Maintenance of Books, Records and Reports by Traders, 34413-34416 [E7-12045]

Download as PDF 34413 Proposed Rules Federal Register Vol. 72, No. 120 Friday, June 22, 2007 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 18 RIN 3038–AC22 Maintenance of Books, Records and Reports by Traders Commodity Futures Trading Commission. ACTION: Proposed rules. rfrederick on PROD1PC67 with PROPOSALS AGENCY: SUMMARY: Commission Regulation 18.05 requires that a person holding or controlling a futures or option position in a commodity above a certain level (reportable position) on a designated contract market or registered derivatives transaction execution facility (reporting markets) must retain books and records and make available to the Commission upon request any pertinent information with respect to other positions, transactions or activities in the commodity in which the trader has a reportable position. The Commission is proposing to amend Regulation 18.05 in two respects: To make it explicit that persons holding or controlling reportable positions on a reporting market must retain books and records and make available to the Commission upon request any pertinent information with respect to all other positions and transactions in the commodity in which the trader has a reportable position, including positions held or controlled or transactions executed over-thecounter and/or pursuant to Sections 2(d), 2(g) or 2(h)(1)–(2) of the Commodity Exchange Act (Act) or Part 35 of the Commission’s regulations, on exempt commercial markets operating pursuant to Sections 2(h)(3)–(5) of the Act, on exempt boards of trade operating pursuant to Section 5d of the Act, and on foreign boards of trade (hereinafter referred to collectively as non-reporting transactions); and to make the regulation clearer and more complete with respect to hedging activity. The purpose of the amendments is to enhance the VerDate Aug<31>2005 14:59 Jun 21, 2007 Jkt 211001 Commission’s ability to deter and prevent price manipulation or any other disruptions to the integrity of the regulated futures markets, to ensure the avoidance of systemic risk, and to clarify the meaning of the regulation. DATES: Comments must be received by July 23, 2007. ADDRESSES: Comments should be sent to the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, attention: Office of the Secretariat. Comments may be sent by facsimile to 202–418–5521, or by e-mail to secretary@cftc.gov. Reference should be made to ‘‘Regulation 18.05.’’ Comments may also be submitted to the Federal eRulemaking Portal: http:// www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Duane C. Andresen, Special Counsel, Division of Market Oversight, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. Telephone 202– 418–5492; e-mail dandresen@cftc.gov. This document is also available at www.regulations.gov. SUPPLEMENTARY INFORMATION: I. Purpose of Regulation 18.05 and Statutory Basis Section 3(b) of the Commodity Exchange Act (Act) 1 declares that the purpose of the Act is to, among other things, deter and prevent price manipulation or any other disruptions to market integrity and to ensure the financial integrity of all transactions subject to the Act and the avoidance of systemic risk.2 Section 4i of the Act 3 17 U.S.C. 5(b) (2006). 3(b) of the Act provides in full that it is the purpose of this chapter to serve the public interests described in subsection (a) of this section through a system of effective self-regulation of trading facilities, clearing systems, market participants and market professionals under the oversight of the Commission. To foster these public interests, it is further the purpose of this chapter to deter and prevent price manipulation or any other disruptions to market integrity; to ensure the financial integrity of all transactions subject to this chapter and the avoidance of systemic risk; to protect all market participants from fraudulent or other abusive sales practices and misuses of customer assets; and to promote responsible innovation and fair competition among boards of trade, other markets and market participants. 3 7 U.S.C. 6i (2006). Section 4i of the Act provides that it shall be unlawful for any person to make any contract for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market or derivatives transaction execution facility if such person shall directly or indirectly 2 Section PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 requires persons holding futures or option positions at designated contract markets (DCM) or registered derivatives transaction execution facilities (DTEF) at or above certain levels to keep books and records of all: (1) Transactions and positions in the exchange-traded commodity, (2) transactions and positions in any such commodity traded on or subject to the rules of any other board of trade, and (3) cash or spot transactions in, and inventories and purchase and sale commitments of such commodity. Such books and records must be open at all times for inspection by any representative of the Commission or the Department of Justice. Section 8a(5) of the Act 4 provides explicit authority to the Commission to make and promulgate such rules and regulations as, in the judgment of the Commission, are reasonably necessary to effectuate any of the provisions or to accomplish any of the purposes of the Act. In order to accomplish the purposes of Sections 3(b) and 4i set forth above, the Commission has promulgated regulations creating market and large trader reporting make such contracts with respect to any commodity or any future of such commodity during any one day in an amount equal to or in excess of such amount as shall be fixed from time to time by the Commission, and if such person shall directly or indirectly have or obtain a long or short position in any commodity or any future of such commodity equal to or in excess of such amount as shall be fixed from time to time by the Commission, unless such person files or causes to be filed with the properly designated officer of the Commission such reports regarding any transactions or positions described in clauses (1) and (2) hereof as the Commission may by rule or regulation require and unless, in accordance with rules and regulations of the Commission, such person shall keep books and records of all such transactions and positions and transactions and positions in any such commodity traded on or subject to the rules of any other board of trade, and of cash or spot transactions in, and inventories and purchase and sale commitments of such commodity. Such books and records shall show complete details concerning all such transactions, positions, inventories, and commitments, including the names and addresses of all persons having any interest therein, and shall be open at all times to inspection by any representative of the Commission or the Department of Justice. For the purposes of this section, the futures and cash or spot transactions and positions of any person shall include such transactions and positions of any persons directly or indirectly controlled by such person. 4 7 U.S.C. 12a(5) (2006). E:\FR\FM\22JNP1.SGM 22JNP1 34414 Federal Register / Vol. 72, No. 120 / Friday, June 22, 2007 / Proposed Rules rfrederick on PROD1PC67 with PROPOSALS requirements.5 Included among these regulations is a requirement that persons holding futures or option positions at DCMs or DTEFs (reporting markets) 6 at or above reportable levels (reportable positions) 7 are identified to the Commission under the large trader reporting system (LTRS). The LTRS, which requires that clearing members, futures commission merchants (FCM) and foreign brokers file daily reports with the Commission, enables the Commission to assess an individual trader’s activities and potential market power and to enforce the Commission or DCM-set limits on speculative positions.8 Once a trader holds a reportable position, the trader is subject to Commission Regulation 18.05,9 which requires that the trader keep books and records showing all details concerning: (1) All positions and transactions for future delivery in the commodity on all reporting markets; (2) all positions and transactions in the commodity option; (3) all positions and transactions in the cash commodity, its products and byproducts; and (4) commercial activities that the trader hedges in the commodity underlying the futures contract in which the trader is reportable.10 A reportable trader is required to furnish to the Commission, upon request, any pertinent information concerning these positions, transactions or activities.11 Traders who do not hold reportable positions do not have obligations under Regulation 18.05. 5 The Commission’s market and large trader reporting rules are contained in Parts 15 through 21 of the Commission’s regulations. 6 Pursuant to Commission Regulation 15.00(m), a reporting market means a designated contract market and, unless determined otherwise by the Commission with respect to the facility or a specific contract listed by the facility, a registered derivatives transaction execution facility. 7 Pursuant to Commission Regulation 15.00(l), reportable position means: for reports specified in parts 17, 18 and § 19.00(a)(2) and (a)(3) of this chapter any open contract position that at the close of the market on any business day equals or exceeds the quantity specified in § 15.03 of this part in either: any one future of any commodity on any one reporting market, excluding future contracts against which notices of delivery have been stopped by a trader or issued by the clearing organization of a reporting market; or long or short put or call options that exercise into the same future of any commodity, or long or short put or call options for options on physicals that have identical expirations and exercise into the same physical, on any one reporting market. For the purposes of reports specified in § 19.00(a)(1) of this chapter, any combined futures and futures-equivalent option open contract position as defined in part 150 of this chapter in any one month or in all months combined, either net long or net short in any commodity on any one reporting market, excluding futures positions against which notices of delivery have been stopped by a trader or issued by the clearing organization of a reporting market, which at the close of the market on the last business day of the week exceeds the net quantity limit in spot, single or in all-months fixed in § 150.2 of this chapter for the particular commodity and reporting market. 8 The Commission also uses large-trader reporting information as a means to ensure the avoidance of systemic risk in that such information enables Commission staff to determine which FCMs carrying accounts might have exposure in particular markets. 9 Regulation 18.05 states in full that every trader who holds or controls a reportable futures or option position shall keep books and records showing all details concerning all positions and transactions for future delivery in the commodity on all reporting markets, all positions and transactions in the commodity option, and all positions and transactions in the cash commodity, its products and byproducts and, in addition, commercial activities that the trader hedges in the commodity underlying the futures contract in which the trader is reportable, and shall upon request furnish to the Commission any pertinent information concerning such positions, transactions or activities. II. Proposed Amendments VerDate Aug<31>2005 14:59 Jun 21, 2007 Jkt 211001 A. Introduction In order to enhance its ability to detect and prevent manipulation of regulated markets and products and to ensure the avoidance of systemic risk, as well as to clarify the meaning of the regulation and bring it up to date, the Commission proposes, for the reasons discussed below, to amend Regulation 18.05 in the following respects: 1. To make it explicit that persons holding or controlling reportable positions on a reporting market must retain books and records and make available to the Commission upon request pertinent information with respect to all non-reporting transactions, i.e., all positions and transactions in the commodity in which the trader is reportable, including transactions executed over-the-counter and/or pursuant to Sections 2(d), 2(g) or 2(h)(1)–(2) of the Act or Part 35 of the Commission’s regulations, on exempt commercial markets operating pursuant to Sections 2(h)(3)–(5) of the Act (ECM), 10 In describing the requirements of Regulation 18.05 in 1981, the Commission stated that the regulation requires reportable traders to maintain books and records of futures positions and transactions in the commodity in which they are reportable and all positions and transactions in the cash commodity and its products and byproducts.* * * [T]he Commission wishes to underscore its view that the book and recordkeeping requirements and inspection provision contained therein are essential to accomplish the purposes of the Act and within the Commission’s authority to adopt pursuant to section[s] 4i and 8a(5) of the Act. These requirements have always applied to the traders who hold or control a reportable position, and have not been restricted in any way. ‘‘Reporting Requirements for Contract Markets, Futures Commission Merchants, Members of Exchanges and Large Traders,’’ 46 FR 59,960, 59,963 (December 8, 1981) (footnote omitted). 11 The Commission currently requests such information an average of three times per year. PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 on exempt boards of trade operating pursuant to Section 5d of the Act (EBOT), and on foreign boards of trade (FBOT); and 2. to make the regulation clearer and more complete with respect to hedging activity. B. Amendments Related to Recordkeeping and Reporting There is a close relationship among transactions conducted on reporting markets and non-reporting transactions. In view of this, it is sometimes necessary to determine all transactions and positions with respect to the commodity in which the trader is reportable in order to more effectively detect and prevent manipulation of regulated markets and products and to ensure the avoidance of systemic risk.12 Just as it is critical that the LTRS permits staff to aggregate related accounts to assess an individual trader’s activities and potential power in a market, so is it critical that staff be able to assess the reportable trader’s overall position in the same commodity in nonreporting transactions in order to see the complete picture of the reportable trader’s positions in the commodity. This is particularly important in light of the growing volume of trading on, and participation in, the non-reporting markets, the close relationship among the various products and markets, the increasing globalization of the futures markets, and the growth of trading on electronic exchanges and on foreign boards of trade.13 Regulation 18.05 explicitly requires that a trader that is reportable because of futures or option positions in a futures or option contract traded on a DCM or DTEF keep books and records and provide to the Commission, upon request, pertinent information with respect to positions and transactions in the underlying commodity. For example, a reportable trader in the Natural Gas futures contract on the New York Mercantile Exchange, Inc., (NYMEX) must keep books and records and provide to the Commission, upon request, pertinent information with respect to positions and transactions in 12 Sections 6(c), 6c, 6(d) and 9(a)(2) of the Act authorize the Commission to bring enforcement actions against any person who is manipulating or attempting to manipulate or has manipulated or attempted to manipulate the market price of any commodity, in interstate commerce, or for future delivery on or subject to the rules of any registered entity. 13 For instance, since 1999, Commission staff, through foreign terminal no-action letters, has allowed 18 FBOTs to make their trading systems available by direct access to members and other participants in the U.S. without requiring the FBOTs to register as DCMs or DTEFs. E:\FR\FM\22JNP1.SGM 22JNP1 Federal Register / Vol. 72, No. 120 / Friday, June 22, 2007 / Proposed Rules rfrederick on PROD1PC67 with PROPOSALS Natural Gas on all DCMs and DTEFs, in the commodity option, in the cash commodity, its products and byproducts, and commercial activities that the trader hedges in the commodity underlying the Natural Gas futures contract. Information with respect to positions and transactions in the virtually identical Natural Gas contracts on the IntercontinentalExchange (ICE), an ECM, also is important to the Commission’s ability to conduct effective market surveillance of the NYMEX Natural Gas contracts and to determine the degree of a trader’s exposure in both the NYMEX and ICE natural gas markets. Similarly, if a trader is reportable because of futures or option positions in the Light Sweet Crude Oil contract on the NYMEX, the trader’s books and records with respect to non-reporting positions and transactions in the West Texas Intermediate (WTI) Light Sweet Crude Oil futures or option contracts on ICE Futures,14 a foreign board of trade,15 are relevant to effective surveillance and supervision of the reporting NYMEX market. The Act provides ample authority to require keeping books and records and providing pertinent information with respect to non-reporting transactions. Section 4i explicitly encompasses nonreporting transactions on ‘‘any other board of trade’’ (such as FBOTs, ECMs operating pursuant to Sections 2(h)(3)– (5) of the Act, and EBOTs operating pursuant to Section 5d of the Act) and in the form of cash or spot transactions, inventories, and purchase and sale commitments. Further, Section 3(b) of the Act declares that the purpose of the Act is to, among other things, deter and prevent price manipulation or any other disruptions to market integrity and to ensure the avoidance of systemic risk. Section 8a(5) of the Act authorizes the Commission to promulgate such regulations as, in its judgment, are reasonably necessary to accomplish any of the purposes of the Act. Making it explicit that Regulation 18.05 requires the reportable trader to keep books and records showing all details concerning non-reporting transactions in the reportable commodity is reasonably necessary to accomplish the purposes of Section 3(b) of the Act. 14 ICE Futures is a UK registered investment exchange which permits direct access to its trading system from the U.S. pursuant to a foreign terminal no-action letter issued by Commission staff. CFTC Staff Letter No. 99–69 (November 12, 1999), as amended, originally issued to the International Petroleum Exchange (IPE). 15 Section 1a of the Act defines the term board of trade as any organized exchange or other trading facility without regard to location. VerDate Aug<31>2005 14:59 Jun 21, 2007 Jkt 211001 Although non-reporting transactions themselves generally are not subject to most regulatory provisions of the Act, the futures or option transactions executed and maintained on a DCM or DTEF that result in a reportable position are subject to such provisions and, pursuant to Section 3(a) of the Act, are affected with a national public interest. It is the purpose of the Act pursuant to Section 3(b) that the Commission prevent price manipulation of all commodities traded on these regulated markets. To accomplish this purpose, it is necessary that the Commission have the ability to review all activities in commodities traded on these markets, regardless of where the transactions are executed. By taking a position on a regulated market, a trader agrees to abide by the rules of the market and the Commission, including prohibitions against manipulation. To enhance its ability to detect and deter manipulation and other threats to market integrity, the Commission requires persons holding reportable positions to maintain books and records of transactions that could impact the regulated market and related cash market, including non-reporting transactions.16 Commission staff has interpreted Regulation 18.05 to include position and transaction data for non-reporting transactions and has received such information in response to requests made pursuant to the Regulation. Consistent with the Act and Commission practice, the Commission is proposing to amend Regulation 18.05 to make explicit that a trader with a reportable position must keep books and records showing all details concerning all non-reporting transactions in the same commodity and provide pertinent information to the Commission upon request. C. Amendments Related to Clarity and Completeness The Commission notes two issues that arise in connection with the Regulation 18.05 requirement that traders keep books and records showing all details concerning ‘‘commercial activities that the trader hedges in the commodity underlying the futures contract in which the trader is reportable.’’ First, the phrase has led to some confusion. Originally inserted into the paragraph as ‘‘commercial activities that the trader hedges in the futures commodity in which the trader is reportable,’’ its purpose was to require that, ‘‘in 16 As previously stated, traders who do not hold reportable positions on reporting markets do not have obligations under Regulation 18.05’s recordkeeping and reporting requirements. PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 34415 addition to books and records of positions or transactions in a cash commodity, a reportable trader must also maintain records of commercial activities which the trader hedges.’’ 17 Second, reportable positions can be option positions, as well as futures positions, but it is not clear that the current language also addresses commercial activities that the trader hedges in the commodity underlying any option contract in which the trader is reportable. The Commission proposes to amend the regulation to revert to the original approach and include hedges in the option contract in which the trader is reportable. By modifying the phrase to read ‘‘commercial activities that the trader hedges in the futures or option contract in which the trader is reportable,’’ Regulation 18.05 would capture information with respect to hedges in other than the cash commodity, its products or byproducts (i.e., a trader with a reportable position in gold futures that is a hedge of a cash position in silver would be required to comply with the Regulation 18.05 requirements with respect to the silver position). III. Related Matters A. Cost Benefit Analysis Section 15(a) of the Act requires the Commission to consider the costs and benefits of its action before issuing a new regulation or order under the Act. By its terms, Section 15(a) does not require the Commission to quantify the costs and benefits of a new regulation or to determine whether the benefits of the proposed regulation outweigh its costs. Rather, Section 15(a) simply requires the Commission to ‘‘consider the costs and benefits’’ of its action. Section 15(a) further specifies that the costs and benefits of the proposed rule or order shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. Accordingly, the Commission may, in its discretion, give greater weight to any one of the five enumerated areas of concern and may, in its discretion, determine that, notwithstanding its costs, a particular rule or order is necessary or appropriate to protect the public interest or to effectuate any of the 17 46 E:\FR\FM\22JNP1.SGM FR 42463, 42466 (August 21, 1981). 22JNP1 rfrederick on PROD1PC67 with PROPOSALS 34416 Federal Register / Vol. 72, No. 120 / Friday, June 22, 2007 / Proposed Rules provisions or to accomplish any of the purposes of the Act. The proposed amendments would make it explicit that persons holding or controlling reportable positions on a reporting market must also retain books and records and make available to the Commission upon request any pertinent information with respect to nonreporting transactions in the commodity in which the trader is reportable, and make the regulation clearer and more complete with respect to hedging activity. These amendments would enable the Commission to better carry out its responsibilities under Section 3(b) of the Act by enhancing the Commission’s ability to deter and prevent price manipulation or any other disruptions to the integrity of the regulated futures markets and help to ensure the avoidance of systemic risk. The Commission believes that the proposed amendments would address the Section 15(a) enumerated areas of market and public concern in that they would further protect market participants and the public, enhance the financial integrity of futures markets, and promote sound risk management practices. The Commission believes that the costs arising from the proposed amendments would be of little or no consequence for three reasons: (1) The amendments to Regulation 18.05 make explicit existing Commission practice; (2) it is likely that the traders that would be affected by the proposed amendments’ requirements (traders who have reportable positions) already keep books and records showing all details concerning their non-reporting transactions as demonstrated by the fact that Commission staff has received such information in response to requests made pursuant to the Regulation; and (3) the Commission anticipates that special calls for pertinent information relating to non-reporting transactions would continue to be made on an infrequent basis. After considering these factors, the Commission has determined to propose the revisions to Regulation 18.05 as discussed above and set forth below. The Commission specifically invites public comment on its application of the criteria contained in Section 15(a) of the Act. Commenters are also invited to submit any quantifiable data that they may have concerning the costs and benefits of the proposed rule with their comment letters. B. The Regulatory Flexibility Act The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., requires federal agencies, in proposing rules, to consider the impact of those rules on small VerDate Aug<31>2005 14:59 Jun 21, 2007 Jkt 211001 businesses. The Commission has previously determined that exchanges, futures commission merchants and large traders are not ‘‘small entities’’ for the purposes of the RFA.18 The requirements related to the proposed amendments fall on large traders. Accordingly, the Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the actions proposed to be taken herein will not have a significant economic impact on a substantial number of small entities. Room 10202, NEOB, Washington, DC 20503, 202.395.7340. Copies of the information collection submission to OMB are available from the CFTC Clearance Officer, 1155 21st Street, NW., Washington, DC 20581, 202.418.5160. Copies of the OMBapproved information collection package associated with the rulemaking may be obtained from the Desk Officer, Commodity Futures Trading Commission, Office of Management and Budget, Room 10202, NEOB, Washington, DC 20503, 202.395.7340. C. The Paperwork Reduction Act When publishing proposed rules, the Paperwork Reduction Act (PRA) 19 imposes certain requirements on Federal agencies, including the Commission, in connection with conducting or sponsoring any collection of information as defined by the PRA. In compliance with the PRA, the Commission through these proposed rule amendments solicits comments to: (1) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including the validity of the methodology and assumptions used; (2) evaluate the accuracy of the agency’s estimate of the burden of the proposed collection of information including the validity of the methodology and assumptions used; (3) enhance the quality, utility, and clarity of the information to be collected; and (4) minimize the burden of the collection on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology. The Commission has submitted the proposed rule amendments and its associated information collection requirements to the Office of Management and Budget (OMB). The proposed rule amendments are a part of an approved collection of information. The estimated burden associated with and reporting obligations for traders with reportable positions (OMB Control No. 3038–0009) is as follows: Average Burden Hour Per Response: 1.5. Number of Respondents: 6. Frequency of Response: Upon special call. Persons wishing to comment on the information which would be required by the proposed rule amendments should contact the Desk Officer, CFTC, Office of Management and Budget, List of Subjects in 17 CFR Part 18 18 47 FR 18618, 18618–21 (April 30, 1982). Law 104–13 (May 13, 1995). 19 Public PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 Commodity futures, Reporting and recordkeeping requirements. In consideration of the foregoing, and pursuant to the authority contained in the Act, and, in particular, sections 3, 4, 4a, 4c, 4g, 4i, 5, 5a and 8a of the Act, the Commission hereby proposes to amend Chapter I of Title 17 of the Code of Federal Regulations as follows: PART 18—REPORTS BY TRADERS 1. The authority citation for part 18 is revised to read as follows: Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 12a and 19; 5 U.S.C. 552 and 552(b), unless otherwise noted. 2. Revise § 18.05 to read as follows: § 18.05 Maintenance of books and records. Every trader who holds or controls a reportable futures or option position shall keep books and records showing all details concerning all positions and transactions in the commodity on all reporting markets, over the counter and/ or pursuant to Sections 2(d), 2(g) or 2(h)(1)–(2) of the Act or Part 35 of this chapter, on exempt commercial markets operating pursuant to Sections 2(h)(3)– (5) of the Act, on exempt boards of trade operating pursuant to Section 5d of the Act, and on foreign boards of trade. Every such trader shall also keep books and records showing all details concerning all positions and transactions in the cash commodity, its products and byproducts, and all commercial activities that the trader hedges in the futures or option contract in which the trader is reportable. The trader shall upon request furnish to the Commission any pertinent information concerning such positions, transactions or activities in a form acceptable to the Commission. Issued in Washington, DC, this 18th day of June, 2007, by the Commission. Eileen A. Donovan, Acting Secretary of the Commission. [FR Doc. E7–12045 Filed 6–21–07; 8:45 am] BILLING CODE 6351–01–P E:\FR\FM\22JNP1.SGM 22JNP1

Agencies

[Federal Register Volume 72, Number 120 (Friday, June 22, 2007)]
[Proposed Rules]
[Pages 34413-34416]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-12045]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 72, No. 120 / Friday, June 22, 2007 / 
Proposed Rules

[[Page 34413]]



COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 18

RIN 3038-AC22


Maintenance of Books, Records and Reports by Traders

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: Commission Regulation 18.05 requires that a person holding or 
controlling a futures or option position in a commodity above a certain 
level (reportable position) on a designated contract market or 
registered derivatives transaction execution facility (reporting 
markets) must retain books and records and make available to the 
Commission upon request any pertinent information with respect to other 
positions, transactions or activities in the commodity in which the 
trader has a reportable position. The Commission is proposing to amend 
Regulation 18.05 in two respects: To make it explicit that persons 
holding or controlling reportable positions on a reporting market must 
retain books and records and make available to the Commission upon 
request any pertinent information with respect to all other positions 
and transactions in the commodity in which the trader has a reportable 
position, including positions held or controlled or transactions 
executed over-the-counter and/or pursuant to Sections 2(d), 2(g) or 
2(h)(1)-(2) of the Commodity Exchange Act (Act) or Part 35 of the 
Commission's regulations, on exempt commercial markets operating 
pursuant to Sections 2(h)(3)-(5) of the Act, on exempt boards of trade 
operating pursuant to Section 5d of the Act, and on foreign boards of 
trade (hereinafter referred to collectively as non-reporting 
transactions); and to make the regulation clearer and more complete 
with respect to hedging activity. The purpose of the amendments is to 
enhance the Commission's ability to deter and prevent price 
manipulation or any other disruptions to the integrity of the regulated 
futures markets, to ensure the avoidance of systemic risk, and to 
clarify the meaning of the regulation.

DATES: Comments must be received by July 23, 2007.

ADDRESSES: Comments should be sent to the Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, attention: Office of the Secretariat. Comments may be sent by 
facsimile to 202-418-5521, or by e-mail to secretary@cftc.gov. 
Reference should be made to ``Regulation 18.05.'' Comments may also be 
submitted to the Federal eRulemaking Portal: http://
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Duane C. Andresen, Special Counsel, 
Division of Market Oversight, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581. Telephone 202-418-5492; e-mail 
dandresen@cftc.gov. This document is also available at 
www.regulations.gov.

SUPPLEMENTARY INFORMATION:

I. Purpose of Regulation 18.05 and Statutory Basis

    Section 3(b) of the Commodity Exchange Act (Act) \1\ declares that 
the purpose of the Act is to, among other things, deter and prevent 
price manipulation or any other disruptions to market integrity and to 
ensure the financial integrity of all transactions subject to the Act 
and the avoidance of systemic risk.\2\ Section 4i of the Act \3\ 
requires persons holding futures or option positions at designated 
contract markets (DCM) or registered derivatives transaction execution 
facilities (DTEF) at or above certain levels to keep books and records 
of all:
    (1) Transactions and positions in the exchange-traded commodity,
    (2) transactions and positions in any such commodity traded on or 
subject to the rules of any other board of trade, and
    (3) cash or spot transactions in, and inventories and purchase and 
sale commitments of such commodity.
    Such books and records must be open at all times for inspection by 
any representative of the Commission or the Department of Justice.
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    \1\ 7 U.S.C. 5(b) (2006).
    \2\ Section 3(b) of the Act provides in full that it is the 
purpose of this chapter to serve the public interests described in 
subsection (a) of this section through a system of effective self-
regulation of trading facilities, clearing systems, market 
participants and market professionals under the oversight of the 
Commission. To foster these public interests, it is further the 
purpose of this chapter to deter and prevent price manipulation or 
any other disruptions to market integrity; to ensure the financial 
integrity of all transactions subject to this chapter and the 
avoidance of systemic risk; to protect all market participants from 
fraudulent or other abusive sales practices and misuses of customer 
assets; and to promote responsible innovation and fair competition 
among boards of trade, other markets and market participants.
    \3\ 7 U.S.C. 6i (2006). Section 4i of the Act provides that it 
shall be unlawful for any person to make any contract for the 
purchase or sale of any commodity for future delivery on or subject 
to the rules of any contract market or derivatives transaction 
execution facility if such person shall directly or indirectly make 
such contracts with respect to any commodity or any future of such 
commodity during any one day in an amount equal to or in excess of 
such amount as shall be fixed from time to time by the Commission, 
and if such person shall directly or indirectly have or obtain a 
long or short position in any commodity or any future of such 
commodity equal to or in excess of such amount as shall be fixed 
from time to time by the Commission, unless such person files or 
causes to be filed with the properly designated officer of the 
Commission such reports regarding any transactions or positions 
described in clauses (1) and (2) hereof as the Commission may by 
rule or regulation require and unless, in accordance with rules and 
regulations of the Commission, such person shall keep books and 
records of all such transactions and positions and transactions and 
positions in any such commodity traded on or subject to the rules of 
any other board of trade, and of cash or spot transactions in, and 
inventories and purchase and sale commitments of such commodity. 
Such books and records shall show complete details concerning all 
such transactions, positions, inventories, and commitments, 
including the names and addresses of all persons having any interest 
therein, and shall be open at all times to inspection by any 
representative of the Commission or the Department of Justice. For 
the purposes of this section, the futures and cash or spot 
transactions and positions of any person shall include such 
transactions and positions of any persons directly or indirectly 
controlled by such person.
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    Section 8a(5) of the Act \4\ provides explicit authority to the 
Commission to make and promulgate such rules and regulations as, in the 
judgment of the Commission, are reasonably necessary to effectuate any 
of the provisions or to accomplish any of the purposes of the Act. In 
order to accomplish the purposes of Sections 3(b) and 4i set forth 
above, the Commission has promulgated regulations creating market and 
large trader reporting

[[Page 34414]]

requirements.\5\ Included among these regulations is a requirement that 
persons holding futures or option positions at DCMs or DTEFs (reporting 
markets) \6\ at or above reportable levels (reportable positions) \7\ 
are identified to the Commission under the large trader reporting 
system (LTRS).
    The LTRS, which requires that clearing members, futures commission 
merchants (FCM) and foreign brokers file daily reports with the 
Commission, enables the Commission to assess an individual trader's 
activities and potential market power and to enforce the Commission or 
DCM-set limits on speculative positions.\8\ Once a trader holds a 
reportable position, the trader is subject to Commission Regulation 
18.05,\9\ which requires that the trader keep books and records showing 
all details concerning:
    (1) All positions and transactions for future delivery in the 
commodity on all reporting markets;
    (2) all positions and transactions in the commodity option;
    (3) all positions and transactions in the cash commodity, its 
products and byproducts; and
    (4) commercial activities that the trader hedges in the commodity 
underlying the futures contract in which the trader is reportable.\10\
    A reportable trader is required to furnish to the Commission, upon 
request, any pertinent information concerning these positions, 
transactions or activities.\11\ Traders who do not hold reportable 
positions do not have obligations under Regulation 18.05.
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    \4\ 7 U.S.C. 12a(5) (2006).
    \5\ The Commission's market and large trader reporting rules are 
contained in Parts 15 through 21 of the Commission's regulations.
    \6\ Pursuant to Commission Regulation 15.00(m), a reporting 
market means a designated contract market and, unless determined 
otherwise by the Commission with respect to the facility or a 
specific contract listed by the facility, a registered derivatives 
transaction execution facility.
    \7\ Pursuant to Commission Regulation 15.00(l), reportable 
position means: for reports specified in parts 17, 18 and Sec.  
19.00(a)(2) and (a)(3) of this chapter any open contract position 
that at the close of the market on any business day equals or 
exceeds the quantity specified in Sec.  15.03 of this part in 
either: any one future of any commodity on any one reporting market, 
excluding future contracts against which notices of delivery have 
been stopped by a trader or issued by the clearing organization of a 
reporting market; or long or short put or call options that exercise 
into the same future of any commodity, or long or short put or call 
options for options on physicals that have identical expirations and 
exercise into the same physical, on any one reporting market. For 
the purposes of reports specified in Sec.  19.00(a)(1) of this 
chapter, any combined futures and futures-equivalent option open 
contract position as defined in part 150 of this chapter in any one 
month or in all months combined, either net long or net short in any 
commodity on any one reporting market, excluding futures positions 
against which notices of delivery have been stopped by a trader or 
issued by the clearing organization of a reporting market, which at 
the close of the market on the last business day of the week exceeds 
the net quantity limit in spot, single or in all-months fixed in 
Sec.  150.2 of this chapter for the particular commodity and 
reporting market.
    \8\ The Commission also uses large-trader reporting information 
as a means to ensure the avoidance of systemic risk in that such 
information enables Commission staff to determine which FCMs 
carrying accounts might have exposure in particular markets.
    \9\ Regulation 18.05 states in full that every trader who holds 
or controls a reportable futures or option position shall keep books 
and records showing all details concerning all positions and 
transactions for future delivery in the commodity on all reporting 
markets, all positions and transactions in the commodity option, and 
all positions and transactions in the cash commodity, its products 
and byproducts and, in addition, commercial activities that the 
trader hedges in the commodity underlying the futures contract in 
which the trader is reportable, and shall upon request furnish to 
the Commission any pertinent information concerning such positions, 
transactions or activities.
    \10\ In describing the requirements of Regulation 18.05 in 1981, 
the Commission stated that the regulation requires reportable 
traders to maintain books and records of futures positions and 
transactions in the commodity in which they are reportable and all 
positions and transactions in the cash commodity and its products 
and byproducts.* * * [T]he Commission wishes to underscore its view 
that the book and recordkeeping requirements and inspection 
provision contained therein are essential to accomplish the purposes 
of the Act and within the Commission's authority to adopt pursuant 
to section[s] 4i and 8a(5) of the Act. These requirements have 
always applied to the traders who hold or control a reportable 
position, and have not been restricted in any way. ``Reporting 
Requirements for Contract Markets, Futures Commission Merchants, 
Members of Exchanges and Large Traders,'' 46 FR 59,960, 59,963 
(December 8, 1981) (footnote omitted).
    \11\ The Commission currently requests such information an 
average of three times per year.
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II. Proposed Amendments

A. Introduction

    In order to enhance its ability to detect and prevent manipulation 
of regulated markets and products and to ensure the avoidance of 
systemic risk, as well as to clarify the meaning of the regulation and 
bring it up to date, the Commission proposes, for the reasons discussed 
below, to amend Regulation 18.05 in the following respects:
    1. To make it explicit that persons holding or controlling 
reportable positions on a reporting market must retain books and 
records and make available to the Commission upon request pertinent 
information with respect to all non-reporting transactions, i.e., all 
positions and transactions in the commodity in which the trader is 
reportable, including transactions executed over-the-counter and/or 
pursuant to Sections 2(d), 2(g) or 2(h)(1)-(2) of the Act or Part 35 of 
the Commission's regulations, on exempt commercial markets operating 
pursuant to Sections 2(h)(3)-(5) of the Act (ECM), on exempt boards of 
trade operating pursuant to Section 5d of the Act (EBOT), and on 
foreign boards of trade (FBOT); and
    2. to make the regulation clearer and more complete with respect to 
hedging activity.

B. Amendments Related to Recordkeeping and Reporting

    There is a close relationship among transactions conducted on 
reporting markets and non-reporting transactions. In view of this, it 
is sometimes necessary to determine all transactions and positions with 
respect to the commodity in which the trader is reportable in order to 
more effectively detect and prevent manipulation of regulated markets 
and products and to ensure the avoidance of systemic risk.\12\ Just as 
it is critical that the LTRS permits staff to aggregate related 
accounts to assess an individual trader's activities and potential 
power in a market, so is it critical that staff be able to assess the 
reportable trader's overall position in the same commodity in non-
reporting transactions in order to see the complete picture of the 
reportable trader's positions in the commodity. This is particularly 
important in light of the growing volume of trading on, and 
participation in, the non-reporting markets, the close relationship 
among the various products and markets, the increasing globalization of 
the futures markets, and the growth of trading on electronic exchanges 
and on foreign boards of trade.\13\
    Regulation 18.05 explicitly requires that a trader that is 
reportable because of futures or option positions in a futures or 
option contract traded on a DCM or DTEF keep books and records and 
provide to the Commission, upon request, pertinent information with 
respect to positions and transactions in the underlying commodity. For 
example, a reportable trader in the Natural Gas futures contract on the 
New York Mercantile Exchange, Inc., (NYMEX) must keep books and records 
and provide to the Commission, upon request, pertinent information with 
respect to positions and transactions in

[[Page 34415]]

Natural Gas on all DCMs and DTEFs, in the commodity option, in the cash 
commodity, its products and byproducts, and commercial activities that 
the trader hedges in the commodity underlying the Natural Gas futures 
contract. Information with respect to positions and transactions in the 
virtually identical Natural Gas contracts on the 
IntercontinentalExchange (ICE), an ECM, also is important to the 
Commission's ability to conduct effective market surveillance of the 
NYMEX Natural Gas contracts and to determine the degree of a trader's 
exposure in both the NYMEX and ICE natural gas markets. Similarly, if a 
trader is reportable because of futures or option positions in the 
Light Sweet Crude Oil contract on the NYMEX, the trader's books and 
records with respect to non-reporting positions and transactions in the 
West Texas Intermediate (WTI) Light Sweet Crude Oil futures or option 
contracts on ICE Futures,\14\ a foreign board of trade,\15\ are 
relevant to effective surveillance and supervision of the reporting 
NYMEX market.
    The Act provides ample authority to require keeping books and 
records and providing pertinent information with respect to non-
reporting transactions. Section 4i explicitly encompasses non-reporting 
transactions on ``any other board of trade'' (such as FBOTs, ECMs 
operating pursuant to Sections 2(h)(3)-(5) of the Act, and EBOTs 
operating pursuant to Section 5d of the Act) and in the form of cash or 
spot transactions, inventories, and purchase and sale commitments. 
Further, Section 3(b) of the Act declares that the purpose of the Act 
is to, among other things, deter and prevent price manipulation or any 
other disruptions to market integrity and to ensure the avoidance of 
systemic risk. Section 8a(5) of the Act authorizes the Commission to 
promulgate such regulations as, in its judgment, are reasonably 
necessary to accomplish any of the purposes of the Act. Making it 
explicit that Regulation 18.05 requires the reportable trader to keep 
books and records showing all details concerning non-reporting 
transactions in the reportable commodity is reasonably necessary to 
accomplish the purposes of Section 3(b) of the Act.
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    \12\ Sections 6(c), 6c, 6(d) and 9(a)(2) of the Act authorize 
the Commission to bring enforcement actions against any person who 
is manipulating or attempting to manipulate or has manipulated or 
attempted to manipulate the market price of any commodity, in 
interstate commerce, or for future delivery on or subject to the 
rules of any registered entity.
    \13\ For instance, since 1999, Commission staff, through foreign 
terminal no-action letters, has allowed 18 FBOTs to make their 
trading systems available by direct access to members and other 
participants in the U.S. without requiring the FBOTs to register as 
DCMs or DTEFs.
    \14\ ICE Futures is a UK registered investment exchange which 
permits direct access to its trading system from the U.S. pursuant 
to a foreign terminal no-action letter issued by Commission staff. 
CFTC Staff Letter No. 99-69 (November 12, 1999), as amended, 
originally issued to the International Petroleum Exchange (IPE).
    \15\ Section 1a of the Act defines the term board of trade as 
any organized exchange or other trading facility without regard to 
location.
---------------------------------------------------------------------------

    Although non-reporting transactions themselves generally are not 
subject to most regulatory provisions of the Act, the futures or option 
transactions executed and maintained on a DCM or DTEF that result in a 
reportable position are subject to such provisions and, pursuant to 
Section 3(a) of the Act, are affected with a national public interest. 
It is the purpose of the Act pursuant to Section 3(b) that the 
Commission prevent price manipulation of all commodities traded on 
these regulated markets. To accomplish this purpose, it is necessary 
that the Commission have the ability to review all activities in 
commodities traded on these markets, regardless of where the 
transactions are executed. By taking a position on a regulated market, 
a trader agrees to abide by the rules of the market and the Commission, 
including prohibitions against manipulation. To enhance its ability to 
detect and deter manipulation and other threats to market integrity, 
the Commission requires persons holding reportable positions to 
maintain books and records of transactions that could impact the 
regulated market and related cash market, including non-reporting 
transactions.\16\
---------------------------------------------------------------------------

    \16\ As previously stated, traders who do not hold reportable 
positions on reporting markets do not have obligations under 
Regulation 18.05's recordkeeping and reporting requirements.
---------------------------------------------------------------------------

    Commission staff has interpreted Regulation 18.05 to include 
position and transaction data for non-reporting transactions and has 
received such information in response to requests made pursuant to the 
Regulation. Consistent with the Act and Commission practice, the 
Commission is proposing to amend Regulation 18.05 to make explicit that 
a trader with a reportable position must keep books and records showing 
all details concerning all non-reporting transactions in the same 
commodity and provide pertinent information to the Commission upon 
request.

C. Amendments Related to Clarity and Completeness

    The Commission notes two issues that arise in connection with the 
Regulation 18.05 requirement that traders keep books and records 
showing all details concerning ``commercial activities that the trader 
hedges in the commodity underlying the futures contract in which the 
trader is reportable.'' First, the phrase has led to some confusion. 
Originally inserted into the paragraph as ``commercial activities that 
the trader hedges in the futures commodity in which the trader is 
reportable,'' its purpose was to require that, ``in addition to books 
and records of positions or transactions in a cash commodity, a 
reportable trader must also maintain records of commercial activities 
which the trader hedges.'' \17\ Second, reportable positions can be 
option positions, as well as futures positions, but it is not clear 
that the current language also addresses commercial activities that the 
trader hedges in the commodity underlying any option contract in which 
the trader is reportable.
---------------------------------------------------------------------------

    \17\ 46 FR 42463, 42466 (August 21, 1981).
---------------------------------------------------------------------------

    The Commission proposes to amend the regulation to revert to the 
original approach and include hedges in the option contract in which 
the trader is reportable. By modifying the phrase to read ``commercial 
activities that the trader hedges in the futures or option contract in 
which the trader is reportable,'' Regulation 18.05 would capture 
information with respect to hedges in other than the cash commodity, 
its products or byproducts (i.e., a trader with a reportable position 
in gold futures that is a hedge of a cash position in silver would be 
required to comply with the Regulation 18.05 requirements with respect 
to the silver position).

III. Related Matters

A. Cost Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its action before issuing a new regulation or 
order under the Act. By its terms, Section 15(a) does not require the 
Commission to quantify the costs and benefits of a new regulation or to 
determine whether the benefits of the proposed regulation outweigh its 
costs. Rather, Section 15(a) simply requires the Commission to 
``consider the costs and benefits'' of its action.
    Section 15(a) further specifies that the costs and benefits of the 
proposed rule or order shall be evaluated in light of five broad areas 
of market and public concern: (1) Protection of market participants and 
the public; (2) efficiency, competitiveness, and financial integrity of 
futures markets; (3) price discovery; (4) sound risk management 
practices; and (5) other public interest considerations. Accordingly, 
the Commission may, in its discretion, give greater weight to any one 
of the five enumerated areas of concern and may, in its discretion, 
determine that, notwithstanding its costs, a particular rule or order 
is necessary or appropriate to protect the public interest or to 
effectuate any of the

[[Page 34416]]

provisions or to accomplish any of the purposes of the Act.
    The proposed amendments would make it explicit that persons holding 
or controlling reportable positions on a reporting market must also 
retain books and records and make available to the Commission upon 
request any pertinent information with respect to non-reporting 
transactions in the commodity in which the trader is reportable, and 
make the regulation clearer and more complete with respect to hedging 
activity. These amendments would enable the Commission to better carry 
out its responsibilities under Section 3(b) of the Act by enhancing the 
Commission's ability to deter and prevent price manipulation or any 
other disruptions to the integrity of the regulated futures markets and 
help to ensure the avoidance of systemic risk.
    The Commission believes that the proposed amendments would address 
the Section 15(a) enumerated areas of market and public concern in that 
they would further protect market participants and the public, enhance 
the financial integrity of futures markets, and promote sound risk 
management practices. The Commission believes that the costs arising 
from the proposed amendments would be of little or no consequence for 
three reasons: (1) The amendments to Regulation 18.05 make explicit 
existing Commission practice; (2) it is likely that the traders that 
would be affected by the proposed amendments' requirements (traders who 
have reportable positions) already keep books and records showing all 
details concerning their non-reporting transactions as demonstrated by 
the fact that Commission staff has received such information in 
response to requests made pursuant to the Regulation; and (3) the 
Commission anticipates that special calls for pertinent information 
relating to non-reporting transactions would continue to be made on an 
infrequent basis.
    After considering these factors, the Commission has determined to 
propose the revisions to Regulation 18.05 as discussed above and set 
forth below. The Commission specifically invites public comment on its 
application of the criteria contained in Section 15(a) of the Act. 
Commenters are also invited to submit any quantifiable data that they 
may have concerning the costs and benefits of the proposed rule with 
their comment letters.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires federal agencies, in proposing rules, to consider the impact 
of those 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.\18\ The 
requirements related to the proposed amendments fall on large traders. 
Accordingly, the Chairman, on behalf of the Commission, hereby 
certifies, pursuant to 5 U.S.C. 605(b), that the actions proposed to be 
taken herein will not have a significant economic impact on a 
substantial number of small entities.
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    \18\ 47 FR 18618, 18618-21 (April 30, 1982).
---------------------------------------------------------------------------

C. The Paperwork Reduction Act

    When publishing proposed rules, the Paperwork Reduction Act (PRA) 
\19\ imposes certain requirements on Federal agencies, including the 
Commission, in connection with conducting or sponsoring any collection 
of information as defined by the PRA. In compliance with the PRA, the 
Commission through these proposed rule amendments solicits comments to: 
(1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including the validity of the methodology and assumptions used; (2) 
evaluate the accuracy of the agency's estimate of the burden of the 
proposed collection of information including the validity of the 
methodology and assumptions used; (3) enhance the quality, utility, and 
clarity of the information to be collected; and (4) minimize the burden 
of the collection on those who are to respond, including through the 
use of appropriate automated, electronic, mechanical, or other 
technological collection techniques or other forms of information 
technology. The Commission has submitted the proposed rule amendments 
and its associated information collection requirements to the Office of 
Management and Budget (OMB). The proposed rule amendments are a part of 
an approved collection of information. The estimated burden associated 
with and reporting obligations for traders with reportable positions 
(OMB Control No. 3038-0009) is as follows:
---------------------------------------------------------------------------

    \19\ Public Law 104-13 (May 13, 1995).
---------------------------------------------------------------------------

    Average Burden Hour Per Response: 1.5.
    Number of Respondents: 6.
    Frequency of Response: Upon special call.
    Persons wishing to comment on the information which would be 
required by the proposed rule amendments should contact the Desk 
Officer, CFTC, Office of Management and Budget, Room 10202, NEOB, 
Washington, DC 20503, 202.395.7340. Copies of the information 
collection submission to OMB are available from the CFTC Clearance 
Officer, 1155 21st Street, NW., Washington, DC 20581, 202.418.5160. 
Copies of the OMB-approved information collection package associated 
with the rulemaking may be obtained from the Desk Officer, Commodity 
Futures Trading Commission, Office of Management and Budget, Room 
10202, NEOB, Washington, DC 20503, 202.395.7340.

List of Subjects in 17 CFR Part 18

    Commodity futures, Reporting and recordkeeping requirements.

    In consideration of the foregoing, and pursuant to the authority 
contained in the Act, and, in particular, sections 3, 4, 4a, 4c, 4g, 
4i, 5, 5a and 8a of the Act, the Commission hereby proposes to amend 
Chapter I of Title 17 of the Code of Federal Regulations as follows:

PART 18--REPORTS BY TRADERS

    1. The authority citation for part 18 is revised to read as 
follows:

    Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 12a 
and 19; 5 U.S.C. 552 and 552(b), unless otherwise noted.

    2. Revise Sec.  18.05 to read as follows:


Sec.  18.05  Maintenance of books and records.

    Every trader who holds or controls a reportable futures or option 
position shall keep books and records showing all details concerning 
all positions and transactions in the commodity on all reporting 
markets, over the counter and/or pursuant to Sections 2(d), 2(g) or 
2(h)(1)-(2) of the Act or Part 35 of this chapter, on exempt commercial 
markets operating pursuant to Sections 2(h)(3)-(5) of the Act, on 
exempt boards of trade operating pursuant to Section 5d of the Act, and 
on foreign boards of trade. Every such trader shall also keep books and 
records showing all details concerning all positions and transactions 
in the cash commodity, its products and byproducts, and all commercial 
activities that the trader hedges in the futures or option contract in 
which the trader is reportable. The trader shall upon request furnish 
to the Commission any pertinent information concerning such positions, 
transactions or activities in a form acceptable to the Commission.

    Issued in Washington, DC, this 18th day of June, 2007, by the 
Commission.
Eileen A. Donovan,
Acting Secretary of the Commission. 1
 [FR Doc. E7-12045 Filed 6-21-07; 8:45 am]
BILLING CODE 6351-01-P