Federal Register / Vol. 72, No. 207 / Friday, October 26, 2007 / Rules and Regulations 60767 

1 7 U.S.C. § 5(b) (2007). § 3(b) of the Act provides 

in full: 

It is the purpose of this chapter to serve the 

public interests described in subsection (a) of this 

section through a system of effective self-regulation 

of trading facilities, clearing systems, market 

participants and market professionals under the 

oversight of the Commission. To foster these public 

interests, it is further the purpose of this chapter to 

deter and prevent price manipulation or any other 

disruptions to market integrity; to ensure the 

financial integrity of all transactions subject to this 

chapter and the avoidance of systemic risk; to 

protect all market participants from fraudulent or 

other abusive sales practices and misuses of 

Continued 

effect on production processes or on the 

types or amounts of materials used for 

the manufacture of carpets and rugs. 

The amendments will not render 

existing inventories unsalable, or 

require destruction of existing goods. 

The Commission has no information 

indicating any special circumstances in 

which these amendments may affect the 

human environment. For that reason, as 

discussed in the proposed rule, neither 

an environmental assessment nor an 

environmental impact statement is 

required. 71 FR 66145. 

3. Executive Order 12988 

Executive Order 12988, Civil Justice 

Reform, (February 5, 1996), requires that 

the Commission specify the preemptive 

effect, if any, to be given each new 

regulation. This technical amendment 

does not alter the preemptive effect of 

the underlying regulation. 

List of Subjects in 16 CFR Parts 1630 

and 1631 

Carpets, Consumer protection, 

Flammable materials, Floor coverings, 

Labeling, Records, Rugs, Textiles, 

Warranties. 

Conclusion 

■ Therefore, pursuant to the authority of 

section 30(b) of the Consumer Product 

Safety Act (15 U.S.C. 2079(b)) and 

sections 4 and 5 of the Flammable 

Fabrics Act (15 U.S.C. 1193, 1194), the 

Commission hereby amends title 16 of 

the Code of Federal Regulations, 

Chapter II, Subchapter D, parts 1630 and 

1631 to read as follows: 

PART 1630—STANDARD FOR THE 

SURFACE FLAMMABILITY OF 

CARPETS AND RUGS 

■ 1. The authority for subpart A of part 

1630 continues to read as follows: 

Authority: Sec. 4, 67 Stat. 112, as 

amended, 81 Stat. 569–570; 15 U.S.C. 1193. 

■ 2. Section 1630.1(f) is revised to read 

as follows: 

§ 1630.1 Definitions. 

* * * * * 

(f) Timed Burning Tablet (pill) means 

a methenamine tablet, flat, with a 

nominal heat of combustion value of 

7180 calories/gram, a mass of 150 mg +/ 

¥5mg and a nominal diameter of 6mm. 

* * * * * 

■ 3. Section 1630.4 is amended by 

revising the first sentence of paragraph 

(a) (3) to read as follows: 

§ 1630.4 Test procedure. 

(a) * * * 

(3) Standard igniting source. A 

methenamine tablet, flat, with a 

nominal heat of combustion value of 

7180 calories/gram, a mass of 150 mg +/ 

¥5 mg and a nominal diameter of 6mm. 

* * * 

PART 1631—STANDARD FOR THE 

SURFACE FLAMMABILITY OF SMALL 

CARPETS AND RUGS 

■ 1. The authority for subpart A of part 

1631 continues to read as follows: 

Authority: Sec. 4, 67 Stat. 112, as 

amended, 81 Stat. 569–570; 15 U.S.C. 1193. 

■ 2. Section 1631.1(f) is revised to read 

as follows: 

§ 1631.1 Definitions. 

* * * * * 

(f) Timed Burning Tablet (pill) means 

a methenamine tablet, flat, with a 

nominal heat of combustion value of 

7180 calories/gram, a mass of 150 mg +/ 

¥5mg and a nominal diameter of 6mm. 

* * * * * 

■ 3. Section 1631.4 is amended by 

revising the first sentence of paragraph 

(a)(3) to read as follows: 

§ 1631.4 Test procedure. 

(a) * * * 

(3) Standard igniting source. A 

methenamine tablet, flat, with a 

nominal heat of combustion value of 

7180 calories/gram, a mass of 150 mg +/ 

¥5 mg and a nominal diameter of 6mm. 

* * * 

Dated: October 16, 2007. 

Todd A. Stevenson, 

Secretary, Consumer Product Safety 

Commission. 

List of Relevant Documents 

1. ‘‘Briefing Package: Technical 

Amendment to the Flammability Standards 

for Carpets and Rugs, 16 CFR part 1630 and 

16 CFR part 1631,’’ U.S. Consumer Product 

Safety Commission, October 3, 2006. 

2. Technical Amendment to the 

Flammability Standards for Carpets and 

Rugs; Proposed Amendments, 71 FR 66145 

(November 13, 2006). 

3. Proposed Technical Amendment to the 

Flammability Standards for Carpets and 

Rugs; Notice of Opportunity for Oral 

Comment, 72 FR 1472 (January 12, 2007). 

[FR Doc. E7–20666 Filed 10–25–07; 8:45 am] 

BILLING CODE 6355–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 18 

RIN 3038–AC22 

Maintenance of Books, Records and 

Reports by Traders 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission) is 

amending Commission Regulation 18.05 

in two respects: to make it explicit that 

persons holding or controlling 

reportable positions on a designated 

contract market (DCM) or derivatives 

transaction execution facility (DTEF) 

must retain books and records and make 

available to the Commission upon 

request any pertinent information with 

respect to all other positions and 

transactions in the commodity in which 

the trader has a reportable position, 

including positions held or controlled 

or transactions executed on all reporting 

markets, over-the-counter (OTC) and/or 

pursuant to Sections 2(d), 2(g) or 

2(h)(1)–(2) of the Commodity Exchange 

Act (Act) or Part 35 of the Commission’s 

regulations, on exempt commercial 

markets operating pursuant to Sections 

2(h)(3)–(5) of the Act (ECMs), on exempt 

boards of trade operating pursuant to 

Section 5d of the Act (EBOTs), and on 

foreign boards of trade (FBOTs); and to 

make the regulation clearer and more 

complete with respect to hedging 

activity. The amendments will enhance 

the Commission’s ability to deter and 

prevent price manipulation or any other 

disruptions to the integrity of the 

regulated futures markets, help to 

ensure the avoidance of systemic risk, 

and clarify the meaning of the 

regulation. 

DATES: Effective Date: November 26, 

2007. 

FOR FURTHER INFORMATION CONTACT: 

Duane C. Andresen, Special Counsel, 

Division of Market Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. Telephone 202–418–5492; e-mail 

dandresen@cftc.gov. 

SUPPLEMENTARY INFORMATION: 

I. Purpose of Regulation 18.05 and 

Statutory Basis 

Section 3(b) of the Act 1 declares that 

the purpose of the Act is to, among 


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60768 Federal Register / Vol. 72, No. 207 / Friday, October 26, 2007 / Rules and Regulations 

customer assets; and to promote responsible 

innovation and fair competition among boards of 

trade, other markets and market participants. 

2 7 U.S.C.§ 6i (2007). § 4i of the Act provides: 

It shall be unlawful for any person to make any 

contract for the purchase or sale of any commodity 

for future delivery on or subject to the rules of any 

contract market or derivatives transaction execution 

facility—

(1) if such person shall directly or indirectly 

make such contracts with respect to any commodity 

or any future of such commodity during any one 

day in an amount equal to or in excess of such 

amount as shall be fixed from time to time by the 

Commission, and 

(2) if such person shall directly or indirectly 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 transactions or positions described in clauses 

(1) and (2) hereof as the Commission may by rule 

or regulation require and unless, in accordance with 

rules and regulations of the Commission, such 

person shall keep books and records of all such 

transactions and positions and transactions and 

positions in any such commodity traded on or 

subject to the rules of any other board of trade, and 

of cash or spot transactions in, and inventories and 

purchase and sale commitments of such 

commodity. Such books and records shall show 

complete details concerning all such transactions, 

positions, inventories, and commitments, including 

the names and addresses of all persons having any 

interest therein, and shall be open at all times to 

inspection by any representative of the Commission 

or the Department of Justice. For the purposes of 

this section, the futures and cash or spot 

transactions and positions of any person shall 

include such transactions and positions of any 

persons directly or indirectly controlled by such 

person. 

3 7 U.S.C. 12a(5) (2007). 

4The Commission’s market and large trader 

reporting rules are contained in Parts 15 through 21 

of the Commission’s regulations. 

5Pursuant to Commission Regulation 15.00(m), a 

reporting market means a DCM and, unless 

determined otherwise by the Commission with 

respect to the facility or a specific contract listed 

by the facility, a DTEF. 

6Pursuant to Commission Regulation 15.00(l), 

reportable position means: 

(1) For reports specified in parts 17, 18 and 

§ 19.00(a)(2) and (a)(3) of this chapter any open 

contract position that at the close of the market on 

any business day equals or exceeds the quantity 

specified in § 15.03 of this part in either: 

(i) Any one future of any commodity on any one 

reporting market, excluding future contracts against 

which notices of delivery have been stopped by a 

trader or issued by the clearing organization of a 

reporting market; or 

(ii) Long or short put or call options that exercise 

into the same future of any commodity, or long or 

short put or call options for options on physicals 

that have identical expirations and exercise into the 

same physical, on any one reporting market. 

(2) For the purposes of reports specified in 

§ 19.00(a)(1) of this chapter, any combined futures 

and futures-equivalent option open contract 

position as defined in part 150 of this chapter in 

any one month or in all months combined, either 

net long or net short in any commodity on any one 

reporting market, excluding futures positions 

against which notices of delivery have been stopped 

by a trader or issued by the clearing organization 

of a reporting market, which at the close of the 

market on the last business day of the week exceeds 

the net quantity limit in spot, single or in allmonths fixed in § 150.2 of this chapter for the 

particular commodity and reporting market. 

7The Commission also uses large trader reporting 

information as a means to ensure the avoidance of 

systemic risk in that such information enables 

Commission staff to determine which FCMs 

carrying accounts might have exposure in particular 

markets. 

8Regulation 18.05 states in full: 

Every trader who holds or controls a reportable 

futures or option position shall keep books and 

records showing all details concerning all positions 

and transactions for future delivery in the 

commodity on all reporting markets, all positions 

and transactions in the commodity option, and all 

positions and transactions in the cash commodity, 

its products and byproducts and, in addition, 

commercial activities that the trader hedges in the 

commodity underlying the futures contract in 

which the trader is reportable, and shall upon 

request furnish to the Commission any pertinent 

information concerning such positions, transactions 

or activities. 

9 In describing the requirements of Regulation 

18.05 in 1981, the Commission stated: 

The regulation requires reportable traders to 

maintain books and records of futures positions and 

transactions in the commodity in which they are 

reportable and all positions and transactions in the 

cash commodity and its products and byproducts 

* * *. [T]he Commission wishes to underscore its 

view that the book and recordkeeping requirements 

and inspection provision contained therein are 

essential to accomplish the purposes of the Act and 

within the Commission’s authority to adopt 

pursuant to section[s] 4i and 8a(5) of the Act. These 

requirements have always applied to the traders 

who hold or control a reportable position, and have 

not been restricted in any way. ‘‘Reporting 

Requirements for Contract Markets, Futures 

Commission Merchants, Members of Exchanges and 

Large Traders,’’ 46 FR 59960, 59963 (December 8, 

1981) (footnote omitted). 

10The Commission currently requests such 

information an average of three times per year. 

11 72 FR 34413 (June 22, 2007). 

other things, deter and prevent price 

manipulation or any other disruptions 

to market integrity and to ensure the 

financial integrity of all transactions 

subject to the Act and the avoidance of 

systemic risk. Section 4i of the Act 2

requires persons holding futures or 

option positions at DCMs or DTEFs at or 

above certain levels to keep books and 

records of all: 

(1) Transactions and positions in the 

exchange-traded commodity; 

(2) Transactions and positions in any 

such commodity traded on or subject to 

the rules of any other board of trade; 

and 

(3) Cash or spot transactions in, and 

inventories and purchase and sale 

commitments of such commodity. 

Such books and records must be open 

at all times for inspection by any 

representative of the Commission or the 

Department of Justice. 

Section 8a(5) of the Act 3 provides 

explicit authority to the Commission to 

make and promulgate such rules and 

regulations as, in the judgment of the 

Commission, are reasonably necessary 

to effectuate any of the provisions or to 

accomplish any of the purposes of the 

Act. In order to accomplish the 

purposes of Sections 3(b) and 4i set 

forth above, the Commission has 

promulgated regulations creating market 

and large trader reporting 

requirements.4 Included among these 

regulations is a requirement that 

persons holding futures or option 

positions at DCMs or DTEFs (reporting 

markets) 5 at or above reportable levels 

(reportable positions) 6 be identified to 

the Commission through the large trader 

reporting system (LTRS). 

The LTRS, which requires that 

clearing members, futures commission 

merchants (FCM) and foreign brokers 

file daily reports with the Commission, 

enables the Commission to assess an 

individual trader’s activities and 

potential market power and to enforce 

the Commission or DCM-set limits on 

speculative positions.7 Once a trader 

holds a reportable position, the trader is 

subject to Commission Regulation 

18.05,8 which requires that the trader 

keep books and records showing all 

details concerning: 

(1) All positions and transactions for 

future delivery in the commodity on all 

reporting markets; 

(2) All positions and transactions in 

the commodity option; 

(3) All positions and transactions in 

the cash commodity, its products and 

byproducts; and 

(4) Commercial activities that the 

trader hedges in the commodity 

underlying the futures contract in which 

the trader is reportable.9

A reportable trader is required to 

furnish to the Commission, upon 

request, any pertinent information 

concerning these positions, transactions 

or activities. 10 Traders who do not hold 

reportable positions do not have 

obligations under Regulation 18.05. 

II. Proposal 

A. Introduction 

In order to enhance its ability to 

detect and prevent manipulation of 

regulated markets and products and to 

ensure the avoidance of systemic risk, as 

well as to clarify the meaning of the 

regulation and bring it up to date, the 

Commission published in the Federal 

Register a proposal to amend Regulation 

18.05 in the following respects: 11

1. To make it explicit that persons 

holding or controlling reportable 

positions on a reporting market must 

retain books and records and make 

available to the Commission upon 

request pertinent information with 

respect to all non-reporting transactions, 

i.e., all positions and transactions in the 

commodity in which the trader is 

reportable, including transactions 


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Federal Register / Vol. 72, No. 207 / Friday, October 26, 2007 / Rules and Regulations 60769 

12See sections 6(c), 6c, 6(d) and 9(a)(2) of the Act 

for the Commission’s antimanipulation authority. 

13For instance, since 1999, Commission staff, 

through foreign terminal no-action letters, has 

allowed 19 FBOTs to make their trading systems 

available by direct access to members and other 

participants in the U.S. without requiring the 

FBOTs to register as DCMs or DTEFs. 14 46 FR 42463, 42466 (August 21, 1981). 

executed on all reporting markets, OTC 

and/or pursuant to Sections 2(d), 2(g) or 

2(h)(1)–(2) of the Act or Part 35 of the 

Commission’s regulations, on ECMs 

operating pursuant to Sections 2(h)(3)–

(5) of the Act, on EBOTs operating 

pursuant to Section 5d of the Act, and 

on FBOTs; and 

2. To make the regulation clearer and 

more complete with respect to hedging 

activity. 

B. Proposed Amendments Related to 

Recordkeeping and Reporting 

The proposal recognized that there is 

a close relationship among transactions 

conducted on reporting markets and 

non-reporting transactions and that it is 

sometimes necessary to determine all 

transactions and positions in the 

commodity in which the trader is 

reportable in order to more effectively 

detect and prevent manipulation of 

regulated markets and products and to 

ensure the avoidance of systemic risk.12

The Commission recognized that it is 

particularly important that staff be able 

to assess the reportable trader’s overall 

position in the same commodity in light 

of the growing volume of trading on the 

non-reporting markets, the close 

relationship among the various products 

and markets, the increasing 

globalization of the futures markets, and 

the growth of trading on FBOTs.13

The proposal noted that while 

Regulation 18.05 explicitly requires that 

a trader holding reportable positions 

keep books and records and provide to 

the Commission, upon request, 

pertinent information with respect to 

positions and transactions in the 

underlying commodity on DCMs and 

DTEFs, it does not explicitly do so with 

respect to positions and transactions in 

virtually identical contracts executed on 

ECMs, EBOTs or FBOTs or in the same 

commodity executed OTC and/or 

pursuant to Sections 2(d), 2(g) or 

2(h)(1)–(2) of the Act or Part 35 of the 

Commission’s regulations. The 

Commission noted that information 

concerning non-reporting transactions is 

important to its ability to conduct 

effective market surveillance of the 

DCM and DTEF contracts. Thus, if a 

trader is reportable because of futures or 

option positions in a contract on a DCM 

or DTEF, the trader’s books and records 

with respect to non-reporting positions 

and transactions in the same commodity 

are relevant to effective surveillance and 

supervision of the DCM or DTEF 

contract in which the trader is 

reportable. 

The proposal noted that the Act 

provides ample authority to require 

keeping books and records and 

providing pertinent information 

concerning non-reporting transactions. 

Section 4i explicitly encompasses nonreporting transactions on ‘‘any other 

board of trade’’ (such as FBOTs, ECMs 

operating pursuant to Sections 2(h)(3)–

(5) of the Act, and EBOTs operating 

pursuant to Section 5d of the Act) and 

in the form of cash or spot transactions, 

inventories, and purchase and sale 

commitments. Further, Section 3(b) of 

the Act declares that the purpose of the 

Act is to, among other things, deter and 

prevent price manipulation or any other 

disruptions to market integrity and to 

ensure the avoidance of systemic risk. 

Section 8a(5) of the Act authorizes the 

Commission to promulgate such 

regulations as, in its judgment, are 

reasonably necessary to accomplish any 

of the purposes of the Act. As noted in 

the proposal, amending Regulation 

18.05 to clearly require that reportable 

traders keep books and records showing 

all details concerning non-reporting 

transactions in the reportable 

commodity is a reasonably necessary 

means of accomplishing the purposes of 

Section 3(b) of the Act. 

The proposal also noted that although 

non-reporting transactions themselves 

generally are not subject to most 

regulatory provisions of the Act, the 

futures or option transactions executed 

and maintained on a DCM or DTEF that 

result in a reportable position are 

subject to such provisions and, pursuant 

to Section 3(a) of the Act, are affected 

with a national public interest. It is the 

purpose of the Act pursuant to Section 

3(b) that the Commission deter and 

prevent price manipulation of all 

commodities traded on these regulated 

markets. The proposal stated that to 

accomplish this purpose, it is necessary 

that the Commission have the ability to 

review all activities in commodities 

traded on these markets, regardless of 

where the transactions are executed. By 

taking a position on a regulated market, 

a trader agrees to abide by the rules of 

the market and the Commission, 

including prohibitions against 

manipulation. To enhance its ability to 

detect and deter manipulation and other 

threats to market integrity, the 

Commission requires persons holding 

reportable positions to maintain books 

and records of transactions that could 

impact the regulated market and related 

cash market, including non-reporting 

transactions. 

Finally, the proposal noted that staff 

has interpreted Regulation 18.05 to 

include position and transaction data 

for non-reporting transactions and has 

received such information in response 

to requests made pursuant to the 

Regulation. Thus, consistent with the 

Act and Commission practice, the 

Commission proposed to amend 

Regulation 18.05 to make explicit that a 

trader with a reportable position must 

keep books and records showing all 

details concerning all non-reporting 

transactions in the same commodity and 

provide pertinent information to the 

Commission upon request. 

C. Amendments Related to Clarity and 

Completeness 

The proposal also noted that there are 

two issues that arise in connection with 

the Regulation 18.05 requirement that 

traders keep books and records showing 

all details concerning ‘‘commercial 

activities that the trader hedges in the 

commodity underlying the futures 

contract in which the trader is 

reportable.’’ First, the phrase has led to 

some confusion. Originally inserted into 

the paragraph as ‘‘commercial activities 

that the trader hedges in the futures 

commodity in which the trader is 

reportable,’’ its purpose was to require 

that, ‘‘in addition to books and records 

of positions or transactions in a cash 

commodity, a reportable trader must 

also maintain records of commercial 

activities which the trader hedges.’’ 14

Second, the proposal stated that 

reportable positions can be option 

positions, as well as futures positions, 

but it is not clear that the current 

language also addresses commercial 

activities that the trader hedges in the 

commodity underlying any option 

contract in which the trader is 

reportable. 

The Commission therefore proposed 

to amend the regulation to revert to the 

original approach and include hedges in 

the option contract in which the trader 

is reportable. By modifying the phrase 

to read ‘‘commercial activities that the 

trader hedges in the futures or option 

contract in which the trader is 

reportable,’’ Regulation 18.05 captures 

information with respect to hedges in 

other than the cash commodity, its 

products or byproducts (i.e., a trader 

with a reportable position in gold 

futures or options that is a hedge of a 

cash position in silver would be 

required to comply with the Regulation 

18.05 requirements with respect to the 

silver position). 


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60770 Federal Register / Vol. 72, No. 207 / Friday, October 26, 2007 / Rules and Regulations 

15As noted above, other commenters also 

recommended legislation action, i.e., to provide the 

Commission with authority for a LTRS with respect 

to trading in financial contracts in natural gas on 

non-reporting markets and to require entities that 

control large positions in the OTC market to report 

daily to the Commission. 

III. Comments Regarding the Proposal 

The Commission received six 

comment letters on its proposal. 

Commenters included the American 

Public Gas Association (APGA), the 

Industrial Energy Consumers of America 

(IECA), the International Swaps and 

Derivatives Association, Inc. (ISDA), the 

Managed Funds Association (MFA), the 

New York Public Service Commission 

(NYPSC), and the New York Mercantile 

Exchange (NYMEX). Most of the 

commenters generally endorsed the 

proposal and/or its underlying purpose, 

but felt that additional steps are 

necessary to resolve the underlying 

matters that the proposal is intended to 

address. Two commenters raised 

concerns regarding the recordkeeping 

and reporting aspects of the proposal. 

The APGA commented that it strongly 

supports the proposed amendment but 

is concerned about the economic links 

between NYMEX and OTC contracts 

and believes that further steps are 

necessary for the Commission to carry 

out surveillance of the natural gas 

markets. It expressed concern that the 

LTRS does not routinely reach traders’

large OTC positions and noted that it 

has petitioned Congress to provide the 

Commission with authority for a LTRS 

with respect to trading in financial 

contracts in natural gas. Further, the 

APGA commented that reliance on 

special call authority leaves open the 

potential for manipulation or other 

disruptive behavior with little risk of 

detection until after damage to the 

market has been done. 

The IECA commented that it supports 

the proposal but noted that requiring 

companies to keep books and records 

does not prevent market manipulation 

and that preemptive monitoring of 

entities with large positions that cover 

both futures and OTC markets is 

necessary. Further, such entities should 

be required to report daily to the 

Commission. The IECA also 

recommended that the Commission 

support the establishment of an 

advisory panel on energy markets with 

consumer participation thereon. 

The NYPSC noted that it supports the 

proposed rule and its underlying 

purpose and that given the increases in 

natural gas prices over the past several 

years, the relevant government entities 

must take all available steps to prevent 

market manipulation and ensure the 

integrity of the natural gas markets. The 

NYPSC maintained that it is essential to 

evaluate exposure on both NYMEX and 

the InterContinental Exchange (ICE), an 

ECM, and stated that the Commission’s 

inability to directly regulate traders that 

use ICE exclusively creates a serious 

loophole in effective regulatory 

oversight of the financial markets. 

Concerned that traders will avoid 

regulatory oversight by trading 

exclusively on ICE, the NYPSC 

recommended that the Commission 

should monitor the migration of traders 

that currently utilize NYMEX to ICE as 

the exclusive means of trading natural 

gas contracts. 

The ISDA and the MFA voiced 

support for the proposal but raised 

concerns about the proposal’s 

recordkeeping and reporting obligations. 

The ISDA stated its view that the 

proposal does not create additional 

recordkeeping or reporting obligations 

and requested clarification with respect 

to the scope of Regulation 1.35(a), 

which contains recordkeeping and 

reporting language similar to that in 

proposed Regulation 18.05. Further, the 

ISDA requested clarification that the 

records required to be retained under 

proposed Regulation 18.05 are subject to 

Regulation 1.31 retention requirements 

and consist of accurate records of 

positions and actual transaction 

documentation created in the ordinary 

course of business. The MFA requested 

that the Commission confirm that the 

current system of books and records 

maintained by traders in the normal 

course of business and in the format 

created in the normal course of business 

would meet the proposal’s 

recordkeeping and retention 

requirements. 

The NYMEX voiced support for the 

intention underlying the proposal but 

commented that the purpose of the 

proposal can be met only by imposing 

identical requirements on linked trading 

facilities meeting specified criteria. 

NYMEX posited that the proposal, if 

implemented, would create an incentive 

for market participants to do all their 

trading at unregulated or nontransparent venues or to trade at a level 

below the reportable level on the 

regulated exchange. Further, NYMEX 

commented that the proposal was 

limited in effectiveness because of the 

anticipated infrequent use of the special 

call procedure; would impose a cost on 

the regulated exchanges because of the 

shift in trading activity; and would have 

adverse public policy consequences. 

NYMEX recommended that the 

Commission defer the amendments to 

Regulation 18.05 in favor of a more 

comprehensive legislative approach that 

would result in the implementation of 

reporting requirements on organized 

trading facilities that have triggered 

specified criteria.15

The Commission has carefully 

considered the comments submitted and 

has decided, for reasons cited herein 

and in the proposal, to amend the 

regulation as proposed. As previously 

stated, staff has interpreted Regulation 

18.05 to include position and 

transaction data for non-reporting 

transactions and has received such 

information in response to requests 

made pursuant to the Regulation. Thus, 

the proposal to amend Regulation 18.05 

merely makes explicit what has been 

implicit. 

NYMEX’s comment that the proposal 

would lead market participants to move 

their trading activity to unregulated or 

non-transparent venues, or trade at a 

level below the reportable level on the 

regulated exchange in order to avoid the 

consequences of holding reportable 

positions, is highly speculative and, in 

the Commission’s estimation, unlikely. 

As previously discussed, the 

amendments to Regulation 18.05 clarify 

existing authority and, accordingly, any 

‘‘disincentive’’ for traders to trade on a 

regulated market already exists, with or 

without the amendments. In addition, 

the Commission sees little merit in 

following NYMEX’s suggestion to defer 

in favor of a legislative approach. The 

Commission can control neither the 

timing nor the terms of legislation 

addressing reporting obligations on 

currently non-reporting markets, or even 

whether such legislation is enacted in 

the first instance. Should legislation in 

this area be enacted which expands the 

Commission’s jurisdiction with respect 

to transactions that are currently nonreportable, further amendments to the 

regulation could be considered. 

With respect to the comments 

regarding the proposal’s recordkeeping 

and reporting obligations, the 

Commission confirms that the 

amendments should not change current 

recordkeeping or reporting obligations, 

assuming that traders are currently 

keeping complete transaction records. 

Records required to be retained under 

Regulation 18.05 consist of accurate 

records of positions and actual 

transaction documentation created in 

the ordinary course of business. Thus, 

books and records that currently should 

be maintained by traders in the normal 

course of business and in the format 

created in the normal course of business 

would meet the regulation’s 

recordkeeping requirements. Such 

records are subject to the Regulation 

1.31 retention requirements. Finally, 


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Federal Register / Vol. 72, No. 207 / Friday, October 26, 2007 / Rules and Regulations 60771 

16 47 FR 18618, 18618–21 (April 30, 1982). 

17Public Law 104–13 (May 13, 1995). 

Regulation 18.05 does not alter or add 

to the Regulation 1.35(a) recordkeeping 

and reporting requirements. 

IV. Related Matters 

A. Cost Benefit Analysis 

Section 15(a) of the Act requires the 

Commission to consider the costs and 

benefits of its action before issuing a 

new regulation or order under the Act. 

By its terms, Section 15(a) does not 

require the Commission to quantify the 

costs and benefits of a new regulation or 

to determine whether the benefits of the 

regulation outweigh its costs. Rather, 

Section 15(a) simply requires the 

Commission to ‘‘consider the costs and 

benefits’’ of its action. 

Section 15(a) further specifies that the 

costs and benefits of the rule or order 

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; 

(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 

costs, a particular rule or order is 

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 Commission’s proposal contained 

an analysis of its consideration of these 

costs and benefits and solicited public 

comment thereon. As previously noted, 

NYMEX commented that the proposal, 

by adding another incentive for market 

participants to shift their trading 

activity from regulated and transparent 

venues to unregulated and nontransparent venues, would impose a 

cost on the regulated exchanges and 

would have adverse public policy 

consequences. NYMEX also questioned 

the extent of the benefits to be obtained 

from the proposal in light of the 

acknowledgement that special calls for 

information would continue to be made 

on an infrequent basis. 

The Commission believes, as it stated 

in the discussion of NYMEX’s 

comments above, that attempting to 

discern what impact amended 

Regulation 18.05 will have on potential 

large traders, or what costs to the 

regulated exchanges would be 

associated with any shift in trading 

activity, is highly speculative. Because 

the amendments clarify existing 

authority, any ‘‘disincentive’’ for traders 

to trade on a regulated market already 

exists, with or without the amendments. 

Additionally, the Commission finds no 

merit in the contention that the extent 

of the benefits to be obtained from the 

amendments are questionable in light of 

the acknowledgement that special calls 

for information would continue to be 

made on an infrequent basis. The 

Commission is confident that such 

special calls will be made when deemed 

necessary and that the information 

provided in response to such special 

calls will assist the Commission in 

meeting its regulatory responsibilities. 

After consideration of the costs and 

benefits and the public comments 

received thereon, the Commission has 

determined to adopt the amendments to 

Regulation 18.05 set forth below. 

B. The Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA), 

5 U.S.C. 601 et seq., requires that 

agencies consider the impact of their 

rules on small businesses. The 

Commission has previously determined 

that exchanges, futures commission 

merchants and large traders are not 

‘‘small entities’’ for the purposes of the 

RFA.16 The requirements related to the 

amended recordkeeping and reporting 

rule fall on large traders. Accordingly, 

the Acting Chairman, on behalf of the 

Commission, hereby certifies, pursuant 

to 5 U.S.C. 605(b), that the actions 

adopted herein will not have a 

significant economic impact on a 

substantial number of small entities. 

C. The Paperwork Reduction Act 

The Paperwork Reduction Act 

(PRA) 17 imposes certain requirements 

on Federal agencies, including the 

Commission, in connection with 

conducting or sponsoring any collection 

of information as defined by the PRA. 

An agency may not conduct or sponsor, 

and a person is not required to respond 

to, a collection of information unless it 

displays a currently valid control 

number. In its proposal, the 

Commission noted that the proposed 

amendments would require traders with 

reportable positions to keep books and 

records showing all details concerning 

all positions and transactions in the 

commodity in which the trader is 

reportable and to furnish to the 

Commission, upon request, any 

pertinent information concerning such 

positions, transactions or activities in a 

form acceptable to the Commission and 

that this information is part of an 

approved collection of information. The 

Commission further noted that the 

proposed amendments would not result 

in any material modifications to this 

approved collection. Accordingly, for 

purposes of the PRA, the Commission 

certified that the proposed amendment 

did not impose any new reporting or 

recordkeeping requirements. 

The Commission submitted the 

proposed rule amendments and their 

associated information collection 

requirements to the Office of 

Management and Budget (OMB) for its 

review. No comments were received in 

response to the Commission’s invitation 

in the notice of proposed rulemaking to 

comment on the information which 

would be required by the proposed rule 

amendments. 

List of Subjects in 17 CFR Part 18 

Commodity futures, Reporting and 

recordkeeping requirements. 

■ Accordingly, 17 CFR Chapter I is 

amended as follows: 

PART 18—REPORTS BY TRADERS 

■ 1. The authority citation for part 18 is 

revised to read as follows: 

Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 

6i, 6k, 6m, 6n, 12a and 19; 5 U.S.C. 552 and 

552(b), unless otherwise noted. 

■ 2. Revise § 18.05 to read as follows: 

§ 18.05 Maintenance of books and records. 

(a) Every trader who holds or controls 

a reportable futures or option position 

shall keep books and records showing 

all details concerning all positions and 

transactions in the commodity: 

(1) On all reporting markets; 

(2) Over the counter and/or pursuant 

to Sections 2(d), 2(g) or 2(h)(1)–(2) of the 

Act or Part 35 of this chapter; 

(3) On exempt commercial markets 

operating pursuant to Sections 2(h)(3)–

(5) of the Act; 

(4) On exempt boards of trade 

operating pursuant to Section 5d of the 

Act; and 

(5) On foreign boards of trade. 

(b) Every such trader shall also keep 

books and records showing all details 

concerning all positions and 

transactions in the cash commodity, its 

products and byproducts, and all 

commercial activities that the trader 

hedges in the futures or option contract 

in which the trader is reportable. 

(c) The trader shall upon request 

furnish to the Commission any pertinent 

information concerning such positions, 

transactions, or activities in a form 

acceptable to the Commission. 

Issued in Washington, DC, this 22nd day 

of October, 2007, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. E7–21077 Filed 10–25–07; 8:45 am] 

BILLING CODE 6351–01–P 


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