Changes in Reporting Levels for Large Trader Reports

COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 15 and 17

Changes in Reporting Levels for Large Trader Reports

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed Rulemaking.

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SUMMARY: As part of its regulatory reform initiative, the Commodity

Futures Trading Commission (Commission or CFTC) is proposing to amend

Parts 15 and 17 of its rules, 17 CFR Parts 15 and 17. The proposed

amendments to Part 15 would raise the reporting levels at which futures

commission merchants (FCMs), clearing members, foreign brokers,\1\ and

traders must file large trader reports in certain commodities. The

Commission is also proposing to delete the requirement that where an

independent account controller trades for a number of commodity pools,

the carrying firm must identify separately each such commodity pool. In

addition, the proposed amendments would delete current reporting Rule

17.01(c) under which a reporting firm must identify the number and name

of other accounts not included in the special account that are

controlled or owned by the trader.

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\1\ FCMs, clearing members and foreign brokers are referred to

herein collectively as ``firms.''

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The Commission is also proposing to reorganize the identifying

information reported by large traders on CFTC Form 40 ``Statement of

Reporting Trader'' to obtain and present data more useful to the

Commission's market surveillance activities. The proposed amendments

would streamline the reporting process and would substantially lessen

the burden on persons reporting, as well as the processing workload of

the Commission, without compromising the integrity of the Commission's

large trader reporting system, its market surveillance activities or

its oversight responsibilities.

DATES: Comments on this proposed rulemaking should be submitted on or

before April 5, 1999.

ADDRESSES: Comments should be mailed to the Commodity Futures Trading

Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington,

D.C. 20581, attention:

[[Page 5201]]

Office of the Secretariat; transmitted by facsimile at (202) 418-5521;

or transmitted electronically at [[email protected]]. Reference should

be made to ``Large Trader Reporting Rules.''

FOR FURTHER INFORMATION CONTACT: Lamont L. Reese, or Kimberly A.

Browning, Attorney/Advisor, Division of Economic Analysis, Three

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

telephone (202) 418-5600, or electronically [[email protected]] or

[[email protected]].

SUPPLEMENTARY INFORMATION:

I. Background

Over the past two years, the Commission has implemented a program

of regulatory reform and modernization to reduce unnecessary burdens on

the futures industry while maintaining the important public protections

embodied in the Commodity Exchange Act. In particular, the Commission

has eliminated duplicative regulatory requirements, reduced unnecessary

paperwork burdens and updated its regulatory scheme to reflect changes

in the market place. In doing so, the Commission has sought to maintain

the regulatory safeguards relied upon by the public. The rule reform

initiatives have included a fast-track procedure for Commission review

and approval of new contract market designations and exchange rule

amendments, 62 FR 10434 (March 7, 1997). The Commission is also

considering a proposal to streamline designation applications and to

modify its speculative position limits. See, 63 FR 38537 (July 17,

1998) and 63 FR 38525 (July 17, 1998), respectively. As part of its

regulatory reform program, the Commission has re-examined its rules

regarding its large-trader reporting system. The Commission's large-

trader reporting system is an important Commission oversight tool.

These rules require FCMs to report to the Commission position

information of the largest futures and options traders and require the

traders themselves to provide certain identifying information.

Reporting levels are set in the designated futures and option markets

under the authority of sections 4i and 4c of the Act to ensure that the

Commission receives adequate information to carry out its market

surveillance programs. These market surveillance programs are designed

to detect and to prevent market congestion and price manipulation and

to enforce speculative position limits. They also provide information

regarding the overall hedging and speculative use of, and foreign

participation in, the futures markets and other matters of public

interest. Generally, large trader reports are filed by the firm

carrying the reportable trader's position.\2\

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\2\ Specifically, Parts 17 and 18 of the regulations require

reports from firms and traders, respectively, when a trader holds a

``reportable position.'' A reportable position is any open contract

position that at the close of the market on any business day equals

or exceeds the quantity specified in Commission Rule 15.03 in

either: (1) Any one future of any commodity on any one contract

market, excluding futures contracts against which notices of

delivery have been stopped by a trader or issued by the clearing

organization of a contract market; or (2) Long or short put or call

options that exercise into the same future of any commodity on any

one contract market. 17 CFR 15.00 and Part 150.

The firms which carry accounts for traders holding ``reportable

positions'' are required to identify those accounts by filing a CFTC

Form 102, discussed infra, and to report all reportable positions in

the accounts to the Commission. The individual trader who holds or

controls the reportable position, however, is required to report to

the Commission only in response to a special call.

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The Commission periodically reviews information concerning trading

volume, open interest, and the number and position sizes of individual

traders relative to the reporting levels for each market to determine

if coverage of open interest is adequate for effective market

surveillance. In this regard, the Commission also is mindful of the

paperwork burden associated with these reporting requirements and

reviews them with an eye to streamlining that burden to the extent

compatible with its responsibilities for rigorous surveillance of the

futures and option markets. The Commission's most recent review of

reporting levels indicates that the size of trading volume, open

interest, and position of individual traders would enable the

Commission to raise reporting levels as follows: (1) Lean Hogs from 50

to 100 contracts, (2) Rough Rice from 25 to 50 contracts, (3) Goldman

Sachs Commodity Index from 25 to 100 contracts, (4) Soybean Oil from

175 to 200 contracts, (5) Soybean Meal from 175 to 200 contracts, (6)

1-Month LIBOR from 100 to 300 contracts, (7) 30-Day Fed Funds from 100

to 300 contracts, (8) 3-Month Eurodollars from 850 to 1000 contracts,

(9) 3-Month Euroyen from 25 to 100 contracts, (10) 2-Year US Treasury

Notes from 200 to 500 contracts, (11) 5-Year US Treasury Notes from 300

to 800 contracts, (12) 10-Year US Treasury Notes from 500 to 1000

contracts, (13) 30-Year US Treasury Bonds from 500 to 1000 contracts,

(14) Municipal Bond Index from 100 to 300 contracts, (15) Dow Jones

Industrial Average Index from 25 to 100 contracts, (16) NASDAQ 100

Stock Index from 25 to 100 contracts, (17) NIKKEI Stock Average from 50

to 100 contracts, (18) Russell 2000 Stock Index from 25 to 100

contracts, (19) S&P 400 Midcap Stock Index from 25 to 100 contracts,

(20) S&P 500 Stock Index from 600 to 1000 contracts, (21) Crude Oil

from 300 to 350 contracts, (22) Natural Gas from 100 to 175 contracts,

and (23) Sugar 11 from 300 to 400 contracts.\3\

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\3\ The Commission also is proposing to delete Rule 15.03's

separate reference to ``GNMA,'' a contract that is now currently

dormant. See, 17 CFR 5.2(a). Under this proposal, if trading in

GNMAs were to be reactivated, the reporting level would be 25

contracts.

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Reporting levels for foreign currencies would also be modified.

Currently, Commission Rule 15.03 does not distinguish among foreign

currencies, setting a uniform standard for all. However, surveillance

of contracts on currencies of the major economies requires fewer large

trader reports than for contracts on the currencies of the emerging

markets. Accordingly, the Commission is proposing to amend Rule 15.03

to classify the European currency unit (and its successor, the Euro)

and the currencies of Japan, Germany, the UK, France, Italy, Canada,

Australia, Switzerland, Sweden, Belgium, and the Netherlands as ``Major

Foreign Currencies'' and to raise the reporting level applicable to

them to 400 from the current level of 200 contracts.

In addition, the Commission is proposing to lower the reporting

level for all other foreign currencies \4\ to 100 contracts in order to

obtain needed information in surveilling these contracts.\5\ In

addition, the Commission is proposing a 100 contract reporting level

for any contract having one of the other foreign currencies as a

constituent part of a crossrate contract.\6\

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\4\ Futures contracts classified in ``Other Foreign Currencies''

with open interest during the first two weeks in December 1998

included the Mexican Peso, Russian Ruble, Brazilian Real, New

Zealand Dollar and the South African Rand. All currencies had

positions reportable at the current, 200-contract level.

\5\ Because exchange large trader reporting levels for these

currencies presently are either at or below 100 contracts, the

Commission anticipates that there will be a small additional cost to

reporting firms to provide the information to the Commission. The

Commission specifically invites comments from interested persons on

the extent of this additional reporting burden.

\6\ Cross-rate contracts which are composed of two major

currencies would also be considered to be a major currency.

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The Commission is also proposing to list the reporting levels for

the grains and soybeans in terms of contracts rather than bushels.

Prior to January 1998, it was industry practice to express open

interest and volume data, as well as required position reports, for the

[[Page 5202]]

grain and soybean futures contracts, in terms of thousands of bushels.

Beginning in 1998, however, industry practice for the grains and

soybean contracts changed to express data for these contracts in

contract units, which is consistent with the data for all other futures

and option contracts. The Commission is proposing to conform its

reporting levels to this practice.

The Commission's long-standing administrative practice has been to

set reporting levels by commodity and not by individual contract

market. Consistent with this long-standing policy, although contracts

on the MidAmerica Commodity Exchange (MACE) are smaller in size than

those traded on other exchanges,\7\ the Commission is not proposing to

adjust the reporting level for MACE contracts to compensate for the

smaller bushel-size of its contracts. This will result in a MACE

trader's reporting level being set at a lower absolute number of

bushels than the number of bushels underlying a reportable position on

the exchanges that trade larger-sized contracts.\8\ Although the number

of reporting traders on MACE contracts may increase by expressing the

reporting level in contracts rather than bushels, existing data cannot

precisely gauge whether, or to what degree, the reporting burden will

be changed as a result. Of course, the Commission would propose to

amend these reporting levels if, based upon actual experience after

their adoption, the proposed MACE levels resulted in too many or too

few reports. The Commission specifically invites comments on this

matter from interested persons.

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\7\ Specifically, for example, the contract size for wheat,

corn, oats and soybean futures contracts traded on MACE is 1,000

bushels, rather than the 5,000 bushel size contract traded on other

exchanges.

\8\ The current convention of expressing reporting levels for

all of the contract markets in bushels does not raise this issue.

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The Commission estimates that these proposed amendments to adjust

reporting levels will decrease the number of daily position reports

(i.e., CFTC Series '01 Reports and CFTC Form 102s) required to be filed

by reporting firms by about 14 percent. (The number of CFTC Form 40s

required to be filed by large traders will also decrease). However, the

percent of total market open interest reported through the large trader

system would remain at the level deemed sufficient for rigorous market

surveillance based upon the Commission's administrative experience.

Not all reporting firms may elect to avail themselves of this

relief. In this regard, the exchanges also maintain large trader

reporting systems that are similar in most respects to the

Commission's. The exchanges set their own reporting level, which for

particular contracts may vary from Commission levels. When exchange

levels are lower than the Commission's, firms may report to the

Commission at the lower exchange level, thereby saving any cost

associated with reprogramming their reporting systems to reflect the

proposed increases to the Commission's levels. The Commission, however,

accepts information on CFTC Forms 40 and 102 only for positions that

exceed its levels. Since these forms are filed manually, raising the

reporting levels will always result in reducing firm costs by reducing

the amount of paperwork firms must generate.

II. Proposed Amendments to Special Account Information (CFTC Form

102)

In addition to the daily large trade position data discussed above,

Part 17 of the Commission's regulations requires that firms report to

the Commission when an account first becomes reportable. When a trade

first exceeds a reporting level, the firm labels the account a

``special account.'' \9\ The firm must also file with the Commission

Form 102.\10\ CFTC Form 102 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. Certain information included on

the Form 102 no longer is needed for the operation of the Commission's

surveillance data systems or by routine report from firms.

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\9\ The firm assigns a reporting number to the special account

and reports all information to the Commission using this number.

\10\ Commission Rule 17.01, 17 CFR 17.01. The CFTC Form 102 must

also be updated when information concerning financial interest in,

or control of, the special account changes. 17 CFR 17.02.

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Specifically, Commission Rule 17.01(b)(3) provides that a firm

identify on Form 102 each pool, the pool's account number and name, as

well as the name and location of the commodity pool for which the

account controller trades. In addition, Commission Rule 17.01(c)

requires that a trader identify on a Form 102 the names and account

numbers of all other separate accounts that the reporting trader

controls or in which the trader has a ten percent or greater financial

interest. (``other accounts'').\11\

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\11\ For example, when an individual shares control of and has a

financial interest in an account with one or more persons, and that

individual also has his or her own account that he or she solely

controls, these accounts would not be reported as a single account

for special account/Form 102 reporting purposes. See, Commission

Rule 17.00(b)(ii).

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These requirements are duplicative of more complete information on

account ownership and control filed by the traders themselves on CFTC

Form 40, as required by Commission rule Sec. 18.04. Based upon the

information reported on the Form 40, the Commission's compliance

programs are able to make the necessary account aggregations without

the need for firms to furnish the above information, as well. Because

neither of these categories of information, as reported routinely by

firms, any longer facilitates the Commission's market surveillance

program in any significant respect, and their deletion may

substantially reduce the over all burden of the firm's required

reporting on the Form 102, the Commission is proposing to streamline

the reporting process by deleting the requirements under 17.01(b)(3)

and (c) as described above. Of course, the proposed deletion of these

routine requirements will not in any way affect the Commission's

authority to obtain complete account information from either or both

the firm and the individual trader in those individual cases where

additional information is necessary to the Commission's conduct of

market surveillance or to the enforcement of its rules. Nor does it

affect the manner in which accounts are aggregated for calculation of

compliance with speculative position limits and for other compliance

purposes. Accordingly, the Commission is proposing that Sec. 17.01 be

amended by deleting those sections of the rule requiring that special

account data reflected on Form 102s must include specific information

on commodity pools and pool operators, as well as ``other account''

data required by Sec. 17.01(c). The Commission believes that these

proposed amendments to streamline Sec. 17.01 would reduce the reporting

burden on the public and the processing workload of the Commission.

III. Proposed Changes to Statement of Reporting Trader (CFTC Form

40)

Under Part 18 of the Commission's regulations, traders who own or

control reportable positions are required to file a CFTC Form 40 on

call by the Commission or its delegee disclosing information about the

ownership or

[[Page 5203]]

control of their futures and option positions.

The Commission is proposing to reorganize the Form 40 to present

data in a more useful manner. In particular, the commission is

proposing to redesign ``Schedule 1'' to clarify information regarding

the reporting trader's hedging activities. This information includes

the types of futures or options contracts used to hedge, the commercial

occupations or merchandising activities of traders and the futures or

option markets used for hedging. Although the information required

would remain essentially the same, the Commission is proposing that the

data reflected on Schedule 1 be reorganized to emphasize occupations

and merchandising activities of the traders rather than the markets in

which they trade.\12\ In addition, the Commission is proposing to

divide the Schedule 1 ``Investment Groups'' category, which currently

includes all professionally managed funds, into distinct, more

descriptive subcategories. These subcategories would include hedge

funds, college endowments, managed accounts and commodity pools,

trusts, foundations, pension funds, mutual funds and insurance

companies. This proposed reorganization would provide information of

greater use for surveillance activities. The proposed Schedule 1 is

included below and the Commission invites comments from the public

regarding its readability and overall structure:

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\12\ Slight changes would also be made to the list of

merchandising activities to reflect those of greater surveillance

importance to the Commission.

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IV. Related Matters

A. The Regulatory Flexibility Act

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

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

those rules on small businesses. The Commission has previously

determined that large traders and FCMs are not ``small entities'' for

purposes of the RFA. 47 FR 18618-18621 (April 30, 1982). The proposed

amendments to reporting requirements fall mainly upon FCMs. Similarly,

foreign brokers and foreign traders report only if carrying or holding

reportable, i.e., large positions. In addition, these proposed

amendments relieve a regulatory burden. Therefore, the Chairperson, on

behalf of the Commission, hereby certifies, pursuant to 5 U.S.C.

605(b), that the action taken herein will not have a significant

economic impact on a substantial number of small entities. The

Commission invites comments from any firm believing that these rules

would have a significant economic impact upon its operations.

B. Paperwork Reduction Act

When publicizing proposed rules, the Paperwork Reduction Act (PRA)

of 1995 (Pub. L. 104-13 (May 13, 1995)) 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 through these rule

proposals solicits comments to:

(1) Evaluate whether the proposed collection of information is

necessary for the proper performance of the functions of the agency,

including the validity of the methodology and assumptions used; (2)

evaluate the accuracy of the agency's estimate of the burden of the

proposed collection of information including the validity of the

methodology and assumptions used; (3) enhance the quality, utility, and

clarity of the information to be collected; and (4) minimize the burden

of the collection on those who are to respond, including through the

use of appropriate automated, electronic, mechanical, or other

technological collection techniques or other forms of information

technology, e.g., permitting electronic submission responses.

The Commission has submitted these proposed rules and their

associated information collection requirements to the Office of

Management and Budget. The burdens associated with this entire

collection (3038-0009), including these proposed rules, is as follows:

Average Burden Hours Per Response: 0.35

Number of Respondents: 5391

Frequency of Response: Daily

Persons wishing to comment on the information which would be

required by these proposed rules should contact the Desk Officer, CFTC,

Office of Management and Budget, Room 10202, NEOB, 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.

Copies of the OMB-approved information collection package

associated with the rulemaking may be obtained from the Desk Officer,

Commodity Futures Trading Commission, Office of Management and Budget,

Room 10202, NEOB, Washington, DC 20503, (202) 395-7340.

List of Subjects

17 CFR Part 15

Brokers, Reporting and recordkeeping requirements.

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

proposes to amend Parts 15 and 17 of Chapter I of Title 17 of the Code

of Federal Regulations as follows:

PART 15--REPORTS--GENERAL PROVISIONS

1. The authority citation for part 15 continues to read as follows:

Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, (a)-(d), 6f, 6g, 6i, 6k,

6m, 6n, 7, 9, 12a, 19 and 21; 5 U.S.C. 552 and 552(b).

2. Section 15.03 is revised to read as follows:

Sec. 15.03 Reporting Levels.

(a) Definitions. For purposes of this section, the term major

foreign currency means the currencies and cross-rates between the

currencies of Japan, Germany, the U.K., France, Italy, Canada,

Australia, Switzerland, Sweden, Belgium, and the Netherlands and the

Euro.

(b) The quantities for the purpose of reports filed under Parts 17

and 18 of this chapter are as follows:

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Number of

Commodity contracts

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Agricultural:

Wheat............................................... 100

Corn................................................ 150

Oats................................................ 60

Soybeans............................................ 100

Soybean Oil......................................... 200

Soybean Meal........................................ 200

Cotton.............................................. 50

Frozen Concentrated Orange Juice.................... 50

Rough Rice.......................................... 50

Live Cattle......................................... 100

Feeder Cattle....................................... 50

Lean Hogs........................................... 100

Sugar No. 11........................................ 400

Sugar No. 14........................................ 100

Cocoa............................................... 100

Coffee.............................................. 50

Natural Resources:

Copper.............................................. 100

Gold................................................ 200

Silver Bullion...................................... 150

Platinum............................................ 50

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No. 2 Heating Oil................................... 250

Crude Oil, Sweet.................................... 350

Unleaded Gasoline................................... 150

Natural Gas......................................... 175

Financial:

Municipal Bond Index................................ 300

3-month (13-Week) U.S. Treasury Bills............... 150

30-Year U.S. Treasury Bonds......................... 1,000

10-Year U.S. Treasury Notes......................... 1,000

5-Year U.S. Treasury Notes.......................... 800

2-Year U.S. Treasury Notes.......................... 500

3-Month Eurodollar Time Deposit Rates............... 1,000

30-Day Fed Funds.................................... 300

1-month LIBOR Rates................................. 300

3-month Euroyen..................................... 100

Major-Foreign Currencies............................ 400

Other Foreign Currencies............................ 100

U.S. Dollar Index................................... 50

S&P 500 Stock Price Index........................... 1,000

E-Mini S&P Stock Price Index........................ 300

S&P 400 Midcap Stock Index.......................... 100

Dow Jones Industrial Average Index.................. 100

New York Stock Exchange Composite Index............. 50

Amex Major Market Index, Maxi....................... 100

NASDAQ 100 Stock Index.............................. 100

Russell 2000 Stock Index............................ 100

Value Line Average Index............................ 50

NIKKEI Stock Index.................................. 100

Goldman Sachs Commodity Index....................... 100

All Other Commodities................................... 25

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PART 17--REPORTS BY FUTURES COMMISSION MERCHANTS, MEMBERS OF

CONTRACT MARKETS AND FOREIGN BROKERS

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

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

otherwise noted.

4. Section 17.01 is proposed to be amended by removing and

reserving paragraphs (b)(3)(ii) and (c) and by revising paragraph

(b)(3)(iii) to read as follows:

Sec. 17.01 Special account designation and identification.

* * * * *

(b) * * *

(3) * * *

(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; and

* * * * *

Issued in Washington, D.C., this 28th day of January, 1999 by

the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 99-2435 Filed 2-2-99; 8:45 am]

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