Requests for Exemptive, No-Action and Interpretative Letters

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 140

Requests for Exemptive, No-Action and Interpretative Letters

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or

``Commission'') is adopting Rule 140.99, which establishes procedures

for the filing of requests for the issuance of exemptive, no-action and

interpretative letters from the Commission's staff. The Commission

believes that implementation of these procedures will significantly

assist the Commission, its staff and requesters by assuring a focused

presentation of the guidance sought, the issues raised thereby, and the

relevant legal authorities.

DATES: Effective January 11, 1999.

FOR FURTHER INFORMATION CONTACT: David M. Battan, Chief Counsel,

Christopher W. Cummings, Special Counsel, or Helene D. Schroeder,

Attorney-Advisor, Division of Trading and Markets, Commodity Futures

Trading Commission, Three Lafayette Centre, 1155 21st Street, NW,

Washington, DC 20581. Telephone: (202) 418-5450.

SUPPLEMENTARY INFORMATION:

I. Requests for Exemptive, No-Action and Interpretative Letters

In the course of administering the Commodity Exchange Act (``Act'')

\1\ and the rules, regulations and orders promulgated thereunder by the

Commission,\2\ Commission staff receives written requests for advice

on, or interpretation of, particular provisions of the Act or

Commission rules and the application of those provisions to proposed

transactions or activities. Where appropriate, Commission staff

provides the relief, advice or guidance sought through the issuance of

exemptive, no-action or interpretative letters (``Letters''),

respectively.\3\

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\1\ 7 U.S.C. 1 et seq. (1994).

\2\ Commission regulations are found at 17 CFR Ch. I. et seq.

(1998).

\3\ These types of letters are proposed to be defined in Rules

140.99(a)(1), (a)(2) and (a)(3), respectively, and each is discussed

in Part II, below.

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On January 22, 1998, the Commission published for comment Proposed

Rule 140.99 (the ``Proposal'') \4\ to establish procedures for

requesting Letters. As stated in the Proposal, although a procedural

rule such as Rule 140.99 is not required to be published for comment,

the Commission decided to seek comment in the belief that input from

interested persons would assist it in fashioning a final rule.\5\ The

comment period on the Proposal originally was due to expire on March

22, 1998. To maximize public participation in this rulemaking process,

the Commission extended the comment period for an additional thirty

days,\6\ and the comment period closed on April 22, 1998. The input

received was very helpful, and a number of changes were made to the

Proposal following consideration of the comments.\7\

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\4\ Requests for Exemptive, No-Action and Interpretative

Letters, 63 FR 3285.

\5\ See 63 FR 3287.

\6\ Requests for Exemptive, No-Action and Interpretative

Letters, 63 FR 14866 (March 27, 1998).

\7\ The Commission received eight comment letters in response to

the Proposal: two from registered futures commission merchants; two

from commodity industry associations; one from a securities industry

association; two from bar associations; and one from a law firm.

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While the commenters generally were supportive of the Commission's

intention to establish uniform procedures for persons requesting

Letters, they expressed various concerns of which the most significant

are discussed below. Before addressing the comments received and the

final rules the Commission is issuing hereby, the Commission wishes to

emphasize that under the new rules Commission staff will continue to be

receptive to informal inquiries and to engage in discussions with

industry participants, counsel, members of the public, and others, by

telephone, in face-to-face meetings or otherwise, regarding the

application of the provisions of the Act and the Commission's rules,

with the caveat that any advice given in the context of those

discussions does not bind the Commission or its staff.\8\ The

Commission's goal in adopting new Rule 140.99 is to ensure that, where

an issue has been framed and defined sufficiently that a request for a

Letter is appropriate, proper procedures exist for submitting that

request.

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\8\ See Rule 140.99(e), which provides that no response to a

request for a Letter is effective unless it is in writing, signed by

appropriate Commission staff and transmitted in final form to the

requester.

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II. Section-By-Section Analysis

A. Definitions--Section 140.99(a)

The Proposal defined ``exemptive letter,'' ``no-action letter,''

and ``interpretative letter'' for purposes of Rule 140.99. Briefly

stated, the Proposal defined: (1) an exemptive letter as involving a

grant of exemptive relief by the staff of the Division of Trading and

Markets or the Division of Economic

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Analysis (each a ``Division'') pursuant to authority delegated to staff

by the Commission; (2) a no-action letter as denoting the determination

by staff of the Division of Trading and Markets or the Division of

Economic Analysis not to recommend commencement of enforcement action

if a proposed activity or transaction was conducted; and (3) an

interpretative letter as conveying the advice or guidance of staff of

the Division of Trading and Markets, the Division of Economic Analysis

or the Office of the General Counsel concerning the application of

provisions of the Act or Commission rules in the context of specific

activities or transactions.

In response to the comments, the Commission has modified the

definitions somewhat. ``Exemptive letter'' is now defined to make clear

that only the person on whose behalf an exemptive letter is sought may

rely upon it and that an exemptive letter binds the Commission and its

staff with respect to the relief provided. ``No-action letter'' is now

defined to clarify that only the person on whose behalf a no-action

letter is sought may rely upon the Letter and that a no-action letter

binds only the staff of the Division (or the Office of the General

Counsel) \9\ that issues the Letter. Finally, interpretative letter has

been redefined to clarify that an interpretative letter binds only the

Division that issues it (or the Office of General Counsel, is issued

thereby). The definition of interpretative letter also now expressly

provides that an interpretative letter generally may be relied upon by

persons in addition to the person on whose behalf the interpretative

letter was sought.\10\

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\9\ The Commission also has modified the definition of no-action

letter to reflect that the Office of the General Counsel may issue

no-action letters in certain circumstances. Similarly, the

Commission has modified the definition of interpretative letter to

reflect the practice of the Divisions of Trading and Markets and

Economic Analysis of issuing interpretations of statutory provisions

when related to regulatory matters under their review.

\10\ In the Proposal, the preamble, but not the text of the

rule, stated that persons other than the recipient could rely on an

interpretative letter.

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The Commission is not adopting the recommendation of some

commenters that no-action letters be accorded precedential value such

that third parties may rely upon them without requesting their own

Letters. The Commission likewise is declining to expand the class of

persons who may rely on an exemptive letter to include persons not

exempted by name in the Letter. The Commission continues to believe

that, where a situation not covered by a rule is encountered on a

repeated basis, the appropriate remedy is rulemaking. Letters generally

address particular, fact-specific issues either not clearly addressed

by relevant rules or otherwise requiring individualized review by

Commission staff. It would not be appropriate to allow uninvolved third

parties to rely on staff positions taken on the basis of different sets

of facts. Of course, counsel may wish to consider Letters issued by

Commission staff in advising their clients about particular courses of

conduct. Moreover, if an industry participant or its counsel determines

to seek its own Letter from Commission staff, prior Letters on similar

issues are relevant and should be cited to staff.

Some comments indicated that the commenters did not understand that

Rule 140.99 does not apply to requests for exemption submitted pursuant

to Section 4(c) of the Act.\11\ To make clear that exemption requests

under Section 4(c) must be made directly to the Commission--and must

comply with the requirements set forth in Section 4(c)--paragraph

(i)(B) of Rule 140.99 provides that the rule ``shall not affect the

requirements of, or otherwise be applicable to'' requests for exemption

pursuant to Section 4(c) of the Act.

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\11\ 7 U.S.C. 6(c) (1994). See footnote 5 of the Proposal (63 FR

3285, n.5), in which the Commission stated that the proposed rule

would govern requests submitted to and processed by Commission staff

and would not apply to those circumstances under which requests must

be submitted to and processed by the Commission itself (e.g.,

requests pursuant to Section 4(c) of the Act and any other instance

in which exemptive authority has not been delegated to the Staff)

The Commission went on to state that paragraphs (b), (c), (f) and

(h) nevertheless provide some helpful guidance for persons making

requests not within the scope of Rule 140.99.

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B. General Requirements--Section 140.99(b)

Paragraph (b)(1) of the Proposal stated that the issuance of

Letters is entirely within the staff's discretion and that the staff

could deny or refuse to consider or respond to a request without

explanation. While it was clearly not the intent of the Commission,

commenters were concerned that this provision would allow staff to

ignore requests. In response to these comments, the rule as adopted

simply provides that issuance of Letters is within the Commission

staff's discretion. While the Commission recognizes the importance of

Letters to industry participants and their counsel, nothing in the Act

or the Commission's rules requires Commission staff to issue Letters.

Because the staff exercises its discretion to issue Letters within the

constraints of its limited staffing and other resources, certain

circumstances may arise in which as prompt a reply to a request as

counsel would like becomes difficult or impossible. Moreover, in some

limited instances the issuance of a Letter may not be justified from a

legal or regulatory standpoint, or it may not be an appropriate

resolution from a policy standpoint.

Paragraph (b)(2), which sets forth the staff's right to reject or

decline to respond to a request that does not comply with Rule 140.99,

was adopted as proposed. In this connection, Commission staff will not

issue a Letter in response to an oral request, and a Letter will not be

issued in response to a tentative or ``draft'' request.

As proposed and as adopted, paragraph (b)(3) states that a request

must relate to a proposed transaction or activity and that, absent

extraordinary circumstances, Letters will not be issued based upon past

transactions or activities. This stricture is consistent with

longstanding Commission staff policy. Commenters expressed concern that

persons who become aware that ongoing activities raise issues under the

Act or Commission rules would have no recourse under this provision.

The Commission disagrees. In the absence of extraordinary

circumstances, a Letter issued with regard to ongoing activities will

be prospective in terms of its coverage (and will not cover past

activities or transactions).\12\ Thus, a Letter will not ordinarily

relieve the person for whose benefit it is issued from the consequences

of non-compliance that pre-dates the Letter. Nevertheless, persons (or

their counsel) who become aware that their activities are not in

compliance with the Act or Commission rules are urged to contact the

staff as soon as possible. Although the staff generally reserves the

right to refer prior violations for enforcement action in appropriate

situations, the good faith demonstrated by efforts to regularize non-

complying activities on a ``going forward'' basis will be carefully

considered.

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\12\ One commenter pointed out that Section 4(c) of the Act

expressly provides for retroactive relief and asserted that Rule

140.99(b)(3) is inconsistent with Section 4(c) in this respect. As

noted earlier, the provisions of Rule 140.99 do not apply to

requests for exemptions under Section 4(c). See also 63 FR 3285,

n.5.

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As proposed, paragraph (b)(4) states that a request must be made by

the person seeking a Letter (or an authorized representative) and that

Commission staff will not respond to requests made by or on behalf of

unidentified persons. As adopted, the request is required to be made by

or on behalf of the person on whose behalf a Letter is sought. Proposed

paragraph

[[Page 68177]]

(b)(5)(i) would have required the request to set forth as completely as

possible ``the particular facts and circumstances giving rise to the

request. As adopted, this paragraph now requires the request to set

forth as completely as possible ``all material facts and circumstances

giving rise to the request.'' Proposed paragraph (b)(5)(ii) stated that

Commission staff would not respond to a request based upon a

hypothetical situation. In proposing this paragraph, the Commission did

not intend to discourage requesters from presenting reasonably

realistic alternatives.\13\ To make this clear, the rule as adopted has

been modified to permit the request to include one or more alternative

structures or fact situations, provided that the request complies with

Rule 140.99 with respect to each alternative structure or fact

situation.

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\13\ Moreover, paragraph (c)(7), discussed below, permits

requesters to ask for alternative modes of response.

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C. Information Requirements--Section 140.99(c)

Paragraph 140.99(c)(1) as proposed and as adopted sets forth the

required identifying information concerning the person on whose behalf

a request is made and, where applicable, concerning the authorized

representative if the requester is not making the request on his or her

own behalf. Paragraph (c)(2) as proposed and as adopted requires that

the requester indicate in the upper right-hand corner of the request

the provision(s) of the Act and/or Commission rules to which the

request relates.

Proposed paragraph (c)(3)(i) would have required a person with

knowledge of the facts to certify that the representations in the

request are accurate and complete. Commission staff too often has

found, after modest scrutiny of representations made in support of a

request for a Letter, that those representations were substantially

inaccurate. Moreover, during recent market volatility events, it

appears that the actual facts in certain instances proved to be

substantially different from those the registrant had previously

represented in their filings and other communications with the

Commission. The Commission hopes that the certification requirement

will encourage requesters to use proper care in making factual

representations relating to their requests, thus saving time and

resources (of staff and of requesters) that otherwise would be expended

making and responding to successive requests for additional or

corrected information. Upon consideration of the comments, however, the

Commission has modified the proposed text to make clear that the

certification applies only to material statements of fact that are set

forth in the request. While requesters have a responsibility accurately

to analyze the legal issues surrounding their request, the

certification requirement in paragraph (c)(3)(i) is limited to factual

representations.\14\

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\14\ Legal arguments must nevertheless be supported by the facts

and warranted by law.

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Proposed paragraph (c)(3)(ii) would have required an undertaking by

the person making the certification required by paragraph (c)(3)(i)

that the person for whose benefit the request is made will promptly

supplement the request in writing at such time as a material

representation relating to the request ceases to be accurate and

complete. Comments indicated uncertainty as to who would be bound by

the undertaking and whether the obligation to update information

material to a request would continue after issuance of a Letter. The

Commission has modified paragraph (c)(3)(ii) to clarify that the

undertaking must be made by the person on whose behalf the Letter is

sought, or that person's authorized representative, and that it

requires only that the person who made the undertaking will ensure that

someone informs Commission staff of changed circumstances (without

specifying who should actually submit any supplement). The Commission

has modified paragraph (c)(3)(ii) to clarify that the duty to update

pursuant to the undertaking required by paragraph (c)(3)(ii) applies

only from the time of the submission of the request until the issuance

of the Letter.

With respect to material changes of circumstances after issuance of

a Letter, paragraph (c)(3)(ii) has been revised to make clear that the

person on whose behalf the Letter is sought, or its authorized

representative at the time, must notify Commission staff of the

occurrence of such changes. The Commission notes that staff typically

concludes Letters with a statement to the following effect:

``This letter is based upon the representations made to us. Any

different, changed or omitted material facts or circumstances might

render this letter void. You must notify us immediately in the event

that the operations or activities of [the party on whose behalf the

Letter was requested] change in any material respect from those as

represented to us.''

The comments addressing the next three paragraphs of the proposed

rules overlapped significantly. Proposed paragraph (c)(4) would have

required the request to indicate the type of Letter sought, to state

why a Letter is needed, to identify the relevant legal and factual

issues surrounding the request and to discuss the bases for issuance of

the Letter. Proposed paragraph (c)(5) would have required the request

to reference all relevant statutory, decisional and administrative

authorities (favorable and otherwise). Proposed paragraph (c)(6) would

have required identification of prior Letters issued by Commission

staff in circumstances similar to the request (and any conditions

imposed in those Letters).\15\ Some commenters expressed concern that a

requirement of comprehensive exposition and discussion of issues, bases

and authorities would result in excessive labor and expense on the part

of the staff as well as the requesters. Commenters also stated that not

all persons seeking Letters can afford experienced counsel or can

afford to research relevant law and precedent, and they expressed

concern that not all past Letters may be readily accessible.\16\

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\15\ Letters are published from 1975 forward in the Commodity

Futures Law Reporter, published by CCH Incorporated. Letters also

are available from 1987 onward from the Westlaw research database of

West Publishing Corporation and from 1989 onward from the Lexis

database service of Mead Data Central, Inc.

\16\ The Commission adopted Rule 140.98 in December 1992

(effective January 25, 1993). That rule requires that all Letters be

made available for inspection and copying (subject to

confidentiality safeguards). Prior to the effectiveness of Rule

140.98, in the absence of any specific requirements, the decision

whether to make a Letter available for publication was subject to

the discretion and policies of the various Commission staff. For

example, the Division of Trading and Markets generally made

available for publication only those Letters that it considered

significant.

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The Commission notes that it does not intend to impose a

requirement, express or implied, that requests be submitted by counsel.

Individuals and firms are invited to prepare and submit requests

directly, or to engage counsel for that purpose, at their own option.

The Commission intends that the staff will take into account the level

of legal sophistication of the person submitting a request (including

whether that person is represented by counsel) in determining whether

the requirements of paragraphs (c)(4) through (c)(6) have been met.

Likewise, in adopting Rule 140.99 the Commission does not intend to

require excessively lengthy briefing of the relevant issues. However,

the request is required to contain a full statement of the material

facts, a concise and clear statement of the issues and a thorough

examination of any law that would be applicable to those issues, with

citations to the relevant authorities. Requesters

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are not required to cite more than a representative selection of

authorities on any issue to the extent that those authorities are

cumulative.

While paragraph (c)(4) has adopted essentially as proposed,

paragraph (c)(5) as adopted makes clear that it seeks reference to

``applicable provisions'' of the Act, Commission rules, and other

authorities, and paragraph (c)(6) as adopted requires identification of

prior Letters that are ``publicly available.'' \17\

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\17\ If a letter is not generally available publicly (i.e., it

has not been published by a third-party service), it need not be

cited unless the requester was the recipient of that prior Letter.

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Moreover, the requirements of paragraphs (c)(5) and (c)(6) should

not be understood to require exhaustive citation and analysis where,

for example, an issue raised by the request has been the subject of

several substantially similar Letters. Rule 140.99(c)(6) as adopted

states that citation of a representative sample of prior Letters is

sufficient where a comprehensive recitation of prior Letters on a given

topic would be repetitious or would not assist Commission staff in

considering the request. A requester should exercise good judgment in

presenting the request in the context of both the legal and regulatory

requirements and the authorities that speak to the merits of the

request.

D. Filing Requirements--Section 140.99(d)

Proposed paragraph (d) called for requests to be written, signed

and filed with the Director of the Division of Trading and Markets for

routing to appropriate Commission staff. Several commenters asked the

Commission to accept electronically filed requests, with one commenter

including a proposed caveat that a separate manually signed request be

required in the absence of an electronic signature mechanism. Other

commenters urged that the Commission agree to accept draft requests and

urged the Commission to make clear that it welcomes informal

discussions and meetings in advance of (or even in the absence of) the

submission of a formal request.

As adopted, paragraph (d) differs from the Proposal only insofar as

it permits submission of requests to the Director of the Division of

Trading and Markets by electronic mail (as well as by post), provided a

``hard copy'' is submitted shortly after an electronic mail submission

in order to permit authentication. As stated above, in adopting Rule

140.99 the Commission does not intend to discourage informal

discussions, whether by telephone, by face-to-face meeting or

otherwise. As further stated above, however, Commission staff will not

issue a Letter in response to an oral request, and a Letter will not be

issued in response to a tentative or ``draft'' request.

E. Form of Staff Response--Section 140.99(e)

Proposed paragraph (e) stated that the grant of any request for a

Letter is not effective unless the response has been signed and

transmitted in final form to the requester and that inaction on the

part of Commission staff does not constitute approval of the request.

The paragraph further permitted the staff to respond by endorsing the

request or by another abbreviated written form of response. Several

commenters encouraged the Commission to allow abbreviated responses to

requests in appropriate cases, such as where the staff has no objection

to the request and where no special conditions or additional

precautions are warranted.

Paragraph (e) has been adopted essentially as proposed, with minor

word changes.\18\ To the extent that requests are adequately developed,

articulated and complete, the Commission intends to encourage the use

by the staff of abbreviated responses to requests where possible.\19\

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\18\ The reference to ``responsible staff'' was changed to

``appropriate staff.''

\19\ In response to commenters' concerns, the Commission

confirms that, when a Letter is issued by abbreviated or endorsed

response to the request, a redacted version of the request letter

will be made available for publication together with the Commission

staff response unless the requester has sought confidential

treatment under Rule 140.98(b) and confidential treatment has been

granted for the period specified in that rule.

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F. Withdrawal of Requests--Section 140.99(f)

As proposed, paragraph (f) would have permitted withdrawal of a

request prior to issuance of a Letter only under specific

circumstances: (1) where a written withdrawal request is submitted with

a certification that the person seeking a Letter has determined not to

proceed with the contemplated transaction or activity or that

intervening events have rendered the request for a Letter moot; or 92)

where confidential treatment has been sought under Rule 140.98 in

connection with the request for a Letter and Commission staff has

notified the requester that confidential treatment will be denied.

Several commenters claimed that the proposed restrictions were

unnecessary and were likely to cause more harm than benefit. They

argued that withdrawal should always be permitted. Some were concerned

that the proposed restrictions would severely discourage requests for

Letters because a person seeking a Letter who changed his or her mind

could neither withdraw the request nor proceed with the proposed

transaction or activity while the request was pending. Other commenters

suggested that the provision could effectively block lawful activity,

either where the response to a request is delayed or where a requester

and Commission staff disagree concerning a change in facts or whether

an issue has become moot.

Upon consideration of the comments, the Commission has determined

to modify the proposed language of paragraph (f). As adopted, paragraph

(f) now permits withdrawal of a request for a Letter by filing with

Commission staff a signed written request for withdrawal that states

whether the person on whose behalf the Letter was requested will

proceed with the transaction or activity described in the request for a

Letter. This change is designed to allow withdrawal of requests for

Letters in appropriate circumstances beyond those enumerated in the

Proposal. Paragraph (f) as adopted also now provides for the withdrawal

from representation of the authorized representative of the person on

whose behalf a Letter has been sought. The only requirement in such as

event is that Commission staff be notified promptly of the change in

representation. The requirement in the Proposal that requests for

withdrawal of a Letter be accompanied by a certification has been

eliminated in the final rule.

G. Failure To Pursue a Request--Section 140.99(g)

Paragraph (g) as proposed and as adopted provides that, where a

requester fails to respond within 30 days to a Commission staff request

for additional information or analysis, the staff generally will issue

a denial of the request for a Letter unless an extension of time has

been granted. Two commenters suggested that the 30-day period should be

tolled as soon as a requester timely asks for an extension of time or

that the rule should provide for an automatic 30-day extension if

timely requested. Because the Commission believes that it is within the

discretion of the staff to grant extensions of time in appropriate

circumstances, it has modified paragraph (g) to make clear that any

extensions of time are within the staff's discretion.

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H. Confidential Treatment--Section 140.99(h)

Paragraph (h) as proposed and as adopted requires that, where

confidential treatment is sought for a request, a separate request for

such treatment must be submitted in accordance with Rule 140.98 or Rule

145.9, as applicable.

I. Applicability to Other Sections--Section 140.99(i)

As proposed and as adopted, paragraph (i) states that Rule 140.99

does not affect the requirements of, or otherwise apply to, notice

filings submitted where relief is claimed under Rules 4.5, 4.7(a),

4.7(b), 4.12(b), 4.13(b) and 4.14(a)(8). As noted above, several

commenters expressed perceived inconsistencies or conflicts between the

provisions of proposed Rule 140.99 and the provisions for requesting

exemption under Section 4(c) of the Act. In order to dispel such

confusion, paragraph (i) as adopted also expressly excludes from Rule

140.99 requests made pursuant to Section 4(c).

III. Related Matters

A. Regulatory Flexibility Act--Final Regulatory Flexibility Analysis

1. Introduction

The Regulatory Flexibility Act (``RFA'') \20\ requires each federal

agency that proposes and adopts rules to consider the impact of those

rules on small entities \21\ that are subject to the agency's

regulations. Pursuant to the provisions of the RFA, a federal agency is

required to prepare an initial regulatory flexibility analysis to

accompany any proposed rule that requires a general Notice of Proposed

Rulemaking.\22\ A similar regulatory flexibility analysis must

accompany the promulgation of the final rule.\23\ An agency is not

required to prepare a regulatory flexibility analysis if the agency

publishes in the Federal Register a certification that ``the rule will

not, if promulgated, have a significant economic impact on a

substantial number of small entities.''\24\

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\20\ 5 U.S.C. 601 et seq. (1994).

\21\ A small entity includes a ``small business'' as defined by

an agency in consultation with the Office of Advocacy of the Small

Business Administration. Id. at Sec. 601(6).

\22\ The initial analysis must contain a description of the

proposed rule's impact on small entities and any significant

alternatives to the action ``which accomplish the stated objectives

of applicable statutes and which minimize any significant economic

impact of the proposed rule on small entities.'' Id. at Sec. 603.

\23\ Id. at Sec. 604.

\24\ Id. at Sec. 605(b).

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In the preamble accompanying the Proposal, the Chairperson

certified that Rule 140.99 would not have a significant economic impact

on a substantial number of small entities.\25\ In support of this

certification, the Commission stated that Rule 140.99 would remove a

burden on all persons by whom (or on whose behalf) Letters are sought,

regardless of size, by providing greater certainty to requesters as to

the procedures to follow in seeking relief and advice. In proposed Rule

140.99, the Commission also stated that the rule would provide

Commission staff with the flexibility to accommodate requesters who

lacked the financial resources to prepare a conforming request by

accepting for consideration non-conforming requests, by providing

guidance to the requester, or by other means. Because this

certification was made, the Commission was not required to prepare an

initial regulatory flexibility analysis.

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\25\ 63 FR 3287.

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While none of the commenters directly addressed the RFA, five of

the comment letters raised issues within the scope of the RFA.

Accordingly, the Commission has prepared this regulatory flexibility

analysis to address these comments.

2. Analysis

(a) Small Entities That May Be Subject to the Rule. Requests for

Letters may be submitted by any person, including those persons who are

subject to or potentially subject to the Commission's oversight. Some

of these persons may be considered to be small entities within the

meaning of the RFA. In this regard, the Commission has established a

definition of ``small entities'' to be used in evaluating the impact of

its Rules on such small entities in accordance with the RFA.\26\ In

accordance with this definition, registered futures commission

merchants, commodity pool operators (``CPOs''), leverage transaction

merchants, large traders, and contract markets have been determined not

to be small entities under the RFA.\27\ Agricultural trade option

merchants similarly have been found not to be small entities under the

RFA.\28\ With respect to persons registered as commodity trading

advisors,\29\ introducing brokers \30\ and floor brokers,\31\ the

Commission has stated that it would evaluate within the context of a

particular rule proposal whether all or some of such registrants would

be considered to be small entities, and, if so, the economic impact on

them of the particular rule. Floor traders \32\ and CPOs exempt from

registration \33\ also may be considered small entities under the RFA.

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\26\ Policy Statement and Establishment of Definitions of

``Small Entities'' for purposes of the Regulatory Flexibility Act,

47 FR 18618 (April 30, 1982).

\27\ Id.

\28\ Trade Options on the Enumerated Agricultural Commodities,

63 FR 18821 (April 16, 1998).

\29\ 47 FR at 18620. See also Interpretation Regarding Use of

Electronic Media by Commodity Pool Operators and Commodity Trading

Advisors for Delivery of Disclosure Documents and Other Materials,

62 FR 39104, 39114 (July 22, 1997); and Exemption for Commodity Pool

Operators with Respect to Offerings to Qualified Eligible

Participants; Exemption for Commodity Trading Advisors with Respect

to Qualified Eligible Clients, 57 FR 34853, 34860 (Aug. 7, 1992).

\30\ See e.g., Financial Reporting Requirements for Futures

Commission Merchants and Introducing Brokers, 53 FR 4606, 4610 (Feb.

17, 1988).

\31\ 47 FR at 18620. See also Adverse Registration Actions and

Other Registration Matters, 57 FR 23136, 23142 (June 2, 1992).

\32\ See e.g., Registration of Floor Traders; Mandatory Ethics

Training for Registrants; Suspension of Registrants Charged with

Felonies, 58 FR 19575, 19588 (April 15, 1993).

\33\ See, e.g., Commodity Pool Operators; Exclusion for

Otherwise Regulated Persons From the Definition of the Term

``Commodity Pool Operator''; Other Regulatory Requirements, 50 FR

15868, 15881 (April 23, 1985).

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In fiscal year 1997, the Office of Chief Counsel of the Division of

Trading and Markets \34\ received 303 inquiries from registrants,

persons exempt from registration, unregistered persons and members of

the general public. Written responses were issued or other dispositions

were made with respect to 277 of these inquiries.\35\ Many, but not

all, of the responses took the form of Letters within the meaning of

Rule 140.99. More than 55%, or 158, of these responses were provided to

persons that are not small entities. The remaining responses were

provided to persons that could, in the context of Rule 140.99, be

classified as small entities as recognized by the Commission.

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\34\ Historically, this Office has received and responded to the

largest number of requests for Letters of any Office or Division of

the Commission.

\35\ Some of the responses were issued in fiscal year 1998.

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Rule 140.99 requires all requesters, including both small and large

entities, to follow uniform procedures when requesting Letters. Based

upon past experience, it is expected, though not required, that most

requests will be prepared by the legal counsel of the person on whose

behalf a Letter is sought.\36\ In this regard, the type of skills

required to submit a request for a Letter will not change under Rule

140.99. No other compliance or

[[Page 68180]]

reporting requirements are imposed by Rule 140.99.

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\36\ As the Commission noted above, ``it does not intend to

impose a requirement . . . that requests be submitted by counsel.''

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(b) Summary of the Issues Affecting Small Entities Raised by the

Comments. Commenters argued that Rule 140.99 essentially would require

that requests be exhaustively researched and contain a lengthy

recitation of all relevant legal and factual issues and all legal

authority, including all prior Letters on a given topic. Commenters

claimed that such requirements are unnecessary for routine or basic

requests and would entail significant costs to persons on whose behalf

Letters are sought, including small entities, which may lack the

library or staffing resources to prepare a conforming request. They

added that persons seeking Letters would be required to hire

specialized legal counsel to prepare their requests. Some commenters

further claimed that the requirements would discourage requests for

Letters because relief could be denied simply because the request did

not conform to the requirements of Rule 140.99.

Two commenters recommended that Rule 140.99 be modeled after

comparable procedures adopted under Federal securities laws and

regulations that provide that the writer should indicate why he thinks

a problem exists, his own opinion in the matter and the basis for such

opinion.\37\ With respect to Rule 140.99's requirements that all prior

Letters and all relevant legal authority be identified, some commenters

recommended that the Commission clarify that requesters would be

required to identify only relevant precedent or only those relevant

authorities of which they are aware through the exercise of reasonable

diligence.

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\37\ Securities Act Release No. 5127, 36 FR 2600 (Jan. 25,

1971), and Securities Act Release No. 6269 (Dec. 5, 1980).

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Some of the commenters also expressed concerns about the

availability of prior Letters, especially older ones, and the burden on

persons seeking Letters, including small entities, arising from a

requirement to locate and identify prior Letters. In this regard, the

commenters pointed out that the Commission was not required to make its

Letters available for public inspection and copying before 1993, the

effective date of Rule 140.98.\38\ They further claimed that Letters

issued prior to 1987 are not available on any online database service

and that it would be particularly onerous on all persons, including

small entities, to conduct a manual search for such Letters. To address

these concerns, one commenter recommended that the Rule be modified to

permit requesters to affirm the scope of any prior research or to note

in their requests the practical limitations placed on the scope of

their research. Another commenter suggested that the Commission commit

to publish widely its prior Letters and to publish promptly all Letters

issued in the future. The same commenter also recommended that the

Commission post all of its Letters on its Internet web site.

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\38\ See supra note 16.

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(c) Alternatives Proposed and Adopted. The Commission has

considered the concerns expressed by commenters and, as stated above,

has clarified that requesters are not required to provide an

excessively lengthy recitation of all relevant legal authority

(including prior Letters) in support of a request for a Letter. It is

sufficient that requests contain a full statement of the material

facts, a concise and clear statement of the issues and a thorough

examination of any law that would be applicable to those issues, with

citations to the relevant authorities. Similarly, and as also stated

above, the Commission has clarified that requesters are not required to

cite more than a representative selection of authorities on any issue,

to the extent that those authorities are cumulative.

To minimize the potential compliance burden on small entities,

including those entities that are not represented by counsel, the

Commission is reiterating that staff may accommodate persons who lack

the financial resources to prepare a conforming request by accepting

for consideration the non-conforming request as submitted, by providing

guidance to the requesters, or by other means.

To address commenters' concerns about the lack of public

availability of relevant authorities, including prior Letters, the

Commission intends that the staff take this fact into account when

reviewing requests, particularly those that are submitted by small

entities. The Commission also has undertaken a review of the

feasibility of making the full text of Letters available at the

Commission's Internet web site as one commenter has suggested.\39\

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\39\ The Commission's web site (http://www.cftc.gov) currently

contains a summary, but not the full text, of all Letters that were

issued and made publicly available pursuant to Rule 140.98

commencing December 24, 1994.

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Other than these specific comments, commenters proposed no other

alternatives short of abandonment of the Proposal. Given the goals

sought to be achieved by Rule 140.99, including decreasing the burden

on all persons seeking Letters, regardless of size, this alternative

would not be feasible.

B. Paperwork Reduction Act

When publishing final rules, the Paperwork Reduction Act of 1989

(``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. In compliance with the Act, this Federal Register release

informs the public of: (1) The reasons the information is planned to be

and/or has been collected; (2) the way such information is planned to

be and/or has been used to further the proper performance of the

functions of the agency; (3) an estimate, to the extent practicable, of

the average burden of the collection (together with a request that the

public direct to the agency any comments concerning the accuracy of

this burden estimate and any suggestions for reducing this burden); (4)

whether responses to the collection of information are voluntary,

required to obtain or retain a benefit or mandatory; (5) the nature and

extent of confidentiality to be provided, if any; and (6) the fact that

an agency may not conduct or sponsor, and a person is not required to

respond to, a collection of information unless it displays a currently

valid OMB control number.

The Commission previously submitted Rule 140.99 in proposed form

and its associated information collection requirements to the Office of

Management and Budget. The Office of Management and Budget approved the

collection of information associated with this rule on March 30, 1998,

and assigned OMB control number 3038-0049 to the rule. The burden

associated with this specific final rule is as follows:

Average burden hours per response: 7.

Number of Respondents: 215.

Frequency of response: On occasion.

Persons wishing to comment on the information required by this

final rule should contact the Desk Officer, CFTC, Office of Management

and Budget, Room 10202, New Executive Office Building, Washington, DC

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

to OMB are available from the CFTC Clearance Officer, 1155 21st Street,

NW, Washington, DC 20581 (202) 418-5160.

List of Subjects in 17 CFR Part 140

Authority delegations (Government agencies), Organization and

functions (Government agencies).

In consideration of the foregoing and pursuant to the authority

contained in the Commodity Exchange Act and in particular section

8(a)(5) of the Act, as amended, 7 U.S.C. 12(a)(5), the

[[Page 68181]]

Commission hereby proposes to amend Chapter I of title 17 of the Code

of Federal Regulations as follows:

PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION

1. The authority citation for part 140 continues to read as

follows:

Authority: 7 U.S.C. 7a(j) and 12a.

2. Section 140.99 is added to read as follows:

Sec. 140.99 Requests for exemptive, no-action and interpretative

letters.

(a) Definitions. For the purpose of this section:

(1) Exemptive letter means a written grant of relief issued by the

staff of a Division of the Commission from the applicability of a

specific provision of the Act or of a rule, regulation or order issued

thereunder by the Commission. An exemptive letter may only be issued by

staff of a Division when the Commission itself has exemptive authority

and that authority has been delegated by the Commission to the Division

in question. An exemptive letter binds the Commission and its staff

with respect to the relief provided therein. Only the Beneficiary may

rely upon the exemptive letter.

(2) No-action letter means a written statement issued by the staff

of a Division of the Commission or of the Office of the General Counsel

that it will not recommend enforcement action to the Commission for

failure to comply with a specific provision of the Act or of a

Commission rule, regulation or order if a proposed transaction is

completed or a proposed activity is conducted by the Beneficiary. A no-

action letter represents the position only of the Division that issued

it, or the Office of the General Counsel if issued thereby. A no-action

letter binds only the issuing Division or the Office of the General

Counsel, as applicable, and not the Commission or other Commission

staff. Only the Beneficiary may rely upon the no-action letter.

(3) Interpretative letter means written advice or guidance issued

by the staff of a Division of the Commission or the Office of the

General Counsel. An interpretative letter binds only the issuing

Division or the Office of the General Counsel, as applicable, and does

not bind the Commission or other Commission staff. An interpretative

letter may be relied upon by persons in addition to the Beneficiary.

(4) Letter means an exemptive, no-action or interpretative letter.

(5) Division means the Division of Trading and Markets or the

Division of Economic Analysis.

(b) General Requirements. (1) Issuance of a Letter is entirely

within the discretion of Commission staff.

(2) Each request for a Letter must comply with the requirements of

this section. Commission staff may reject or decline to respond to a

request that does not comply with the requirements of this section.

(3) The request must relate to a proposed transaction or a proposed

activity. Absent extraordinary circumstances, Commission staff will not

issue a Letter based upon transactions or activities that have been

completed or activities that have been conducted prior to the date upon

which the request is filed with the Commission.

(4) The request must be made by or on behalf of the person whose

activities or transactions are the subject of the request. Commission

staff will not respond to a request for a Letter that is made by or on

behalf of an unidentified person.

(5)(i) The request must set forth as completely as possible all

material facts and circumstances giving rise to the request.

(ii) Commission staff will not respond to a request based on a

hypothetical situation. However, a requester may set forth one or more

alternative structures or fact situations for a proposed transaction or

activity; Provided, That the request complies with this section with

respect to each alternative structure or fact situation.

(c) Information Requirements. Each request for a Letter must comply

with the following information requirements:

(1)(i) A request made by the person on whose behalf the Letter is

sought must contain:

(A) The name, main business address, main telephone number and, if

applicable, the National Futures Association registration

identification number of such person; and

(B) The name and, if applicable, the National Futures Association

registration identification number of each other person for whose

benefit the person is seeking the Letter.

(ii) When made by a requester other than the person on whose behalf

the Letter is sought, the request must contain:

(A) The name, main business address and main business telephone

number of the requester;

(B) The name and, if applicable, the National Futures Association

registration identification number of the person on whose behalf the

Letter is sought; and

(C) The name and, if applicable, the National Futures Association

registration identification number of each other person for whose

benefit the requester is seeking the Letter.

(iii) The request must provide the name, address and telephone

number of a contact person from whom Commission staff may obtain

additional information if necessary.

(2) The section number of the particular provision of the Act and/

or Commission rules, regulations or orders to which the request relates

must be set forth in the upper right-hand corner of the first page of

the request.

(3) The request must be accompanied by:

(i) A certification by a person with knowledge of the facts that

the material facts as represented in the request are true and complete.

The following form of certification is sufficient for this purpose:

I hereby certify that the material facts set forth in the

attached letter dated ________ are true and complete to the best of

my knowledge.

(name and title)-------------------------------------------------------

and

(ii) An undertaking made by the person on whose behalf the Letter

is sought or by that person's authorized representative that, if at any

time prior to issuance of a Letter, any material representation made in

the request ceases to be true and complete, the person who made the

undertaking will ensure that Commission staff is informed promptly in

writing of all materially changed facts and circumstances. If a

material change in facts or circumstances occurs subsequent to issuance

of a Letter, the person on whose behalf the Letter is sought (or that

person's authorized representative at the time of the change) must

promptly so inform Commission staff.

(4) The request must identify the type of relief requested and

Letter sought and must clearly state why a Letter is needed. The

request must identify all relevant legal and factual issues and discuss

the legal and public policy bases supporting issuance of the Letter.

(5) The request must contain references to all relevant

authorities, including applicable provisions of the Act, Commission

rules, regulations and orders, judicial decisions, administrative

decisions, relevant statutory interpretations and policy statements.

Adverse authority must be cited and discussed.

(6) The request must identify prior publicly available Letters

issued by

[[Page 68182]]

Commission staff in response to circumstances similar to those

surrounding the request (including adverse Letters), and must identify

any conditions imposed by prior Letters as prerequisites for the

issuance of those Letters. Citation of a representative sample of prior

Letters is sufficient where a comprehensive recitation of prior Letters

on a given topic would be repetitious or would not assist the staff in

considering the request.

(7) Requests may ask that, if the requested exemptive relief, no-

action position or interpretative guidance is denied, the staff

consider granting alternative relief or adopting an alternative

position.

(d) Filing Requirements. Each request for a Letter must comply with

the following filing requirements:

(1) The request must be in writing and signed.

(2) The request must be filed with the Director, Division of

Trading and Markets, Commodity Futures Trading Commission, Three

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

must be submitted electronically using the e-mail address

[email protected]; Provided, That a properly signed paper copy of the

request is provided to the Division of Trading and Markets within ten

days for purposes of verification of the electronic transmission. The

Director will route the request to the appropriate Division or the

Office of the General Counsel.

(e) Form of Staff Response. No response to any request governed by

this section is effective unless it is in writing, signed by

appropriate Commission staff, and transmitted in final form to the

recipient. Failure by Commission staff to respond to a request for a

Letter does not constitute approval of the request. Nothing in this

section shall preclude Commission staff from responding to a request

for a Letter by way of endorsement or any other abbreviated, written

form of response.

(f) Withdrawal of Requests. (1) A request for a Letter may be

withdrawn by filing with Commission staff a written request for

withdrawal, signed by the person on whose behalf the Letter was sought

or by that person's authorized representative, that states whether the

person on whose behalf the Letter was sought will proceed with the

proposed transaction or activity.

(2) Where a request has been submitted by an authorized

representative of the person on whose behalf a Letter is sought, the

authorized representative may withdraw from representation at any time

without explanation, Provided, That Commission staff is promptly so

notified.

(g) Failure to Pursue a Request. In the event that Commission staff

requests additional information or analysis from a requester and the

requester does not provide that information or analysis within thirty

calendar days, Commission staff generally will issue a denial of the

request; Provided, however, that Commission staff in its discretion may

issue an extension of time to provide the information and or analysis.

(h) Confidential Treatment. Confidential treatment of a request for

a Letter must be requested separately in accordance with Sec. 140.98 or

Sec. 145.9 of this chapter, as applicable.

(i) Applicability to Other Sections. The provisions of this section

shall not affect the requirements of, or otherwise be applicable to:

(A) Notice filings required to be made to claim relief from the Act

or from a Commission rule, regulation or order including, without

limitations, Secs. 4.5, 4.7(a), 4.7(b), 4.12(b), 4.13(b) and 4.14(a)(8)

of this chapter; or

(B) Requests for exemption pursuant to Section 4(c) of the Act.

Issued in Washington, DC on December 2, 1998 by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 98-32587 Filed 12-9-98; 8:45 am]

BILLING CODE 6351-01-M