CFTC Letter 05-01

CFTC letter No. 05-03

January 26, 2005

No-Action

Division of Market Oversight

Mr. Mathew Lisle 

Chief of Compliance 

U.S. Futures Exchange, LLC 

233 S. Wacker Drive 

Chicago, IL 60606 

RE: Request for No-Action Relief from Commission Rule 15.03(b) 

Dear Mr. Lisle: 

This is in response to your letter dated January 7, 2005. In that letter you request no-action relief on 

behalf of U.S. Futures Exchange, LLC (Eurex US or the Exchange) from the application of the default 

reporting level of 25 contracts to futures and option contracts based on 3-Year U.S. Treasury Notes (3-

Year T-Notes). Instead, you seek a reporting level of 750 contracts. 

We understand the facts to be as follows. The Exchange self-certified contract specifications for 3-Year 

T-Notes on January 4, 2005.[1] The Exchange is planning to list and commence trading in 3-Year TNotes on February 1, 2005. No designated contract market has previously listed 3-Year T-Notes for 

trading. However, futures and option contracts on 2-Year U.S. Treasury Notes (2-Year T-Notes) have 

been offered for several years and are widely traded.[2]

You base your request on the similar characteristics between 3-Year T-Notes and 2-Year T-Notes. 

Specifically, you state that 2-Year T-Notes and 3-Year T-Notes call for delivery of $200,000 face value 

of Treasury securities. You also reference the considerable deliverable supply for 2-Year T-Notes and 

assert that the amount of Treasury securities available for delivery against 3-Year T-Notes will generally 

be comparable. In your request for no-action relief, you place the deliverable supply for the December 

2004 and March 2005 2-Year T-Notes at approximately $165 billion. You also place the deliverable 

supply for the March 2005 3-Year T-Notes at approximately $95 billion. 

Commission Rule 15.03(b) establishes contract reporting levels for futures and option contracts. Rule 

15.03(b) applies a default reporting level of 25 contracts to contracts and contract sets not specifically 

itemized in Rule 15.03(b). The Commission does not specify a reporting level for futures or option 

contracts based on 3-Year T-Notes. In the absence of no-action relief, the default reporting level for 3-

Year T-Notes is 25 contracts. 

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CFTC Letter 05-01

The Commission recently amended its large trader reporting rules.[3] In that rulemaking, the 

Commission raised the reporting level for 2-Year T-Notes from 500 to 1,000 contracts. Those rules, 

among other things, require the reporting to the Commission of position information of the largest 

futures and option traders and require the traders themselves to provide information upon special call. 

The large trader reporting rules fashion a system that is an important Commission oversight tool. The 

Commission, however, is mindful of the burden associated with these reporting requirements and 

reviews them periodically with an eye to easing that burden to the extent compatible with its 

responsibilities for rigorous surveillance of the commodity futures and option markets. 

The Commission has traditionally calibrated contract reporting levels to ensure that the aggregate of all 

positions reported to the Commission represents approximately 70 to 90 percent of the open interest in 

any given contract. The Commission periodically analyzes trading volume, open interest, the number 

and position sizes of individual traders relative to the reporting levels, and its surveillance experience 

with specific contracts, to determine if coverage of open interest is adequate for effective market 

surveillance. 

The default reporting level of 25 contracts is in part designed to apply to novel contracts with which the 

Commission has no surveillance experience. In the present situation, the Division of Market Oversight 

(Division) believes that historical trading in 2-Year T-Notes provides a precedent for anticipated trading 

in 3-Year T-Notes. Based upon its surveillance experience with 2-Year T-Notes, the liquidity of the 

underlying securities, and the securities available for delivery against 3-Year T-Notes, the Division 

believes that a reporting level of 750 contracts for 3-Year T-Notes is appropriate. 

In light of the foregoing, the Division will not recommend any enforcement action to the Commission 

based on sections 4a, 4c(b), 4g, or 4i of the Commodity Exchange Act (Act), or parts 15 through 18, or 

21 of the Commission’s regulations for non-compliance with the default reporting level of 25 contracts 

if Eurex US adopts a reporting level of 750 contracts for 3-Year T-Notes. The no-action position extends 

to Eurex US, clearing members, futures commission merchants, foreign brokers, and traders that comply 

with all regulatory obligations triggered by a reporting level of 750 contracts for 3-Year T-Notes. 

The Division’s no-action position is specifically limited to 3-Year T-Notes with a face value of 

$200,000. In addition, the Commission may codify a contract reporting level for 3-Year T-Notes. Eurex 

US, clearing members, futures commission merchants, foreign brokers, and traders must bring their 

conduct into compliance with reporting levels adopted in any final Commission rulemaking to the extent 

that final reporting levels differ from the reporting level of 750 contracts. 

This no-action position is taken by the Division and does not necessarily reflect the views of the 

Commission or any other division or member of the Commission’s staff. Because this position is based 

upon facts and representations contained in this letter, any different, omitted or changed facts or 

conditions might require a different conclusion. This position also is contingent on the continued 

compliance of Eurex US with all otherwise applicable obligations under the Act, and regulatory 

conditions imposed by the Commission. 

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If you have any questions regarding this correspondence, please contact David P. Van Wagner at (202) 

418-5481 or Bruce Fekrat at (202) 418-5578. 

Very truly yours, 

Richard A. Shilts 

Acting Director 

[1] Eurex US Rules 909 and 910. 

[2] As of January 14, 2005, the open interest in the Chicago Board of Trade’s futures contract on 2-Year 

T-Notes was 290,158. 

[3] 69 Fed. Reg. 76392 (December 21, 2004). 

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