Reports by Futures Commission Merchants, Members of Contract Markets, and Foreign Brokers

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 17

Reports by Futures Commission Merchants, Members of Contract

Markets, and Foreign Brokers

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

is amending rule 17.01 and modifying the form 102 required to be filed

by clearing members, futures commission merchants (FCMs), and foreign

brokers. This form identifies persons having financial interest in, or

control of, special accounts in futures and options. The amendments

being adopted clarify the information required on the form 102 for

various kinds of special accounts reported to the Commission. The

Commission is also amending rule 17.02 concerning the time in which a

completed form 102 must be filed. The rule requires that firms provide

certain specified identification information upon request by the

Commission or its designee on the day when a special account is first

reported, and that a completed form 102 be filed with the Commission

within three business days.

EFFECTIVE DATE: August 20, 1996.

FOR FURTHER INFORMATION CONTACT: Lamont L. Reese, Supervisory

Statistician, Division of Economic Analysis, Commodity Futures Trading

Commission, Three Lafayette Centre, 1155 21st Street NW., Washington,

DC 20581, (202) 418-5310.

SUPPLEMENTARY INFORMATION:

I. Background

A. Large Trader Reporting System

Part 17 of the Commission's regulations requires that FCMs,

clearing members, and foreign brokers (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 For reporting purposes, futures

positions in all accounts controlled by the same person and those in

which a person has a ten percent or more financial interest must be

combined and treated as if they are held in a single account. The firm

assigns a reporting number to the special account and reports all

information to the Commission using this number.3

\1\ Special account means any commodity futures or option

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

(1994). Firms report futures information to the Commission 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 (1994).

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

carried on its books. However, as noted above, the number may refer

to a collection of accounts that are owned and/or controlled by the

same person.

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In addition to the reporting number and the position and

transaction information mentioned above, the firm must file a CFTC form

102 showing the information specified under Sec. 17.01 of the

regulations for each special account.4 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. The form must

be filed when the account first becomes reportable, and updated when

information concerning financial interest in, or control of, the

special account changes.5 In addition to its use by the

Commission, the form 102 is used by the exchanges to identify accounts

reported through their large trader reporting systems for both futures

and options.6

\4\ 17 CFR 17.01 (1994).

\5\ 17 CFR 17.02 (1994).

\6\ Part 17 of the regulations requires that firms identify

large traders in options on the form 102 and transmit the form to

the appropriate exchange in accordance with their rules. Those

exchanges that maintain a futures large trader reporting system also

use the CFTC form 102 for identifying futures large traders.

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B. Proposed Rulemaking

In June 1995 the Commission published in the Federal Register a

proposal to change its form 102 and Secs. 17.01 and 17.02 of its

regulations to resolve some of the ambiguities in the present form,

making it more useful to both the exchanges and the Commission (60 FR

31653 June 16, 1995). The Commission also requested comment on a

proposal set forth by the Chicago Mercantile Exchange (CME) to obtain

information on the form 102 in machine-readable form.

The Futures Industry Association (FIA), two exchanges, and two FCMs

commented on the Commission's proposal. All commentors supported

Commission efforts to clarify information requested on its form 102 and

supported the initiative of the CME to obtain data in machine-readable

form. Some commentors took issue with certain of the new requirements,

asking that they be eliminated or modified. These comments are

discussed in detail below.7 Commission staff will continue to

explore the feasibility of obtaining information on the form 102

electronically, both with the FIA and the exchanges.

\7\ The Commission also proposed to amend rule 17.01 to require

that option and futures accounts be reported using the same

designator, which may be any string of alphanumeric characters up to

the maximum number permitted. Commentors supported this proposal,

since using the same designator for both types of accounts for the

same persons reduces the number of form 102s that firms must file

and that the Commission must process. In view of this, the

Commission is adopting this rule as proposed.

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II. Comments on Proposed Rule Changes

A. Special Account Identifying Information

The proposed form requires that firms provide registration

information if the person reported is registered as a commodity trading

advisor (CTA) or securities investment advisor (SIA). The FIA opined

that the responsibility for monitoring compliance with persons'

registration status rested with the National Futures Association (NFA)

and the Securities and Exchange Commission (SEC). In view of this, they

recommended that this requirement be eliminated.

The Commission currently collects information concerning persons'

registration status through means other than the form 102.8 The

request for firms to provide registration information on the form 102

comes principally from the exchanges. As explained in the notice of

proposed rulemaking, the rules of some exchanges require that they

obtain this information for enforcement purposes. The exchanges,

however, collect information only from their

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members, not from their members' customers. The exchanges, therefore,

rely solely on the form 102 for routine information concerning futures

trading participants. Although the exchanges could design their own

account identification forms to collect this information, a

proliferation of such forms would be burdensome for the industry.

Adding the requirement that this information be included on the form

102 will result in an overall reduction in paperwork and a savings for

all parties involved. Moreover, if the firms provide this information

to the Commission, it will be more timely and complete. In view of the

above, the Commission is adopting this requirement as proposed.

\8\ This is generally through the form 40 filed by reportable

traders and through the NFA (17 CFR Sec. 18.04, 1994).

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The FIA also sought clarification concerning identifying

information that must be provided in four different circumstances. The

Commission announced in its notice of proposed rulemaking that

Commission staff, after consulting with the exchanges, would provide

written advisories on reporting issues raised by firms. The Commission

believes that the questions raised by FIA are in this category and has

asked that the Division of Economic Analysis respond to these issues.

B. Reporting Controlled Accounts

When identifying special accounts controlled by independent account

controllers, the Commission proposed that firms provide the following

information:

1. For publicly-offered managed or guided account programs in which

ten or more accounts participate, the name and account number used for

the program and, in addition, for commodity pools that participate in

the program, the name and address of the commodity pool operator; and

2. For each controlled account not included in 1 above, the account

number and the names and addresses of persons having a ten percent or

more financial interest in the account.

As explained in the Federal Register release, amendments to rule

17.01 were made in June of 1993 to limit the information provided about

controlled accounts (58 FR 33329 June 17, 1993).9

\9\ Previous to these amendments, firms were required to

identify the beneficial owners of all controlled accounts even

though, in general, accounts that were a part of customer trading

programs were held by small traders whose identity for surveillance

purposes was not needed on a routine basis.

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The FIA and the exchanges questioned the need for firms to provide

a name for each customer trading program. The FIA noted that, since no

definition or purpose is provided on the form itself for program name,

firms are likely to provide the wrong information. The Commission

agrees and has changed its form 102 accordingly. Rather than asking for

program names, firms will only indicate whether a person controls ten

or more accounts. Further instructions for reporting will be based on

the answer to this question.

The FIA was also concerned that providing the proposed additional

information for controlled accounts would often pose an administrative

burden on the reporting firms. Except for requiring account numbers,

the proposed requirements are the same as current requirements in

regulation 17.01(b)(6). The Commission believes this information is

important for properly combining accounts for the same traders and will

adopt these amendments as proposed. The proposed amendments also

provide that the required information be updated whenever it changes.

The Commission is amending its proposal so that updates to the

information required by these rules must be provided only on call by

the Commission or its designee. The Commission believes this will

alleviate much of the administrative burden imposed by these

requirements.

C. Two-Part Filing Requirements

The Commission proposed that certain identification information be

provided to the Commission on the first day that an account is reported

to the Commission, and that a completed form be provided within three

business days of that date. The FIA was concerned that the two-part

filing requirement would not be beneficial to the industry and may

impose additional administrative burdens upon operations' personnel.

The FIA proposed that firms provide the identifying information by

facsimile or telephone on the first day that a special account is

reported only in response to a request by the Commission or its

designee. In a majority of cases, Commission staff currently request

form 102s when accounts are first reported. In view of this, the

Commission is amending its proposal as recommended by the FIA. The

Commission emphasizes however, that these amendments in no way

alleviate the responsibility of firms to appropriately combine and

report accounts. Accounts that are not combined to determine reporting

status and for reporting may lead to a loss of important surveillance

information.10

\10\ The Commission also proposed amendments to rule 17.02

concerning the submission of position and transaction information in

hard-copy form. The Commission proposed that this information be

supplied by facsimile or in accordance with instructions by the

Commission or its designee. Since no comments were received

concerning this requirement, the Commission is adopting this

amendment as proposed.

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Two exchanges commenting on the Commission's proposal also

expressed some concern about the two-part filing requirement. Under

Commission regulations, firms report large trader option positions only

to the exchanges which in turn report them to the Commission (17 CFR

16.02). Firms identify reportable option accounts on the form 102 and

provide these to the exchanges. These also are provided to the

Commission by the exchanges. The exchanges expressed concern that the

two-part requirement would affect the current turnover period allowed

the exchanges. Both exchanges suggested that, if it were necessary to

obtain option account identification quickly, the Commission do so

independently through the reporting firms. One exchange suggested that

the Commission receive both the position information and form 102s for

option traders directly from reporting firms to reduce duplication of

effort and avoid delays.

In light of the final rule, which permits filing of the form 102 in

three days unless called for by the Commission, the turnover time for

the exchanges will be unaffected. Moreover, calls for information will

go directly to the reporting firms as the exchanges suggested.

D. Clarification of Required Information

The FIA requested clarification concerning the distinction the

Commission made, if any, between an individual and sole proprietorship,

since both terms were used on the form. The Commission recognizes that

there may be little, if any, distinction between the terms. At times,

however, accounts have been reported in the name of a business

organized as a sole proprietorship. This term has been included on the

form only to prevent confusion when firms specify the organization of

the trader being reported.11

\11\ If the owner of a sole proprietorship trades an account in

the name of the business and separately an individual account, the

accounts should be aggregated and can be reported either in the name

of the individual or the business.

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The FIA also asked whether the omnibus clearing status of a United

States or offshore bank trading for customers was discernible from the

information requested on the form. The regulations require that firms

determine if an account they carry is a house or customer omnibus

account. The Commission relies on reporting firms to

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obtain accurate information concerning the omnibus clearing status for

accounts in whatever manner is necessary. This may require that firms

obtain information not included on the form.

E. Effective Date

One exchange has asked for a substantial period of time between

publication of the final rules in the Federal Register and the

effective date of the amendments in order to change computer software

that captures information on the form. A delayed effective date may

also assist firms in implementing use of the new forms. Accordingly,

the Commission has determined that the effective date of these

amendments be six months after they are published in the Federal

Register. However, the Commission can process the new forms

immediately. Therefore, if at any time prior to the effective date

exchanges request that the new form be used by firms reporting to them,

the firms may also use the new form to identify accounts to the

Commission.

III. Other Related Matters

A. The Regulatory Flexibility Act (RFA)

The RFA requires that agencies consider the impact of substantive

rules on small businesses. These amendments affect large traders, FCMs,

commodity pools, CTAs and other similar entities, such as foreign

brokers and foreign traders. The Commission has defined ``small

entities'' in evaluating the impact of its rule in accordance with the

RFA, 47 FR 18618-18621 (April 30, 1982).

In that statement, the Commission concluded that large traders and

FCMs are not considered to be small entities for purposes of the RFA.

In this regard, the amendments to reporting requirements relating to

the form 102 fall mainly upon FCMs. Similarly, foreign brokers and

foreign traders report only if carrying or holding reportable

positions, i.e., large positions. Thus, pursuant to section 3(a) of the

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

certified in its proposal for rulemaking that these proposed rules

would not have a significant economic impact on a substantial number of

small entities. The Commission however, invited comments from any firm

which believed that these rules would have a significant economic

impact upon its operation. No comments were received.

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 has submitted these rules and their associated information-

collection requirements to the Office of Management and Budget (OMB).

OMB approved the requirements associated with this rule on September

14, 1995.

The burden associated with the entire collection, including this

rule, is as follows:

Average Burden Hours Per Response--.1587 hour.

Number of Respondents--3709.

Frequency of Response--Daily.

The burden associated with this specific proposed rule, is as

follows:

Average Burden Hours Per Response--0.2 hour.

Number of Respondents--6,592.

Frequency of Response--On occasion.

Copies of the OMB-approved information-collection requirements may

be obtained from Jeff Hill, Office of Management and Budget, Room 3228,

NEOB, Washington, DC 20503, (202) 395-7340.

List of Subjects in 17 CFR Part 17

Brokers, Commodity Futures, Reporting and Recordkeeping

Requirements.

In consideration of the foregoing, and pursuant to the authority

contained in the 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 17--REPORTS BY FUTURES COMMISSION MERCHANTS, MEMBERS OF

CONTRACT MARKETS AND FOREIGN BROKERS

1. The authority citation for part 17 continues to read as follows:

Authority: 7 U.S.C. 6a, 6d, 6f, 6g, 6i, 7, and 12a.

2. Section 17.01 is revised to read as follows:

Sec. 17.01 Special account designation and identification.

When a special account is reported for the first time, the FCM,

clearing member, or foreign broker shall identify the account to the

Commission or to the contract market on form 102 showing the

information in paragraphs (a) through (f) of this section.

(a) Special account designator. A unique identifier for the

account. Provided, that the same designator is assigned for option and

futures reporting, and the identifier is not changed or assigned to

another account without prior approval of the Commission or its

designee.

(b) Special account identification. The name, address, business

phone, and for individuals, the person's job title and employer for the

following:

(1) The person originating the account, if the special account is a

house omnibus or customer omnibus account; or

(2) The person (i.e., individual, corporation, partnership, etc.)

who owns the special account, if such person (or an employee or

officer) also controls the trading of the special account. And, in

addition:

(i) The registration status of the person as a commodity trading

advisor or a securities investment advisor;

(ii) the legal organization of the person and the person's

principal business or occupation;

(iii) account numbers and account names included in the special

account, if different than supplied in paragraph (b)(2) of this

section;

(iv) the name and location of all persons not identified in

paragraph (b)(2) of this section having a ten percent or more financial

interest in the special account, indicating those having discretionary

trading over the account; and

(v) for special accounts with five or fewer persons having trading

authority, the names and locations of all persons with trading

authority that have not been identified in paragraphs (b)(2) or

(b)(2)(iv) of this section; or

(3) the account controller, if trading of the special account is

controlled by a person or legal entity who is an independent account

controller for the account owners as defined in Sec. 150.1(e). And, in

addition:

(i) the registration status of the person as a commodity trading

advisor or a securities investment advisor;

(ii) if ten or more accounts are controlled by the independent

advisor, the account number and the name of each commodity pool that is

controlled by the advisor and the name and location of the commodity

pool operator;

(iii) if fewer than ten accounts are under control of the

independent advisor, for each account the account number and the name

and location of each person having a ten percent or more financial

interest in the account. For commodity pools, provide the account

number, name of the pool, and name and location of the commodity pool

operator; and

(iv) on call by the Commission or its designee, for each account

controlled by

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the independent advisor, the account number and account name and the

name and location of each person having a ten percent or more financial

interest in the account.

(c) Other accounts. If the person identified in paragraphs (b)(1),

(b)(2) or (b)(3) of this section either controls or has a financial

interest of ten percent or more in an account not included in this

special account, report the account number and the name of the account.

(d) Commercial use. For futures or options, commodities in which

positions or transactions in the account are associated with a

commercial activity of the account owner in a related cash commodity or

activity (i.e., those considered as hedging, risk-reducing, or

otherwise off-setting with respect to the cash commodity or activity).

(e) Account executive. The name and business telephone number of

the associated person of the FCM who has solicited and is responsible

for the account or, in the case of an introduced account, the name and

business telephone number of the introducing broker who introduced the

account.

(f) Reporting firm. The name and address of the FCM clearing

member, or foreign broker carrying the account, the signature, title,

and business phone of the authorized representative of the firm filing

the report, and the date of signing the form 102.

(g) Form 102 updates. If, at the time an account is in special

account status and a form 102 filed by an FCM, clearing member, or

foreign broker is then no longer accurate because there has been a

change in the information required under paragraph (b) of this section

since the previous filing, the FCM, clearing member, or foreign broker

shall file an updated form 102 with the Commission or the contract

market, as appropriate, within three business days after such change

occurs.

3. Section 17.02 is amended by revising the introductory text and

paragraph (b), and adding a new paragraph (c) to read as follows:

Sec. 17.02 Place and time of filing reports.

Unless otherwise instructed by the Commission or its designee, the

reports required to be filed by FCMs, clearing members, and foreign

brokers under Secs. 17.00 and 17.01 shall be filed at the nearest

appropriate Commission office as specified in paragraphs (a), (b), and

(c) of this section, wherein the times stated are eastern times for

information concerning markets located in that time zone, and central

time for information concerning all other markets.

(a) * * *

(b) For data submitted in hard-copy form pursuant to Secs. 17.00

(a), or (h) at a Commission office by facsimile or as otherwise

specified in accordance with instructions by the Commission or its

designee. Data in hard-copy form required under Sec. 17.00(a) shall be

submitted no later than 9 a.m. on the business day following that to

which the information pertains.

(c) For data submitted pursuant to Sec. 17.01 on the form 102;

(1) on call by the Commission or its designee, the type of special

account specified in 1(a), 1(b), or 1(c) of form 102, and the name and

location of the person to be identified in 1(d) on the form 102 by

facsimile or telephone on the same day that the special account in

question is first reported to the Commission; and

(2) a completed form 102 within three business days of the first

day that the special account in question is reported to the Commission.

Note: The following form will not appear in the Code of Federal

Regulations.

Issued in Washington, DC, February 12th, 1996, by the

Commission.

Jean A. Webb,

Secretary of the Commission.

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