Contract Market Rule Review Procedures

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

Contract Market Rule Review Procedures

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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

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

amending Regulation 1.41a to revise certain procedures relating to the

review of contract market rules. Related amendments revising the

procedures and time periods applicable to the Commission's review of

contract market rules previously have been adopted.1 The

instant amendments revise Regulation 1.41a, which governs the authority

delegated to the Director of the Division of Trading and Markets and

the Director of the Division of Economic Analysis for purposes of

processing certain contract market rule submissions. Specifically, the

instant amendments revise Regulation 1.41a to conform to the procedures

and time periods previously adopted by the Commission. The instant

amendments also include several clarifying revisions of Regulation

1.41a.

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

\1\ See 62 FR 10427. That notice announced the adoption of

amendments to Commission Regulations 1.41(a) and 1.41(b). These

amendments, which revise the procedures for the review of contract

market rules, will become effective on April 7, 1997.

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

EFFECTIVE DATE: April 11, 1997.

FOR FURTHER INFORMATION CONTACT: Clarence Sanders, Attorney, Division

of Trading and Markets, Commodity Futures Trading Commission, Three

Lafayette Centre, 1155 21st Street NW, Washington, D.C. 20581.

Telephone: (202) 418-5484.

SUPPLEMENTARY INFORMATION:

I. Introduction

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

U.S.C. Sec. 7a(a)(12)(A), provides that all rules 2 of a

contract market that relate to terms and conditions 3 in

futures or options contracts traded on or subject to the rules of a

contract market must be submitted to the Commission for its prior

approval. 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 Exchange requests Commission approval or the Commission

notifies the Exchange that it intends to review the rules for approval.

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

\2\ 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.

\3\ 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 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;

(viii) Payment or collection of commodity option premiums or

margins.

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

As noted above, the Commission recently revised the procedures

under which it conducts reviews of contract market rules. These

revisions generally streamline the procedures and shorten the review

periods applicable to the Commission's review of contract market rules.

The Commission is now revising its rules applicable to the delegation

of authority to the Director of the Division of Trading and Markets and

the Director of the Division of Economic Analysis (collectively, ``the

Directors'') as set out in Commission Regulation 1.41a. Specifically,

Regulation 1.41a delegates to the Directors the authority to make

certain decisions regarding rule submissions. The primary effect of the

instant amendments is to delegate additional authority to the Directors

in order to apply the revised procedures and time periods for

Commission review of contract market rules in an effective manner.

II. Amendments to Regulation 1.41a

A. Regulation 1.41a(2)(ii)--Notification That Rules Require Approval

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). Paragraph (a)(2) is

being amended to state that the Directors have delegated authority to

determine and to notify a contract market that a rule submitted

pursuant to Section 5a(a)(12)(A) of the Act and Regulation 1.41(c) for

implementation without Commission approval constitutes a rule that

requires prior Commission approval pursuant to a specific Section of

the Act or under a Commission regulation other than Regulation 1.41(b).

Current Regulation 1.41a delegates to the Directors the authority to

remit such a rule but does not expressly state that the Directors may

notify a contract market of their determination to review such rule for

Commission approval.

B. Regulation 1.41a(3) (i) and (ii)--Notification That Rules May be

Placed into Effect Without Approval

Currently, paragraph (a)(3) states that the Directors may determine

whether rules submitted under Regulation 1.41(c) do not require prior

Commission approval under Section 5a(a)(12)(A) of the Act and

Regulation 1.41(b) and that such rules may become effective prior to

the expiration of the ten day period following the Commission's receipt

of such rules. Under the amendments, paragraph (a)(3) is being divided

into three subparagraphs in order to incorporate the revised procedures

and time periods previously adopted by the Commission for the review of

contract market rules.

New paragraph (a)(3)(i), which includes the pre-existing provisions

of paragraph (a)(3), is being amended to provide that the Directors may

notify a contract market, as well as determine, that rules submitted

for implementation without Commission approval do not require such

approval under either Regulation 1.41(b) or 1.41(c). This change simply

incorporates the condition that contract market rules that do not

relate to terms and conditions, but that require approval under another

provision of the Act or regulations, are to be submitted pursuant to

Regulation 1.41(c) under the Commission's revised procedures for

reviewing contract market rules instead of Regulation 1.41(b), as was

formerly the case.

New paragraph (a)(3)(ii) provides that the Directors may determine

and notify a contract market that rules submitted for Commission

approval under Regulation 1.41(c) do not require prior Commission

approval under Section 5a(a)(12)(A) of the Act and Regulation 1.41(b)

or Regulation 1.41(c) and may be made effective at the expiration of

the applicable review period. As in the case of paragraph (a)(3)(i),

paragraph (a)(3)(ii)

[[Page 17701]]

is being added to Regulation 1.41a to incorporate the requirement that

rules which do not relate to terms and conditions, but which

nonetheless require Commission approval under another provision of the

Act or regulations, must be submitted pursuant to Commission Regulation

1.41(c).

More significantly, paragraph (a)(3)(ii) delegates to the Directors

the authority to determine whether a rule submitted for Commission

approval, but which neither the Act nor the Commission's regulations

require to be reviewed for approval prior to implementation, should be

implemented without Commission approval at the expiration of the

applicable review period. Previously, absent Commission approval, such

implementation was only available at the expiration of 180 days

following Commission receipt of the contract market rule. Thus, the

amendments enable the Directors to make this determination in

conformity with the Commission's previously revised review procedures

and time periods, prior to the expiration of the 180 day

period.4

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

\4\ This amendment of Regulation 1.41a, combined with the

Commission's revised contract market rule review procedures,

authorize the Directors to make the determination to notify a

contract market that a rule voluntarily submitted by a contract

market for Commission approval could be implemented without

Commission approval at the expiration of ten, 45, or 75 days,

whichever was applicable. Absent such amendment, the contract market

rule could not be implemented absent Commission approval until the

expiration of the 180 day period following Commission receipt of the

rule.

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

C. Regulation 1.41a(3)(iii)--Notification that Rules Raise Novel or

Complex Issues

New paragraph (a)(3)(iii) delegates authority to the Directors to

administer those contract market rules submitted for Commission

approval under Regulation 1.41(c) but which raise novel or complex

issues, or are of major economic significance. This amendment simply

provides that the Directors may determine and notify a contract market

that the review period for the rule submission is being extended per

the applicable review periods set out in Regulation 1.41(c)(1)(iii).

III. Related Matters

A. Notice and Comment

The Administrative Procedure Act, 5 U.S.C. Sec. 553(b), requires in

most instances that a notice of proposed rulemaking be published in the

Federal Register and that opportunity for comment be provided when an

agency promulgates new regulations. Section 553(b) sets forth an

exception, however, for rules of agency organization, procedure, or

practice. The instant amendments apply expedited procedures to the

authority delegated to the Directors of the Divisions of Trading and

Markets and Economic Analysis for the review of certain contract market

rules. The Commission has determined that these amendments relate to

internal Commission procedure and therefore that notice and comment is

not required.

Section 553(b) also sets forth an exception to the requirement of

notice and opportunity for public comment when the Commission for good

cause finds such notice and public comment are unnecessary or contrary

to the public interest. Section 553(d) provides that publication of a

substantive rule shall be made not less than thirty days before its

effective date unless as otherwise provided by the agency for good

cause found. The Commission finds that notice and public comment on the

rule changes announced herein are unnecessary and they can be made

effective immediately because the changes do not limit any person's

substantive rights and do not establish any new obligations under the

Act. To the contrary, these changes simplify compliance with the Act by

delegating authority to the Directors to process contract market rules

according to standards which shorten the time periods applicable to the

review of contract market rules and which have been previously adopted

following notice and comment.

B. Regulatory Flexibility Act

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

seq., requires that agencies, in adopting rules, consider the impact of

those rules on small businesses. The RFA defines the term ``rule'' to

mean ``any rule for which the agency publishes a general notice of

proposed rulemaking pursuant to [5 U.S.C.] Sec. 553(b).'' As noted

above, however, Sec. 553(b) does not require that the Commission

publish a notice of proposed rulemaking for the amendments to

Regulation 1.41a, and a flexibility analysis of these amendments is

therefore not required. See Sec. 601(2). See also Secs. 603 and

604.5

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

\5\ A flexibility analysis would not be required in any case in

this matter, since the amendments would affect contract markets,

which the Commission previously has determined are not ``small

entities'' for purposes of the RFA. Thus, these rule amendments

would not have a significant economic impact on a substantial number

of ``small entities.'' See Sec. 605(b).

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

C. Paperwork Reduction Act

The Paperwork Reduction Act of 1980 (``PRA''), 44 U.S.C. Sec. 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 rule

amendments adopted herein have 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,

D.C. 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 Center,

1155 21st Street N.W., Washington D.C. 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 pursuant to the authority

contained in the Commodity Exchange Act and, in particular, sections

4c, 5, 5a, 6 and 8a thereof, 7 U.S.C. Secs. 6c, 7, 7a, 8 and 12a, the

Commission hereby amends 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 1.41a is amended by revising paragraphs (a)(2) and

(a)(3) to read as follows:

Sec. 1.41a Delegation of authority to the Directors of the Division of

Trading and Markets and the Division of Economic Analysis to process

certain contract market rules.

(a) * * *

(2) Pursuant to Secs. 1.41(b) or 1.41(c) to determine, and to

notify a contract market, that:

(i) Pursuant to Sec. 1.41(b), a rule submitted pursuant to section

5a(a)(12)(A) of the Act and Sec. 1.41(c) relates to terms and

conditions, as defined in Sec. 1.41(a)(2);

[[Page 17702]]

(ii) Pursuant to Sec. 1.41(c), a rule submitted pursuant to section

5a(a)(12)(A) of the Act and Sec. 1.41(c) for implementation without

Commission approval constitutes a rule that requires prior Commission

approval pursuant to a specific section of the Act or Commission

regulations;

(3) Pursuant to Sec. 1.41(c) to determine, and to notify a contract

market, that:

(i) Rules submitted for implementation without Commission approval

under Sec. 1.41(c) do not require prior Commission approval under

section 5a(a)(12)(A) of the Act and Sec. 1.41(b) or Sec. 1.41(c) and

that such rules may become effective prior to the expiration of the ten

day period following the receipt of such rules by the Commission;

(ii) Rules submitted for Commission approval under Sec. 1.41(c) do

not require prior Commission approval under section 5a(a)(12)(A) of the

Act and Sec. 1.41(b) or Sec. 1.41(c) and may be made effective at the

expiration of the applicable review period;

(iii) Rules submitted for Commission approval under Sec. 1.41(c)

raise novel or complex issues, or are of major economic significance,

and that the review period has been extended pursuant to

Sec. 1.41(c)(1)(iii); and

* * * * *

Issued in Washington, D.C., on April 7, 1997, by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 97-9398 Filed 4-10-97; 8:45 am]

BILLING CODE 6351-01-P