2011-6821. Fees for Reviews of the Rule Enforcement Programs of Contract Markets and Registered Futures Associations

AGENCY:

Commodity Futures Trading Commission.

ACTION:

FY 2008 and 2009 schedule of fees; establish the FY 2010 schedule of fees revision.

SUMMARY:

The Commission charges fees to designated contract markets and registered futures associations to recover the costs incurred by the Commission in the operation of its program of oversight of self-regulatory organization (SRO) rule enforcement programs (National Futures Association (NFA), a registered futures association, and the contract markets are referred to as SROs). The calculation of the fee amounts to be charged for FY 2010 is based upon an average of actual program costs incurred during FY 2007, 2008, and 2009, as explained below. The FY 2010 fee includes adjustments to program costs incurred in FY 2008 and 2009, which are being revised as a result of an internal review of program costs. The FY 2010 fee schedule and the revision of FY 2008 and 2009 fees are set forth in the SUPPLEMENTARY INFORMATION section. Electronic payment of fees is required.

DATES:

The FY 2010 fees for Commission oversight of each SRO rule enforcement program must be paid by each of the named SROs in the amount specified by no later than May 23, 2011.

FOR FURTHER INFORMATION CONTACT:

Mark Carney, Chief Financial Officer, Commodity Futures Trading Commission, [phone], Three Lafayette Centre, 1155 21st Street, NW. Washington, DC 20581. For information on electronic payment, contact Jennifer Fleming, Three Lafayette Centre, 1155 21st Street NW. Washington, DC 20581, [phone].

SUPPLEMENTARY INFORMATION:

I. General

This notice relates to fees for the Commission's review of the rule enforcement programs at the registered futures associations ^[1] and designated contract markets (DCM), which are collectively referred to herein as SROs, regulated by the Commission.

II. Background Information

A. General

The Commission recalculates the fees charged each year with the intention of recovering the costs of operating this Commission program. Fees are calculated by extracting direct labor costs for rule enforcement reviews from the agency's Budget Programming Accounting Codes (BPAC), which captures each employee's time by project, for a three-year period. The agency then adds an overhead factor for benefits and general administrative costs. The agency uses a three-year rolling average to cover fluctuations in the number of hours spent reviewing each SRO over time. In recognition of the fact that the cost of conducting a review may not correlate directly with the size of a particular SRO, the agency also calculates an alternate fee that takes the volume into account. The agency charges the SRO the lesser of the two fees.

Subsequent to an internal review, the Commission found that in FY 2008 and 2009 not all direct program labor costs were captured and that some direct costs were misapplied to SRO reviews. As the formula for calculating the FY 2010 fee to be charged to the SROs includes actual costs incurred in FY 2008 and 2009, the fees for those years are being revised, and the FY 2010 fee is being adjusted to account for the revisions. In addition, the FY 2009 fee that was assessed on USFE is being rescinded,^[2] as USFE ceased operations on December 31, 2008. All adjustments are shown in the tables that follow.

B. Overhead Rate

Once the agency determines the direct costs for rule enforcement review of each SRO, it applies an overhead rate to cover employee benefits and other administrative costs. The overhead rate is calculated by dividing total Commission-wide overhead direct program labor costs into the total amount of the Commission-wide overhead pool. For this purpose, direct program labor costs are the salary costs of personnel working in all Commission programs. Overhead costs consist generally of the following Commission-wide costs: indirect personnel costs (leave and benefits), rent, communications, contract services, utilities, equipment, and supplies. This formula has resulted in the following overhead rates for the most recent three years (rounded to the nearest whole percent): 140 percent for fiscal year 2007, and 144 percent for fiscal year 2008, and 147 percent for 2009.

C. Calculation of FY 2010 Fees

Under the formula adopted in 1993 (58 FR 42643, Aug. 11, 1993), which appears at 17 CFR part 1 Appendix B, the Commission calculates the fee to recover the costs of its rule enforcement reviews and examinations based on the three-year average of the actual cost of performing such reviews and examinations at each SRO. The cost of operation of the Commission's SRO oversight program varies from SRO to SRO, according to the size and complexity of each SRO's program. The three-year averaging computation method is intended to smooth out year-to-year variations in cost. Timing of the Commission's reviews and examinations may affect costs—a review or examination may span two fiscal years and reviews and examinations are not conducted at each SRO each year. To provide relief to SROs who may bear a disproportionately large share of program costs, the Commission's alternate formula provides for a reduction in the assessed fee if an SRO has a smaller percentage of United States industry contract volume than its percentage of overall Commission oversight program costs. This adjustment reduces the costs so that, as a percentage of total Commission SRO oversight program costs, they are in line with the pro rata percentage for that SRO of United States industry-wide contract volume.

The calculation is made as follows: The fee required to be paid to the Commission by each SRO is equal to the lesser of actual costs based on the three-year historical average of costs for that SRO or one-half of average costs incurred by the Commission for each SRO for the most recent three years, plus a pro rata share (based on average trading volume for the most recent three years) of the aggregate of average annual costs of all SROs for the most recent three years. The formula for calculating the second factor is: 0.5a + 0.5 vt = current fee. In this formula, “a” equals the average annual costs, “v” equals the percentage of total volume across SROs over the last three years, and “t” equals the average annual costs for all SROs. NFA has no contracts traded; hence, its fee is based simply on costs for the most recent three fiscal years. The following table summarizes the data used in the calculations and the resulting fee for each entity for FY 2010. The 3-year average actual cost calculations were derived using the FY 2008 and 2009 fees as they are revised elsewhere in this notice:

FY 2010 Fees

	3-year average actual costs	3-year % of volume	2010 Fee (lesser of actual or calculated fee)
Chicago Board of Trade	$188,085	0.291273	$188,085
Chicago Mercantile Exchange	145,952	55.5839	145,952
New York Mercantile Exchange	572,494	12.5373	363,321
Kansas City Board of Trade	27,303	0.1351	14,482
ICE Futures U.S	144,847	2.3324	86,762
Minneapolis Grain Exchange	104,706	0.0488	52,653
HedgeStreet	23,272	0.002	11,636
Chicago Climate Futures Exchange	21,705	0.0205	10,853
US Futures Exchange	0	0.0001	0
OneChicago	1,157	0.1791	1,157
Subtotal	1,229,521		847,901
National Futures Association	561,531		561,531
Total	1,791,052		1,436,432

An example of how the fee is calculated for one exchange, the Chicago Board of Trade, is set forth here:

a. Actual three-year average costs equal $188,085

b. The alternative computation is: (.5) ($188,085) + (.5) (.291273) ($1,229,521) = $273,105

c. The fee is the lesser of a or b; in this case $188,085

As noted above, the alternative calculation based on contracts traded is not applicable to NFA because it is not a DCM and has no contracts traded. The Commission's average annual cost for conducting oversight review of the NFA rule enforcement program during fiscal years 2008 through 2010 was $561,531 (one-third of $1,684,592.85). The fee to be paid by the NFA for the current fiscal year is $561,531, plus the adjustment to the fees that were published for FY 2008 and 2009 in the Federal Register.^[3]

D. Revision of FY 2008 and 2009 Fees

This year, Commission conducted an internal review of its SRO fee process that has resulted in adjustments to the fees owed by several SROs and NFA. As a result of the internal review FY 2008 and FY 2009 fees for the Commission's review of the rule enforcement programs at the registered futures associations and SROs regulated by the Commission are accordingly revised as follows:

FY 2009 Fee Adjustments

Entity	2009 Assessment	Adjustment	2009 Revision
Chicago Board of Trade	$77,371	$6,522	$83,893
Chicago Mercantile Exchange	121,071	0	121,071
New York Mercantile Exchange	197,535	141,670	339,205
Kansas City Board of Trade	10,127	13,210	23,337
ICE Futures U.S	32,683	1,815	34,498
Minneapolis Grain Exchange	62,449	(30,420)	32,029
HedgeStreet	14,375	8	14,383
Chicago Climate Futures Exchange	12,259	7	12,266
US Futures Exchange	18,601	(18,601)	0
OneChicago	1,157	0	1,157
National Futures Association	179,641	347,243	526,884
Total	727,270	461,453	1,188,723

FY 2008 Fee Adjustments

Entity	2008 Assessment	Adjustment	2008 Revision
Chicago Board of Trade	$146,077	$56,971	$203,048
Chicago Mercantile Exchange	124,734	0	124,734
New York Mercantile Exchange	144,893	104,026	248,919
Kansas City Board of Trade	11,119	174	11,293
ICE Futures U.S	37,662	1,678	39,340
Minneapolis Grain Exchange	28,181	(27,413)	768
HedgeStreet	10,194	13	10,207
Chicago Climate Futures Exchange	8,306	3	8,309
US Futures Exchange	14,602	68	14,670
OneChicago	15,836	262	16,098
National Futures Association	450,419	(3,045)	447,374
Total	992,022	132,737	1,124,760

E. Final Amounts Due

To determine the final amount due from each SRO, the adjustments for FY 2008 and 2009 must be added to or subtracted from FY 2010 fee. For example: Chicago Board of Trade (CBOT) will owe $251,578 which is computed as follows, $188,085 (2010 fee) + $6,522 (2009 adjustment amount) + $56,971 (2008 adjustment amount) = $251,578. The following chart provides the calculation for each SRO:

Entity	2008 Adjustment	2009 Adjustment	2010 Fee	Due
Chicago Board of Trade	$56,971	$6,522	$188,085	$251,578
Chicago Mercantile Exchange	0	0	145,952	145,952
New York Mercantile Exchange	104,026	141,670	363,321	609,017
Kansas City Board of Trade	174	13,210	14,482	27,866
ICE Futures U.S	1,678	1,815	86,762	90,255
Minneapolis Grain Exchange	(27,413)	(30,420)	52,653	(5,180)
HedgeStreet	13	8	11,636	11,657
Chicago Climate Futures Exchange	3	7	10,853	10,863
OneChicago	262	0	1,157	1,419
National Futures Association	(3,045)	347,243	561,531	905,729

III. Payment Method

The Debt Collection Improvement Act (DCIA) requires deposits of fees owed to the government by electronic transfer of funds (See 31 USC 3720). For information about electronic payments, please contact Jennifer Fleming at [phone] or [e-mail], or see the CFTC Web site at http://www.cftc.gov,, specifically, http://www.cftc.gov/​cftc/​cftcelectronicpayments.htm.

Issued in Washington, DC, on March 14, 2011 by the Commission.

David Stawick,

Secretary of the Commission.

Footnotes

1.  NFA is the only registered futures association.

2.  See generally 74 FR 46115 (Sep. 8, 2009).

3.  See 73 FR 44707 (Sep. 29, 2008) and 74 FR 46115 (Sep. 8, 2009).