Fees for Applications for Contract Market Designation

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 5

Fees for Applications for Contract Market Designation

AGENCY: Commodity Futures Trading Commission.

ACTION: Final reduction of certain designation applications fees.

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SUMMARY: The staff reviews periodically the Commission's actual costs

of processing applications for contract market designation (17 CFR Part

5, Appendix B) and adjusts its schedule of fees accordingly. As a

result of the most recent review, the Commission, as proposed on April

22, 1999 (64 FR 19730), is establishing reduced fees for a limited

class of simultaneously submitted multiple contract designation

application filings.

EFFECTIVE DATE: June 8, 1999.

FOR FURTHER INFORMATION CONTACT: Richard Shilts, Division of Economic

Analysis, (201) 418-5275, Three Lafayette Centre, 1155 21st, Street,

NW., Washington, DC 20581. E-mail [R[email protected]].

SUPPLEMENTARY INFORMATION:

I. History

On August 23, 1983, the Commission established a fee for contract

market designation (48 FR 38214). The fee was based upon a three-year

moving average of the actual costs and the number of contracts reviewed

by the Commission during that period of time. The formula for

determining the fee was revised in 1985. At that time, most of the

designation applications were for futures contracts rather than option

contracts, and the same fee was applied to both futures and option

designation applications.

In 1992, the Commission reviewed its data on the actual costs for

reviewing designation applications for both futures and option

contracts and determined that the cost of reviewing a futures contract

designation application was much higher than the cost of reviewing an

option contract designation. It also determined that, when designation

applications for both a futures contract and an option on that futures

contract was submitted simultaneously, the cost for reviewing both

together was lower than for reviewing the contracts separately. Based

on that finding, three separate fees were established--one for futures

alone, one for options alone, and one for combined futures and option

contract applications. 57 FR 1372 (January 14, 1992). The combined

futures/option designation application fee is set at a level that is

less than the aggregate fee for separate futures and option

applications to reflect the fact that the cost for review of an option

is lower when submitted simultaneously with the underlying future and

to create an incentive for contract markets to

[[Page 30385]]

submit simultaneously applications for futures and options on that

future.

A. Proposed Further Modifications to Fee Structure

In a Federal Register notice dated April 22, 1999 (64 FR 19730),

the Commission proposed to establish reduced fees for certain types of

simultaneously submitted multiple contract designation applications.

The Commission did not receive any comments in response to that notice.

II. Final Fee Structure

The Commission has determined to modify, as proposed, its fee

structure for the limited class of multiple designation applications

submitted simultaneously relating to contracts: (i) which are cash

settled based on an index representing measurements of physical

properties or financial characteristics which are not traded per se in

the cash market; (ii) which use the same procedures for determining the

cash-settlement values for all contracts in the filing; (iii) as to

which the procedure for determining the values which vary for the

individual cash settlement prices is objective and the individual

contract values represent a spatial or other variant of that procedure

or a larger or smaller multiplier; and (iv) as to which all other times

and conditions are the same.\1\ Commission fees for simultaneous

submission of such multiple cash-settled contracts would be equal to

the prevailing applicable fee for the first contract plus 10 percent of

that fee for each additional contract in the filing. This fee structure

represents an extension of the policy adopted by the Commission in 1992

when it established reduced fees for option applications and for

combined futures and option applications and would be consistent with

the Commission's responsibility under the Independent Offices

Appropriations Act (31 U.S.C. 9107 (1982)) to base fees on the costs to

the Government.

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\1\ In this regard, contracts having differentiated spatial

features include contracts that are identical in all respects

including the cash settlement mechanism but which may be based on

the application of differing objectively determined values for

different geographical areas. These may include contracts on

weather-related data or vacancy rates for rental properties, where

each individual contract is based on the value--temperature, local

vacancy rate, etc.--for a specific city. To be eligible for the

multiple contract filing fee, each contract must be cash-settled

based on the same underlying data source and derived under identical

calculation procedures such that the integrity of the cash

settlement mechanism is not dependent on the individual contract

specifications and that values which vary are derived objectively

using the same source or type of data. Thus, for example,

applications containing a number of similar cash-settled contracts

based on indexes of government debt of different foreign countries

would not be eligible for the reduced fee since the manipulation

potential of each contract would be related to the liquidity of the

underlying instruments and the individual trading practices and

governmental oversight in each specific country, requiring separate

analyses.

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The Commission believes that a 10 percent marginal fee for

additional contracts in a filing is appropriate for applications

submitted simultaneously that are eligible for the multiple-contract

filing fee. Because the multiple-contract filing fee applies only to

cash-settled contracts based on objectively determined index values

such that each separate contract represents only a spatial or other

variant of that process and because the index is a measurement of a

physical property or a financial characteristic which is not traded per

se in the cash market, the Commission's review likely will not require

a separate detailed analysis of each of the contracts in the filing.

Moreover, for contracts meeting the standard for the multiple contract

filing fee, the Commission's review of the cash settlement mechanism

would involve a single analysis of the nature of the index and the

process by which the underlying index values are determined. Separate

comprehensive evaluations for each individual index would not be

required since the same calculations apply to each. Since the

underlying instruments are not traded in the cash market, the

Commission need not conduct separate reviews of the underlying cash

markets or the reliability or transparency of prices for the individual

commodities. Because each contract must use an identical cash-

settlement procedure and all other material terms and conditions must

be the same (except for the differentiated term or the specified

contract multiplier), the analysis of the cash settlement procedure for

one contract would apply in large part to each of the additional

contracts. Finally, because each contract in a filing must be

differentiated only with respect to a single term or contract size

feature that is not likely to affect the integrity of the cash

settlement mechanism, each separate contract would not require a

separate comprehensive analysis to ascertain its compliance with the

requirements for designation.

The Commission notes that, regardless of the fee assessed for

designation applications, the Commission will continue to conduct the

same comprehensive review to ensure that each proposed contract meets

all requirements for designation set forth in the Commission's

Guideline on Economic and Public Interest Requirements for Contract

Market Designation, 17 CFR Part 5, Appendix A (``Guideline No. 1'').\2\

However, as explained above, for the types of applications covered by

the multiple contract filing fee, the Commission's analysis of the case

settlement procedure in general and its review of the other material

terms and conditions likely would be applicable to each contract in the

filing. Only a limited incremental analysis would be required to assess

whether each additional contract in such a filing meets the designation

requirements of Guideline No. 1, resulting in a much higher degree of

efficiency in reviewing the applications and substantially reducing the

marginal cost for reviewing and processing the additional contracts.

The Commission's extensive experience in reviewing new contract

designation applications indicates that, for simultaneously submitted

multiple contract filings meeting the specified standards, a fee for

each additional contract equal to 10 percent of the single contract

application fee would reflect the Commission's expected review costs

for these types of applications. To the extent the Commission finds

otherwise, this fee will be adjusted in subsequent years.

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\2\ Guideline No. 1 details the information that an applicant

for contract market designation should include in order to

demonstrate that the contract market meets the economic requirements

for designation.

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The Commission wishes to make clear that the reduced option fee for

the limited class of multiple-designation applications applies only to

options on futures applications and not to options on physicals

applications.

Under the new procedures noted above, the Commission's multiple

contract designation application fees for filings meeting the standard

discussed above are as follows: For filings involving multiple cash-

settled futures--$6,800 for the first contract, plus $680 for each

additional contract; for filings involving multiple options on cash-

settled futures--$1,200 for the first contract, plus $140 for each

additional contract; and for filings involving multiple combined cash-

settled futures and options on those futures--$7,500 for the first

futures and option contract, plus $750 for each additional futures and

option contract. To be eligible for the reduced fees, contract markets

must label the submission as a multiple contract filing and identify

the cash settlement procedure to be used and the nature of the

differentiated term or the different contract size specifications and

justify why the application qualifies for this reduced fee.

[[Page 30386]]

III. Regulatory Flexibility Act

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

requires agencies in proposing rules, to consider the impact of those

rules on small businesses. The fees implemented in this release affect

contract markets (also referred to as ``exchanges'') and a registered

futures association. The Commission has previously determined that

contract markets are not ``small entities'' for purposes of the

Regulatory Flexibility Act, 5 U.S.C. 601 et seq., 47 FR 18618 (April

30, 1982). Therefore, the Chairperson, on behalf of the Commission,

certifies, pursuant to 5 U.S.C. 605(b), that the fees herein will not

have a significant economic impact on a substantial number of small

entities.

Issued in Washington, DC on June 2, 1999, by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 99-14390 Filed 6-7-99; 8:45 am]

BILLING CODE 6351-01-M