```

[Federal Register: July 29, 2005 (Volume 70, Number 145)]
[Rules and Regulations]
[Page 43748-43750]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29jy05-8]

=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 41

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-52115; File No. S7-11-01]


Technical Amendments to Rules Setting Forth the Method for
Determining Market Capitalization and Dollar Value of Average Daily
Trading Volume; Application of the Definition of Narrow-Based Security
Index

AGENCIES: Commodity Futures Trading Commission and Securities and
Exchange Commission.

ACTION: Joint technical amendment.

-----------------------------------------------------------------------

SUMMARY: The Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC") (collectively
"Commissions") are adopting technical amendments to certain
references in rules under the

[[Page 43749]]

Commodity Exchange Act ("CEA") and the Securities Exchange Act of
1934 ("Exchange Act") that set forth the method for determining
market capitalization and dollar value of average daily trading volume,
to reflect new terminology and rule designations that will become
effective as a result of the adoption by the SEC of Regulation NMS.
Specifically, the phrase "reported securities as defined in Sec.
240.11Ac1-1" will be replaced with the phrase "NMS securities as
defined in Sec.  242.600."

EFFECTIVE DATE: August 29, 2005.

FOR FURTHER INFORMATION CONTACT: CFTC--Elizabeth Ritter, Assistant
General Counsel, Office of the General Counsel, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW.,
Washington, DC 20581. Telephone: (202) 418-5052. SEC--Ira Brandriss,
Special Counsel, at (202) 551-5651; or Tim Fox, Attorney, at (202) 551-
5643, Office of Market Supervision, Division of Market Regulation, U.S.
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549.

SUPPLEMENTARY INFORMATION: The CFTC is amending Rule 41.11 under the
CEA, 17 CFR 41.11. The SEC is amending Rule 3a55-1 under the Exchange
Act, 17 CFR 240.3a55-1.\1\
---------------------------------------------------------------------------

    \1\ Rule 41.11 of Subpart B of Rule 41 ("Narrow-Based Security
Indexes" ) under the CEA corresponds to Rule 3a55-1 under the
Exchange Act.
---------------------------------------------------------------------------

I. Discussion

    The Commodity Futures Modernization Act ("CFMA"),\2\ which became
law on December 21, 2000, established a framework for the joint
regulation of the trading of futures contracts on single securities and
narrow-based security indexes (collectively, "security futures
products") by the CFTC and the SEC. Under the CFMA, designated
contract markets and registered derivatives transaction execution
facilities may trade security futures products if they register with
the SEC and comply with certain other requirements of the Exchange
Act.\3\ Likewise, national securities exchanges and national securities
associations may trade security futures products if they register with
the CFTC and comply with certain other requirements of the CEA.\4\
---------------------------------------------------------------------------

    \2\ Pub. L. 106-554, 114 Stat. 2763 (2000).
    \3\ 15 U.S.C. 78a et seq.
    \4\ 7 U.S.C. 1 et seq.
---------------------------------------------------------------------------

    To distinguish between security futures on narrow-based security
indexes, which are jointly regulated by the Commissions, and futures
contracts on broad-based security indexes, which are under the
exclusive jurisdiction of the CFTC, the CFMA also amended the CEA and
the Exchange Act by setting forth an objective definition of "narrow-
based security index," and certain exclusions from this definition.\5\
---------------------------------------------------------------------------

    \5\ Section 1a(25) of the CEA, 7 U.S.C. 1a(25), and Section
3(a)(55) of the Exchange Act, 15 U.S.C. 78c(a)(55).
---------------------------------------------------------------------------

    One of the criteria that can affect the determination of whether an
index is a narrow-based security index under the statutory definition
relates to the dollar value of the average daily trading volume
("ADTV") of component securities of the index.\6\ One of the
exclusions from the definition depends, in part, on whether each
component security of the index is one of the 750 securities with the
largest market capitalization and is one of 675 securities with the
largest dollar value of ADTV.\7\ The statutes require the Commissions,
by rule or regulation, to jointly specify the method to be used to
determine market capitalization and dollar value of ADTV for purposes
of these provisions.\8\
---------------------------------------------------------------------------

    \6\ See Section 1a(25)(A) of the CEA, 7 U.S.C. 1a(25)(A), and
Section 3a(55)(B) of the Exchange Act, 15 U.S.C. 78c(a)(55)(B).
    \7\ See Section 1a(25)(B) of the CEA, 7 U.S.C. 1a(25)(B), and
Section 3a(55)(C) of the Exchange Act, 15 U.S.C. 78c(a)(55)(C).
    \8\ See Section 1a(25)(E) of the CEA, 7 U.S.C. 1a(25)(E), and
Section 3a(55)(F) of the Exchange Act, 15 U.S.C. 78c(a)(55)(F).
---------------------------------------------------------------------------

    In fulfillment of this mandate, on August 20, 2001, the Commissions
jointly adopted Rule 41.11 \9\ under the CEA and Rule 3a55-1 \10\ under
the Exchange Act.\11\ These rules include references to "reported
securities as defined in Sec.  240.11Ac1-1." \12\ A new regulation
adopted by the SEC \13\ changes the term "reported security" to the
term "NMS security," which is defined in new Sec.  242.600. The
definition of "NMS security" under new Sec.  242.600 is identical to
the definition of "reported security" under previous Sec.  240.11Ac1-
1.
---------------------------------------------------------------------------

    \9\ See 17 CFR 41.11.
    \10\ See 17 CFR 240.3a55-1.
    \11\ See Securities Exchange Act Release No. 44724 (August 20,
2001), 66 FR 44490 (August 23, 2001).
    \12\ See 17 CFR 41.11(a)(2)(ii) and (b)(2)(ii)(B) and 17 CFR
240.3a55-1(a)(2)(ii) and (b)(2)(ii)(B).
    \13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005) (adopting Regulation NMS).
---------------------------------------------------------------------------

    To reflect the change, the Commissions are adopting conforming
changes to Rule 41.11 under the CEA and Rule 3a55-1 under the Exchange
Act.\14\ Specifically, the phrase "reported securities as defined in
Sec.  240.11Ac1-1" that appears in Rules 41.11(a)(2)(ii) and
(b)(2)(ii)(B) under the CEA will be replaced with the phrase "NMS
securities, as defined in Sec.  242.600." The phrase "reported
securities as defined in Sec.  240.11Ac1-1" that appears in Rules
3a55-1(a)(2)(ii) and (b)(2)(ii)(B) under the Exchange Act will be
replaced with the phrase "NMS securities as defined in Sec.  242.600
of this chapter." The amendments will take effect on August 29, 2005,
the same day upon which Regulation NMS becomes effective.
---------------------------------------------------------------------------

    \14\ The SEC proposed to make the conforming changes to Rule
3a55-1 under the Exchange Act in the release re-proposing
Regulations NMS. See Securities Exchange Act Release No. 50870
(December 16, 2004), 69 FR 77424 (December 27, 2004) (File No. S7-
10-04), at note 402. To comply with Section 1a(25)(E)(ii) of the CEA
and Section 3(a)(55)(F)(ii) of the Exchange Act, the Commissions are
adopting, herewith the conforming changes jointly.
---------------------------------------------------------------------------

II. Certain Findings

    Under the Administrative Procedure Act ("APA"), notice of
proposed rulemaking is not required when an agency, for good cause,
finds "that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest." \15\ The amendments
described herein are non-substantive, technical changes that are
required to update existing terminology and references in the relevant
rules to conform to the new terminology and rule designations adopted
by the SEC. For these reasons, the Commissions find that it is
unnecessary to publish notice of these amendments.\16\
---------------------------------------------------------------------------

    \15\ 5 U.S.C. 553(b)(3)(B).
    \16\ For similar reasons, the amendments do not require analysis
under the Regulatory Flexibility Act or analysis of major status
under the Small Business Regulatory Enforcement Fairness Act. See 5
U.S.C. 601(2) (for purposes of Regulatory Flexibility Act analyses,
the term "rule" means any rule for which the agency publishes a
general notice of proposed rulemaking); 5 U.S.C. 804(3)(C) (for
purposes of congressional review of agency rulemaking, the term
"rule" does not include any rule of agency organization,
procedure, or practice that does not substantially affect the rights
or obligations of non-agency parties).
---------------------------------------------------------------------------

III. Statutory Authority

    Pursuant to the CEA and the Exchange Act and, particularly, Section
1a(25)(E)(ii) of the CEA \17\ and Sections 3(a)(55)(F)(ii) of the
Exchange Act,\18\ the Commissions are adopting technical amendments to
Rule 41.11(a)(2)(ii) and (b)(2)(ii)(B) under the CEA \19\ and Rule
3a55-1(a)(2)(ii) and (b)(2)(ii)(B) under the Exchange Act.\20\
---------------------------------------------------------------------------

    \17\ 7 U.S.C. 1a(25)(E)(ii).
    \18\ 15 U.S.C. 78c(a)(55)(F)(ii).
    \19\ 17 CFR 41.11(a)(2)(ii) and (b)(2)(ii)(B).
    \20\ 17 CFR 240.3a55-1(a)(2)(ii) and (b)(2)(ii)(B).
---------------------------------------------------------------------------

Text of Rules

List of Subjects

17 CFR Part 41

    Security futures products.

[[Page 43750]]

17 CFR Part 240

    Securities.

Commodity Futures Trading Commission

0
In accordance with the foregoing, Title 17, Chapter I, of the Code of
Federal Regulations is amended as follows:

PART 41--SECURITY FUTURES PRODUCTS

0
1. The authority citation for part 41 continues to read as follows:

    Authority: Sections 206, 251, 252, Pub. L. 106-554, 114 Stat.
2763; 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).


0
2. Section 41.11 is amended by revising paragraphs (a)(2)(ii) and
(b)(2)(ii)(B) to read as follows:


Sec.  41.11  Method for determining market capitalization and dollar
value of average daily trading volume; application of the definition of
narrow-based security index.

    (a) * * *
    (2) * * *
    (ii) The 750 securities with the largest market capitalization
shall be identified from the universe of all NMS securities as defined
in Sec.  242.600 that are common stock or depositary shares.
    (b) * * *
    (2) * * *
    (ii) * * *
    (B) The 675 securities with the largest dollar value of ADTV shall
be identified from the universe of all NMS securities as defined in
Sec.  242.600 that are common stock or depositary shares.
* * * * *

    Dated: July 25, 2005.

    By the Commodity Futures Trading Commission.
Jean A. Webb,
Secretary.

Securities and Exchange Commission

0
In accordance with the foregoing, Title 17, Chapter II, of the Code of
Federal Regulations is amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 continues to read, in part, as
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5,
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless
otherwise noted.
* * * * *

0
2. Section 240.3a55-1 is amended by revising paragraphs (a)(2)(ii) and
(b)(2)(ii)(B) to read as follows:


Sec.  240.3a55-1  Method for determining market capitalization and
dollar value of average daily trading volume; application of the
definition of narrow-based security index.

    (a) * * *
    (2) * * *
    (ii) The 750 securities with the largest market capitalization
shall be identified from the universe of all NMS securities as defined
in Sec.  242.600 of this chapter that are common stock or depositary
shares.
    (b) * * *
    (2) * * *
    (ii) * * *
    (B) The 675 securities with the largest dollar value of ADTV shall
be identified from the universe of all NMS securities as defined in
Sec.  242.600 of this chapter that are common stock or depositary
shares.
* * * * *

    Dated: July 25, 2005.

    By the Securities and Exchange Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 05-15000 Filed 7-28-05; 8:45 am]

BILLING CODE 8010-01-P
```