Federal Register / Vol. 66, No. 105 / Thursday, May 31, 2001 / Proposed Rules 29517

1Pub. L. 106–554, 114 Stat. 2763. The text of the

CFMA may be accessed at http://www.cftc.gov/

files/ogc/ogchr5660.pdf.

2See section 251(a)(2) of the CFMA. Previously,

section 2(a)(1)(B)(v) of the Act had prohibited the

trading of security futures products.

The term ‘‘security futures product’’ is defined in

section 1a(32) of the Act to mean ‘‘a security future

or any put, call, straddle, option, or privilege on any

security future.’’ The term ‘‘security future’’ is

defined in section 1a(31) of the Act and specifically

Continued

Rules Docket both before and after the

closing date for comments. A report

summarizing each substantive public

contact with the FAA personnel

concerned with this rulemaking will be

filed in the docket.

Availability of NPRMs

Any person may obtain a copy of this

Notice of Proposed Rulemaking (NPRM)

by submitting a request to the Office of

the Regional Counsel, AEA–7, F.A.A.

Eastern Region, 1 Aviation Plaza,

Jamaica, NY, 11434–4809.

Communications must identify the

notice number of this NPRM. Persons

interested in being placed on a mailing

list for future NPRMs should also

request a copy of Advisory Circular No.

11–2A, which describes the application

procedure.

The Proposal

The FAA is considering an

amendment to Part 71 of the Federal

Aviation Regulations (14 CFR Part 71) to

establish Class E airspace area at Pelham

Lake, VA. An Area Navigation (RNAV)

Point in Space Approach has been

developed for Culpeper Memorial

Hospital Heliport located in the vicinity

of Pelham Lake, VA. Controlled airspace

extending upward from 700 feet AGL is

needed to accommodate the approach.

Class E airspace designations for

airspace areas extending upward from

700 feet or more above the surface are

published in Paragraph 6005 of FAA

Order 7400.9H, dated September 1,

2000, and effective September 16, 2000,

which is incorporated by reference in 14

CFR 71.1. The Class E airspace

designation listed in this document

would be published subsequently in the

Order.

The FAA has determined that this

proposed regulation only involves an

established body of technical

regulations for which frequent and

routine amendments are necessary to

keep them operationally current.

Therefore, this proposed regulation—(1)

is not a ‘‘significant regulatory action’’

under Executive Order 12866; (2) is not

a ‘‘significant rule’’ under DOT

Regulatory Policies and Procedures (44

FR 11034; February 26, 1979) and (3)

does not warrant preparation of a

regulatory evaluation as the anticipated

impact is so minimal. Since this is a

routine matter that would only affect air

traffic procedures and air navigation, it

is certified that this proposed rule

would not have significant economic

impact on a substantial number of small

entities under the criteria of the

Regulatory Flexibility Act.

List of Subjects in 14 CFR Part 71

Airspace, Incorporation by reference,

Navigation (air).

The Proposed Amendment

In consideration of the foregoing, the

Federal Aviation Administration

proposes to amend 14 CFR Part 71 as

follows:

PART 71—[AMENDED]

1. The authority citation for 14 CFR

Part 71 continues to read as follows:

Authority: 49 U.S.C. 106(g), 40103, 40113,

40120; EO 10854, 24 FR 9565, 3 CFR, 1959–

1963 Comp., p. 389.

§ 71.1 [Amended]

2. The incorporation by reference in

14 CFR 71.1 of Federal Aviation

Administration order 7400.9H dated

September 1, 2000, and effective

September 16, 2000, is proposed to be

amended as follows:

Paragraph 6005 Class E airspace areas

extending upward from 700 feet or more

above the surface of the earth

* * * * *

AEA VA E5, Pelham Lake, VA (NEW)

Culpeper Memorial Hospital Heliport

(Lat. 38° 27′ 54′′N—long. 78° 01′ 06′′W)

That airspace extending upward from 700

feet above the surface within a 6 mile radius

of Culpepper Memorial Hospital Heliport.

* * * * *

Issued in Jamaica, New York on May 17,

2001.

F. D. Hatfield,

Manager, Air Traffic Division, Eastern Region.

[FR Doc. 01–13674 Filed 5–30–01; 8:45 am]

BILLING CODE 4910–13–M

COMMODITY FUTURES TRADING

COMMISSION

17 CFR Parts 41 and 140

RIN 3038–AB82

Designated Contract Markets in

Security Futures Products: NoticeDesignation Requirements, Continuing

Obligations, Applications for

Exemptive Orders, and Exempt

Provisions

AGENCY: Commodity Futures Trading

Commission.

ACTION: Proposed rulemaking and

request for comment.

SUMMARY: The Commodity Futures

Trading Commission today proposes

new regulations which would provide

notice procedures for a national

securities exchange, a national

securities association, or an alternative

trading system to become a designated

contract market in security futures

products, in accordance with the

Commodity Futures Modernization Act

of 2000. The proposed regulations also

would establish limited filing

requirements for such notice-designated

contract markets, in accordance with

certain provisions of the Commodity

Exchange Act, and would establish

procedures permitting such noticedesignated contract markets to apply for

exemptive relief from any section of the

Commodity Exchange Act or regulations

thereunder, to the extent such an

exemption is necessary or appropriate

in the public interest and is consistent

with the protection of investors.

DATES: Comments must be received by

July 2, 2001.

ADDRESSES: Comments on the proposed

rulemaking may be sent to Jean A.

Webb, Secretary of the Commission,

Commodity Futures Trading

Commission, Three Lafayette Centre,

1155 21st Street, NW., Washington, DC

20581. In addition, comments may be

sent by facsimile to (202) 418–5536 or

by electronic mail to secretary@cftc.gov.

Reference should be made to

‘‘Designated Contract Markets in

Security Futures Products.’’

FOR FURTHER INFORMATION CONTACT:

Joshua R. Marlow, Attorney-Advisor, or

David P. Van Wagner, Associate

Director, Division of Trading and

Markets, Commodity Futures Trading

Commission, Three Lafayette Centre,

1155 21st Street, NW., Washington, DC

20581, (202) 418–5490, electronic mail:

jmarlow@cftc.gov or

dvanwagner@cftc.gov.

SUPPLEMENTARY INFORMATION:

I. Background

On December 21, 2000, the

Commodity Futures Modernization Act

of 2000 (‘‘CFMA’’) was signed into law.1

Among other things, the CFMA added a

provision to the Commodity Exchange

Act (‘‘Act’’) that permits the trading of

security futures products under the

shared jurisdiction of the Commodity

Futures Trading Commission

(‘‘Commission’’ or ‘‘CFTC’’) and the

Securities and Exchange Commission

(‘‘SEC’’).2 Under the amended law,

29518 Federal Register / Vol. 66, No. 105 / Thursday, May 31, 2001 / Proposed Rules

excludes, among other things, ‘‘excluded swap

transactions’’ (as defined in section 2(g) of the Act).

Because the CFMA also provides that options on

security futures cannot be traded until at least

December 21, 2003, security futures are the only

security futures products that may be available for

trading before such date. See section

2(a)(1)(D)(iii)(II) of the Act.

3The CFMA prescribes certain dates before which

trading in security futures products shall not

commence. Specifically, no trading may occur prior

to August 21, 2001, at which time principal-toprincipal transactions between ‘‘eligible contract

participants’’ may begin. Retail transactions in

security futures products may not begin until

December 21, 2001. (Both starting dates are

conditioned upon the registration of a futures

association as a national securities association

under the Securities Exchange Act of 1934 (‘‘’34

Act’’).) See section 202(a)(5) of the CFMA and

section 6(g)(5) of the ‘34 Act.

4See section 252(a)(2) of the CFMA.

5Section 5f(a) of the Act.

6 Id.

7See sections 101 and 201 of the CFMA.

8See 66 FR 26977 (May 15, 2001).

9Section 5f(b)(4)(A) of the Act.

10This proposed rulemaking specifies that

SFPCM requests for exemption under proposed

Commission regulation 41.33 would not be subject

to the requirements of Commission regulation

140.99.

11Under the Commission’s proposed regulatory

reform rulemaking, Commission regulation

1.41(a)(1) would be deleted and replaced by

Commission regulation 40.1(e). See 66 FR 14262

(Mar. 9, 2001). Should that proposal become final,

regulation 41.1(e) would alternatively crosssecurity futures products may be traded

on any board of trade that is designated

as a contract market by the Commission

pursuant to section 5 of the Act, or that

is registered with the Commission as a

derivatives transaction execution

facility (‘‘DTF’’) pursuant to section 5a

of the Act.3

Alternatively, section 5f of the Act

permits certain entities that are

otherwise regulated by the SEC to be

designated contract markets for the

limited purpose of trading security

futures products.4 Specifically, any

board of trade that is registered with the

SEC as a national securities exchange

pursuant to section 6(a) of the ’34 Act,

is registered with the SEC as a national

securities association pursuant to

section 15A(a) of the ’34 Act, or is an

alternative trading system (‘‘ATS’’) as

defined by section 1a(1) of the Act shall

be a designated contract market in

security futures products (‘‘SFPCM’’) if:

(1) Such national securities exchange,

national securities association, or alternative

trading system lists or trades no other

contracts of sale for future delivery, except

for security futures products;

(2) Such national securities exchange,

national securities association, or alternative

trading system files written notice with the

Commission in such form as the

Commission, by rule, may prescribe

containing such information as the

Commission, by rule, may prescribe as

necessary or appropriate in the public

interest or for the protection of customers;

and

(3) The registration of such national

securities exchange, national securities

association, or alternative trading system is

not suspended pursuant to an order by the

Securities and Exchange Commission.5

The designation ‘‘shall be effective

contemporaneously with the submission

of notice * * * to the Commission.’’ 6

Accordingly, the Commission is today

proposing new regulation 41.31, which

would establish notification procedures

in accordance with Congress’ mandate

in section 5f(a)(2) of the Act.

In order to maintain such designation

status with the Commission, an SFPCM

would have to comply with proposed

regulation 41.32, which would establish

several, limited continuing obligations.

These filing requirements, authorized by

various recordkeeping and inspection

provisions of the Act, would allow the

Commission to meet its market

oversight responsibilities.

Regulations 41.31 and 41.32 are

proposed in a manner that the

Commission believes is consistent with

the intent of the CFMA. The CFMA

defines a security futures product as

both a ‘‘security,’’ for purposes of the

’34 Act, and as a ‘‘future,’’ for purposes

of the Commodity Exchange Act.7 The

practical consequence of this dualdefinition is that boards of trade that are

otherwise subject to the regulatory

jurisdiction of only the SEC or the

CFTC, but which seek to list security

futures products for trading, might now

be subject to both regulatory regimes.

The CFMA attempts to resolve this

potentially duplicative regulation by

preserving the jurisdiction of an entity’s

primary regulator and reducing the

jurisdiction of the other regulator.

Accordingly, under new section 5f of

the Act, a board of trade that is

primarily regulated by the SEC and that

seeks to list security futures products for

trading is relieved from certain of the

CFTC’s otherwise applicable regulatory

requirements. Likewise, under section

202 of the CFMA, a board of trade that

is primarily regulated by the CFTC and

that seeks to list security futures

products for trading is relieved from

certain of the SEC’s otherwise

applicable regulatory requirements. The

Commission notes that, under the SEC

proposal to implement sections 202 of

the CFMA and 6(g) of the ’34 Act,8 a

contract market designated under

section 5 of the Act that notice-registers

as a national securities exchange with

the SEC in order to list security futures

products for trading would be subject to

more notice requirements and more

periodic reporting with its non-primary

regulator than a board of trade that

notice-designates as an SFPCM with the

CFTC. The Commission seeks comment

from the public on this potential

disparity. To what extent could these

disparate regulatory regimes for noticeregistrants create a competitive

disadvantage for section 5 designated

contract markets or section 5a DTFs

which seek notice-registration as a

national securities exchange pursuant to

section 6(g) of the ’34 Act? Are these

differences consistent with the general

intent of the CFMA to minimize the

burden of shared jurisdiction?

Finally, section 5f(b)(4) of the Act

permits the Commission to exempt

SFPCMs from any provision of the Act

or regulations thereunder, and requires

that the Commission determine

procedures which would allow SFPCMs

to apply to the Commission for an

exemption from any provision of the

Act or regulations thereunder, ‘‘to the

extent (any) such exemption is

necessary or appropriate in the public

interest and is consistent with the

protection of investors.’’ 9 Accordingly,

the Commission proposes new

regulation 41.33 to provide SFPCMs

with an opportunity to request

exemptive relief from unnecessary or

unduly burdensome requirements.

Responsibility for considering such

requests would be delegated to the

Directors of the Commission’s Division

of Trading and Markets and Division of

Economic Analysis, jointly, pursuant to

paragraph (g) of proposed regulation

41.33.10 Moreover, the Commission

proposes new regulation 41.34 to

exempt all SFPCMs from section 6(a) of

the Act.

II. Proposed Amendments

A. Regulation 41.1—Definitions

To implement the procedures

identified in proposed regulations

41.31, 41.32, 41.33, and 41.34, the

Commission proposes to establish

regulation 41.1, which would contain

six definitions: ‘‘alternative trading

system’’; ‘‘board of trade’’; ‘‘national

securities association’’; ‘‘national

securities exchange’’; ‘‘rule’’; and

‘‘security futures product.’’ The terms

‘‘alternative trading system,’’ ‘‘board of

trade,’’ and ‘‘security futures product’’

would have the same meanings as those

terms have in section 1a of the Act. The

terms ‘‘national securities exchange’’

and ‘‘national securities association’’

would have the same meanings as in the

’34 Act. The definition of ‘‘rule’’ would

be identical to the definition for that

term in Commission regulation

1.41(a)(1).11

Federal Register / Vol. 66, No. 105 / Thursday, May 31, 2001 / Proposed Rules 29519

reference Commission regulation 40.1(e).

Commission regulations referred to herein are

found at 17 CFR Ch. I (2000).

12See proposed regulation 41.31(a)(5)(iv). Section

2(a)(1)(D)(vii) of the Act states: ‘‘It shall be unlawful

for a board of trade to trade or execute a security

futures product unless the board of trade has

provided the Commission with a certification that

the specific security futures product and the board

of trade, as applicable, meet the criteria specified

in subclauses (I) through (XI) of [section

2(a)(1)(D)(i)], except as otherwise provided in

[section 2(a)(1)(D)(vi)].’’

13A change in regulatory status would include,

among other things, suspension of registration

pursuant to an order by the SEC, a switch in SEC

registration from ‘‘alternative trading system’’ to

‘‘national securities exchange,’’ or suspension or

revocation of membership by a registered futures

association.

14See note 12.

15A change in the clearing facilities utilized by

an SFPCM would be included in this category.

16Similar to proposed regulation 41.31, if a board

of trade previously filed documents with the SEC

containing information which would satisfy any of

these proposed informational requirements, the

Commission would accept copies of such

documents in lieu of the required information.

17The Commission’s authority under section

2(a)(1)(D)(iv)(I) of the Act is subject to certain

limitations appearing later in that provision.

18The Commission will consider its need for data

under part 16 once it becomes more apparent how

security futures products will be listed by section

5 designated contract markets, 5a DTFs, and section

5f SFPCMs. The Commission will endeavor to limit

its requests to information deemed necessary for

routine market surveillance.

19The Commission’s authority to require access

to books and records by SFPCMs can be found in

sections 4(a)(3), 4(b), 9g(b), and 4g(d) of the Act, in

addition to Commission regulation 1.31, which

would be reserved under the Commission’s

proposed regulatory reform rulemaking. See 66 FR

14262 (Mar. 9, 2001).

20See note 22.

21Section 4i of the Act prohibits any person to

‘‘have or obtain a long or short position in any

commodity or any future of such commodity equal

to or in excess of such amount as shall be fixed

from time to time by the Commission, unless such

person files or causes to be filed with the properly

designated officer of the Commission such reports

regarding any [such] transactions or positions * * *

as the Commission may by rule or regulation

require * * *.’’

B. Regulation 41.31—NoticeDesignation

The Commission proposes to establish

procedures necessary for a board of

trade operating as a national securities

exchange, national securities

association, or alternative trading

system to receive designation as an

SFPCM. This regulation is proposed

pursuant to section 5f(a)(2) of the Act,

which states that such designation may

be obtained by a board of trade by filing

‘‘written notice with the Commission in

such form as the Commission, by rule,

may prescribe containing such

information as the Commission, by rule,

may prescribe as necessary or

appropriate in the public interest or for

the protection of customers.’’

The proposed content requirements of

the notice relate to the Commission’s

abilities to maintain communication

with a board of trade and to receive

information about its operations, two

goals that the Commission believes are

‘‘necessary or appropriate in the public

interest or for the protection of

customers.’’ Such notices would have to

include: the name, address, and contact

person of the board of trade; a

description of the security futures

products that the board of trade intends

to make available for trading, including

an identification of all facilities that

would clear transactions in security

futures products on behalf of the board

of trade; a copy of the current rules of

the board of trade; and five specific

certifications by the board of trade

derived from the requirements found in

sections 5f and 2(a)(1)(D)(vii) of the

Act.12 If a board of trade previously filed

documents with the SEC containing

information which would satisfy any of

these proposed informational

requirements, the Commission would

accept copies of such documents in lieu

of the required information.

C. Regulation 41.32—Continuing

Obligations

The Commission proposes regulation

41.32 in order to establish a mechanism

to receive the following from an SFPCM:

(1) Notification of any change in its

regulatory status with the SEC or with

a futures association registered under

section 17 of the Act; 13

(2) A certification consistent with the

requirements of section 2(a)(1)(D)(vii) of

the Act each time the board of trade lists

a new security futures product for

trading; 14

(3) Provision of a copy of any new

rules or rule amendments that relate to

the trading of security futures products,

including any operational rules and the

terms and conditions of any security

futures products; 15

(4) Upon request, information related

to its business as a designated contract

market in security futures products; and

(5) Upon request, a written

demonstration, including supporting

data, that the board of trade is in

compliance with a specified provision

of the Act or regulations thereunder.

This information would permit the

Commission to carry out its various

responsibilities under the Act and

would ensure that an SFPCM continues

to comply with the conditions of

designation under section 5f(a) of the

Act and proposed regulation 41.31.16

The Commission notes various

recordkeeping and reporting provisions

of the Act, applicable to all designated

contract markets, which facilitate the

Commission’s general market oversight

responsibilities and authorize the

Commission to require this information.

In particular, section 4g(b) of the Act

requires that ‘‘[e]very registered entity

* * * maintain daily trading records

* * * includ[ing] such information as

the Commission shall prescribe by

rule,’’ and section 4g(d) of the Act

continues, ‘‘[d]aily trading records shall

be maintained in a form suitable to the

Commission. * * * Reports shall be

made from the records maintained

* * * in such form as the Commission

may prescribe. * * * ’’ Moreover,

sections 8(a)(1) and 2(a)(1)(D)(iv)(I) of

the Act, respectively, permit the

Commission to ‘‘make such

investigations as it deems necessary to

ascertain the facts regarding the

operations of boards of trade * * *

subject to the provisions of this Act’’

and to make ‘‘such reasonable periodic

or special examinations * * * as the

Commission deems necessary or

appropriate in the public interest, for

the protection of investors, or otherwise

in furtherance of the purposes of this

Act. * * * ’’ 17 Under section 3 of the

Act, the Commission also has general

responsibilities, among others, to

prevent manipulation and other

disruptions to market integrity, to

ensure the financial integrity of all

transactions subject to the Act, and to

protect all market participants from

fraud.

Proposed regulation 41.32 is not

meant to be an exhaustive list of SFPCM

regulatory requirements. It would

simply establish several additional

reporting requirements which the

Commission believes are necessary to

carry out its statutory mandate relative

to SFPCMs. Among others, the

Commission emphasizes that SFPCMs

must comply with the requirements of

part 16 of the Commission’s

regulations,18 and must provide the

Commission access to any books and

records relating to transactions

conducted in reliance on its designation

as a contract market in security futures

products.19 The Commission reiterates

that SFPCMs would remain subject to

all other applicable requirements of the

Act and regulations thereunder.20

Additionally, the Commission has

authority under Section 4i of the Act to

collect information on the positions of

large traders.21 This information

ordinarily is provided to the

Commission by futures commission

merchants (‘‘FCMs’’), clearing members,

and foreign brokers, pursuant to part 17

of the Commission’s regulations. Part 17

will apply to the trading of security

29520 Federal Register / Vol. 66, No. 105 / Thursday, May 31, 2001 / Proposed Rules

22Section 5f(b)(1) of the Act states—

A national securities exchange, national

securities association, or alternative trading system

that is designated as a contract market pursuant to

section 5f shall be exempt from the following

provisions of this Act and the rules thereunder:

(A) Subsections (c), (e), and (g) of section 4c.

(B) Section 4j.

(C) Section 5.

(D) Section 5c.

(E) Section 6a.

(F) Section 8(d).

(G) Section 9(f).

(H) Section 16.

23See note 11.

24See note 22.

25The Commission likely will change the phrase

‘‘section 6 of the Act’’ in proposed §§ 38.1 and 38.2

to ‘‘section 6(a) of the Act’’ when part 38 becomes

final. The reason for this distinction is that other

subsections in section 6 of the Act would continue

to apply to SFPCMs. Likewise, although the

inapplicability to SFPCMs of proposed part 40 is

more certain, the Commission contemplates

changing the definition of ‘‘contract market’’ in

proposed § 40.1 so that it explicitly excludes

SFPCMs.

26Notwithstanding the Commission’s belief that

its proposed part 38 rulemaking would not apply

to SFPCMs, the Commission particularly seeks

comment on whether any of the provisions of part

38 would facilitate the Commission’s ability to

carry out its statutory mandate with respect to

SFPCMs and, thus, whether any such provisions

should be incorporated into proposed regulation

41.32.

27Comments should indicate which provisions of

the Act and regulations thereunder would be

captured by the exemption in section 5f(b)(2) of the

Act. That provision reads:

An alternative trading system that is a designated

contract market under this section shall be required

to be a member of a futures association registered

under section 17 and shall be exempt from any

provision of this Act that would require such

alternative trading system to—

(A) Set rules governing the conduct of subscribers

other than the conduct of such subscribers’ trading

on such alternative trading system; or

(B) Discipline subscribers other than by exclusion

from trading.

futures products. However, the

Commission is concerned that, in

certain instances, part 17 might fail to

capture large trader information for

security futures products. For example,

if an ATS operates a non-intermediated

marketplace and notice-designates as an

SFPCM, it is not clear who would be

responsible for providing to the

Commission any large trader

information arising out of security

futures product transactions conducted

on that marketplace. The Commission

contemplates amending part 17 so that,

in such circumstances, the ATS itself

would be required to provide large

trader position information that

otherwise would be provided by an

FCM. The Commission requests

comment regarding this approach. More

generally, the Commission invites

comment on whether there are other

potential circumstances under which

large trader position information might

not be captured by part 17, in its current

form, particularly in light of this

proposed rulemaking.

D. Regulations 41.33(a)–(f), 41.34, and

140.99—Exemptions

Section 5f(b)(4)(A) of the Act provides

that the Commission ‘‘by rule,

regulation or order, may conditionally

or unconditionally exempt’’ any board

of trade designated as an SFPCM from

any provisions of the Act or regulations

thereunder, to the extent that the

exemption is necessary or appropriate

in the public interest and is consistent

with the protection of investors. Section

5f(b)(4)(B) directs the Commission to

determine the procedures by which an

exemptive order under section

5f(b)(4)(A) shall be granted, and vests

the Commission with sole discretion to

decline to entertain any application for

such an order.

Accordingly, the Commission today

proposes regulation 41.33. This

provision would require an SFPCM

seeking an exemption to file an

application with the Commission

containing various information,

including: the name and address of the

SFPCM requesting relief, and a contact

person at the SFPCM; a certification that

the SEC registration of the SFPCM is not

suspended pursuant to an order of the

SEC; an identification of the

provision(s) from which the SFPCM is

requesting relief and, if applicable,

whether the SFPCM is subject to similar

SEC provisions; the type of relief

sought; and an explanation of the need

for relief, including the extent to which

such relief is necessary or appropriate in

the public interest and consistent with

the protection of investors.

The Commission would have 90 days

to review the application, but could stay

the review period at any time if it

determines that the application is

materially incomplete. Moreover, the

Commission could, in its sole

discretion, decline to entertain an

application for any reason, without

explanation, at any time during the

review period. These exemptive order

procedures would become an

enumerated exception to the

applicability of Commission Regulation

140.99, which governs generally the

form and manner of requests for

exemptive letters.

The Commission also proposes new

regulation 41.34, which would list the

provisions of the Act from which

SFPCMs would be exempted. At this

time, the Commission proposes that

regulation 41.34(a) list each of the

statutory provisions enumerated in

section 5f(b)(1) of the Act.22 In addition,

regulation 41.34(b) would include

section 6(a) of the Act, which addresses

applications for designation as a

contract market generally and also the

Commission’s review of such

applications. The Commission believes

that including section 6(a) in regulation

41.34 would eliminate any potential

confusion about its applicability to

SFPCMs and would make clear that the

general contract market requirements of

the Commission’s proposed part 38

would not apply to SFPCMs.23 Because

SFPCMs are exempted from sections 5

and 5c of the Act,24 and those

provisions are the source for much of

the authority for part 38, the

Commission believes that SFPCMs

would not have been subject to part 38.

However, because proposed § 38.1,

addressing the ‘‘scope’’ of part 38

generally, states that ‘‘[t]he provisions of

this part 38 shall apply to every board

of trade or trading facility that has been

designated as a contract market in a

commodity under section 6 of the

Act,’’ 25 the Commission believes that

specifically exempting SFPCMs from

section 6(a) of the Act would further

clarify that part 38 is inapplicable to

SFPCMs.26

In addition to the proposals above, the

Commission seeks comment from

boards of trade and other interested

persons regarding whether there are any

other provisions of the Act or

regulations thereunder from which

SFPCMs should be exempt by

regulation. The Commission is

particularly interested in commenters’

views regarding, among other things, the

interplay between the enumerated

exemptions in sections 5f(b)(1) and (2)

of the Act and the Commission’s

regulations generally.27

E. Regulation 41.33(g)—Delegation of

Authority

Finally, the Commission also

proposes to delegate to the Director of

the Division of Trading and Markets and

the Director of the Division of Economic

Analysis, jointly, with the concurrence

of the Commission’s General Counsel,

the authority to grant or deny

applications for exemptive orders under

proposed regulation 41.33. This

proposed delegation of authority is

intended to expedite the procedures

described in proposed regulation 41.33

and place responsibility for them with

those Commission staff members most

directly involved in the relevant

matters. The Commission believes that

this delegation would maximize

regulatory efficiency with respect to

these applications.

Federal Register / Vol. 66, No. 105 / Thursday, May 31, 2001 / Proposed Rules 29521

28 5 U.S.C. 601 et seq. (1994 and Supp. II 1996).

29 47 CFR 18618 (April 30, 1982).

30 47 FR at 18619–20.

31 44 U.S.C. 3501 et seq. An agency may not

sponsor, and a person is not required to respond to,

any information collection unless it displays a

currently valid OMB control number.

32 66 FR 20740 (Apr. 25, 2001).

33Price discovery is not a concern relevant to this

rulemaking.

III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act

(‘‘RFA’’),28 requires that agencies, in

proposing regulations, consider the

impact of those regulations on small

businesses. The regulations discussed

herein would affect boards of trade

seeking to be designated as a contract

market in security futures products

under notice procedures promulgated

pursuant to section 5f(a) of the Act. The

Commission has previously established

certain definitions of ‘‘small entities’’ to

be used by the Commission in

evaluating the impact of its regulations

on such entities in accordance with the

RFA.29 The Commission determined

that contract markets are not small

entities for the purpose of the RFA.30

The Commission further notes that

section 252 of the CFMA requires the

Commission to promulgate these

regulations. Moreover, the regulations

proposed herein would not impose any

new burdens upon entities seeking to be

designated as an SFPCM pursuant

section 5f(a) of the Act. Rather, these

regulations would facilitate exemptive

relief from the more burdensome

requirements in sections 5 and 5a of the

Act, and regulations thereunder, that

otherwise would be applicable to

entities seeking to list security futures

products for trading. Therefore, the

Commission believes that the adoption

of these regulations would reduce the

burden of compliance by such entities.

Accordingly, the Acting Chairman, on

behalf of the Commission, hereby

certifies, pursuant to 5 U.S.C. 605(b),

that the regulations proposed herein

would not have a significant economic

impact on a substantial number of small

entities. The Commission nonetheless

requests comment on the impact these

proposed regulations may have on small

entities.

B. Paperwork Reduction Act

The regulations proposed herein

would contain information collection

requirements. As required by the

Paperwork Reduction Act of 1995

(‘‘PRA’’), the Commission has submitted

a copy of this part to the Office of

Management and Budget (‘‘OMB’’) for

its review.31

Collection of Information

Part 41, relating to security futures

products, OMB Control Number 3038–

AB82.

The burden associated with proposed

regulation 41.31 is estimated to be 100

hours, which will result from

designation as SFPCMs of various

boards of trade that are otherwise

subject to SEC jurisdiction. The

estimated burden of the proposed new

regulation was calculated as follows:

Estimated number of respondents: 20.

Reports annually by each respondent:

1.

Total annual responses: 20.

Estimated average number of hours

per response: 5.

Estimated total number of hours of

annual burden in fiscal year: 100.

The burden associated with proposed

regulation 41.32 is estimated to be 600

hours, which will result from

continuing obligations of SFPCMs to file

information with the Commission. The

estimated burden of the proposed new

regulation was calculated as follows:

Estimated number of respondents: 20.

Reports annually by each respondent:

10.

Total annual responses: 200.

Estimated average number of hours

per response: 3.

Estimated total number of hours of

annual burden in fiscal year: 600.

The burden associated with proposed

regulation 41.33 is estimated to be 500

hours, which will result from

applications for exemptions by SFPCMs.

The estimated burden of the proposed

new regulation was calculated as

follows:

Estimated number of respondents: 20.

Reports annually by each respondent:

1.

Total annual responses: 20.

Estimated average number of hours

per response: 25.

Estimated total number of hours of

annual burden in fiscal year: 500.

Organizations and individuals

desiring to submit comments on the

information collection requirements

should direct them to the Office of

Information and Regulatory Affairs,

OMB, Room 10235 New Executive

Office Building, Washington, DC 20503,

Attention: Desk Officer for the

Commodity Futures Trading

Commission.

The Commission considers comments

by the public on this proposed

collection of information in:

• Evaluating whether the proposed

collection of information is necessary

for the proper performance of the

functions of the Commission, including

whether the information will have a

practical use;

• Evaluating the accuracy of the

Commission’s estimate of the burden of

the proposed collection of information,

including the validity of the

methodology and assumptions used;

• Enhancing the quality, usefulness,

and clarity of the information to be

collected; and

• Minimizing the burden of collection

of information on those who are

required 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 of

responses.

OMB is required to make a decision

concerning the collection of information

contained in these proposed regulations

between 30 and 60 days after

publication of this document in the

Federal Register. A comment to OMB is

most assured of having its full effect if

OMB receives it within 30 days of

publication. This does not affect the

deadline for the public to comment to

the Commission on the proposed

regulations.

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.

C. Cost-Benefit Analysis

Section 15 of the Act, as amended by

section 119 of the CFMA, requires the

Commission, before promulgating a new

regulation under the Act, to consider the

costs and benefits of the Commission’s

action. The Commission recently

applied the cost-benefit provisions of

section 15 for the first time with respect

to a final rulemaking,32 and understands

that section 15, as amended, does not

require the Commission to quantify the

costs and benefits of a new regulation or

determine whether the benefits of the

regulation outweigh its costs.

The amended section 15 further

specifies that costs and benefits shall be

evaluated in light of five broad areas of

market and public concern: (1)

Protection of market participants and

the public; (2) efficiency,

competitiveness, and financial integrity

of futures markets; (3) price

discovery; 33 (4) sound risk management

practices; and (5) other public interest

considerations. The Commission may,

in its discretion, give greater weight to

any one of the five enumerated areas of

concern and may, in its discretion,

determine that, notwithstanding its

29522 Federal Register / Vol. 66, No. 105 / Thursday, May 31, 2001 / Proposed Rules

costs, a particular regulation was

necessary or appropriate to protect the

public interest or to effectuate any of the

provisions or to accomplish any of the

purposes of the Act.

The main areas of concern relevant to

this proposal are the first two set forth

in the Act, ‘‘protection of market

participants and the public’’ and

‘‘efficiency, competitiveness and

financial integrity of the futures

markets.’’ The Commission notes that

the CFMA specifically mandates that

certain boards of trade be noticedesignated by the Commission as a

contract market if they seek to list or

trade security futures products only,

and that procedures be established by

the Commission for such entities to

apply for exemptions from the Act or

regulations thereunder. Further, the

Commission believes that these

additional registrants may promote the

efficiency and competitiveness of those

futures markets on which security

future products may be traded and, in

turn, may serve to promote the financial

integrity of those markets. The

Commission has endeavored to impose

minimal costs—i.e., only necessary

disclosure and recordkeeping—on any

of the entities involved, so that the

benefits of the notice-designation and

exemptive processes intended by

Congress can be fully realized. The

Commission further notes that

submitting an application for exemptive

relief is not required of SFPCMs, but

rather elected on a voluntary basis.

List of Subjects

17 CFR Part 41

Contract markets, reporting and

recordkeeping requirements, security

futures products.

17 CFR Part 140

Authority delegations.

For the reasons discussed in the

preamble, the Commission hereby

proposes to amend Chapter I of Title 17

of the Code of Federal Regulations as

follows:

PART 41—SECURITY FUTURES

PRODUCTS

1. The authority citation for Part 41

would be revised to read as follows:

Authority: Pub. L. 106–554, 114 Stat. 2763,

Sections 251 and 252.

2. Section 41.1 would be added as

follows:

§ 41.1 Definitions.

For purposes of this part:

(a) Alternative trading system shall

have the meaning set forth in section

1a(1) of the Act.

(b) Board of Trade shall have the

meaning set forth in section 1a(2) of the

Act.

(c) National securities association

means a board of trade registered with

the Securities and Exchange

Commission pursuant to section 15A(a)

of the Securities Exchange Act of 1934.

(d) National securities exchange

means a board of trade registered with

the Securities and Exchange

Commission pursuant to section 6(a) of

the Securities Exchange Act of 1934.

(e) Rule shall have the meaning set

forth in Commission regulation

1.41(a)(1).

(f) Security futures product shall have

the meaning set forth in section 1a(32)

of the Act.

3. Section 41.31 would be added as

follows:

§ 41.31 Designated contract markets in

security futures products—noticedesignation requirements.

(a) Any board of trade that is a

national securities exchange, a national

securities association, or an alternative

trading system, and that seeks to operate

as a designated contract market in

security futures products under section

5f of the Act, shall so notify the

Commission. Such notification shall be

filed with the Secretary of the

Commission at its Washington, DC,

headquarters, in either electronic or

hard copy form, shall be labeled as

‘‘Notice of Designation as a Contract

Market in Security Futures Products,’’

and shall include:

(1) The name and address of the board

of trade;

(2) The name and telephone number

of a contact person designated to receive

communications from the Commission

on behalf of the board of trade;

(3) A description of the security

futures products that the board of trade

intends to make available for trading,

including an identification of all

facilities that would clear transactions

in security futures products on behalf of

the board of trade;

(4) A copy of the current rules of the

board of trade; and

(5) a certification that the board of

trade—

(i) will not list or trade any contracts

of sale for future delivery, except for

security futures products;

(ii) is registered with the Securities

and Exchange Commission as a national

securities exchange, national securities

association, or alternative trading

system, and such registration is not

suspended pursuant to an order by the

Securities and Exchange Commission;

(iii) will meet the criteria specified in

subclauses (I) through (XI) of section

2(a)(1)(D)(i) of the Act, except as

otherwise provided in section

2(a)(1)(D)(vi) of the Act, for each

specific security futures product that the

board of trade intends to make available

for trading;

(iv) will comply with the conditions

for designation under this section and

section 5f of the Act, including a

specific representation by any

alternative trading system that it is a

member of a futures association

registered under section 17 of the Act;

and

(v) will comply with the continuing

obligations of regulation 41.32.

(b) A board of trade which files notice

with the Commission under this section

shall be deemed a designated contract

market in security futures products

upon the Commission’s receipt of such

notice. Accordingly, the Commission

shall send prompt acknowledgment of

receipt to the filer.

(c) Designation as a contract market in

security futures products pursuant to

this section shall be deemed suspended

if the board of trade:

(1) Lists or trades any contracts of sale

for future delivery, except for security

futures products; or

(2) Has its registration as a national

securities exchange, national securities

association, or alternative trading

system suspended pursuant to an order

by the Securities and Exchange

Commission.

4. Section 41.32 would be added as

follows:

§ 41.32 Designated contract markets in

security futures products—continuing

obligations.

(a) A board of trade designated as a

contract market in security futures

products pursuant to Commission

regulation 41.31 shall:

(1) Notify the Commission of any

change in its regulatory status with the

Securities and Exchange Commission or

with a futures association registered

under section 17 of the Act;

(2) Comply with the filing

requirements of section 2(a)(1)(D)(vii) of

the Act each time the board of trade lists

a security futures product for trading;

(3) Consistent with any requirements

established by the Commission, provide

the Commission with any new rules or

rule amendments that relate to the

trading of security futures products,

including both operational rules and the

terms and conditions of products listed

for trading on the facility, promptly after

final implementation of such rules or

rule amendments; and

(4) Upon request, file promptly with

the Commission—

(i) such information related to its

business as a designated contract market

Federal Register / Vol. 66, No. 105 / Thursday, May 31, 2001 / Proposed Rules 29523

in security futures products as the

Commission may request; and

(ii) a written demonstration,

containing such supporting data and

other information and documents as the

Commission may specify, that the board

of trade is in compliance with one or

more applicable provisions of the Act or

regulations thereunder as specified in

the request.

(b) Except as exempted under section

5f(b) of the Act or under Commission

regulations 41.33 and 41.34, any board

of trade designated as a contract market

in security futures products pursuant to

Commission regulation 41.31 shall be

subject to all applicable requirements of

the Act and regulations thereunder.

Failure to comply shall subject the

board of trade to Commission action

under, among other provisions, sections

5e and 6(b) of the Act.

5. Section 41.33 would be added as

follows:

§ 41.33 Designated contract markets in

security futures products—applications for

exemptive orders.

(a) Any board of trade designated as

a contract market in security futures

products pursuant to Commission

regulation 41.31 may apply to the

Commission for an exemption from any

provision of the Act or regulations

thereunder. Except as provided in

sections 5f(b)(1) and 5f(b)(2) of the Act,

the Commission shall have sole

discretion to exempt a board of trade,

conditionally or unconditionally, from

any provision of the Act or regulations

thereunder pursuant to this section. The

Commission may issue such an

exemptive order in response to an

application only to the extent it finds,

after review, that the issuance of an

exemptive order is necessary or

appropriate in the public interest and is

consistent with the protection of

investors.

(b) Each application for exemptive

relief must comply with the

requirements of this section. The

Commission may, in its sole discretion,

decline to entertain any application for

an exemptive order under this section

without explanation; provided,

however, that the Commission shall

notify the board of trade of such a

decision in writing.

(c) Application requirements.

(1) Each application for an exemptive

order made pursuant to this section

must include:

(i) The name and address of the board

of trade requesting relief, and the name

and telephone number of a person

whom Commission staff may contact to

obtain additional information regarding

the request;

(ii) A certification that the registration

of the board of trade is not suspended

pursuant to an order of the Securities

and Exchange Commission;

(iii) The provision(s) of the Act or

regulations thereunder from which the

board of trade seeks relief and, if

applicable, whether the board of trade is

otherwise subject to similar provisions

as a result of Securities and Exchange

Commission jurisdiction; and

(iv) The type of relief requested and

the order sought; an explanation of the

need for relief, including all material

facts and circumstances giving rise to

the request; and the extent to which

such relief is necessary or appropriate in

the public interest and consistent with

the protection of investors.

(2) Each application must be filed

with the Secretary of the Commission at

its Washington, DC, headquarters, in

either electronic or hard copy form,

signed by an authorized representative

of the board of trade, and labeled

‘‘Application for an Exemptive Order

pursuant to Commission regulation

41.33.’’

(d) Review period: (1) The

Commission shall have 90 days upon

receipt of an application for an

exemptive order in which to make a

determination as to whether such relief

should be granted or denied.

(2) The Commission may request

additional information from the

applicant at any time prior to the end of

the review period.

(3) The Commission may stay the

review period if it determines that an

application is materially incomplete;

provided, however, that this paragraph

does not limit the Commission’s

authority, under paragraph (b) of this

section, to decline to entertain an

application.

(e) Upon conclusion of the review

period, the Commission shall issue an

order granting or denying relief, or

granting relief subject to conditions;

provided, however, that the

Commission’s obligations under this

paragraph shall not limit its authority,

under paragraph (b) of this section, to

decline to entertain an application. The

Commission shall notify the board of

trade in writing of its decision to grant

or deny relief under this paragraph.

(f) An application for an exemptive

order may be withdrawn by the

applicant at any time, without

explanation, by filing with the Secretary

of the Commission a written request for

withdrawal, signed by an authorized

representative of the board of trade.

(g) The Commission hereby delegates,

until it orders otherwise, to the Director

of the Division of Trading and Markets

and the Director of the Division of

Economic Analysis, jointly, with the

concurrence of the General Counsel,

authority to make determinations on

applications for exemptive orders

pursuant to this section; provided,

however, that:

(1) the Director of the Division of

Trading and Markets or the Director of

the Division of Economic Analysis may

submit to the Commission for its

consideration any matter which has

been delegated pursuant to paragraph

(g) of this section; and

(2) nothing in this section shall be

deemed to prohibit the Commission, at

its election, from exercising the

authority delegated to the Director of the

Division of Trading and Markets and the

Director of the Division of Economic

Analysis under paragraph (g) of this

section.

6. Section 41.34 would be added as

follows:

§ 41.34 Designated contract markets in

security futures products—exempt

provisions.

Any board of trade notice-designated

as a contract market in security futures

products pursuant to Commission

regulation 41.31 also shall be exempt

from:

(a) the following provisions of the

Act, pursuant to section 5f(b)(1) of the

Act:

(1) section 4c(c);

(2) section 4c(e);

(3) section 4c(g);

(4) section 4j;

(5) section 5;

(6) section 5c;

(7) section 6a;

(8) section 8(d);

(9) section 9(f);

(10) section 16; and

(b) section 6(a) of the Act, pursuant to

section 5f(b)(4) of the Act.

PART 140—ORGANIZATION,

FUNCTIONS, AND PROCEDURES OF

THE COMMISSION

7. The authority citation for Part 140

would continue to read as follows:

Authority: 7 U.S.C. 4a and 12a.

8. Section 140.99 is amended by

adding new paragraph (i)(3) as follows:

§ 140.99 Requests for exemptive, noaction and interpretive letters.

* * * * *

(i) * * *

(3) Requests for exemption pursuant

to Commission regulation 41.33.

Issued in Washington, DC on May 22, 2001

by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 01–13316 Filed 5–30–01; 8:45 am]

BILLING CODE 6351–01–P