[Federal Register Volume 63, Number 237 (Thursday, December 10, 1998)]
[Rules and Regulations]
[Pages 68175-68182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32587]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 140
Requests for Exemptive, No-Action and Interpretative Letters
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is adopting Rule 140.99, which establishes procedures
for the filing of requests for the issuance of exemptive, no-action and
interpretative letters from the Commission's staff. The Commission
believes that implementation of these procedures will significantly
assist the Commission, its staff and requesters by assuring a focused
presentation of the guidance sought, the issues raised thereby, and the
relevant legal authorities.
DATES: Effective January 11, 1999.
FOR FURTHER INFORMATION CONTACT: David M. Battan, Chief Counsel,
Christopher W. Cummings, Special Counsel, or Helene D. Schroeder,
Attorney-Advisor, Division of Trading and Markets, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW,
Washington, DC 20581. Telephone: (202) 418-5450.
SUPPLEMENTARY INFORMATION:
I. Requests for Exemptive, No-Action and Interpretative Letters
In the course of administering the Commodity Exchange Act (``Act'')
\1\ and the rules, regulations and orders promulgated thereunder by the
Commission,\2\ Commission staff receives written requests for advice
on, or interpretation of, particular provisions of the Act or
Commission rules and the application of those provisions to proposed
transactions or activities. Where appropriate, Commission staff
provides the relief, advice or guidance sought through the issuance of
exemptive, no-action or interpretative letters (``Letters''),
respectively.\3\
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\1\ 7 U.S.C. 1 et seq. (1994).
\2\ Commission regulations are found at 17 CFR Ch. I. et seq.
(1998).
\3\ These types of letters are proposed to be defined in Rules
140.99(a)(1), (a)(2) and (a)(3), respectively, and each is discussed
in Part II, below.
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On January 22, 1998, the Commission published for comment Proposed
Rule 140.99 (the ``Proposal'') \4\ to establish procedures for
requesting Letters. As stated in the Proposal, although a procedural
rule such as Rule 140.99 is not required to be published for comment,
the Commission decided to seek comment in the belief that input from
interested persons would assist it in fashioning a final rule.\5\ The
comment period on the Proposal originally was due to expire on March
22, 1998. To maximize public participation in this rulemaking process,
the Commission extended the comment period for an additional thirty
days,\6\ and the comment period closed on April 22, 1998. The input
received was very helpful, and a number of changes were made to the
Proposal following consideration of the comments.\7\
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\4\ Requests for Exemptive, No-Action and Interpretative
Letters, 63 FR 3285.
\5\ See 63 FR 3287.
\6\ Requests for Exemptive, No-Action and Interpretative
Letters, 63 FR 14866 (March 27, 1998).
\7\ The Commission received eight comment letters in response to
the Proposal: two from registered futures commission merchants; two
from commodity industry associations; one from a securities industry
association; two from bar associations; and one from a law firm.
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While the commenters generally were supportive of the Commission's
intention to establish uniform procedures for persons requesting
Letters, they expressed various concerns of which the most significant
are discussed below. Before addressing the comments received and the
final rules the Commission is issuing hereby, the Commission wishes to
emphasize that under the new rules Commission staff will continue to be
receptive to informal inquiries and to engage in discussions with
industry participants, counsel, members of the public, and others, by
telephone, in face-to-face meetings or otherwise, regarding the
application of the provisions of the Act and the Commission's rules,
with the caveat that any advice given in the context of those
discussions does not bind the Commission or its staff.\8\ The
Commission's goal in adopting new Rule 140.99 is to ensure that, where
an issue has been framed and defined sufficiently that a request for a
Letter is appropriate, proper procedures exist for submitting that
request.
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\8\ See Rule 140.99(e), which provides that no response to a
request for a Letter is effective unless it is in writing, signed by
appropriate Commission staff and transmitted in final form to the
requester.
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II. Section-By-Section Analysis
A. Definitions--Section 140.99(a)
The Proposal defined ``exemptive letter,'' ``no-action letter,''
and ``interpretative letter'' for purposes of Rule 140.99. Briefly
stated, the Proposal defined: (1) an exemptive letter as involving a
grant of exemptive relief by the staff of the Division of Trading and
Markets or the Division of Economic
[[Page 68176]]
Analysis (each a ``Division'') pursuant to authority delegated to staff
by the Commission; (2) a no-action letter as denoting the determination
by staff of the Division of Trading and Markets or the Division of
Economic Analysis not to recommend commencement of enforcement action
if a proposed activity or transaction was conducted; and (3) an
interpretative letter as conveying the advice or guidance of staff of
the Division of Trading and Markets, the Division of Economic Analysis
or the Office of the General Counsel concerning the application of
provisions of the Act or Commission rules in the context of specific
activities or transactions.
In response to the comments, the Commission has modified the
definitions somewhat. ``Exemptive letter'' is now defined to make clear
that only the person on whose behalf an exemptive letter is sought may
rely upon it and that an exemptive letter binds the Commission and its
staff with respect to the relief provided. ``No-action letter'' is now
defined to clarify that only the person on whose behalf a no-action
letter is sought may rely upon the Letter and that a no-action letter
binds only the staff of the Division (or the Office of the General
Counsel) \9\ that issues the Letter. Finally, interpretative letter has
been redefined to clarify that an interpretative letter binds only the
Division that issues it (or the Office of General Counsel, is issued
thereby). The definition of interpretative letter also now expressly
provides that an interpretative letter generally may be relied upon by
persons in addition to the person on whose behalf the interpretative
letter was sought.\10\
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\9\ The Commission also has modified the definition of no-action
letter to reflect that the Office of the General Counsel may issue
no-action letters in certain circumstances. Similarly, the
Commission has modified the definition of interpretative letter to
reflect the practice of the Divisions of Trading and Markets and
Economic Analysis of issuing interpretations of statutory provisions
when related to regulatory matters under their review.
\10\ In the Proposal, the preamble, but not the text of the
rule, stated that persons other than the recipient could rely on an
interpretative letter.
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The Commission is not adopting the recommendation of some
commenters that no-action letters be accorded precedential value such
that third parties may rely upon them without requesting their own
Letters. The Commission likewise is declining to expand the class of
persons who may rely on an exemptive letter to include persons not
exempted by name in the Letter. The Commission continues to believe
that, where a situation not covered by a rule is encountered on a
repeated basis, the appropriate remedy is rulemaking. Letters generally
address particular, fact-specific issues either not clearly addressed
by relevant rules or otherwise requiring individualized review by
Commission staff. It would not be appropriate to allow uninvolved third
parties to rely on staff positions taken on the basis of different sets
of facts. Of course, counsel may wish to consider Letters issued by
Commission staff in advising their clients about particular courses of
conduct. Moreover, if an industry participant or its counsel determines
to seek its own Letter from Commission staff, prior Letters on similar
issues are relevant and should be cited to staff.
Some comments indicated that the commenters did not understand that
Rule 140.99 does not apply to requests for exemption submitted pursuant
to Section 4(c) of the Act.\11\ To make clear that exemption requests
under Section 4(c) must be made directly to the Commission--and must
comply with the requirements set forth in Section 4(c)--paragraph
(i)(B) of Rule 140.99 provides that the rule ``shall not affect the
requirements of, or otherwise be applicable to'' requests for exemption
pursuant to Section 4(c) of the Act.
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\11\ 7 U.S.C. 6(c) (1994). See footnote 5 of the Proposal (63 FR
3285, n.5), in which the Commission stated that the proposed rule
would govern requests submitted to and processed by Commission staff
and would not apply to those circumstances under which requests must
be submitted to and processed by the Commission itself (e.g.,
requests pursuant to Section 4(c) of the Act and any other instance
in which exemptive authority has not been delegated to the Staff)
The Commission went on to state that paragraphs (b), (c), (f) and
(h) nevertheless provide some helpful guidance for persons making
requests not within the scope of Rule 140.99.
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B. General Requirements--Section 140.99(b)
Paragraph (b)(1) of the Proposal stated that the issuance of
Letters is entirely within the staff's discretion and that the staff
could deny or refuse to consider or respond to a request without
explanation. While it was clearly not the intent of the Commission,
commenters were concerned that this provision would allow staff to
ignore requests. In response to these comments, the rule as adopted
simply provides that issuance of Letters is within the Commission
staff's discretion. While the Commission recognizes the importance of
Letters to industry participants and their counsel, nothing in the Act
or the Commission's rules requires Commission staff to issue Letters.
Because the staff exercises its discretion to issue Letters within the
constraints of its limited staffing and other resources, certain
circumstances may arise in which as prompt a reply to a request as
counsel would like becomes difficult or impossible. Moreover, in some
limited instances the issuance of a Letter may not be justified from a
legal or regulatory standpoint, or it may not be an appropriate
resolution from a policy standpoint.
Paragraph (b)(2), which sets forth the staff's right to reject or
decline to respond to a request that does not comply with Rule 140.99,
was adopted as proposed. In this connection, Commission staff will not
issue a Letter in response to an oral request, and a Letter will not be
issued in response to a tentative or ``draft'' request.
As proposed and as adopted, paragraph (b)(3) states that a request
must relate to a proposed transaction or activity and that, absent
extraordinary circumstances, Letters will not be issued based upon past
transactions or activities. This stricture is consistent with
longstanding Commission staff policy. Commenters expressed concern that
persons who become aware that ongoing activities raise issues under the
Act or Commission rules would have no recourse under this provision.
The Commission disagrees. In the absence of extraordinary
circumstances, a Letter issued with regard to ongoing activities will
be prospective in terms of its coverage (and will not cover past
activities or transactions).\12\ Thus, a Letter will not ordinarily
relieve the person for whose benefit it is issued from the consequences
of non-compliance that pre-dates the Letter. Nevertheless, persons (or
their counsel) who become aware that their activities are not in
compliance with the Act or Commission rules are urged to contact the
staff as soon as possible. Although the staff generally reserves the
right to refer prior violations for enforcement action in appropriate
situations, the good faith demonstrated by efforts to regularize non-
complying activities on a ``going forward'' basis will be carefully
considered.
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\12\ One commenter pointed out that Section 4(c) of the Act
expressly provides for retroactive relief and asserted that Rule
140.99(b)(3) is inconsistent with Section 4(c) in this respect. As
noted earlier, the provisions of Rule 140.99 do not apply to
requests for exemptions under Section 4(c). See also 63 FR 3285,
n.5.
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As proposed, paragraph (b)(4) states that a request must be made by
the person seeking a Letter (or an authorized representative) and that
Commission staff will not respond to requests made by or on behalf of
unidentified persons. As adopted, the request is required to be made by
or on behalf of the person on whose behalf a Letter is sought. Proposed
paragraph
[[Page 68177]]
(b)(5)(i) would have required the request to set forth as completely as
possible ``the particular facts and circumstances giving rise to the
request. As adopted, this paragraph now requires the request to set
forth as completely as possible ``all material facts and circumstances
giving rise to the request.'' Proposed paragraph (b)(5)(ii) stated that
Commission staff would not respond to a request based upon a
hypothetical situation. In proposing this paragraph, the Commission did
not intend to discourage requesters from presenting reasonably
realistic alternatives.\13\ To make this clear, the rule as adopted has
been modified to permit the request to include one or more alternative
structures or fact situations, provided that the request complies with
Rule 140.99 with respect to each alternative structure or fact
situation.
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\13\ Moreover, paragraph (c)(7), discussed below, permits
requesters to ask for alternative modes of response.
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C. Information Requirements--Section 140.99(c)
Paragraph 140.99(c)(1) as proposed and as adopted sets forth the
required identifying information concerning the person on whose behalf
a request is made and, where applicable, concerning the authorized
representative if the requester is not making the request on his or her
own behalf. Paragraph (c)(2) as proposed and as adopted requires that
the requester indicate in the upper right-hand corner of the request
the provision(s) of the Act and/or Commission rules to which the
request relates.
Proposed paragraph (c)(3)(i) would have required a person with
knowledge of the facts to certify that the representations in the
request are accurate and complete. Commission staff too often has
found, after modest scrutiny of representations made in support of a
request for a Letter, that those representations were substantially
inaccurate. Moreover, during recent market volatility events, it
appears that the actual facts in certain instances proved to be
substantially different from those the registrant had previously
represented in their filings and other communications with the
Commission. The Commission hopes that the certification requirement
will encourage requesters to use proper care in making factual
representations relating to their requests, thus saving time and
resources (of staff and of requesters) that otherwise would be expended
making and responding to successive requests for additional or
corrected information. Upon consideration of the comments, however, the
Commission has modified the proposed text to make clear that the
certification applies only to material statements of fact that are set
forth in the request. While requesters have a responsibility accurately
to analyze the legal issues surrounding their request, the
certification requirement in paragraph (c)(3)(i) is limited to factual
representations.\14\
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\14\ Legal arguments must nevertheless be supported by the facts
and warranted by law.
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Proposed paragraph (c)(3)(ii) would have required an undertaking by
the person making the certification required by paragraph (c)(3)(i)
that the person for whose benefit the request is made will promptly
supplement the request in writing at such time as a material
representation relating to the request ceases to be accurate and
complete. Comments indicated uncertainty as to who would be bound by
the undertaking and whether the obligation to update information
material to a request would continue after issuance of a Letter. The
Commission has modified paragraph (c)(3)(ii) to clarify that the
undertaking must be made by the person on whose behalf the Letter is
sought, or that person's authorized representative, and that it
requires only that the person who made the undertaking will ensure that
someone informs Commission staff of changed circumstances (without
specifying who should actually submit any supplement). The Commission
has modified paragraph (c)(3)(ii) to clarify that the duty to update
pursuant to the undertaking required by paragraph (c)(3)(ii) applies
only from the time of the submission of the request until the issuance
of the Letter.
With respect to material changes of circumstances after issuance of
a Letter, paragraph (c)(3)(ii) has been revised to make clear that the
person on whose behalf the Letter is sought, or its authorized
representative at the time, must notify Commission staff of the
occurrence of such changes. The Commission notes that staff typically
concludes Letters with a statement to the following effect:
``This letter is based upon the representations made to us. Any
different, changed or omitted material facts or circumstances might
render this letter void. You must notify us immediately in the event
that the operations or activities of [the party on whose behalf the
Letter was requested] change in any material respect from those as
represented to us.''
The comments addressing the next three paragraphs of the proposed
rules overlapped significantly. Proposed paragraph (c)(4) would have
required the request to indicate the type of Letter sought, to state
why a Letter is needed, to identify the relevant legal and factual
issues surrounding the request and to discuss the bases for issuance of
the Letter. Proposed paragraph (c)(5) would have required the request
to reference all relevant statutory, decisional and administrative
authorities (favorable and otherwise). Proposed paragraph (c)(6) would
have required identification of prior Letters issued by Commission
staff in circumstances similar to the request (and any conditions
imposed in those Letters).\15\ Some commenters expressed concern that a
requirement of comprehensive exposition and discussion of issues, bases
and authorities would result in excessive labor and expense on the part
of the staff as well as the requesters. Commenters also stated that not
all persons seeking Letters can afford experienced counsel or can
afford to research relevant law and precedent, and they expressed
concern that not all past Letters may be readily accessible.\16\
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\15\ Letters are published from 1975 forward in the Commodity
Futures Law Reporter, published by CCH Incorporated. Letters also
are available from 1987 onward from the Westlaw research database of
West Publishing Corporation and from 1989 onward from the Lexis
database service of Mead Data Central, Inc.
\16\ The Commission adopted Rule 140.98 in December 1992
(effective January 25, 1993). That rule requires that all Letters be
made available for inspection and copying (subject to
confidentiality safeguards). Prior to the effectiveness of Rule
140.98, in the absence of any specific requirements, the decision
whether to make a Letter available for publication was subject to
the discretion and policies of the various Commission staff. For
example, the Division of Trading and Markets generally made
available for publication only those Letters that it considered
significant.
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The Commission notes that it does not intend to impose a
requirement, express or implied, that requests be submitted by counsel.
Individuals and firms are invited to prepare and submit requests
directly, or to engage counsel for that purpose, at their own option.
The Commission intends that the staff will take into account the level
of legal sophistication of the person submitting a request (including
whether that person is represented by counsel) in determining whether
the requirements of paragraphs (c)(4) through (c)(6) have been met.
Likewise, in adopting Rule 140.99 the Commission does not intend to
require excessively lengthy briefing of the relevant issues. However,
the request is required to contain a full statement of the material
facts, a concise and clear statement of the issues and a thorough
examination of any law that would be applicable to those issues, with
citations to the relevant authorities. Requesters
[[Page 68178]]
are not required to cite more than a representative selection of
authorities on any issue to the extent that those authorities are
cumulative.
While paragraph (c)(4) has adopted essentially as proposed,
paragraph (c)(5) as adopted makes clear that it seeks reference to
``applicable provisions'' of the Act, Commission rules, and other
authorities, and paragraph (c)(6) as adopted requires identification of
prior Letters that are ``publicly available.'' \17\
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\17\ If a letter is not generally available publicly (i.e., it
has not been published by a third-party service), it need not be
cited unless the requester was the recipient of that prior Letter.
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Moreover, the requirements of paragraphs (c)(5) and (c)(6) should
not be understood to require exhaustive citation and analysis where,
for example, an issue raised by the request has been the subject of
several substantially similar Letters. Rule 140.99(c)(6) as adopted
states that citation of a representative sample of prior Letters is
sufficient where a comprehensive recitation of prior Letters on a given
topic would be repetitious or would not assist Commission staff in
considering the request. A requester should exercise good judgment in
presenting the request in the context of both the legal and regulatory
requirements and the authorities that speak to the merits of the
request.
D. Filing Requirements--Section 140.99(d)
Proposed paragraph (d) called for requests to be written, signed
and filed with the Director of the Division of Trading and Markets for
routing to appropriate Commission staff. Several commenters asked the
Commission to accept electronically filed requests, with one commenter
including a proposed caveat that a separate manually signed request be
required in the absence of an electronic signature mechanism. Other
commenters urged that the Commission agree to accept draft requests and
urged the Commission to make clear that it welcomes informal
discussions and meetings in advance of (or even in the absence of) the
submission of a formal request.
As adopted, paragraph (d) differs from the Proposal only insofar as
it permits submission of requests to the Director of the Division of
Trading and Markets by electronic mail (as well as by post), provided a
``hard copy'' is submitted shortly after an electronic mail submission
in order to permit authentication. As stated above, in adopting Rule
140.99 the Commission does not intend to discourage informal
discussions, whether by telephone, by face-to-face meeting or
otherwise. As further stated above, however, Commission staff will not
issue a Letter in response to an oral request, and a Letter will not be
issued in response to a tentative or ``draft'' request.
E. Form of Staff Response--Section 140.99(e)
Proposed paragraph (e) stated that the grant of any request for a
Letter is not effective unless the response has been signed and
transmitted in final form to the requester and that inaction on the
part of Commission staff does not constitute approval of the request.
The paragraph further permitted the staff to respond by endorsing the
request or by another abbreviated written form of response. Several
commenters encouraged the Commission to allow abbreviated responses to
requests in appropriate cases, such as where the staff has no objection
to the request and where no special conditions or additional
precautions are warranted.
Paragraph (e) has been adopted essentially as proposed, with minor
word changes.\18\ To the extent that requests are adequately developed,
articulated and complete, the Commission intends to encourage the use
by the staff of abbreviated responses to requests where possible.\19\
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\18\ The reference to ``responsible staff'' was changed to
``appropriate staff.''
\19\ In response to commenters' concerns, the Commission
confirms that, when a Letter is issued by abbreviated or endorsed
response to the request, a redacted version of the request letter
will be made available for publication together with the Commission
staff response unless the requester has sought confidential
treatment under Rule 140.98(b) and confidential treatment has been
granted for the period specified in that rule.
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F. Withdrawal of Requests--Section 140.99(f)
As proposed, paragraph (f) would have permitted withdrawal of a
request prior to issuance of a Letter only under specific
circumstances: (1) where a written withdrawal request is submitted with
a certification that the person seeking a Letter has determined not to
proceed with the contemplated transaction or activity or that
intervening events have rendered the request for a Letter moot; or 92)
where confidential treatment has been sought under Rule 140.98 in
connection with the request for a Letter and Commission staff has
notified the requester that confidential treatment will be denied.
Several commenters claimed that the proposed restrictions were
unnecessary and were likely to cause more harm than benefit. They
argued that withdrawal should always be permitted. Some were concerned
that the proposed restrictions would severely discourage requests for
Letters because a person seeking a Letter who changed his or her mind
could neither withdraw the request nor proceed with the proposed
transaction or activity while the request was pending. Other commenters
suggested that the provision could effectively block lawful activity,
either where the response to a request is delayed or where a requester
and Commission staff disagree concerning a change in facts or whether
an issue has become moot.
Upon consideration of the comments, the Commission has determined
to modify the proposed language of paragraph (f). As adopted, paragraph
(f) now permits withdrawal of a request for a Letter by filing with
Commission staff a signed written request for withdrawal that states
whether the person on whose behalf the Letter was requested will
proceed with the transaction or activity described in the request for a
Letter. This change is designed to allow withdrawal of requests for
Letters in appropriate circumstances beyond those enumerated in the
Proposal. Paragraph (f) as adopted also now provides for the withdrawal
from representation of the authorized representative of the person on
whose behalf a Letter has been sought. The only requirement in such as
event is that Commission staff be notified promptly of the change in
representation. The requirement in the Proposal that requests for
withdrawal of a Letter be accompanied by a certification has been
eliminated in the final rule.
G. Failure To Pursue a Request--Section 140.99(g)
Paragraph (g) as proposed and as adopted provides that, where a
requester fails to respond within 30 days to a Commission staff request
for additional information or analysis, the staff generally will issue
a denial of the request for a Letter unless an extension of time has
been granted. Two commenters suggested that the 30-day period should be
tolled as soon as a requester timely asks for an extension of time or
that the rule should provide for an automatic 30-day extension if
timely requested. Because the Commission believes that it is within the
discretion of the staff to grant extensions of time in appropriate
circumstances, it has modified paragraph (g) to make clear that any
extensions of time are within the staff's discretion.
[[Page 68179]]
H. Confidential Treatment--Section 140.99(h)
Paragraph (h) as proposed and as adopted requires that, where
confidential treatment is sought for a request, a separate request for
such treatment must be submitted in accordance with Rule 140.98 or Rule
145.9, as applicable.
I. Applicability to Other Sections--Section 140.99(i)
As proposed and as adopted, paragraph (i) states that Rule 140.99
does not affect the requirements of, or otherwise apply to, notice
filings submitted where relief is claimed under Rules 4.5, 4.7(a),
4.7(b), 4.12(b), 4.13(b) and 4.14(a)(8). As noted above, several
commenters expressed perceived inconsistencies or conflicts between the
provisions of proposed Rule 140.99 and the provisions for requesting
exemption under Section 4(c) of the Act. In order to dispel such
confusion, paragraph (i) as adopted also expressly excludes from Rule
140.99 requests made pursuant to Section 4(c).
III. Related Matters
A. Regulatory Flexibility Act--Final Regulatory Flexibility Analysis
1. Introduction
The Regulatory Flexibility Act (``RFA'') \20\ requires each federal
agency that proposes and adopts rules to consider the impact of those
rules on small entities \21\ that are subject to the agency's
regulations. Pursuant to the provisions of the RFA, a federal agency is
required to prepare an initial regulatory flexibility analysis to
accompany any proposed rule that requires a general Notice of Proposed
Rulemaking.\22\ A similar regulatory flexibility analysis must
accompany the promulgation of the final rule.\23\ An agency is not
required to prepare a regulatory flexibility analysis if the agency
publishes in the Federal Register a certification that ``the rule will
not, if promulgated, have a significant economic impact on a
substantial number of small entities.''\24\
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\20\ 5 U.S.C. 601 et seq. (1994).
\21\ A small entity includes a ``small business'' as defined by
an agency in consultation with the Office of Advocacy of the Small
Business Administration. Id. at Sec. 601(6).
\22\ The initial analysis must contain a description of the
proposed rule's impact on small entities and any significant
alternatives to the action ``which accomplish the stated objectives
of applicable statutes and which minimize any significant economic
impact of the proposed rule on small entities.'' Id. at Sec. 603.
\23\ Id. at Sec. 604.
\24\ Id. at Sec. 605(b).
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In the preamble accompanying the Proposal, the Chairperson
certified that Rule 140.99 would not have a significant economic impact
on a substantial number of small entities.\25\ In support of this
certification, the Commission stated that Rule 140.99 would remove a
burden on all persons by whom (or on whose behalf) Letters are sought,
regardless of size, by providing greater certainty to requesters as to
the procedures to follow in seeking relief and advice. In proposed Rule
140.99, the Commission also stated that the rule would provide
Commission staff with the flexibility to accommodate requesters who
lacked the financial resources to prepare a conforming request by
accepting for consideration non-conforming requests, by providing
guidance to the requester, or by other means. Because this
certification was made, the Commission was not required to prepare an
initial regulatory flexibility analysis.
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\25\ 63 FR 3287.
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While none of the commenters directly addressed the RFA, five of
the comment letters raised issues within the scope of the RFA.
Accordingly, the Commission has prepared this regulatory flexibility
analysis to address these comments.
2. Analysis
(a) Small Entities That May Be Subject to the Rule. Requests for
Letters may be submitted by any person, including those persons who are
subject to or potentially subject to the Commission's oversight. Some
of these persons may be considered to be small entities within the
meaning of the RFA. In this regard, the Commission has established a
definition of ``small entities'' to be used in evaluating the impact of
its Rules on such small entities in accordance with the RFA.\26\ In
accordance with this definition, registered futures commission
merchants, commodity pool operators (``CPOs''), leverage transaction
merchants, large traders, and contract markets have been determined not
to be small entities under the RFA.\27\ Agricultural trade option
merchants similarly have been found not to be small entities under the
RFA.\28\ With respect to persons registered as commodity trading
advisors,\29\ introducing brokers \30\ and floor brokers,\31\ the
Commission has stated that it would evaluate within the context of a
particular rule proposal whether all or some of such registrants would
be considered to be small entities, and, if so, the economic impact on
them of the particular rule. Floor traders \32\ and CPOs exempt from
registration \33\ also may be considered small entities under the RFA.
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\26\ Policy Statement and Establishment of Definitions of
``Small Entities'' for purposes of the Regulatory Flexibility Act,
47 FR 18618 (April 30, 1982).
\27\ Id.
\28\ Trade Options on the Enumerated Agricultural Commodities,
63 FR 18821 (April 16, 1998).
\29\ 47 FR at 18620. See also Interpretation Regarding Use of
Electronic Media by Commodity Pool Operators and Commodity Trading
Advisors for Delivery of Disclosure Documents and Other Materials,
62 FR 39104, 39114 (July 22, 1997); and Exemption for Commodity Pool
Operators with Respect to Offerings to Qualified Eligible
Participants; Exemption for Commodity Trading Advisors with Respect
to Qualified Eligible Clients, 57 FR 34853, 34860 (Aug. 7, 1992).
\30\ See e.g., Financial Reporting Requirements for Futures
Commission Merchants and Introducing Brokers, 53 FR 4606, 4610 (Feb.
17, 1988).
\31\ 47 FR at 18620. See also Adverse Registration Actions and
Other Registration Matters, 57 FR 23136, 23142 (June 2, 1992).
\32\ See e.g., Registration of Floor Traders; Mandatory Ethics
Training for Registrants; Suspension of Registrants Charged with
Felonies, 58 FR 19575, 19588 (April 15, 1993).
\33\ See, e.g., Commodity Pool Operators; Exclusion for
Otherwise Regulated Persons From the Definition of the Term
``Commodity Pool Operator''; Other Regulatory Requirements, 50 FR
15868, 15881 (April 23, 1985).
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In fiscal year 1997, the Office of Chief Counsel of the Division of
Trading and Markets \34\ received 303 inquiries from registrants,
persons exempt from registration, unregistered persons and members of
the general public. Written responses were issued or other dispositions
were made with respect to 277 of these inquiries.\35\ Many, but not
all, of the responses took the form of Letters within the meaning of
Rule 140.99. More than 55%, or 158, of these responses were provided to
persons that are not small entities. The remaining responses were
provided to persons that could, in the context of Rule 140.99, be
classified as small entities as recognized by the Commission.
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\34\ Historically, this Office has received and responded to the
largest number of requests for Letters of any Office or Division of
the Commission.
\35\ Some of the responses were issued in fiscal year 1998.
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Rule 140.99 requires all requesters, including both small and large
entities, to follow uniform procedures when requesting Letters. Based
upon past experience, it is expected, though not required, that most
requests will be prepared by the legal counsel of the person on whose
behalf a Letter is sought.\36\ In this regard, the type of skills
required to submit a request for a Letter will not change under Rule
140.99. No other compliance or
[[Page 68180]]
reporting requirements are imposed by Rule 140.99.
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\36\ As the Commission noted above, ``it does not intend to
impose a requirement . . . that requests be submitted by counsel.''
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(b) Summary of the Issues Affecting Small Entities Raised by the
Comments. Commenters argued that Rule 140.99 essentially would require
that requests be exhaustively researched and contain a lengthy
recitation of all relevant legal and factual issues and all legal
authority, including all prior Letters on a given topic. Commenters
claimed that such requirements are unnecessary for routine or basic
requests and would entail significant costs to persons on whose behalf
Letters are sought, including small entities, which may lack the
library or staffing resources to prepare a conforming request. They
added that persons seeking Letters would be required to hire
specialized legal counsel to prepare their requests. Some commenters
further claimed that the requirements would discourage requests for
Letters because relief could be denied simply because the request did
not conform to the requirements of Rule 140.99.
Two commenters recommended that Rule 140.99 be modeled after
comparable procedures adopted under Federal securities laws and
regulations that provide that the writer should indicate why he thinks
a problem exists, his own opinion in the matter and the basis for such
opinion.\37\ With respect to Rule 140.99's requirements that all prior
Letters and all relevant legal authority be identified, some commenters
recommended that the Commission clarify that requesters would be
required to identify only relevant precedent or only those relevant
authorities of which they are aware through the exercise of reasonable
diligence.
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\37\ Securities Act Release No. 5127, 36 FR 2600 (Jan. 25,
1971), and Securities Act Release No. 6269 (Dec. 5, 1980).
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Some of the commenters also expressed concerns about the
availability of prior Letters, especially older ones, and the burden on
persons seeking Letters, including small entities, arising from a
requirement to locate and identify prior Letters. In this regard, the
commenters pointed out that the Commission was not required to make its
Letters available for public inspection and copying before 1993, the
effective date of Rule 140.98.\38\ They further claimed that Letters
issued prior to 1987 are not available on any online database service
and that it would be particularly onerous on all persons, including
small entities, to conduct a manual search for such Letters. To address
these concerns, one commenter recommended that the Rule be modified to
permit requesters to affirm the scope of any prior research or to note
in their requests the practical limitations placed on the scope of
their research. Another commenter suggested that the Commission commit
to publish widely its prior Letters and to publish promptly all Letters
issued in the future. The same commenter also recommended that the
Commission post all of its Letters on its Internet web site.
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\38\ See supra note 16.
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(c) Alternatives Proposed and Adopted. The Commission has
considered the concerns expressed by commenters and, as stated above,
has clarified that requesters are not required to provide an
excessively lengthy recitation of all relevant legal authority
(including prior Letters) in support of a request for a Letter. It is
sufficient that requests contain a full statement of the material
facts, a concise and clear statement of the issues and a thorough
examination of any law that would be applicable to those issues, with
citations to the relevant authorities. Similarly, and as also stated
above, the Commission has clarified that requesters are not required to
cite more than a representative selection of authorities on any issue,
to the extent that those authorities are cumulative.
To minimize the potential compliance burden on small entities,
including those entities that are not represented by counsel, the
Commission is reiterating that staff may accommodate persons who lack
the financial resources to prepare a conforming request by accepting
for consideration the non-conforming request as submitted, by providing
guidance to the requesters, or by other means.
To address commenters' concerns about the lack of public
availability of relevant authorities, including prior Letters, the
Commission intends that the staff take this fact into account when
reviewing requests, particularly those that are submitted by small
entities. The Commission also has undertaken a review of the
feasibility of making the full text of Letters available at the
Commission's Internet web site as one commenter has suggested.\39\
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\39\ The Commission's web site (http://www.cftc.gov) currently
contains a summary, but not the full text, of all Letters that were
issued and made publicly available pursuant to Rule 140.98
commencing December 24, 1994.
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Other than these specific comments, commenters proposed no other
alternatives short of abandonment of the Proposal. Given the goals
sought to be achieved by Rule 140.99, including decreasing the burden
on all persons seeking Letters, regardless of size, this alternative
would not be feasible.
B. Paperwork Reduction Act
When publishing final rules, the Paperwork Reduction Act of 1989
(``PRA''), 44 U.S.C. 3501 et seq., imposes certain requirements on
federal agencies (including the Commission) in connection with their
conducting or sponsoring any collection of information as defined by
the PRA. In compliance with the Act, this Federal Register release
informs the public of: (1) The reasons the information is planned to be
and/or has been collected; (2) the way such information is planned to
be and/or has been used to further the proper performance of the
functions of the agency; (3) an estimate, to the extent practicable, of
the average burden of the collection (together with a request that the
public direct to the agency any comments concerning the accuracy of
this burden estimate and any suggestions for reducing this burden); (4)
whether responses to the collection of information are voluntary,
required to obtain or retain a benefit or mandatory; (5) the nature and
extent of confidentiality to be provided, if any; and (6) the fact that
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 OMB control number.
The Commission previously submitted Rule 140.99 in proposed form
and its associated information collection requirements to the Office of
Management and Budget. The Office of Management and Budget approved the
collection of information associated with this rule on March 30, 1998,
and assigned OMB control number 3038-0049 to the rule. The burden
associated with this specific final rule is as follows:
Average burden hours per response: 7.
Number of Respondents: 215.
Frequency of response: On occasion.
Persons wishing to comment on the information required by this
final rule should contact the Desk Officer, CFTC, Office of Management
and Budget, Room 10202, New Executive Office Building, Washington, DC
20503 (202) 395-7340. 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.
List of Subjects in 17 CFR Part 140
Authority delegations (Government agencies), Organization and
functions (Government agencies).
In consideration of the foregoing and pursuant to the authority
contained in the Commodity Exchange Act and in particular section
8(a)(5) of the Act, as amended, 7 U.S.C. 12(a)(5), the
[[Page 68181]]
Commission hereby proposes to amend Chapter I of title 17 of the Code
of Federal Regulations as follows:
PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION
1. The authority citation for part 140 continues to read as
follows:
Authority: 7 U.S.C. 7a(j) and 12a.
2. Section 140.99 is added to read as follows:
Sec. 140.99 Requests for exemptive, no-action and interpretative
letters.
(a) Definitions. For the purpose of this section:
(1) Exemptive letter means a written grant of relief issued by the
staff of a Division of the Commission from the applicability of a
specific provision of the Act or of a rule, regulation or order issued
thereunder by the Commission. An exemptive letter may only be issued by
staff of a Division when the Commission itself has exemptive authority
and that authority has been delegated by the Commission to the Division
in question. An exemptive letter binds the Commission and its staff
with respect to the relief provided therein. Only the Beneficiary may
rely upon the exemptive letter.
(2) No-action letter means a written statement issued by the staff
of a Division of the Commission or of the Office of the General Counsel
that it will not recommend enforcement action to the Commission for
failure to comply with a specific provision of the Act or of a
Commission rule, regulation or order if a proposed transaction is
completed or a proposed activity is conducted by the Beneficiary. A no-
action letter represents the position only of the Division that issued
it, or the Office of the General Counsel if issued thereby. A no-action
letter binds only the issuing Division or the Office of the General
Counsel, as applicable, and not the Commission or other Commission
staff. Only the Beneficiary may rely upon the no-action letter.
(3) Interpretative letter means written advice or guidance issued
by the staff of a Division of the Commission or the Office of the
General Counsel. An interpretative letter binds only the issuing
Division or the Office of the General Counsel, as applicable, and does
not bind the Commission or other Commission staff. An interpretative
letter may be relied upon by persons in addition to the Beneficiary.
(4) Letter means an exemptive, no-action or interpretative letter.
(5) Division means the Division of Trading and Markets or the
Division of Economic Analysis.
(b) General Requirements. (1) Issuance of a Letter is entirely
within the discretion of Commission staff.
(2) Each request for a Letter must comply with the requirements of
this section. Commission staff may reject or decline to respond to a
request that does not comply with the requirements of this section.
(3) The request must relate to a proposed transaction or a proposed
activity. Absent extraordinary circumstances, Commission staff will not
issue a Letter based upon transactions or activities that have been
completed or activities that have been conducted prior to the date upon
which the request is filed with the Commission.
(4) The request must be made by or on behalf of the person whose
activities or transactions are the subject of the request. Commission
staff will not respond to a request for a Letter that is made by or on
behalf of an unidentified person.
(5)(i) The request must set forth as completely as possible all
material facts and circumstances giving rise to the request.
(ii) Commission staff will not respond to a request based on a
hypothetical situation. However, a requester may set forth one or more
alternative structures or fact situations for a proposed transaction or
activity; Provided, That the request complies with this section with
respect to each alternative structure or fact situation.
(c) Information Requirements. Each request for a Letter must comply
with the following information requirements:
(1)(i) A request made by the person on whose behalf the Letter is
sought must contain:
(A) The name, main business address, main telephone number and, if
applicable, the National Futures Association registration
identification number of such person; and
(B) The name and, if applicable, the National Futures Association
registration identification number of each other person for whose
benefit the person is seeking the Letter.
(ii) When made by a requester other than the person on whose behalf
the Letter is sought, the request must contain:
(A) The name, main business address and main business telephone
number of the requester;
(B) The name and, if applicable, the National Futures Association
registration identification number of the person on whose behalf the
Letter is sought; and
(C) The name and, if applicable, the National Futures Association
registration identification number of each other person for whose
benefit the requester is seeking the Letter.
(iii) The request must provide the name, address and telephone
number of a contact person from whom Commission staff may obtain
additional information if necessary.
(2) The section number of the particular provision of the Act and/
or Commission rules, regulations or orders to which the request relates
must be set forth in the upper right-hand corner of the first page of
the request.
(3) The request must be accompanied by:
(i) A certification by a person with knowledge of the facts that
the material facts as represented in the request are true and complete.
The following form of certification is sufficient for this purpose:
I hereby certify that the material facts set forth in the
attached letter dated ________ are true and complete to the best of
my knowledge.
(name and title)-------------------------------------------------------
and
(ii) An undertaking made by the person on whose behalf the Letter
is sought or by that person's authorized representative that, if at any
time prior to issuance of a Letter, any material representation made in
the request ceases to be true and complete, the person who made the
undertaking will ensure that Commission staff is informed promptly in
writing of all materially changed facts and circumstances. If a
material change in facts or circumstances occurs subsequent to issuance
of a Letter, the person on whose behalf the Letter is sought (or that
person's authorized representative at the time of the change) must
promptly so inform Commission staff.
(4) The request must identify the type of relief requested and
Letter sought and must clearly state why a Letter is needed. The
request must identify all relevant legal and factual issues and discuss
the legal and public policy bases supporting issuance of the Letter.
(5) The request must contain references to all relevant
authorities, including applicable provisions of the Act, Commission
rules, regulations and orders, judicial decisions, administrative
decisions, relevant statutory interpretations and policy statements.
Adverse authority must be cited and discussed.
(6) The request must identify prior publicly available Letters
issued by
[[Page 68182]]
Commission staff in response to circumstances similar to those
surrounding the request (including adverse Letters), and must identify
any conditions imposed by prior Letters as prerequisites for the
issuance of those Letters. Citation of a representative sample of prior
Letters is sufficient where a comprehensive recitation of prior Letters
on a given topic would be repetitious or would not assist the staff in
considering the request.
(7) Requests may ask that, if the requested exemptive relief, no-
action position or interpretative guidance is denied, the staff
consider granting alternative relief or adopting an alternative
position.
(d) Filing Requirements. Each request for a Letter must comply with
the following filing requirements:
(1) The request must be in writing and signed.
(2) The request must be filed with the Director, Division of
Trading and Markets, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. Request
must be submitted electronically using the e-mail address
tmletters@cftc.gov; Provided, That a properly signed paper copy of the
request is provided to the Division of Trading and Markets within ten
days for purposes of verification of the electronic transmission. The
Director will route the request to the appropriate Division or the
Office of the General Counsel.
(e) Form of Staff Response. No response to any request governed by
this section is effective unless it is in writing, signed by
appropriate Commission staff, and transmitted in final form to the
recipient. Failure by Commission staff to respond to a request for a
Letter does not constitute approval of the request. Nothing in this
section shall preclude Commission staff from responding to a request
for a Letter by way of endorsement or any other abbreviated, written
form of response.
(f) Withdrawal of Requests. (1) A request for a Letter may be
withdrawn by filing with Commission staff a written request for
withdrawal, signed by the person on whose behalf the Letter was sought
or by that person's authorized representative, that states whether the
person on whose behalf the Letter was sought will proceed with the
proposed transaction or activity.
(2) Where a request has been submitted by an authorized
representative of the person on whose behalf a Letter is sought, the
authorized representative may withdraw from representation at any time
without explanation, Provided, That Commission staff is promptly so
notified.
(g) Failure to Pursue a Request. In the event that Commission staff
requests additional information or analysis from a requester and the
requester does not provide that information or analysis within thirty
calendar days, Commission staff generally will issue a denial of the
request; Provided, however, that Commission staff in its discretion may
issue an extension of time to provide the information and or analysis.
(h) Confidential Treatment. Confidential treatment of a request for
a Letter must be requested separately in accordance with Sec. 140.98 or
Sec. 145.9 of this chapter, as applicable.
(i) Applicability to Other Sections. The provisions of this section
shall not affect the requirements of, or otherwise be applicable to:
(A) Notice filings required to be made to claim relief from the Act
or from a Commission rule, regulation or order including, without
limitations, Secs. 4.5, 4.7(a), 4.7(b), 4.12(b), 4.13(b) and 4.14(a)(8)
of this chapter; or
(B) Requests for exemption pursuant to Section 4(c) of the Act.
Issued in Washington, DC on December 2, 1998 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 98-32587 Filed 12-9-98; 8:45 am]
BILLING CODE 6351-01-M
