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[Federal Register: July 31, 2000 (Volume 65, Number 147)]
[Rules and Regulations]
[Page 46578-46581]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31jy00-6]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1 and 5

RIN 3038-ZA00


Fees for Applications for Contract Market Designation, and
Reviews of the Rule Enforcement Programs of Contract Markets and
Registered Futures Associations

AGENCY: Commodity Futures Trading Commission.

ACTION: Establish a new schedule of fees.

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SUMMARY: The Commission charges fees to the contract markets and the
National Futures Association (``NFA'') to recover the costs incurred by
the Commission in the operation of two programs that provide a service
to these entities. The fees are charged for the Commission's review of
applications for contract designation submitted by the contracts
markets and for the Commission's conduct of its program of oversight
over self-regulatory (``SRO'') rule enforcement programs. (NFA and the
contract markets are collectively referred to herein as the ``SROs''.)
The calculation of the new amounts to be charged for the upcoming year
is based upon an average of actual program costs incurred in the most
recent three full fiscal years, as explained in SUPPLEMENTARY
INFORMATION.

EFFECTIVE DATES: The fee schedule for processing of the contracts
submitted by contract markets for designation by the Commission is
effective on July 31, 2000 and must be paid at the time of submission
to the Commission for processing. The fees for Commission oversight of
each SRO rule enforcement program must be paid by each of the named
SROs in the amount specified by no later than September 29, 2000.

FOR FURTHER INFORMATION CONTACT: Donald L. Tendick, Acting Executive
Director, Office of the Executive Director, Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,
DC 20581, 202-418-5160.

SUPPLEMENTARY INFORMATION:

I. General

    The Commission re-calculated the fees charged each year with the
intention of recovering the costs of operating the two Commission
programs.\1\ All costs are accounted for by the Commission's Management
Accounting Structure Codes (MASC) system which is operated according to
a government-wide standard established by the Office of Management and
Budget. Both types of fees are set each year based upon direct program
costs plus an overhead factor, as explained in sections II., III. and
IV. below.
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    \1\ See Section 237 of the Futures Trading Act of 1982, 7 U.S.C.
16a and 31 U.S.C. 9701. For a broader discussion of the history of
Commission fees, see 52 FR 46070 (Dec. 4, 1987).
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    The Commission previously had proposed to eliminate fees for
contract market designation applications in connection with the
Commission's adoption of Rule 5.3 which allows exchanges to list new
contracts by certification (64 FR 66432, November 26, 1999). Since
then, the Commission has embarked on a program of regulatory reform and
has proposed a new regulatory framework for multilateral transaction
execution facilities, which includes, among other things, alternative
procedures for listing new products (65 FR 38985, June 22, ``A New
Regulatory Framework for Multilateral Transaction Execution Facilities,
Intermediaries and Clearing Organizations''). As a result, the
Commission at this time is deferring any final determination whether to
remove designation fees.
    The new fee schedules are set forth below and information is
provided on the effective date of the fees and the due date for
payment:
    A. Fees charged to contract markets for processing applications for
designation of futures and option contracts:
    1. For futures contracts and options on futures contracts which do
not meet the multiple contract filing criteria set forth in 2 below:
    � A single futures contract or an option on a physical--
$6,300;
    � A single option on a previously approved futures
contract--$1,100;
    � A combined submission of a futures contract and an option
on the same futures contract--$7,000;

[[Page 46579]]

    2. Reduced fees for simultaneous submission of certain multiple
cash-settled index contracts and multiple contracts on the following
major currencies--the Australian dollar; British pound; Euro (and its
component Currencies); Japanese yen; Canadian dollar; Swiss franc; New
Zealand dollar; Swedish krona; and the Norwegian krone. The
Commission's reduced fees for simultaneous submission of multiple,
related cash-settled or major-currency contracts is equal to the
applicable fee listed above for the first contract plus 10 percent of
that fee for each additional contract in the filing. For multiple,
simultaneously submitted, major-currency or cash-settled contract
filings to be eligible for the reduced fees, the contracts in the
filing must meet the following criteria:
    a. Each contract must be based on a major currency or be cash-
settled based on an index representing measurements of physical
properties or financial characteristics which are not traded per se in
the cash market, except in regard to the specified currency or the
temporal or spatial pricing characteristics of the cash settlement
price or the multiplier used to determine the size of each contract;
    b. The currency delivery procedures or the cash-settlement
procedure must be the same for each contract in the filing;
    c. All other terms and conditions of the contracts must be the same
in all respects; and
    d. The filing must contain a claim for the reduced fee and a
representation that terms a.-c. are met. For multiple contract filings
containing related contracts, the designation fees are:
    � A submission of multiple related futures contracts--$6,300
for the first contract, plus $630 for each additional contract;
    � A submission of multiple related options on futures
contracts $1,100 for the first contract, plus $110 for each additional
contract;
    � A combined submission of multiple futures contracts and
options on those futures contracts--$7,000 for the first combined
futures and option contract, plus $700 for each additional futures and
option contract.
    B. Fees for the Commission's review of the rule enforcement
programs at the registered futures associations and contract markets
regulated by the Commission are:

------------------------------------------------------------------------
                           Entity                             Fee amount
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Chicago Board of Trade.....................................     $207,586
Chicago Mercantile Exchange................................      283,444
New York Mercantile Exchange/COMEX.........................      184,499
New York Board of Trade....................................       98,468
Kansas City Board of Trade.................................        6,779
Minneapolis Grain Exchange.................................        3,531
Philadelphia Board of Trade................................  ...........
National Futures Association...............................      233,222
                                                            ------------
  Total....................................................    1,017,528
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II. Overhead Rate

    The fees charged by the Commission to the SROs are designed to
recover program costs, including direct labor costs and overhead. The
overhead rate is calculated by dividing total Commission-wide direct
labor program costs into the total amount of the Commission-wide
overhead pool. In this connection, direct program labor costs are the
salary costs of personnel working in all of the Commission's programs.
Overhead costs consist generally of the following Commission wide
costs: indirect personnel costs (leave and benefits), rent,
communications, contract services, utilities, equipment, and supplies.
This formula has resulted in the following overhead rates for the most
recent three years (rounded to the nearest whole percent): 91 % for
fiscal year 1997, 104% for fiscal year 1998 and 105% for fiscal year
1999. These are the overhead rates applied to the direct labor costs in
calculating the costs of reviewing contract designations and oversight
of SRO rule enforcement programs, as described below.

III. Processing Applications for Designation of Contracts

    The calculation of the fees for processing applications for
designation of contracts has become more refined over the years in
response to changes in the types of contracts being designated.
    On August 23, 1983, the Commission established a fee for Contract
Market Designation (48 FR 38214). The fee was based upon a three-year
moving average of the actual costs expended and the number of contracts
reviewed by the Commission during that period of time. The formula for
determining the fee was revised in 1985. At that time most designation
applications were for futures contracts, as opposed to option
contracts, and no separate fee was set for option contracts.
    In 1992, the Commission reviewed its data on the actual costs for
reviewing designation applications for both futures and option
contracts and determined that the percentage of applications pertaining
to options had increased and that the cost of reviewing a futures
contract designation application was much higher than the cost of
reviewing an application for an option contract. It was also determined
that, when designation applications for both a futures contract and an
option on that futures contract are submitted simultaneously, the cost
for reviewing both together was lower than for reviewing the contracts
separately. Therefore, in the interest of recognizing the cost
differences to the Commission of the different combinations of contract
submission, three separate fees were established--one for futures
alone; one for options alone; and one for combined futures and option
contract applications (57 FR 1372).
    Effective during fiscal year 1999, the Commission further refined
its fee structure in order to recognize the unique processing cost
characteristics of a class of contracts which are cash-settled based on
a index of non-tangible commodities. In this connection the Commission
determined to charge a reduced fee for ``related'' simultaneously
submitted contracts for which the cash settlement procedure is
identical, except in regard to a specified temporal or spatial pricing
characteristic or the multiplier used to determine the size of each
contract, and all other terms and conditions of the contracts in the
filing are the same. The Commission also is including contracts on
major currencies (including contracts based on currency cross rates) as
contracts eligible for the reduced multiple contract fees. For this
purpose, major currencies are defined as the Australian dollar; British
pound; Euro (and its component currencies); Japanese yen; Canadian
dollar; Swiss franc; New Zealand dollar; Swedish krona; and Norwegian
krone.
    Contracts having differentiated spatial features include contracts
which are identical in all respects, including the cash settlement
mechanism, but which may be based on different geographical areas.
These may include contracts on weather-related data or vacancy rates
for rental properties, where each individual contract is based on the
value--temperature, local vacancy rate, etc.--for a specific city. To
be eligible for the multiple contract filing fee, each contract must be
cash-settled based on the same underlying data source and derived under
identical calculation procedures, such that the integrity of the cash
settlement mechanism is not dependent on the individual spatial
specifications.\2\ Contracts having

[[Page 46580]]

differentiated temporal features include contracts that are the same in
all respects except for the time to maturity of the individual
underlying instruments. This may include cash-settled interest rate
futures contracts within a specific segment of the yield curve,
provided that for each contract the cash settlement mechanism and
derivation procedure is identical, and the integrity of the cash
settlement mechanism is not dependent on the individual temporal
specifications. Examples are, short-term interest rate contracts having
monthly maturities ranging up to one year.\3\
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    \2\ Thus, for example, applications containing a number of
similar cash-settled contracts based on the government debt of
different foreign countries would not be eligible for the reduced
fee, since the manipulation potential of each contract would be
related to the liquidity of the underlying instruments, and the
individual trading practices and governmental oversight in each
specific country require separate analyses.
    \3\ Cash-settled contracts covering various segments of the
yield curve would not be eligible for the reduced fee, since the
underlying instruments may be priced differently and have different
trading characteristics, and the manipulation potential of each
contract would be related to the liquidity of the underlying
instruments and would, therefore, require separate analyses.
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    The Commission stated that a 10-percent marginal fee for additional
contracts in a filing is appropriate for those simultaneously submitted
applications eligible for the multiple-contract filing fee. Because the
eligible, related contracts are based on indexes of non-tangible
commodities not traded in the cash market, the Commission's review need
not require a separate analysis of the different contracts in a filing
related to the liquidity of the underlying cash markets or the
reliability or transparency of prices for the individual commodities.
Also, because each contract must use an identical cash-settlement
procedure and all other material terms and conditions must be identical
(except for the differentiated spatial or temporal term or the contract
multiplier), the analysis of the cash settlement procedure for one
contract would apply in large part to each of the additional contracts.
Finally, because all of the contracts in a related group are
differentiated from one another only with respect to a spatial or
temporal feature that has no bearing upon the characteristics of the
cash settlement mechanism, each separate contract would not require a
separate analysis to ascertain its compliance with the requirements for
designation. Thus, the Commission's analysis of the cash settlement
procedure in general and its review of the other material terms and
conditions would be equally applicable to all of the related contracts
in the filing. Only a limited supplemental analysis is required for
each additional contract in such a filing, resulting in a substantially
reduced marginal cost for reviewing and processing the additional
contracts.
    Multiple contract filings of related futures and option contracts
on major currencies are eligible for the multiple contract fees for the
same reasons that reduced fees are appropriate for multiple, related
cash settled contract filings. While currency contracts may not be cash
settled, per se, issues related to physical delivery contracts do not
arise for currencies since, like contracts providing for cash
settlement, futures delivery and payment simply involves the exchange
of cash (one currency for another). Moreover, the Commission previously
has found that major currencies (as defined herein) have nearly
inexhaustible deliverable supplies, exhibit extremely deep and liquid
markets, are not subject to convertibility or delivery restrictions and
are easily arbitraged between cash and futures markets; thus, it has
exempted contracts based on them from speculative limits. In view of
this, no separate analysis is required of the manipulation potential of
each contract based on a major currency in a multiple contract filing.
Also, the delivery and payment procedures and all other terms and
conditions are identical for currency contracts, as the only difference
is the actual currencies being transferred in the delivery and payment
process. Accordingly, since only an incremental analysis is needed for
each additional contract in a multiple contract filing, lower fees are
more in line with actual processing costs.
    The Commission's extensive experience in reviewing new contract
designation applications indicates that, for simultaneous submission of
multiple, related major-currency or cash-settled contracts, a fee for
each additional contract equal to 10 percent of the single contract
application fee would reflect the Commission's expected review costs
for these types of applications. Thus, the Commission's fees for
simultaneous submission of these types of related contracts is set to
be equal to the prevailing, single contract applicable fee for the
first contract plus 10 percent of that fee for each additional contract
in the filing. This marginal-cost-based fee structure represents an
extension of the policy adopted by the Commission in 1992 when it
established reduced fees for option applications and for combined
futures and option applications.
    Separately, the Commission notes that the fees for futures contract
applications also applies to applications for options on physical
commodities, and that the reduced option fee applies only to
applications for options on existing futures contracts. Because the
requirements for designation of an option on a physical commodity are
substantially identical to those of futures, the same fee will apply to
both types of filings.\4\
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    \4\ In this regard, under the Commission's Guideline No. 1,
which details the information an application for contract market
designation must include, all of the requirements for futures
contract applications (whether providing for physical delivery or
cash settlement) also apply to options on physicals applications,
plus several additional requirements that apply uniquely to options.
See, for example, 63 FR 38537, July 17, 1998.
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    The Commission staff compiled the actual costs of processing
applications for contract market designation for a futures contract for
fiscal years 1997, 1998 and 1999 and found that the average cost over
the three-year period was $6,300 per contract. The review of actual
costs of processing applications for contract market designation for an
option contract for fiscal years 1997, 1998 and 1999 revealed that the
average costs over the same three-year period was $1,116 per contract,
including overhead applied. Accordingly, the Commission has determined
that the fee for applications for contract market designation for a
futures contract will be set at $6,300 and the fee for applications for
contract market designation as an option contract will be set at
$1,100, in accordance with the Commission's regulations (17 CFR Part 5,
Appendix B). In addition, by reference to the above cost analysis, the
combined fee for contract markets simultaneously submitting designation
applications for a futures contract and an option contract on that
futures contract and fees for filings containing multiple cash-settled
indexes on nontangible commodities have been set on a similar basis, as
indicated in the schedule appearing above in the Summary section.

IV. Conduct of SRO Rule Enforcement Reviews

    Under the formula adopted in 1993 (58 FR 42643, August 11, 1993,
which appears in 17 CFR Part 1, Appendix B), the Commission calculates
the fee to recover the costs of its review of rule enforcement
programs, based on a 3-year average of the actual cost of performing
reviews at each SRO. The cost of operation of the Commission's program
of SRO oversight varies from SRO to SRO, according to the size and
complexity of each SRO's program. The 3-year averaging is performed to
smooth out some variations in year-to-year costs which can be large. In
particular, the costs may vary year-to-year depending upon the timing
of the reviews. This is

[[Page 46581]]

because the conduct of a review may span two fiscal years and, also,
reviews at each SRO are not usually conducted each and every year. An
adjustment to actual costs may be made in order to relieve burden upon
SROs with a disproportionately large share of program costs. That is,
the Commission's formula provides for a reduction in the fee assessed
if an SRO has a smaller percentage of U.S. industry contract volume
than its percentage of overall Commission oversight program costs, as
described below. The adjustment made is to reduce one-half of the costs
so that, as a percentage of total Commission SRO oversight program
costs, the costs are in line (in percentage terms) with the pro-rata
percentage for that SRO of U.S. industry-wide contract volume.
Following is a detailed description of the calculation:
    The fee required to be paid to the Commission by each contract
market is equal to the lesser of: actual costs based upon the three-
year historical average of costs for that contract market or: (i) One-
half of average costs incurred by the Commission pertaining to each
contract market for the most recent three-years, plus (ii) a pro-rata
share (based upon average trading volume for the most recent three
years) of the aggregate of average annual costs of all the contract
markets for the most recent three years. The formula for calculating
the second factor mentioned above is: 0.5a + 0.5vt = current fee. In
the formula, ``a'' equals the average annual costs, ``v'' equals the
percentage of total volume across exchanges over the last three years
and ``t'' equals the average annual cost for all exchanges. (The one
registered futures association regulated by the Commission, the
National Futures Association (NFA), has no contracts traded and, thus,
the NFA's fee is based simply on costs for the most recent three fiscal
years.)
    Following is a summary of data used in the calculations and the
resultant fee for each entity:

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                                                                              3-year average
                                                           3-year average     percentage of     2000 fee amount
                                                            actual costs    volume  (percent)
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Chicago Board of Trade.................................           $207,586            44.6820           $207,586
Chicago Mercantile Exchange............................            283,444            35.3012            283,444
NYMEX/COMEX............................................            226,295            15.8933            184,499
New York Board of Trade................................            165,269             3.5269             94,468
Kansas City Board of Trade.............................              9,989             0.3975              6,779
Minneapolis Grain Exchange.............................              5,295             0.1967              3,531
Philadelphia Board of Trade............................                  0             0.0024                  0
                                                        --------------------------------------------------------
Sub-total..............................................            897,887           100.0000            784,306
National Futures Association...........................            233,222                N/A            233,222
                                                        --------------------------------------------------------
    Total..............................................          1,131,099           100.0000         $1,017,528
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    Below is an example of how the fee was calculated for one exchange,
the Minneapolis Grain Exchange:
    (i) Actual 3-year average costs are $5,295;
    (ii) Alternative computation is;

(.5)($5,295) + (.5)(.1967%)($897,877) = 3,531

    (iii) The fee is the lesser of (i) or (ii) = $3,531.
    As noted above, the alternative calculation, which is based upon
contracts traded, is not applicable to the NFA because it is not a
contract market and, thus, has no contracts traded. The Commission's
average annual cost for conducting oversight review of the NFA rule
enforcement program during fiscal years 1997 through 1999 was $233,222
(\1/3\ of $699,666). Therefore, the fee to be paid by the NFA for the
current fiscal year is $233,222.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires agencies to consider the impact of rules on small businesses.
The fees implemented in this release affect contract markets (also
referred to as ``exchanges'') and registered futures associations. The
Commission has previously determined that contract markets are not
``small entities'' for purposes of the Regulatory Flexibility Act, 5
U.S.C. 601 et seq., 47 FR 18618 (April 30, 1982). Registered futures
associations also are not considered ``small entities'' by the
Commission. Therefore, the requirements of the Regulatory Flexibility
Act do not apply to contract markets or registered futures
associations. Accordingly, the Chairman, on behalf of the Commission,
certifies that the fees implemented herein do not have a significant
economic impact on a substantial number of small entities.

    Issued in Washington, DC on July 19, 2000, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 00-18729 Filed 7-28-00; 8:45 am]
BILLING CODE 6351-01-P
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