementioned costs and benefits and solicited comment thereon.\59\ No 
relevant comments were received with respect to the Commission's 
analysis. After considering these factors, the Commission has 
determined to amend parts 15, 16, 17, 18, 19, 21, and 37 as set forth 
below.
---------------------------------------------------------------------------

    \59\ Id.
---------------------------------------------------------------------------

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.\60\ The requirements related to 
the new and amended reporting rules fall mainly on exchanges and FCMs. 
Similarly, foreign brokers and traders report only if holding large 
positions. In addition, the new and amended reporting rules tend to 
relieve regulatory burdens. Accordingly, the Chairman, on behalf of the 
Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the 
actions adopted herein will not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \60\ 47 FR 18618 (April 30, 1982).
---------------------------------------------------------------------------

C. The Paperwork Reduction Act

    When publicizing notices of rulemaking, the Paperwork Reduction Act 
(PRA) \61\ imposes certain requirements on Federal agencies, including 
the Commission, in connection with conducting or sponsoring any 
collection of information as defined by the PRA. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid control 
number. The revision of collections of information contained in this 
final notice of rulemaking have been reviewed and approved by the 
Office of Management and Budget pursuant to the PRA, under control 
numbers 3038-0009 and 3038-0012. In the notice of proposed rulemaking, 
the Commission estimated the paperwork burden that would be imposed by 
these rules and solicited comments on the estimates. The Commission 
received no relevant comments.\62\ The Commission continually invites 
comment on the accuracy of burden estimates and suggestions on how to 
further reduce these burdens. Comments should be directed to Gary 
Martinaitis, Associate Deputy Director for Market Information, Market 
Surveillance Section, Division of Market Oversight, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581 (telephone 202-418-5209, e-mail 
gmartinaitis@cftc.gov).
---------------------------------------------------------------------------

    \61\ Public Law 104-13 (May 13, 1995).
    \62\ 70 FR 74246, 74253.
---------------------------------------------------------------------------

List of Subjects

17 CFR Part 1

    Brokers, Commodities futures, Consumer protection, Reporting and 
recordkeeping requirements.

[[Page 37816]]

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.

17 CFR Part 37

    Commodity futures, Reporting and recordkeeping requirements.


0
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 amends Chapter I of Title 
17 of the Code of Federal Regulations as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

0
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 Public Law 106-554, 
114 Stat. 2763 (2000).

0
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

0
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).


0
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) Customer means ``customer'' (as defined in Sec.  1.3(k)) and 
``option customer'' (as defined in Sec.  1.3(jj)).
    (d) Customer trading program means any system of trading offered, 
sponsored, promoted, managed or in any other way supported by, or 
affiliated with, a futures commission merchant, an introducing broker, 
a commodity trading advisor, a commodity pool operator, or other 
trader, or any of its officers, partners or employees, and which by 
agreement, recommendations, advice or otherwise, directly or indirectly 
controls trading done and positions held by any other person. The term 
includes, but is not limited to, arrangements where a program 
participant enters into an expressed or implied agreement not obtained 
from other customers and makes a minimum deposit in excess of that 
required of other customers for the purpose of receiving specific 
advice or recommendations which are not made available to other 
customers. The term includes any program which is of the character of, 
or is commonly known to the trade as, a managed account, guided 
account, discretionary account, commodity pool or partnership account.
    (e) Discretionary account means a commodity futures or commodity 
option trading account for which buying or selling orders can be placed 
or originated, or for which transactions can be effected, under a 
general authorization and without the specific consent of the customer, 
whether the general authorization for such orders or transactions is 
pursuant to a written agreement, power of attorney, or otherwise.
    (f) Exclusively self-cleared contract means a contract for which no 
persons, other than a reporting market and its clearing organization, 
are permitted to accept any money, securities, or property (or extend 
credit in lieu thereof) to margin, guarantee, or secure any trade.
    (g) Foreign broker means any person located outside the United 
States or its territories that carries an account in commodity futures 
or commodity options on any designated contract market or registered 
derivatives transaction execution facility for any other person.
    (h) Foreign trader means any trader (as defined in paragraph (o) of 
this section) who resides or is domiciled outside of the United States, 
its territories or possessions.
    (i) Guided account program means any customer trading program which 
limits trading to the purchase or sale of a particular contract for 
future delivery of a commodity or a particular commodity option that is 
advised or recommended to the participant in the pro