Futures Commission Merchants, Clearing Members and Foreign Brokers; Option Large Trader Reports Daily Filing Requirements

COMMODITY FUTURES TRADING COMMISSION

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

Futures Commission Merchants, Clearing Members and Foreign

Brokers; Option Large Trader Reports Daily Filing Requirements

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (Commission) is

proposing to amend its regulations to require that futures commission

merchants, clearing members and foreign brokers (firms) file option

large trader reports with the Commission on a daily basis. The proposed

amendments specify a joint option and futures reporting level, a joint

record format for reporting the information in machine-readable form,

and an earlier time for submission of the data. A number of these

requirements are proposed with the view that the Commission will be

able to provide large trader data to the exchanges. Currently, firms

report option and futures large trader data to the exchanges and

futures data to the Commission. Reporting burdens in the industry may

be reduced if firms report data to a single source that in turn

distributes the information to all regulators or self-regulatory

organizations.

The Commission is also in the process of obtaining new computer

hardware and rewriting the software for its market surveillance system.

In view of this, the Commission is requesting comment from the industry

on any standards it might adopt that would make large trader reporting

more efficient for the industry. Last, the Commission is proposing

amendments to rule 18.04 to obtain CFTC form 40s from reporting traders

only on special call. This would mirror current Commission practice

with respect to this form.

DATES: Comments on this proposed rulemaking should be submitted on or

before September 16, 1996.

ADDRESSES: Comments should be sent to the Office of the Secretariat,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street, NW., Washington, DC 20581, and should make reference to

``option large trader reports,'' telephone (202) 418-5100.

FOR FURTHER INFORMATION CONTACT: Lamont L. Reese, Division of Economic

Analysis, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC

20581, telephone (202) 418-5310.

SUPPLEMENTARY INFORMATION:

I. Background

The Commission employs a comprehensive market surveillance system

which is designed to maintain freely competitive markets by detecting

and preventing threats of price manipulation or other major market

disruptions caused by abusive trading practices. As part of the system,

the Commission's Division of Economic Analysis operates an extensive

data-gathering system which relies heavily on computer support.

Regulations concerning this system require reports from three primary

sources: contract markets under Part 16 of the regulations; futures

commission merchants, clearing members, and foreign brokers (firms)

under parts 17 and 21 of the regulations; and individual traders under

parts 18 and 19 of the regulations. 17 CFR parts 16 through 21 (1995).

The Commission is proposing amendments to these regulations which

will require firms to report daily option positions of large traders in

addition to futures positions directly to the Commission. The proposed

rule changes also delete the current requirement that contract markets

provide option large trader (OLT) data on a weekly basis. Since the

Commission is also in the process of reengineering software for its

surveillance system to run in a client-server environment rather than

on a mainframe computer, it is making proposals and asking for

recommendations to make its requirements for electronic reporting

consistent with standards in use by the industry.

An overall review of the reporting system indicates that additional

amendments to the regulations may be proposed. These include proposed

changes to the reporting levels in rule 15.03 and amendments to Part 17

of the regulations to give additional guidance

[[Page 37410]]

to firms when reporting accounts that are owned and/or controlled by

two or more persons. However, since these regulations are not concerned

with daily reporting of option positions, any proposed changes to them

will be included in a separate rulemaking proposal.

II. Daily and Weekly Large Trader Data

Part 17 of the Commission's regulations requires that firms submit

a daily report to the Commission with respect to futures positions in

all special accounts on their books.1 Information required to be

provided to the Commission includes quantities of reportable futures

positions, exchanges of futures for cash, and delivery notices issued

or stopped by each special account.2 Firms assign a reporting

number to the special account and report all information to the

Commission using this number.3 The regulations also specify the

format for data that is reported on machine-readable media and the type

of data processing media that is compatible with Commission computer

systems.4 Additionally, firms must file a CFTC form 102 showing

the information specified under Sec. 17.01 of the regulations for each

special account.5 This information identifies persons who have a

financial interest in or trading control of a special account, informs

the Commission of the type of account that is being reported, and gives

preliminary information whether positions and transactions are

commercial or noncommercial in nature.

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\1\ Special account means any commodity futures or option

account in which there is a reportable position, 17 CFR 15.00

(1995). Firms report futures information to the Commission and

futures and option information to the exchanges.

\2\ A reportable position is any open position held or

controlled by a trader at the close of business in any one futures

contract of a commodity traded on any one contract market that is

equal to or in excess of the quantities fixed by the Commission in

Sec. 15.03 of the regulations, 17 CFR 15.03 (1995).

\3\ The firm's reporting number may be the account number

carried on its books. However, the number may refer to a collection

of accounts that are owned and/or controlled by the same person.

\4\ See rule 17.00(g) for a description of the file

characteristics and 15.00(l) for a definition of compatible data

processing media, 17 CFR 15.00(l) and 17.00(g) (1995).

\5\ 17 CFR 17.01 (1995).

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With regard to options, however, the Commission receives large

trader data only on a weekly basis. Part 16 of the regulations requires

that contract markets provide the long and short put or call positions

for each option trader controlling a reportable position as of the

close of business on Tuesday.6 Contract markets provide the

Commission with the data by account number and supply a CFTC form 102

to identify owners and controllers of the account. Generally, the rules

requiring weekly reporting of OLT data were in place at the inception

of the Commission's three-year pilot program for domestic exchange-

traded commodity options.7 Due to the growth in the trading of

exchange-traded options and, since the same persons tend to hold both

large futures and option positions, the Commission does not believe

that its current requirements concerning large trader reporting are

adequate.

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\6\ 17 CFR 16.02 (1995). A reportable option position is defined

as any open contract position on any one contract market in the put

option or separately in the call option of a specified option

expiration date which exceeds 50 contracts. 17 CFR 15.00(b)(2)

(1995).

\7\ 46 FR 54500 (November 3, 1981).

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The Commission has long recognized the interaction that exists

between the markets for trading futures and those for trading options

on futures. In April of 1992, for example, the Commission proposed

rules that would unify speculative position limits on futures with

those on options for the commodities specified in Part 150 of the

regulations, 57 FR 12766 (April 13, 1992).8 In this release, the

Commission found that price movements in the two markets are highly

related so that viewing options and futures together more readily

reflects the economic reality of a trader's position. The Commission

noted that:

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\8\ The Commission previously requested comments on the concept

of unifying option and futures speculative limits. See 56 FR 37049

(August 2, 1991). The commodities listed in Part 150 include grains,

soybeans, soybean products, and cotton.

* * * options in certain combinations create synthetic futures.

Moreover, these, or other combinations, may be spread or offset

against actual futures positions. Thus, through a variety of spread

or arbitrage transactions, positions in one market may have a direct

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and immediate impact on pricing in the other.

57 FR at 12769

Trading in options on futures grew to over 100 million contracts

during 1994, and option position sizes held by individual traders have

grown correspondingly. Currently, it is impossible to assess

relationships between price moves and trader positions without knowing

both the traders' futures and option positions. Adequate surveillance

requires that these relationships be examined on a day-to-day basis. In

view of this, the Commission is proposing to collect option positions

of large traders on a daily basis.

The Commission must, of course, determine whether it will require

daily reports from the exchanges or obtain the information directly

from reporting firms. As noted above, exchanges currently supply the

Commission with weekly OLT data. A survey of the exchanges indicates,

however, that not all exchanges collect option large trader data on a

daily basis. Moreover, although the option data are currently provided

by exchanges immediately after they process incoming reports from their

members, the data are not timely for market surveillance. Most

exchanges provide the data to the Commission during the afternoon of

the Wednesday following the Tuesday report date for the positions. Due

to CFTC processing capacity restraints, OLT data are processed

overnight and not available for analysis until the following morning.

Exchange members, however, provide OLT data to the exchanges early in

the morning on the day following the OLT position report date.

Presumably, reporting firms could provide data directly to the

Commission at about the same time and, in its new processing

environment, the Commission will be able to access and analyze the data

immediately. The process of obtaining data from the exchanges is also

cumbersome and may impose a significant additional burden on the

exchanges, particularly with respect to providing the Commission with

form 102s to identify accounts and in obtaining corrections to the OLT

data.

The Commission is also mindful of the additional burden that may be

placed on reporting firms if it collects OLT data directly from them

since, in addition, they must provide data to the exchanges. The burden

on firms would be reduced if the Commission acts as a central

collection point for large trader data and distributes them to the

exchanges. Reporting firms through the operations committees of the

Futures Industry Association (FIA) recommended this approach to

Commission staff in 1991.9 Since the Commission is obtaining new

computer hardware and rewriting its software, the Commission is

considering requirements that will allow it to act as a central

collection point for large trader data. Commission staff have held

preliminary discussions with exchange staff who expressed interest, if

the needs of the individual exchanges could be met.

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\9\ See the ``Report on the Commission's Large Trader Reporting

System'' prepared by the Division of Economic Analysis, January

1992, pp. 23 and 24.

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In view of the above, the Commission is proposing amendments to its

reporting rules that require firms to report both futures and option

large

[[Page 37411]]

trader data to the Commission on a daily basis. These amendments

involve redefining reporting levels, establishing joint reporting of

futures and option data and changing the current format for reporting

data on machine-readable media. In making the specific amendments

discussed below, the Commission is taking into account certain

requirements expressed by staff of the various exchanges.

A. Reporting Levels

As noted above, Commission rules 15.00(b) and 15.03 define

reportable levels in futures and options. The Commission is not

changing its definition of a reportable futures position. However, it

is proposing that an option position be considered reportable if the

aggregate of all open contract positions of a trader in all options

that exercise into the same futures expiration month exceeds the

reporting levels specified in rule 15.03 for any one option

quadrant.10 Commission staff have functionally adopted this

definition when processing exchange-supplied OLT data. If an exchange

reports an option account that has previously been reported, or if the

position is reportable according to the above definition, the account

is further processed. The Commission has found that this method of

processing OLT data gives satisfactory information about large option

traders and greatly reduces the number of form 102s it requests from

the exchanges. The Commission intends to continue this front-end

processing of OLT data if firms report directly to the Commission.

Thus, firms can report OLT data at lower reporting levels or report all

OLT data and the Commission will keep and process only that which is

appropriate.

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\10\ An option quadrant is considered a long call, short call,

long put or short put.

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B. Reporting Futures and Options on a Combined Basis

Commission regulations currently require that firms provide only

large trader positions that are of a reportable size. If a trader holds

a reportable position in one future month of a commodity on a contract

market and a position which is not of a reportable size in another

future month, only the larger position is required to be reported. A

number of the exchanges, however, require that both positions be

reported.11 For such exchanges, this type of reporting applies to

both futures and options. Firms must report all option positions and

all futures positions in an account to the appropriate exchange, if

either an option position or a futures position in the account meets

the exchange's definition of reportability. The Commission is proposing

to amend rule 17.00 to require this type of reporting. This will meet

exchange requirements if in the future they choose to obtain data from

the Commission rather than from firms.12

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\11\ Exchanges that require this type of reporting include the

Chicago Board of Trade (CBT), the Chicago Mercantile Exchange (CME),

and the New York Mercantile Exchange (NYME).

\12\ Since the Commission is proposing that rule 17.00 be

amended to require that options be reported by strike prices it is

also proposing conforming amendments to rule 17.04 to require that

the originator of an omnibus account report option positions by

strike price to the firm that carries the account.

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C. Record Formats for Dial-Up Transmissions and Machine Readable Media

The Commission receives about 95 percent of its futures large

trader data via dial-up transmission or on machine-readable media. The

record formats for reporting in this manner are contained in rule

17.00(g).13 In proposing changes to these formats to accommodate

option data, the Commission is seeking to minimize programming changes

that firms may incur with adoption of a new reporting format and to

collect a set of data that will be useful to each exchange for their

large trader reporting system. This can be accomplished by adopting a

format used by at least one of the major exchanges that includes all

data fields used by other exchanges. Any of these other exchanges that

elect to obtain large trader data from the Commission will be able to

convert from the Commission's format to their own.

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\13\ 17 CFR 17.00(g) (1995).

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A review of record formats used by the exchanges indicates that

although they differ the formats necessarily contain similar

information for collecting large trader data. The formats used by two

of the exchanges are more expansive than others, allowing for

identification of flexible products in addition to data used by other

exchanges. One of these formats contains all information in a single

record and may be preferable since the Commission is proposing to use

the same record format to report different types of information. In

view of this, the Commission is proposing to adopt the record format

shown below.

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Record layout

------------------------------

Beginning Name

column Length Type*

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1........ 2 AN Report Type.

3........ 3 AN Reporting Firm.

6........ 2 -- Reserved.

8........ 12 AN Account Number.

20....... 8 AN Report Date.

28....... 2 AN Exchange Code.

30....... 1 AN Put or Call.

31....... 5 AN Commodity Code (1).

36....... 8 AN Expiration Date (1).

44....... 7 S Strike Price.

51....... 1 AN Exercise Style.

52....... 7 N Long-buy-Stopped.

59....... 7 N Short-Sell-Issued.

66....... 5 AN Commodity Code (2).

71....... 8 AN Expiration Date (2).

79....... 2 -- Reserved.

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*AN--Alpha-Numeric.

N--Numeric.

S--Signed numeric.

1. Report Type. This report format will be used to report three

types of data: Long and short futures and option positions, futures

delivery notices issued and stopped, and exchanges of futures for

physicals bought and sold. Valid values for the report type are ``RP''

for reporting positions, ``DN'' for reporting delivery notices, and

``EP'' for reporting futures for physicals.

2. Reporting Firm. Currently, the Commission assigns a five-digit

number to each firm which is used for reporting. See rule

17.00(g)(3)(i). This assignment may not be necessary since all members

of a clearing house are already identified by a number that is used for

reporting to the clearing house or the exchange. The Commission is

proposing to use the clearing member number in conjunction with an

exchange number to identify reporting firms. If a firm is not a

clearing member, the Commission is proposing that it assign a three-

character alpha-numeric identifier agreed to by the exchanges.

3. Account Number. This is the same number that is currently

assigned to an account by the firm for purposes of reporting. See rule

17.00(g)(3)(iii).

4. Report Date. The Commission is proposing that the report date

include the full four-character year rather than the last two

characters. The format is YYYYMMDD, where YYYY is the year, MM is the

month, and DD is the day of the month.

5. Exchange. This is proposed as a two-character field used to

identify the exchange on which a position is held.

[[Page 37412]]

The Commission is proposing that valid values be as follows:

01.............................. Chicago Board of Trade.

02.............................. Chicago Mercantile Exchange.

03.............................. MidAmerica Commodity Exchange.

06.............................. Coffee, Sugar and Cocoa Exchange.

07.............................. Comex Division of NYME.

08.............................. Kansas City Board of Trade.

09.............................. Minneapolis Grain Exchange.

10.............................. Philadelphia Board of Trade.

12.............................. New York Mercantile Exchange.

13.............................. New York Cotton Exchange.

15.............................. New York Futures Exchange.

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6. Put-Call Code. Valid entries would be ``C'' for a call option

and ``P'' for a put option. For futures, the field is blank.

7. Commodity (1). Currently, the Commission assigns a six-digit

contract market code for reporting. This appears unnecessary since the

exchanges already assign a commodity code for their own reporting. The

Commission is proposing to use the exchange code assigned to the

futures or option contract pertaining to the reported position. This

may simplify reporting for firms.

8. Expiration Date (1). The date format is YYYYMMDD and represents

the expiration date or delivery date of the reported futures or option

contract. For date-specific instruments, such as flexible products, the

full date must be reported. For other options and futures, this field

is used to report the expiration year and month for an option contract

or a delivery year and month for a futures contract. The day portion of

the field for these contracts (``DD'') contains spaces.

9. Strike Price. This is proposed as a signed numeric field for

reporting option strike prices. The strike prices should be right-

justified and the field zero-filled. For futures, the field is left

blank.

10. Exercise Style. Valid values for this field are ``A'' for

American style options, i.e., those that can be exercised at any time

during the life of the options and ``E'' for European, i.e., those that

can be exercised only at the end of an option's life. This field will

be required only for flexible instruments or as otherwise specified by

the Commission. The Commission is proposing that all data be reported

in contracts. Currently, data for the grains and soybean futures

markets are reported in thousand bushels. Data reported by the

exchanges for options on futures contracts in these markets, however,

is reported in contracts. It would be preferable if all data pertaining

to these markets are reported in the same units.

11. Long-Buy-Stopped (Short-Sell-Issued). When report type is

``RP'', this field represents long (short) positions open at the end of

a trading day. When report type is ``DN'', this field represents

delivery notices stopped (issued) on behalf of the account. When report

type is ``EP'', this field represents purchases (sales) of futures for

cash for the account. The Commission is proposing that all data be

reported in contracts. Currently, data for the grains and soybean

futures markets are reported in thousand bushels. Data reported by the

exchanges for options on futures contracts in these markets, however,

is reported in contracts. It would be preferable if all data pertaining

to these markets are reported in the same units.

12. Commodity (2). This is the exchange-assigned commodity code for

a futures contract or other instrument that a position is exercised

into from a date specific or flexible option.

13. Expiration Date (2). Similar to other dates, the format is

YYYYMMDD and represents the expiration date or delivery month and year

of the future or other instrument that a position is exercised into

from a date-specific or flexible option.

D. Time and Place for Filing Reports

Commission rule 17.02 currently specifies different times for

reporting large trader data depending on the media used for

reporting.14 If forms are used, they must be transmitted to the

appropriate regional office by 9 a.m. If the data are supplied on

machine-readable media, such as computer tape or diskette, the data

must be supplied by 10:30 a.m. If the data are transmitted

electronically, the data must be supplied by 11 a.m.15

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\14\ In the discussion that follows, times are eastern time for

markets located in that time zone and central time for all other

markets.

\15\ A number of firms that transmit data electronically provide

the Commission with reports substantially earlier than its 11:00

a.m. cutoff time.

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As noted above, exchanges generally receive large trader data

earlier than the Commission. Staff for several of the exchanges

indicate that they have a 9 a.m. cutoff time. Another exchange

apparently receives data by 7 a.m. It would be beneficial for the

Commission's market surveillance program if all reports were received

at an earlier time. In addition, if the Commission is to act as a

central collection point for large trader data, it must be able to meet

exchange deadlines. In view of this, the Commission is proposing to

amend rule 17.02 so that all large trader reports are required to be

submitted to the Commission by 9 a.m. or at such earlier time as

specified by an exchange that is receiving data from the Commission for

contract markets on that exchange.

E. Filing Reports Electronically and the Definition of Compatible Data-

Processing Media

Unless otherwise allowed by the Commission, firms must report large

trader data on compatible data-processing media.16 This form of

reporting is efficient, since paper reports need not be filled out and

filed and key-entry of the data received is not required. A significant

number of small firms, however, currently have an exception to file

paper reports. The amount of data filed by each firm is small,

accounting in total for less than five percent of all large trader data

collected by the Commission.

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\16\ 17 CFR 17.00(a) (1995).

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The Commission is concerned, however, that the amount of data

submitted on hard-copy reports may increase appreciably if options are

reported to the Commission. Since reporting OLT positions to the

Commission is more data-intensive than reporting futures positions,

there is concern that the number of existing staff will be inadequate

to key-enter both futures and option large trader data in a timely

manner. In view of this, the Commission may be more restrictive in

allowing firms to report in hard-copy format. Since personal computers

are becoming less expensive, it may not be burdensome for firms to key-

enter large trader data and transmit the data to the Commission. The

Commission is seeking comment on the magnitude of the burden this may

impose on smaller firms and whether assistance, such as software

development, could be provided by Commission staff to ameliorate this

burden.

If firms file reports electronically, they must do so on compatible

data-processing media. This is defined in rule 15.00(l) as:

1. Unblocked, nine-track, 1600 BPI magnetic tape using EBCDIC

encoding and a standard IBM label;

2. Magnetic diskettes using a single-density IBM 3741 format; or

3. Asynchronous dial-up transmission at 1200 baud or synchronous

dial-up transmission at 4800 baud.

The above-mentioned transmission methods are generally outdated.

For example, cartridge has replaced tape and data transmission speeds

are far faster than those specified above. The Commission is interested

to know if standards for data transmission or media use have been

adopted by members of the futures trading industry, and is seeking

comment on how best to

[[Page 37413]]

define acceptable data-processing media.

F. Filing Form 102s

Since account identification information is provided on a form

rather than electronically, the data are burdensome for firms to

provide and costly for the Commission to process. This burden is

compounded for reporting firms since the same form might have to be

filed at different times with several exchanges as well as the

Commission. Costs associated with filing this form appear to be the

principal reason that firms desire to send information to a single

regulator.

The Commission can of course act as a single collection point for

this information as well as that pertaining to positions. The cost of

doing so, however, may be high since the forms themselves will require

copying and distribution to the exchanges. This cost could be minimized

if the information were transmitted electronically to the Commission.

Two exchanges, independent of this rulemaking, have started work in

this area.

One exchange, the CME, has developed software that can be used on a

reporting firm's computer system. The software allows for key-entry of

account identification information which is collected in a file for

subsequent transmission. Another exchange, the CBT, requires that

member firms electronically transmit partial account identification

information when an account is first reported. In either case, it

appears that firms must key-enter the data rather than obtain it from

other computer files they maintain.

At this time, the Commission is in the process of gathering more

information to determine the manner in which it will proceed in this

matter. Although its staff will be in further contact with the

exchanges and reporting firms, the Commission is requesting comments

and suggestions from the industry on either of the exchanges'

approaches or viable alternatives to collecting account identification

information electronically.

G. Proposed Implementation

The Commission expects that implementation of the proposed

amendments to the regulations will occur over a period of time.

Reporting firms must develop new formats for transmitting the combined

option and futures data and new software programs to determine whether

accounts are reportable. In addition, Commission staff will test data

transmissions to ensure that formats are correct. In view of this, the

Commission anticipates that it will make the amended rules effective

six months after publication in the Federal Register of a final

rulemaking in this matter. At that time, the requirement in part 16

that exchanges file weekly OLT data would be deleted.17

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\17\ The Commission is proposing to delete and reserve

Secs. 16.02 and 16.03. In addition, the Commission is proposing

conforming amendments to rules 16.06 and 16.07 to remove references

to deleted sections of part 16.

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III. Other Exchange Reporting

In addition to OLT reports required by rule 16.02, exchanges must

make clearing member reports under rule 16.00 and reports concerning

volume, open interest and prices under rule 16.01.18 All reports

made by the exchanges must be on compatible data-processing media and

are due to the Commission no later than 3 p.m. of the business day

following the report date of the data. The data are submitted using a

format and coding structure issued by the Office of the Executive

Director.

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\18\ 17 CFR 16.00, 16.01 and 16.02 (1995).

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A. Delta Factors and Settlement Prices

Included in the data provided under paragraph 16.01 are the

settlement prices for option and futures contracts and delta-factors

for option contacts.19 Delta factors are necessary to convert

option positions to a futures equivalent basis so that traders' futures

and option positions can be viewed as an economic whole. Deltas must be

available when option positions are reported in order to interpret the

positions.

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\19\ Delta factors are used to equalize the exposure value of an

option contract with that of the underlying future. Multiplying an

option contract by a delta factor places the option on a comparable

basis to the underlying futures contract in terms of value

fluctuations. The absolute value of the deltas vary between 0 and 1.

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The Commission understands that delta factors are computed by an

exchange or its associated clearing house after the close of trading

and can be made available sooner than volume of trading and open

interest figures. Settlement prices also are available shortly after

the close of trading and their timely receipt is important to the

Commission for its market and financial surveillance programs. In view

of this, the Commission is proposing to amend rule 16.01 to require

that exchanges electronically transmit delta factors and settlement

prices for option and futures contracts by 7 a.m. on the day following

the report date.20 Commission staff will be in contact with the

exchanges to discuss changes in record formats that amendments to the

regulations may entail.21

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\20\ The report date is the date the data pertain to.

\21\ These formats will change substantially because of the

introduction of date-specific or flexible options.

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B. Critical Dates

Since the inception of the pilot program for exchange-traded

options, the format and coding instructions issued by the Office of the

Executive Director have included fields for reporting certain dates

associated with the terms and conditions of futures and option

contracts. For futures contracts, this includes first and last notice

dates and last trading day and for option contracts, expiration date.

Although the exchanges provide these data, this requirement is not

explicitly set forth in the Commission's regulations. Commission

software makes extensive use of some of these dates for market

surveillance purposes. In view of this, the Commission is proposing to

amend rule 16.01 to require that the exchanges provide the first notice

date and last trading date for futures contracts and the expiration

date for option contracts.

C. Option Exercises and Assigns

Contract markets report the number of option contracts exercised

both by clearing members under rule 16.00(a)(5) and for the entire

market under rule 16.01(a)(5). The Commission is proposing to delete

these requirements since the information is not important for its

surveillance program.22

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\22\ In addition, the Commission is proposing to delete the

requirement in rule 16.01(a)(6) that contract markets provide the

number of option contracts expiring unexercised.

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IV. Other Proposed Amendments

A. Cash Position Reports

The Commission requires that persons owning or controlling futures

positions in commodities for which the Commission has established

speculative limits file reports concerning their long and short cash

positions, i.e., stocks of the commodities owned and the quantity of

their fixed-price purchase and sale commitments, 17 CFR part 19 (1995).

These commodities include the grains, the soybean complex and cotton,

17 CFR part 150 (1995). The primary purpose for these reports is to

determine if the futures positions of traders that exceed the

Commission's speculative limits qualify as hedging as defined in

Sec. 1.3(z) of the Commission's regulations. Additionally, merchants

and dealers in cotton must provide information on the quantity of their

``call purchases and

[[Page 37414]]

sales.'' 23 Information concerning call purchases and sales is

used as a basis for the Commission's weekly ``Cotton on Call'' report.

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\23\ Call purchases and sales are unfixed price purchases and

sales commitments transacted as a basis price referenced to a

particular cotton futures delivery month.

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With the exception of call purchase and sale reports by merchants

and dealers in cotton, reporting levels for cash position reports (CFTC

forms 204 and 304) are set at the speculative limit levels defined in

rule 150.2. 17 CFR 150.2 (1995).24 Only futures positions and not

option positions are considered when determining reportability for

purposes of reports due under part 19. See rule 15.00(b)(1)(ii), 17 CFR

15.00 (1995). The Commission, however, amended part 150 so that the

speculative limits set forth in rule 150.2 apply to the net long or net

short combined futures and futures equivalent option position of a

trader.25 Given the purpose for reports filed under rule

19.01(a)(1), the Commission is proposing that these reports be provided

only if a trader's net long or short combined futures and futures

equivalent options position as defined in part 150 exceeds the level

specified in rule 150.2.26

---------------------------------------------------------------------------

\24\ Merchants and dealers in cotton must file reports at the

lower levels specified in rule 15.03. This lower level for cotton is

to ensure adequate coverage of call sales and purchases on the

``Cotton on Call'' report. The Commission is not proposing

amendments to this reporting level.

\25\ 58 FR 17972 (March 30, 1993). Commission rules 150.1 (f)-

(h) define futures equivalent and long and short positions as

follows:

(f) Futures-equivalent means an option contract which has been

adjusted by the previous day's risk factor, or delta coefficient,

for that option which has been calculated at the close of trading

and published by the applicable exchange under Sec. 16.01 of this

chapter.

(g) Long positions means a long call option, a short put option

or a long underlying futures contract.

(h) Short positions means a short call option, a long put option

or a short underlying futures contract.

\26\ Conforming amendments are also being proposed to rule

15.01(d). 17 CFR 15.01(d) (1995).

---------------------------------------------------------------------------

B. Submitting Form 40s

Under Part 18 of the regulations, traders who become reportable in

futures must file a CFTC form 40, ``Statement of Reporting Trader,''

within ten business days following the day that the trader obtains a

reportable position. Additional filings are made annually as specified

in rule 18.04(d).27 Traders who become reportable in options are

required to file the form 40 only in response to a special call by the

Commission.

---------------------------------------------------------------------------

\27\ 17 CFR 18.04(d) (1995).

---------------------------------------------------------------------------

Currently, when an account first becomes reportable in futures, the

firm reporting the account files a CFTC form 102 that identifies all

persons having a ten percent or more financial interest in the account

and those persons who control the trading of the account.28

Although all persons named on the form 102 may be considered a trader

according to the Commission's definition in rule 15.00(e), Commission

staff will determine a trader of primary interest and request a form 40

from that trader.29 No actions are generally taken against traders

who do not file an initial form 40 unless they fail to respond to the

staff's written request. Similarly, Commission staff will request

updates to form 40s by issuing a written request.30 In view of the

above, the Commission is proposing to amend rule 18.04 to require that

traders file form 40's in response to a special call, thus reflecting

the current operating procedure. Authority to make these calls will be

delegated to the director of the Division of Economic Analysis. In

proposing these amendments, the Commission expects that staff will

continue to obtain initial form 40s from traders and updated form 40s

on at least a twenty-four-month cycle for traders who continue in

reporting status.

---------------------------------------------------------------------------

\28\ 17 CFR 17.01 (1995).

\29\ At times, Commission staff may request a form 40 from more

than one person identified on the form 102, but this is rare. The

Division would continue to maintain this authority under the rule as

proposed and the proposed delegation authority.

\30\ Paragraph 18.04(d) requires that if traders remain

reportable, they update the form 40 after twelve months. Commission

staff, however, have been requesting that form 40s be updated only

if traders are in reporting status after a twenty-four-month period.

An analysis of form 40 updates indicates that few form 40s show

significant changes in the information contained on the form after a

one-year period. This action has significantly reduced the number of

form 40s required from traders with no adverse impact on the

Commission's surveillance program.

---------------------------------------------------------------------------

V. Related Matters

A. The Regulatory Flexibility Act (RFA)

The RFA requires that agencies, in proposing rules, consider the

impact of those rules on small business. These amendments affect large

traders and futures commission merchants and other similar entities

such as foreign brokers and foreign traders. The Commission has defined

``small entities'' as used by the Commission in evaluating the impact

of its rules in accordance with the RFA. 47 FR 18618-18621 (April 30,

1982).

In that statement, the Commission concluded that large traders and

futures commission merchants should not be considered to be small

entities for purposes of the RFA. In this regard, the amendments to

reporting requirements fall mainly upon futures commission merchants.

Similarly, foreign brokers and foreign traders report only if carrying

or holding reportable, i.e., large, positions. Pursuant to section 3(a)

of the RFA (5 U.S.C. 605(b)), the Chairman, on behalf of the

Commission, certifies that the proposed rules would not have a

significant economic impact on a substantial number of small entities.

The Commission invites comments from any firm which believes that these

rules would have a significant economic impact upon its operations.

B. Paperwork Reduction Act (PRA)

The PRA of 1980, 44 U.S.C. 3501 et seq., imposes certain

requirements on Federal agencies (including the Commission) in

connection with their conducting or sponsoring any collection of

information as defined by the PRA. In compliance with the PRA, the

Commission is submitting these proposed rules and their associated

information collection requirements to the Office of Management and

Budget. The burden associated with this entire collection and these

amended rules, is as follows:

Average burden hours per response................................0.3607

Number of respondents.............................................6,181

Frequency of response.............................................Daily

Persons wishing to comment on the information which would be

required by these rules should contact Jeff Hill, Office of Management

and Budget, Room 3228, NEOB, Washington, DC 20503, (202) 395-7304.

Copies of the information collection submission to OMB are available

from Joe F. Mink, CFTC Clearance Officer, Three Lafayette Centre, 1155

21st Street, NW., Washington, DC 20581, (202) 418-5170.

List of Subjects

17 CFR Part 15

Brokers, Reporting and recordkeeping requirements.

17 CFR Part 16

Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 17

Brokers, Commodity futures, Reporting and recordkeeping

requirements.

17 CFR Part 18

Brokers, Commodity futures, Reporting and recordkeeping

requirements.

17 CFR Part 19

Brokers, Commodity futures, Reporting and recordkeeping

requirements.

[[Page 37415]]

In consideration of the foregoing, and pursuant to the authority

contained in the Commodity Exchange Act (Act), and in particular,

sections 4g, 4i, 5 and 8a of the Act, 7 U.S.C. 6g, 6i, 7 and 12a

(1994), the Commission hereby amends chapter I of title 17 of the Code

of Federal Regulations as follows:

PART 15--REPORTS--GENERAL PROVISIONS

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

Authority: 7 U.S.C. 2, 4, 5, 6a, 6c (a)-(d), 6f, 6g, 6i, 6k, 6m,

6n, 7, 9, 12a, 19 and 21; 5 U.S.C. 552 and 552(b).

2. Section 15.00 is proposed to be amended by revising paragraph

(b) to read as follows:

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

chapter.

* * * * *

(b) Reportable position means:

(1) 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:

(i) Any one future of any commodity on any one contact market,

excluding futures contracts against which notices of delivery have been

stopped by a trader or issued by the clearing organization of a

contract market; or

(ii) Long or short put or call options that exercise into the same

future of any commodity on any one contract market.

(2) 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 contract market, excluding futures positions

against which notices of delivery have been stopped by a trader or

issued by the clearing organization of a contract 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 contract market.

* * * * *

3. Section 15.01 is proposed to be amended by revising paragraph

(d) to read as follows:

Sec. 15.01 Persons required to report.

* * * * *

(d) Persons, as specified in part 19 of this chapter, either:

(1) Who hold or control option and futures positions that exceed

the amounts set forth in Sec. 150.2 of this chapter for the commodities

enumerated in that section, any part of which constitutes bona fide

hedging positions (as defined in Sec. 1.3(z) of this chapter); or

(2) Who are merchants or dealers of cotton holding or controlling

positions for future delivery in cotton that equal or exceed the amount

set forth in Sec. 15.03.

PART 16--REPORTS BY CONTRACT MARKETS

4. The authority citation for Part 16 continues to read as follows:

Authority: 7 U.S.C. 6a, 6c, 6g, 6i, 7 and 12A.

Secs. 16.02 and 16.03 [Removed and reserved]

5. Part 16 is proposed to be amended by removing and reserving

Secs. 16.02 and 16.03.

6. Section 16.00 is proposed to be amended by revising paragraph

(a)(5) to read as follows:

Sec. 16.00 Clearing member reports.

(a) * * *

(5) For futures, the quantity of the commodity for which delivery

notices have been issued by the clearing organization of the contract

market and the quantity for which notices have been stopped during the

day covered by the report.

* * * * *

7. Section 16.01 is proposed to be amended by removing paragraphs

(a)(5) and (a)(6) and redesignating paragraph (a)(7) as (a)(5); by

redesignating paragraph (c) as (b)(3); and, by adding a new paragraph

(c) and revising paragraph (d) to read as follows:

Sec. 16.01 Trading volume, open contracts, prices and critical dates.

* * * * *

(c) Critical dates. Each contract market shall report to the

Commission for each futures contract the first notice date and the last

trading date and for each option contract the expiration date in

accordance with paragraph (d) of this section.

(d) Reports to the Commission. Unless otherwise approved by the

Commission or its designee, contract markets shall submit the

information specified in paragraphs (a), (b) and (c) of this section as

follows:

(1) Using a format and coding structure approved in writing by the

Commission or its designee in both hard-copy form and on compatible

data processing media;

(2) When each such form of the data is first available but not

later than 7 a.m. on the business day following the day to which the

information pertains for the delta factor and settlement price and not

later than 3 p.m. for the remainder of the information; and

(3) Except for dial-up data transmission, at the regional office of

the Commission having local jurisdiction with respect to such contract

market.

8. Section 16.06 is proposed to be revised to read as follows:

Sec. 16.06 Errors or omissions.

Contract markets shall file with the Commission on compatible data

processing media using a format and coding structure approved by the

Commission or its designee, corrections to errors or omissions in data

previously filed with the Commission pursuant to Secs. 16.00 and 16.01.

9. Section 16.07 is proposed to be revised to read as follows:

Sec. 16.07 Delegation of authority to the Director of the Division of

Economic Analysis and the Executive Director.

The Commission hereby delegates, until the Commission orders

otherwise, the authority set forth in paragraph (a) of this section to

the Director of the Division of Economic Analysis and the authority set

forth in paragraph (b) of this section to the Executive Director to be

exercised by such director or by such other employee or employees of

such director as may be designated from time to time by the director.

(a) Pursuant to Secs. 16.00(b), and 16.01(d) the authority to

determine whether contract markets must submit data in machine-readable

form or hard-copy or both, and the time and Commission office at which

such data may be submitted where the director determines that a

contract market is unable to meet the requirements set forth in the

regulations.

(b) Pursuant to Secs. 16.00(b)(1), 16.01(d)(1), and 16.06, the

authority to approve the use of data processing media other than

compatible data processing media as that term is defined in

Sec. 15.00(1) of this chapter and to approve the format and coding

structure used by contract markets.

PART 17--REPORTS BY FUTURES COMMISSION MERCHANTS, MEMBERS OF

CONTRACT MARKETS AND FOREIGN BROKERS

10. The authority citation for Part 17 continues to read as

follows:

Authority: 7 U.S.C. 6a, 6c, 6d, 6f, 6g, 68, 7 and 12a unless

otherwise noted.

11. Section 17.00 is proposed to be amended by revising paragraphs

(a), (d), (e), and (g) to read as follows:

[[Page 37416]]

Sec. 17.00 Information to be furnished by futures commission

merchants, clearing members and foreign brokers.

(a) Special Accounts--Reportable futures positions, delivery

notices and exchanges of futures for cash. (1) Each futures commission

merchant, clearing member and foreign broker shall submit a report to

the Commission for each business day with respect to all special

accounts carried by the futures commission merchant, clearing member or

foreign broker, except for accounts carried on the books of another

futures commission merchant on a fully-disclosed basis. Except as

otherwise authorized by the Commission or its designee, such report

shall be made on compatible data processing media in accordance with

the format and coding provisions set forth in paragraph (g) of this

section. The report shall show each futures position, separately for

each contract market and for each future, and each put and call option

position separately for each contract market, expiration month and

strike price in each special account as of the close of market on the

day covered by the report and, in addition, the quantity of exchanges

of futures for physicals and the number of delivery notices issued for

each such account by the clearing organization of a contract market and

the number stopped by the account.

(2) A report covering the first day upon which a special account is

no longer reportable shall also be filed showing the information

specified in paragraph (a)(1) of this section.

* * * * *

(d) Net positions. Futures commission merchants, clearing members

and foreign brokers shall report positions net long or short in each

future of a commodity and each strike price of a put or call option for

each expiration month in all special accounts, except as specified in

paragraph (e) of this section.

(e) Gross positions. In the following cases, the futures commission

merchant, clearing member or foreign broker shall report gross long and

short positions in each future of a commodity and each strike price of

a put or call option for each expiration month in all special accounts:

(1) Positions which are reported to an exchange or the

clearinghouse of an exchange on a gross basis, which the exchange uses

for calculating total open interest in a commodity;

(2) Positions in accounts owned or held jointly with another person

or persons;

(3) Positions in multiple accounts subject to trading control by

the same trader; and

(4) Positions in omnibus accounts.

* * * * *

(g) Media and file characteristics. (1) Except as otherwise

approved by the Commission or its designee, all required records shall

be submitted together in a single file. Each record will be 80

characters long. Specific record formats are shown in tables below.

There are two different record descriptions. The file must begin with a

type I record identifying the sequence of type II records that follow

as large trader data.

(2) The required records are as follows:

(i) Type I record.

------------------------------------------------------------------------

Beginning

column Length Type* Value or name

------------------------------------------------------------------------

1........ 10 AN ``X 01 Reg''.

11....... 8 AN Report Date.

18....... 62 -- Spaces.

------------------------------------------------------------------------

*AN--Alpha-numeric.

N--Numeric.

S--signed numeric.

(ii) Type II Record.

------------------------------------------------------------------------

Beginning column

Record ---------------------------------------------------------------

Layout Length Type* Name

------------------------------------------------------------------------

1....... 2 AN Report Type.

3....... 3 AN Reporting Firm.

6....... 2 -- Reserved.

8....... 12 AN Account Number.

20...... 8 AN Report Date.

28...... 2 AN Exchange Code.

30...... 1 AN Put or Call.

31...... 5 AN Commodity Code (1).

36...... 8 AN Expiration Date (1).

44...... 7 S Strike Price.

51...... 1 AN Exercise Style.

52...... 7 N Long-Buy-Stopped.

59...... 7 N Short-Sell-Issued.

66...... 5 AN Commodity Code (2).

71...... 8 AN Expiration Date (2).

79...... 2 -- Reserved.

------------------------------------------------------------------------

(3) Field definitions are as follows:

(i) Report Type. This report format will be used to report three

types of data: Long and short futures and option positions, futures

delivery notices issued and stopped, and exchanges of futures for

physicals bought and sold. Valid values for the report type are ``RP''

for reporting positions, ``DN'' for reporting notices, and ``EP'' for

reporting futures for physicals.

(ii) Reporting Firm. The clearing member number assigned by an

exchange or clearing house to identify reporting firms. If a firm is

not a clearing member, a three-character alpha-numeric identifier

assigned by the Commission.

(iii) Account Number. A unique identifier assigned by the

reporting firm to each special account. The field is 0-filled with

account number right-justified. Assignment of the account number is

subject to the provisions of Secs. 17.00 (b) and (c) and 17.01(a).

(iv) Report Date. The format is YYYYMMDD, where YYYY is the year,

MM is the month, and DD is the day of the month.

(v) Exchange. This is a two-character field used to identify the

exchange on which a position is held. Valid values are as follows:

01.............................. Chicago Board of Trade.

02.............................. Chicago Mercantile Exchange.

03.............................. MidAmerica Commodity Exchange.

06.............................. Coffee, Sugar and Cocoa Exchange.

07.............................. Comex Division of NYME.

08.............................. Kansas City Board of Trade.

09.............................. Minneapolis Grain Exchange.

10.............................. Philadelphia Board of Trade.

12.............................. New York Mercantile Exchange.

13.............................. New York Cotton Exchange.

15.............................. New York Futures Exchange.

(vi) Put-Call Code. Valid entries are ``C'' for a call option and

``P'' for a put option. For futures, the field is blank.

(vii) Commodity (1). An exchange-assigned commodity code for the

futures or option contract.

(viii) Expiration Date (1). The date format is YYYYMMDD and

represents the expiration date or delivery date of the reported futures

or option contract. For date-specific instruments such as flexible

products, the full date must be reported. For other options and

futures, this field is used to report the expiration year and month for

an option contract or a delivery year and month for a futures contract.

The day portion of the field for these contracts contains spaces.

(ix) Strike Price. This is a signed numeric field for reporting

option strike prices. The strike prices should be right- justified and

the field zero-filled. Strike prices must be reported in the same

formats that are specified by an exchange. For futures, the field is

left blank.

(x) Exercise Style. Valid values for this field are ``A'' for

American style options, i.e., those that can be exercised at any time

during the life of the options; and ``E'' for European, i.e., those

that can be exercised only at the end of an option's life. This field

is required only for flexible instruments or as otherwise specified by

the Commission.

(xi) Long-Buy-Stopped (Short-Sell-Issued). When report type is

``RP'', report long(short) positions open at the

[[Page 37417]]

end of a trading day. When report type is ``DN'', report delivery

notices stopped (issued) on behalf of the account. When report type is

``EP'', report purchases (sales) of futures for cash for the account.

Report all information in contracts. Position data are reported on a

net or gross basis in accordance with paragraphs (e) and (d) of this

section.

(xii) Commodity (2). The exchange assigned commodity code for a

futures contract or other instrument that a position is exercised into

from a date-specific or flexible option.

(xiii) Expiration Date (2). Similar to other dates, the format is

YYYYMMDD and represents the expiration date or delivery month and year

of the future or other instrument that a position is exercised into

from a date-specific or flexible option.

* * * * *

12. Section 17.02 is proposed to be amended by revising paragraph

(a) as follows:

Sec. 17.02 Place and Time of Filing Reports.

* * * * *

(a) For data submitted on compatible data processing media:

(1) At the Chicago Regional office for dial-up data transmission;

at the Chicago or New York Regional Office for magnetic tape; and at

the Chicago, New York or Kansas City Regional Office for magnetic

diskettes.

(2) Not later than 9 a.m. on the business day following that to

which the information pertains or for contract markets on an exchange

that is receiving data from the Commission, at such earlier time as

specified by the exchange.

* * * * *

13. Section 17.04 is proposed to be amended by revising paragraph

(a) and the introductory text of paragraph (b) to read as follows:

Sec. 17.04 Reporting omnibus accounts to the carrying futures

commission merchant or foreign broker.

(a) Any futures commission merchant, clearing member or foreign

broker who establishes an omnibus account with another futures

commission merchant or foreign broker shall report to that futures

commission merchant or foreign broker the total open long positions and

the total open short positions in each future of a commodity, and, for

commodity option transactions, the total open long put options, the

total open short put options, the total open long call options, and the

total open short call options for each commodity option expiration date

and each strike price in such account at the close of trading each day.

The information required by this section shall be reported in

sufficient time to enable the futures commission merchant or foreign

broker with whom the omnibus account is established to comply with Part

17 of these regulations and reporting requirements established by the

contract markets.

(b) In determining open long and open short futures positions, and

open purchased long and open granted short option positions, in an

omnibus account for purposes of complying with Sec. 17.00(f),

Sec. 1.37(b) and Sec. 1.58 of this chapter, a futures commission

merchant, clearing member or foreign broker shall total the open long

positions of all traders and the open short positions of all traders in

each future of a commodity and, for commodity option transactions,

shall total the open put long options, the open short put options, the

open long call options, and the open short call options of all traders

for each commodity option expiration date and each strike price. The

futures commission merchant, clearing member or foreign broker shall,

if both open long and short positions in the same future are carried

for the same trader, compute open long or open short futures positions

as instructed below.

* * * * *

PART 18--REPORTS BY TRADERS

14. The authority citation for part 18 continues to read as

follows:

Authority: 7 U.S.C. 2, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 12a,

and 19; 5 U.S.C. 552 and 552(b) unless otherwise noted.

15. Part 18 is proposed to be amended by adding a new Sec. 18.03 as

follows:

Sec. 18.03 Delegation of authority to the Director of the Division of

Economic Analysis.

The Commission hereby delegates, until the Commission orders

otherwise, the authority to make special calls on traders for

information as set forth in Secs. 18.00, 18.04 and 18.05 to the

Director of the Division of Economic Analysis to be exercised by the

Director or by such other employee or employees of the Director as may

be designated from time to time by the Director.

16. Section 18.04 is proposed to be amended by removing paragraph

(d) and by revising the introductory text to read as follows:

Sec. 18.04 Statement of reporting trader.

Every trader who holds or controls a reportable option or futures

position shall after a special call upon such trader by the Commission

or its designee file with the Commission a ``Statement of Reporting

Trader'' on the form 40 at such time and place as directed in the call.

All traders shall complete part A of the form 40 and, in addition,

shall complete:

Part B--If the trader is an individual, a partnership or a joint

tenant.

Part C--If the trader is a corporation or type of trader other

than an individual, partnership, or joint tenant.

* * * * *

PART 19--REPORTS BY PERSONS HOLDING BONA FIDE HEDGE POSITIONS

PURSUANT TO Sec. 1.3(Z) OF THIS CHAPTER AND BY MERCHANTS AND

DEALERS IN COTTON

17. The authority section for part 19 continues to read as follows:

Authority: 7 U.S.C. 6g(a), 6i and 12a(5), unless otherwise

noted.

18. Section 19.00 is proposed to be amended by revising paragraphs

(a)(1) and (a)(3) to read as follows:

Sec. 19.00 General provisions.

(a) * * *

(1) All persons holding or controlling options or futures positions

that are reportable pursuant to Sec. 15.00(b)(2) of this chapter and

any part of which constitute bona fide hedging positions as defined in

Sec. 1.3(z) of this chapter,

* * * * *

(3) All persons holding or controlling positions that are

reportable pursuant to Sec. 15.00(b)(1) of this chapter who have

received a special call for series '04 reports from the Commission or

its designee. Filings in response to a special call shall be made

within one business day of receipt of the special call unless otherwise

specified in the call. For the purposes of this paragraph, the

Commission hereby delegates to the Director of the Division of Economic

Analysis, or to such other person designated by the Director, authority

to issue calls for series '04 reports.

* * * * *

Issued in Washington, DC., this 12th day of July, 1996, by the

Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 96-18262 Filed 7-17-96; 8:45 am]

BILLING CODE 6351-01-P