Proposed Rulemaking Concerning Contract Market Rule Review Procedures

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

Proposed Rulemaking Concerning Contract Market Rule Review

Procedures

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is

proposing a rulemaking which would amend the Commission's procedures

relating to its review of those contract market rules that do not

relate to contract terms and conditions. A separate proposal is

currently pending for rules relating to terms and conditions. The

instant proposal would shorten the Commission's time frame for

reviewing complex rules and streamline the review process so that such

rule changes generally could be deemed approved or be permitted to be

put into effect without Commission approval.

Specifically, all such rule changes meeting the form and content

requirements would be deemed approved or be permitted to be put into

effect without approval ten days after Commission receipt, unless the

Commission took action to commence review of the proposal for a 45-day

period (or a 75-day period in the case of rules published for comment

in the Federal Register) or the contract market agreed to another,

specified review period. At the end of such a period, a proposed rule

meeting the form and content requirements would be deemed approved or

become effective without approval unless the Commission informed the

submitting contract market of its intention to initiate disapproval

proceedings, the contract market withdrew the proposal, or the contract

market requested that the review period be extended to the current 180-

day period.

DATE: Comments on the proposed rulemaking must be received by January

16, 1997.

ADDRESSES: Comments should be mailed to Jean A. Webb, Secretary,

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

Street, NW., Washington, DC 20581; transmitted by facsimile to (202)

418-5521; or transmitted electronically to [[email protected]].

FOR FURTHER INFORMATION CONTACT: David P. Van Wagner, Special Counsel,

Division of Trading and Markets, Commodity Futures Trading Commission,

Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

Telephone: (202) 418-5490.

SUPPLEMENTARY INFORMATION

I. Current Statutory and Regulatory Requirements

Section 5a(a)(12)(A) of the Commodity Exchange Act (``Act''), 7

U.S.C. 7a(a)(12)(A), provides that all rules \1\ of a contract market

that relate to terms and conditions \2\ in futures or option contracts

traded on or subject to the rules of a contract market must be

submitted to the Commission for its prior approval. If the Commission

does not approve or begin disapproval proceedings for such a proposed

rule within 180 days of the Commission's receipt of the submission, the

contract market may make the rule effective.\3\

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\1\ Commission Regulation 1.41(a)(1) defines ``rule'' of a

contract market to mean:

* * * any constitutional provision, article of incorporation,

bylaw, rule, regulation, resolution, interpretation, stated policy,

or instrument corresponding thereto, in whatever form adopted, and

any amendment or addition thereto or repeal thereof, made or issued

by a contract market, or by the governing board thereof or any

committee thereof.

\2\ Commission Regulation 1.41(a)(2) defines ``terms and

conditions'' to mean:

* * * any definition of the trading unit or the specific

commodity underlying a contract for the future delivery of a

commodity or commodity option contract, specification of settlement

or delivery standards and procedures, and establishment of buyers'

and sellers' rights and obligations under the contract. Terms and

conditions shall be deemed to include provisions relating to the

following:

(i) Quality or quantity standards for a commodity and any

applicable exemptions or discounts;

(ii) Trading hours, trading months and the listing of contracts;

(iii) Minimum and maximum price limits and the establishment of

settlement prices;

(iv) Position limits and position reporting requirements;

(v) Delivery points and locational price differentials;

(vi) Delivery standards and procedures, including alternatives

to delivery and applicable penalties or sanctions for failure to

perform;

(vii) Settlement of the contract; and

(viii) Payment or collection of commodity option premiums or

margins.

\3\ In addition, if the Commission institutes a disapproval

proceeding for a proposed rule within 180 days of receipt, but does

not conclude the disapproval proceeding within one year of receipt,

the contract market may make the rule effective until such time as

the Commission disapproves the rule.

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Section 5a(a)(12)(A) further requires that contract markets submit

all other rules to the Commission. Such other rules may be made

effective ten days after Commission receipt unless, within the ten-day

period, the contract market requests Commission approval or the

Commission notifies the contract market that it intends to review the

rules for approval. Section 5a(a)(12)(A) also provides that at least

thirty days before approving any rules of major economic significance,

as determined by the Commission, the Commission shall publish a notice

of such rules in the Federal Register.

Commission Regulation 1.41 sets forth procedures for submitting

proposed contract market rules for Commission approval, permitting

proposed contract market rules to go into effect without Commission

approval, and dealing with contract market emergency rules. All

proposed contract market rules relating to the terms and conditions of

a commodity futures or option contract must, and any other rule may, be

submitted for prior Commission approval, under section 5a(a)(12)(A) of

the Act, pursuant to procedures set forth in Commission Regulation

1.41(b). (Significantly, certain other sections of the Act require

rules addressing specified matters to be explicitly approved by the

Commission.) Commission Regulation 1.41(c) sets forth the submission

requirements for rules that do not require Commission approval and that

may be placed into effect ten days after receipt by the Commission.

On November 22, 1996, the Commission published a proposed

rulemaking which would revise the procedures for contract market

designations and the review of rules relating to contract terms and

conditions under Regulation 1.41(b).4 Specifically, that proposed

rulemaking would establish ``fast-track'' review procedures which would

permit certain contract market rules to be deemed approved 45 days

after receipt by the Commission (or 75 days after receipt in cases

where the Commission decided to extend the review period). These fast-

track review procedures would be an alternative to the current 180-day

review procedures under section 5a(a)(12)(A) of the Act and Commission

Regulation 1.41(b).

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\4\ 61 FR 59386.

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The instant rulemaking would revise the review procedures for rules

that do not relate to contract terms and conditions. It addresses those

rules that, although they do not relate to terms and conditions,

nevertheless require approval under a specific provision of the Act and

those rules that do not require approval and for which the review

period has been extended by the contract market or the

Commission.5 The different review periods set forth in the two

proposed rulemakings reflect differences established in the statute

between terms and conditions and other types of rules and the volume of

contract market rulemakings that are not terms and conditions.6

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\5\ In the past three fiscal years, the Commission has processed

866 non-term and condition submissions. The Commission handled 587

of these in ten days or fewer. This represents approximately 68% of

all such submissions received. The Commission processed 613

submissions in 30 days or fewer. This represents approximately 71%

of all

[[Page 66242]]

such submissions. In many of the instances where the review period

exceeded thirty days, in lieu of commencing disapproval proceedings

or remitting the rules, the Commission kept such rules under review

while the contract market addressed relevant issues or the

Commission undertook changes to regulations that otherwise precluded

the immediate implementation of the proposed rule.

\6\ See section 5a(a)(12)(A) of the Act. Submissions related to

terms and conditions constitute approximately 40% of all

submissions. Other types of rules constitute approximately 60% of

all submissions.

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II. Description of Proposed Rulemaking

A. Overview

The Commission believes that the rule review process is essential

to ensure the integrity of the markets and to ensure that the public

interest is protected. At the same time, the Commission wants to

encourage innovation by the contract markets. The proposed rulemaking

is designed to expedite the Commission's existing two-track procedures

for the review of contract market rule proposals that do not relate to

contract terms and conditions. As described in more detail below, the

proposal would:

--Permit certain rules to be deemed approved within ten days of receipt

that currently are subject to a 180-day deadline;

--Require the Commission to identify the issues raised by novel or

complex proposals within 10 days of receipt;

--Reduce by up to 75% the time within which the Commission was required

to act on the small portion of rules not handled during the ten-day

review period;

--Make clear that a contract market could choose to extend the review

period rather than be subject to a disapproval proceeding; and

--Require disapproval proceedings to be initiated no later than 15 days

after the submitting contract market advised the Commission that it did

not wish to withdraw the proposed rule.

The Commission believes that under the proposed procedures, the

Commission would identify issues early in the process and make

decisions on proposed rules in an expeditious manner.7 Similarly,

the compressed time frames would increase the incentive for contract

markets to ensure that their initial submissions fully articulated the

operation, purpose, and effect of their proposals and to attempt to

resolve open issues more quickly.8

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\7\ The rulemaking would not alter the existing statutory

requirement that any determination to extend the ten-day review

period for certain rules is not delegable to staff. See section

5a(a)(12)(A) of the Act. The Commission would continue to make this

determination. Upon implementation of the proposed rulemaking, the

Commission anticipates it would adjust its internal processes, as

appropriate, to accommodate the new procedures.

\8\ For example, under current procedures, contract markets may

have an incentive to submit proposals before all the details have

been finalized in order to start the running of the 180-day review

period. In such cases, the submission would be supplemented during

the course of the review. Under the proposal, there would be an

incentive to make the initial submission as complete as possible in

order to obtain approval within the initial ten-day period.

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The Commission expects that the proposed procedures would increase

the percentage of submissions handled within ten days. Moreover, by

simplifying the procedures for routine submissions and by imposing

stricter deadlines at various stages, the proposal would enable the

Commission and the contract markets to focus resources on the smaller

subset of novel and complex submissions that require additional time

for review. This would result in quicker identification and resolution

of issues in such cases.

The following description consists of a section-by-section analysis

of the Commission's proposed rulemaking. In addition to explaining the

rationale and operation of the proposal, this description is intended

to provide interested persons with a framework for addressing issues

which may be raised by particular provisions of the rulemaking.

B. Proposed Regulation 1.41(b)--Rules That Relate to Terms and

Conditions

Current Commission Regulation 1.41(b) establishes approval

procedures for proposed contract market rules relating to contract

terms and conditions, other rules that require approval under a

specific provision of the Act, rules for which the submitting contract

market requests approval, and rules the Commission determines to review

for approval. The Commission is proposing to amend Regulation 1.41(b)

so that it would apply only to proposed rules relating to terms and

conditions. The procedures for the review of such rules are addressed

in the related proposed rulemaking mentioned above.9

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\9\ 61 FR 59386 (November 22, 1996).

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C. Proposed Regulation 1.41(c)--Rules That Do Not Relate to Terms and

Conditions

Current Commission Regulation 1.41(c) establishes review procedures

for proposed contract market rules which do not require Commission

approval and may be placed into effect ten days after receipt by the

Commission. The Commission's proposed rulemaking would revise

Regulation 1.41(c) in two significant respects.

First, the rulemaking would expand the scope of rules eligible to

be reviewed pursuant to Regulation 1.41(c) to include all proposed

rules, other than terms and conditions, that the Commission reviews for

approval. These types of rules would include rules that required

approval under a provision of the Act other than Section

5a(a)(12)(A),10 rules that the Commission decided to review for

approval, and rules that the submitting contract market requested be

reviewed for approval.

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\10\ Several provisions of the Act other than section

5a(a)(12)(A) require Commission approval of contract market rules:

Section 4b(b) (crossing of orders); Section 4c(a) (exchange of

futures for physicals, transfer trades and office trades); and

Section 4f(b) (financial requirements for futures commission

merchants). Several provisions of the Commission's regulations also

require Commission approval of contract market rules: Regulation

8.02 (disciplinary proceedings); Regulation 155.2 (trading standards

for floor brokers); and Regulation 190.05(b) (deliveries on behalf

of a customer of a bankrupt firm).

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Second, the rulemaking would compress the time for review. Under

the proposal, the Commission would be required to act on all non-term

and condition rule changes within ten days of receipt. Unless the

Commission found that a rule proposal involved complex or novel issues

or was of major economic significance and affirmatively decided to

retain it for further review, all non-term and condition rule changes

would be deemed approved or be permitted to be placed into effect

without approval, as appropriate, ten days after the Commission's

receipt.

For those rule proposals that the Commission decided merited

further review, the proposed rulemaking would reduce the Commission's

maximum review time from the current 180 days to 45 or 75 days, unless

the submitting contract market requested otherwise. Finally,

disapproval proceedings for a proposed rule would have to be instituted

within 75 or 105 days rather than the current 180 days.

1. Proposed Regulation 1.41(c)(1)(i)--Form and Content of Submissions

Under proposed Regulation 1.41(c)(1)(i), contract markets would be

required to submit to the Commission for review all proposed rules that

did not relate to terms and conditions and were not otherwise

exempt.11 Because

[[Page 66243]]

this rulemaking would substantially reduce the period of time the

Commission would have to review and dispose of rule proposals, it would

be very important for contract markets to ensure that their submissions

fully complied with the form and content requirements.

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\11\ Commission Regulations 1.41(d) and 1.41(f), respectively,

set forth the submission requirements for contract market rules that

are exempt from the requirements of section 5a(a)(12)(A) of the Act

and that relate to temporary emergencies. These regulations are not

affected by the subject rulemaking.

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Each submission would have to comply with all the form and content

requirements that currently apply to rules submitted to the Commission

pursuant to Regulation 1.41(b) and Regulation 1.41(c). In addition,

because proposed Regulation 1.41(c) would establish review procedures

for both rules that receive Commission approval and rules that may be

put into effect without Commission approval, the proposed rulemaking

would require that Regulation 1.41(c) submissions included certain

other information to facilitate the Commission's review of both these

categories of rules.

Proposed Regulation 1.41(c)(1)(i)(F) would require that contract

markets specified in their submissions any sections of the Act or the

Commission's regulations that were related to a proposed rule,

particularly citing any such provisions that required Commission

approval of the rule. To the extent a submission was potentially

inconsistent with a provision of the Act or the Commission's

regulations, the proposal would require that the submission contained a

reasoned analysis addressing that issue and supporting adoption of the

rule.

Proposed Regulation 1.41(c)(1)(i)(G) would require that contract

markets indicated in their submissions whether they were requesting

Commission approval for a proposed rule. This requirement would help

the Commission to distinguish rules which did not require Commission

approval but for which a submitting contract market was requesting

approval from rules that a contract market wished to put into effect

without Commission approval.12

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\12\ With the exception of certain emergency actions, contract

markets may request Commission approval of proposed rules that

otherwise could be put into effect without Commission approval. In

some cases, contract markets request approval in order to receive

some degree of immunity from the antitrust or other relevant laws.

See Johnson and Hazen, Commodities Regulation, Sec. 2.56.

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The proposed rulemaking also would amend the current requirement of

Commission Regulation 1.41 that contract markets include in their rule

submissions any substantive views expressed by their members or others

in opposition to a proposed rule.13 As a clarification of this

requirement, the proposed rulemaking would specify that the views of

opposing governing board members also must be included in proposed rule

submissions.14 In addition, the proposed rulemaking would provide

that the currently-required description of opposing views must indicate

the membership interest categories of persons who were opposed to the

proposed contract market rule.

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\13\ Current Commission Regulation 1.41(b)(5) requires that rule

submissions ``[n]ote and briefly describe any substantive views

expressed by the members of the contract market or others with

respect to the proposed rule.''

\14\ The Commission believes that the disclosure of the views

and categories of board members who opposed a proposed rule during

board deliberations would aid the Commission in its oversight of the

self-governance processes of the contract markets and in determining

whether rules should be subject to public comment.

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Identification of the actual individual would not be required. The

Commission believes that information about the views and categories of

persons who opposed a rule would help the Commission to ascertain

quickly any issues which were raised by the proposal and, thus,

generally would benefit the rule review process.15

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\15\ The proposed revisions to Regulation 1.41's form and

content requirements merely would reflect information that

Commission staff customarily requests from contract markets

submitting rule proposals that potentially raise regulatory

concerns. By clarifying that such information must be included in a

contract market's original submission of a rule, the proposed

rulemaking would ensure that the Commission would have such

information at the outset of the rule review process and, thus,

should facilitate the Commission's review of proposed rules within

the compressed time frames of this rulemaking.

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2. Proposed Regulation 1.41(c)(1)(ii)--Failure to Meet Form and Content

Requirements

Under proposed Regulation 1.41(c)(1)(ii), the Commission would

retain the authority to remit rule proposals which did not comply with

the form and content requirements of Regulation 1.41(c)(1)(i). This

provision would simply replicate the remittal provisions of current

Regulation 1.41(b) and Regulation 1.41(c).

3. Proposed Regulation 1.41(c)(1)(iii)--Extension of Review Period

Proposed Regulation 1.41(c)(1)(iii) specifies that the Commission

might extend the ten-day review period to 45 or 75 days for a proposed

rule if it determined within ten days of receipt that the rule ``raises

novel or complex issues which require additional time for review or is

of major economic significance'' and so notified the submitting

contract market.16 Such rules frequently generate inquiries or

comments from the public, the industry, or government agencies. In some

cases, the views of such commenters may not have been taken into

account in the contract market decision-making process. A review period

longer than ten days is often necessary to address such concerns

adequately.

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\16\ Examples of the types of rules that might require more than

ten days for review would include:

--Rules relating to the financial integrity of markets or their

participants;

--Rules establishing novel trading procedures or providing for

non-competitive trading;

--Rules providing for the differential treatment of different

classes of market participants;

--Rules establishing linkages among exchanges; and,

--Rules relating to the application of new technology to the

marketplace.

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The provision would require the Commission's notification to

specify the nature of the issues that necessitated additional review of

a rule proposal. The standard is essentially the same as that set forth

in the Commission's proposed rulemaking relating to term and condition

rule changes for extending the 45-day review period to 75 days.17

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\17\ See 61 FR 59386 (November 22, 1996).

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4. Proposed Regulation 1.41(c)(2)--Action Within Ten Days

Proposed Regulation 1.41(c)(2) would provide that proposed rules

(other than terms and conditions) that required approval or that could

be placed into effect without approval would be deemed approved or

allowed to go into effect without approval, as appropriate, ten days

after their receipt by the Commission unless the Commission notified

the submitting contract market otherwise. As previously noted, the ten-

day period within which rules would be deemed approved is much shorter

than the 180-day period provided for in the Act.

Under this provision, the only bases for such notification would be

if the submission did not comply with Regulation 1.41(c)(1)(i)'s form

and content requirements, the Commission decided to extend the review

period pursuant to Regulation 1.41(c)(1)(iii), or the contract market

agreed to another, specified review period. The last provision reflects

an informal procedure that has been followed in the past with respect

to ten day rules where a contract market grants an extension or tolls

the time period while it amends the proposed rule, rather than having

the Commission remit the rule or convert it to a 180-day track.

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5. Proposed Regulation 1.41(c)(3)--Action Within 45 or 75 days

Generally, under proposed Regulation 1.41(c)(3), any proposed rule

which the Commission retained for further review under Regulation

1.41(c)(1)(iii) would be deemed approved or allowed to go into effect,

as determined by the Commission, 45 days after Commission receipt (or

75 days in the case of rules which were published for comment in the

Federal Register).18 By providing the Commission with the

discretion to approve a proposed rule or to allow it into effect at the

end of the 45- or 75-day review period, the rulemaking would replicate

the options currently available to the Commission under section

5a(a)(12)(A) of the Act at the end of 180 days. The proposed rulemaking

would simply compress the time frame to 45 or 75 days.

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\18\ Under section 5a(a)(12)(A) of the Act, the Commission is

required to publish in the Federal Register for public comment any

proposed rule of major economic significance. In addition, the

Commission generally publishes significant rule changes when it

believes that it is in the public interest to do so and that it

would be beneficial to ascertain the views of persons or entities

that might be affected by the proposal. While section 5a(a)(12)(A)

of the Act specifies that rules of major economic significance must

be published at least 30 days prior to approval of any such rules,

neither the Act nor the Commission's regulations specify any minimum

length for public comment periods.

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Proposed Regulation 1.41(c)(3) provides for two exceptions to this

deadline: rule submissions that have not satisfied the form and content

requirements of Regulation 1.41(c)(1)(i) 19 or proposed rules as

to which the Commission notified the contract market of its intention

to initiate a disapproval proceeding. Again, both the 45-day and 75-day

time periods are considerably shorter than the 180-day period currently

provided for rules reviewed pursuant to Commission Regulation 1.41(b).

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\19\ Historically, the Commission and its staff have always

attempted to have contract markets cure defects in the form and

content of their submissions as early as possible in the rule review

process. However, the Commission's experience also has been that

questions about the operation, purpose and effect of significant

rule proposals can arise at any point in the review process,

especially when issues are raised during the course of a public

comment period. For example, other government agencies such as the

Securities and Exchange Commission (``SEC''), the Department of the

Treasury, the Federal Reserve Board, and the Department of Justice

have expressed their regulatory interests in or identified issues

relating to contract market rule proposals during the course of

Commission review. Moreover, in some circumstances, such as the

development of capital or reporting requirements, the gathering of

information from the SEC and commodities and securities self-

regulatory organizations may be necessary to avoid duplicative

requirements and to assure adequate coverage. Accordingly, under

proposed Regulation 1.41(c)(3)(i), the Commission would retain the

discretion to remit a proposal for failure to satisfy form and

content requirements throughout the specified review period.

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6. Proposed Regulation 1.41(c)(4)--Disapproval Proceedings

Under proposed Regulation 1.41(c)(4), any Commission notice to a

contract market that the Commission intended to commence disapproval

proceedings with respect to a proposed rule change would be required to

specify the nature of the issues raised by the proposal and the

sections of the Act or the Commission's regulations that the rule

appeared to violate. Under the provision, the submitting contract

market would have 15 days from the issuance of the notification either

to withdraw the proposal or to request that the Commission consider the

proposal pursuant to the regular 180-day review procedures of section

5a(a)(12)(A) of the Act. If the submitting contract market chose

neither of these options, the Commission would commence disapproval

proceedings no later than 30 days after its issuance of the

notification. Section 5a(a)(A)(12) sets forth procedures for Commission

disapproval of proposed rules and provides, among other things, an

opportunity for the submitting contract market to appear on its own

behalf at a Commission hearing.

Under the proposed rulemaking, disapproval proceedings would

commence within 75 days of a rule's submission (or 105 days in the case

of rules which were published for comment in the Federal Register).

Currently, the Commission may institute disapproval proceedings up to

180 days after a rule's submission. The Commission's proposed shortened

time frame for rule disapproval is intended to advance the general

purpose of this proposed rulemaking: to accelerate the Commission's

review of proposed rule changes and to allow contract markets to

implement rule changes in a more timely manner than is the case under

the current rule review scheme of Regulation 1.41.

III. Conclusion

The Commission believes that the proposed amendments to Regulation

1.41 would shorten the review time for non-term and condition rule

changes and streamline the rule review process. Accordingly, the

proposed rulemaking should enable contract markets to implement rule

proposals in a more timely manner than can be done at the present time,

without sacrificing the ability of the Commission to assure an adequate

public comment process and consistency of a proposed rule with the Act

and the regulations. The proposal also would provide the Commission

with the necessary experience to determine whether further streamlining

could be achieved. The Commission invites public comment on any aspect

of its proposed rulemaking and, in particular, on the appropriateness

of the proposed time frames.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,

requires that agencies, in proposing rules, consider the impact of

those rules on small businesses. The Commission has previously

determined that contract markets are not ``small entities'' for

purposes of the RFA, and that the Commission, therefore, need not

consider the effect of proposed rules on contract markets.20

Accordingly, the Chairperson, on behalf of the Commission, hereby

certifies, pursuant to section 3(a) of the RFA, 5 U.S.C. 605(b), that

the proposed rulemaking, if adopted, would not have a significant

economic impact on a substantial number of small entities.

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\20\ See 47 FR 18618, 18619 (April 30, 1982).

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B. Agency Information Activities: Proposed Collection; Comment Request

The Paperwork Reduction Act of 1980 (``PRA''), 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. While the proposed

rulemaking has no burden, the group of rules (3038-0022) of which this

is a part has the following burden:

Average burden hours per response..............................3,546.26

Number of respondents.........................................10,971.00

Frequency of response.......................................On Occasion

Persons wishing to comment on the information that would be

required by the proposed rulemaking should contact David Rostker,

Office of Management and Budget (``OMB''), Room 3228, NEOB, Washington,

DC 20503, (202) 395-7340. Copies of the information collection

submission to OMB are available from Gerald P. Smith, Clearance

Officer, Commodity Futures Trading Commission, Three Lafayette Centre,

1155 21st Street, N.W., Washington, DC 20581. Telephone: (202) 418-

5160.

List of Subjects in 17 CFR Part 1

Commodity exchanges, Contract markets, Rule review procedures.

In consideration of the foregoing, and based on the authority

contained in the

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Commodity Exchange Act and, in particular, sections 4c, 5, 5a, 6 and 8a

thereof, 7 U.S.C. 6c, 7, 7a, 8 and 12a, the Commission is hereby

proposing to amend title 17, chapter I, part 1 of the Code of Federal

Regulations as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

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

Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a, 6b, 6c, 6d, 6e, 6f,

6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 8, 9, 12, 12a, 12c,

13a, 13a-1, 16, 16a, 19, 21, 23, and 24.

2. Section 1.41 would be proposed to be amended be revising the

first sentence of paragraph (b) and paragraph (c) to read as follows:

Sec. 1.41 Contract market rules; submission of rules to the

Commission; exemption of certain rules.

* * * * *

(b) Rules that relate to terms and conditions. Except as provided

herein and in paragraph (f) of this section, all proposed contract

market rules that relate to terms and conditions must be submitted to

the Commission for approval pursuant to section 5a(a)(12)(A) of the Act

prior to their proposed effective dates. * * *

(c) Rules that do not relate to terms and conditions. (1)(i) Except

as provided in paragraphs (d) and (f) of this section (exempt or

temporary emergency rules), each contract market shall submit to the

Commission pursuant to section 5a(a)(12)(A) of the Act prior to the

proposed effective dates all proposed rules that do not relate to terms

and conditions. One copy of the rule shall be furnished to the

Commission at its Washington, DC headquarters, and one copy shall be

transmitted by the contract market to the regional office of the

Commission having local jurisdiction over the contract market. Each

such submission under this paragraph (c) shall, in the following order:

(A) State that it is being submitted pursuant to Commission

regulation 1.41(c);

(B) Set forth the text of the proposed rule (in the case of any

change in, addition to, or deletion from any current rule of the

contact market, the current rule shall be fully set forth, with

brackets used to indicate words to be deleted and underscoring used to

indicate words to be added);

(C) Describe the proposed effective date of the proposed rule and

any action taken or anticipated to be taken to adopt the proposed rule

by the contract market, or by the governing board thereof or any

committee thereof, and cite the rules of the contract market which

authorize the adoption of the proposed rule;

(D) Explain the operation, purpose, and effect of the proposed

rule, including, as applicable, a description of the anticipated

benefits to market participants or others, any potential

anticompetitive effects on market participants, or others, how the rule

fits into the contract market's scheme of self-regulation, information

which demonstrates that the proposed rule is not inconsistent with the

policies and purposes of the Act, and any other information which may

be beneficial to the Commission in analyzing the proposed rule. If a

proposed rule affects, directly or indirectly, the application of any

other rule of the contract market, set forth the pertinent text of any

such rule and describe the anticipated effect;

(E) Note and briefly describe any substantive opposing views

expressed by governing board members, members of the contract market,

or others with respect to the proposed rule which were not incorporated

into the proposed rule prior to its submission to the Commission. Any

such description also should identify the membership interest

categories, as that term is defined by Commission regulation

1.64(a)(4), of persons who were opposed to the proposed rule;

(F) Identify any sections of the Act or the Commission's

regulations that are related to the rule, including any provisions that

require Commission approval of the rule, and, to the extent of any

potential inconsistency between the proposed rule and the Act or the

Commission's regulations, provide a reasoned analysis addressing the

issue and supporting the submission; and

(G) State whether the contract market is requesting approval of the

proposed rule by the Commission.

(ii) The Commission may remit to the contract market, with an

appropriate explanation where practicable, and not accept for review

any rule submission that does not comply with the form and content

requirements of paragraphs (c)(1)(i) (A)-(F) of this section.

(iii) The Commission may notify the contract market within ten days

after receipt of a submission filed pursuant to paragraph (c)(1) of

this section, that the proposed rule raises novel or complex issues

which require additional time for review or is of major economic

significance and therefore that the review period has been extended as

specified in paragraph (c)(3) of this section. This notification will

briefly specify the nature of the issues for which additional time for

review is required.

(2) All proposed contract market rules submitted for review under

paragraph (c) of this section may be deemed approved or be placed into

effect, as appropriate, ten days after Commission receipt (or at such

earlier time as may be determined by the Commission) unless:

(i) The Commission notifies the contract market that the submission

does not comply with the form and content requirements of paragraphs

(c)(1)(i) (A)-(F) of this section;

(ii) The Commission notifies the contract market that the review

period for the submission has been extended pursuant to paragraph

(c)(1)(iii) of this section; or

(iii) The contract market agrees to another, specified review

period.

(3) Any rule for which the Commission extends the review period

pursuant to paragraph (c)(1)(iii) of this section may be deemed

approved or be placed into effect, as determined by the Commission,

forty-five days after Commission receipt of such rule or seventy-five

days after Commission receipt in the case of rules that have been

published for comment in the Federal Register (or at such earlier time

as may be determined by the Commission) unless the Commission notifies

the contract market that:

(i) The submission, including any supplementary materials and in

consideration of any comments from the public or other government

agencies, does not comply with the form and content requirements of

paragraphs (c)(1)(i) (A)-(F) of this section; or

(ii) The Commission intends to institute a proceeding to disapprove

the rule pursuant to the procedures specified in section 5a(a)(12)(A)

of the Act.

(4) A notice of intention to commence a disapproval proceeding

issued pursuant to paragraph (c)(3) of this section will:

(i) Identify the nature of the issues raised by the proposed rule

and the specific sections of the Act or the Commission's regulations

that the rule appears to violate; and,

(ii) State that the Commission will commence disapproval

proceedings for the proposed rule within thirty days after the

Commission's issuance of the notification, unless within fifteen days

of such issuance the contract market:

(A) Withdraws the rule, or

(B) Requests the Commission to review the rule pursuant to the one

hundred and eighty day review procedures set forth in section

5a(a)(12)(A) of the Act.

[[Page 66246]]

Issued in Washington, DC, on December 10, 1996, by the

Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 96-31836 Filed 12-16-96; 8:45 am]

BILLING CODE 6351-01-P