04-25613. Confidential Information and Commission Records and Information

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Final rules.

SUMMARY:

The Commodity Futures Trading Commission is amending its regulations to specify which portions of an application for registration as a derivatives transaction execution facility (DTEF) or derivatives clearing organization (DCO), or for designation as a contract market (DCM), will be public. The amendments also implement a procedure requiring registered entities to submit a cover sheet for all rule submissions. Additionally, the Commission is updating its regulations under the Freedom of Information Act (FOIA) to implement expedited processing and increased time limits; revise the schedule of fees for FOIA requests; and correct certain provisions concerning publicly available records.

DATES:

Effective December 20, 2004.

ADDRESSES:

You may submit comments by any of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov.
• Mail/Hand Deliver: Jean A. Webb, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

E-mail: [e-mail].

FOR FURTHER INFORMATION CONTACT:

Eileen A. Donovan, Assistant Secretary to the Commission for FOIA Matters, [phone], electronic mail: [e-mail], or David Steinberg, Attorney Advisor, [phone], electronic mail: [e-mail], Office of the Secretariat, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

A. Public Availability of Applications Submitted by DTEFs, DCOs, and DCMs

On July 28, 2004, the Commission requested comment from the public regarding its proposal to specify that the following portions of DTEF, DCO, and DCM applications are publicly available:^[1] transmittal letter, proposed rules, the applicant's regulatory compliance chart, documents establishing the applicant's legal status (e.g., corporate charters), and documents setting forth the applicant's governance structure.^[2] The proposed change to § 40.8 addresses the absence in the Commission's regulations of any guidance to applicants or the public about the availability of the applications.

In response to this proposal, the Commission received comment letters from the Chicago Mercantile Exchange (“CME”) and the Chicago Board of Trade (“CBOT”) (collectively, “exchanges”). Both exchanges noted strong support for the rule proposal, but requested that the Commission expand the proposal to make additional information public as a matter of course. The Commission has carefully considered the comments from the exchanges and does not believe the proposal should be expanded at this time. First, the exchanges contend that the Commission should ensure the public has the opportunity to comment meaningfully on the salient operational features of the proposed exchange, as well as any proposed plans that could adversely impact market integrity, such as payment for order flow or internalization plans. The CBOT also believes that applicant plans to allow or encourage trading off the centralized market should be public. The Commission understands the importance of interested parties being able to comment meaningfully on this information. The Commission notes that applicant plans regarding payment for order flow or internalization plans are either submitted in the rules section of the proposed application or may be part of the applicant's future plans filed separately from the application. Applicant plans for trading off the centralized market are also submitted in the rules section of the proposal. Rules are defined in § 40.1 and are already generally considered public information. Consequently, the Commission does not believe it is necessary to separately list this information in § 40.8(a).

Second, both exchanges assert that information concerning outsourcing arrangements upon which the applicant tends to rely should be made public. The CME notes that to the extent that an applicant proposes to outsource any of its operational, self-regulatory, or clearing functions, the public cannot provide the Commission with useful comments regarding the applicant's proposed compliance with the Commodity Exchange Act's core principles or designation criteria unless the key provisions are made public. Again, the Commission recognizes the importance of interested parties being able to comment on a proposed application, but must balance this with the intent of the applicant to protect commercially sensitive information. Outsourcing arrangements often include compliance and surveillance techniques and the public release of this information could cause competitive harm to the applicant. The Commission notes that § 40.8(a) is not intended to limit which applicant information will be released, but to specify the portions of an application that are automatically public and therefore would not be granted confidential treatment under any circumstances. Therefore, even though the Commission does not specify outsourcing information in § 40.8(a), portions of this material in a redacted form could still be made public if requested under the Freedom of Information Act. The Commission also notes that the rule states that any portion of the application not covered by a request for confidential treatment will also be made public. The Commission is committed to providing transparency in the application process and will continue to evaluate whether additional information should be included in § 40.8(a).

B. Appendix D—Submission Cover Sheet and Instructions and Public Availability of Rule Submissions

The Commission proposed to amend the part 40 and 41 regulations requiring DTEFs, DCOs, and DTEFs to attach a Commission-generated submission cover sheet with all self-certified rules,^[3] self-certified products,^[4] rules submitted for Commission approval,^[5] products submitted for Commission approval,^[6] notifications of rule amendments,^[7] and non-material agricultural rule changes.^[8] This cover sheet will assist Commission staff in preparing and maintaining the accuracy of the submissions being published on the Commission's website. The Commission also proposed adding appendix D to part 40 to include a copy of the submission cover sheet along with step-by-step instructions for completing and returning the form to the Commission. Although the Commission did not receive any public comments regarding this proposal, the Commission is amending the instructions in appendix D by adding an instruction to ensure that registered entities are fully aware that completing and returning the cover sheet to the Commission does not obviate the responsibility to comply with the other filing requirements for the underlying rule or rule amendment. The Commission has observed, during the past year of requesting the cover sheet, that some rule submissions have not been accompanied by all of the required components of the rule filing.

C. Freedom of Information Act Amendments

The Commission did not receive any comments regarding the proposed amendments to 17 CFR part 145. Therefore, all of the proposed amendments are being adopted in the final rules.

II. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq. (2000), requires that agencies, in proposing regulations, consider the impact of those regulations on small entities. The regulations discussed herein would affect contract markets and other registered entities. The Commission has previously established certain definitions of “small entities” to be used by the Commission in evaluating the impact of its regulations in accordance with the RFA.^[9] In its previous determinations, the Commission has concluded that DCMs, DTEFs, and DCOs are not small entities for purposes of the RFA.^[10]

The Commission has previously determined, pursuant to 5 U.S.C. 605(b), that part 145 regulations do not have a significant economic impact on a substantial number of small entities. Because they do not impose regulatory obligations on commodity professionals and small commodity firms and because the changes will improve public access to Commission records and information, the Commission does not expect the regulations to have a significant economic impact on a substantial number of small entities.

In the proposed rules, the Commission solicited comment on whether the rules as proposed would have a significant impact on a substantial number of small entities. The Commission received no comments in response to this request. The Commission hereby determines that the rules, as adopted herein, will not have a significant impact on a substantial number of small entities. Therefore, the Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the amendments will not have a significant impact on a substantial number of small entities.

B. Paperwork Reduction Act

As required by the Paperwork Reduction Act of 1995,^[11] the Commission submitted a copy of the proposed rule amendments to the Office of Management and Budget for its review. The Commission did not receive any public comments relative to its analysis of paperwork burdens associated with this rulemaking.

C. Cost-Benefit Analysis

Section 15(a) of the Act, as amended by section 119 of the CFMA, requires the Commission to consider the costs and benefits of its action before issuing a new regulation under the Act. By its terms, section 15(a) as amended 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) of the Act further specifies that costs and benefits shall be evaluated in light of five broad areas of market and public concern: Protection of market participants and the public; efficiency, competitiveness, and financial integrity of futures markets; price discovery; sound risk management practices; and other public interest considerations. Accordingly, the Commission could in its discretion give greater weight to any one of the five enumerated areas and could in its discretion determine that, notwithstanding its costs, a particular rule was 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 published an analysis of costs and benefits when it proposed the rule amendments that have now been adopted.^[12] It did not receive any public comments pertaining to the analysis.

List of Subjects

17 CFR Part 40

• Commodity futures
• Contract markets
• Designation application
• Reporting and recordkeeping requirements

17 CFR Part 41

• Security futures

17 CFR Part 145

• Freedom of information

For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR parts 40, 41, and 145 as follows:

PART 40—PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING ORGANIZATIONS

1. The authority for part 40 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 8 and 12a, as amended by appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

2. Section 40.2 is revised to read as follows:

§ 40.2

Listing products for trading by certification.

To list a new product for trading, to list a product for trading that has become dormant, or to accept for clearing a product (not traded on a designated contract market or a registered derivatives transaction execution facility), a registered entity must file with the Secretary of the Commission at its Washington, DC, headquarters no later than the close of business of the business day preceding the product's listing or acceptance for clearing, either in electronic or hard copy form, a copy of the submission cover sheet in accordance with the instructions in appendix D to this part, a copy of the product's rules, including its terms and conditions, or the rules establishing the terms and conditions of products that make them acceptable for clearing, and a certification by the registered entity that the trading product or other instrument, or the clearing of the trading product or other instrument, including any rules establishing the terms and conditions of products that make them acceptable for clearing, complies with the Act and regulations thereunder.

3. Section 40.3 is amended by revising paragraphs (a)(4) and (a)(5) and by adding paragraph (a)(6) to read as follows:

§ 40.3

Voluntary submission of new products for Commission review and approval.

(a) * * *

(4) The submission identifies with particularity information in the submission (except for the product's terms and conditions which are made publicly available at the time of submission) that will be subject to a request for confidential treatment and supports that request for confidential treatment with reasonable justification;

(5) The submission includes the fee required under appendix B to this part; and

(6) The submission includes a copy of the submission cover sheet in accordance with the instructions in appendix D to this part.

* * * * *

4. Section 40.5 is amended by revising paragraphs (a)(1)(vi) and (a)(1)(vii) and by adding paragraph (a)(1)(viii) to read as follows:

§ 40.5

Voluntary submission of rules for Commission review and approval.

(a) * * *

(1) * * *

(vi) Identify any Commission regulation that the Commission may need to amend, or sections of the Act or Commission regulations that the Commission may need to interpret in order to approve the proposed rule. To the extent that such an amendment or interpretation is necessary to accommodate a proposed rule, the submission should include a reasoned analysis supporting the amendment to the Commission regulation or the interpretation;

(vii) Identify with particularity information in the submission (except for a product's terms and conditions, which are made publicly available at the time of submission) that will be subject to a request for confidential treatment and support that request for confidential treatment with reasonable justification; and

(viii) Include a copy of the submission cover sheet in accordance with the instructions in appendix D to this part.

* * * * *

5. Section 40.6 is amended by revising paragraphs (a)(3)(iv) and (a)(3)(v) and adding paragraph (a)(3)(vi) to read as follows:

§ 40.6

Self-certification of rules by designated contract markets and registered derivatives clearing organizations.

(a) * * *

(3) * * *

(iv) A brief explanation of any substantive opposing views not incorporated into the rule;

(v) A certification by the entity that the rule complies with the Act and regulations thereunder; and

(vi) A copy of the submission cover sheet in accordance with the instructions in appendix D to this part.

* * * * *

6. Section 40.8 is amended by redesignating the current paragraph as paragraph (b) and by adding new paragraph (a) to read as follows:

§ 40.8

Availability of public information.

(a) The following sections of all applications to become a registered entity will be public: transmittal letter, proposed rules, the applicant's regulatory compliance chart, documents establishing the applicant's legal status, documents setting forth the applicant's governance structure, and any other part of the application not covered by a request for confidential treatment.

* * * * *

Appendix C to Part 40 [Added and Reserved]

6a. Appendix C to part 40 is added and reserved.

7. Appendix D is added to read as follows:

Appendix D to Part 40—Submission Cover Sheet and Instructions

A properly completed submission cover sheet must accompany all rule submissions submitted by a designated contract market, registered derivatives clearing organization, or registered derivatives transaction execution facility and forwarded either in hard copy form or electronically to the Secretary of the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581 or electronically to [e-mail] in a format specified by the Secretary of the Commission. Each submission should include the following:

1. Identifier Code (optional)—If applicable, the exchange or clearing organization Identifier Code at the top of the cover sheet. Such codes are commonly generated by the exchanges or clearing organizations to provide an identifier that is unique to each filing (e.g., NYMEX Submission 03-116).

2. Date—The date of the filing.

3. Organization—The name of the organization filing the submission (e.g., CBOT).

4. Filing as a—Check the appropriate box for a designated contract market (DCM), derivatives clearing organization (DCO), or derivatives transaction execution facility (DTEF).

5. Type of Filing—Indicate whether the filing is a rule amendment or new product and the applicable category under that heading.

6. Rule Numbers—For rule filings only, identify rule number(s) being adopted or modified in the case of rule amendment filings.

7. Description—For rule or rule amendment filings only, enter a brief description of the new rule or rule amendment. This narrative should describe the substance of the submission with enough specificity to characterize all essential aspects of the filing.

8. Other Requirements—Comply with all filing requirements for the underlying proposed rule or rule amendment. The filing of the submission cover sheet does not obviate the responsibility to comply with any applicable filing requirement (e.g., rules submitted for Commission approval under § 40.5 must be accompanied by an explanation of the purpose and effect of the proposed rule along with a description of any substantive opposing views).

A sample of the required submission cover sheet follows.

PART 41—SECURITY FUTURES PRODUCTS

8. The authority citation for part 41 continues to read as follows:

Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat. 2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).

9. Section 41.23 is amended by revising paragraphs (a)(4) and (a)(5) and by adding paragraph (a)(6) to read as follows:

§ 41.23

Listing of security futures products for trading.

(a) * * *

(4) Includes a certification that the terms and conditions of the contract comply with the additional conditions for trading of § 41.25;

(5) If the board of trade is a designated contract market pursuant to section 5 of the Act or a registered derivatives transaction execution facility pursuant to section 5a of the Act, it includes a certification that the security futures product complies with the Act and rules thereunder; and

(6) Includes a copy of the submission cover sheet in accordance with the instructions in appendix D of part 40.

* * * * *

10. Section 41.24 is amended by revising paragraphs (a)(3) and (a)(4) and by adding paragraph (a)(5) to read as follows:

§ 41.24

Rule amendments to security futures products.

(a) * * *

(3) Includes a certification that the designated contract market or registered derivatives clearing organization has filed the rule or rule amendment with the Securities and Exchange Commission, if such a filing is required;

(4) If the board of trade is a designated contract market pursuant to section 5 of the Act or is a registered derivatives clearing organization pursuant to section 5b of the Act, it includes the documents and certifications required to be filed with the Commission pursuant to § 40.6 of this chapter, including a certification that the security futures product complies with the Act and rules thereunder; and

(5) Includes a copy of the submission cover sheet in accordance with the instructions in appendix D of part 40.

* * * * *

PART 145—COMMISSION RECORDS AND INFORMATION

11. The authority citation for part 145 continues to read as follows:

Authority: Pub. L. 99-570, 100 Stat. 3207, Pub. L. 89-554, 80 Stat. 383, Pub. L. 90-23, 81 Stat. 54, Pub. L. 93-502, 88 Stat. 1561-1564 (5 U.S.C. 552); Sec. 101(a), Pub. L. 93-463, 88 Stat. 1389 (5 U.S.C. 4a(j)); unless otherwise noted.

12. Section 145.7 is amended by revising the first sentence of paragraph (h)(3), by redesignating paragraph (j) as paragraph (i)(7), and by adding a new paragraph (j) to read as follows:

§ 145.7

Requests for Commission records and copies thereof.

* * * * *

(h) * * *

(3) The Assistant Secretary, or his or her designee, will issue an initial determination with respect to a FOIA request within twenty business days after receipt by the Assistant Secretary. * * *

* * * * *

(j) Expedited processing. A request may be given expedited processing if the requester demonstrates a compelling need for the requested records. For purposes of this provision, the term “compelling need” means: That a failure to obtain requested records on an expedited basis could reasonably be expected to pose an imminent threat to the life or physical safety of an individual; or with respect to a request made by a person primarily engaged in disseminating information, urgency to inform the public concerning actual or alleged federal government activity. A requester who seeks expedited processing must demonstrate a compelling need by submitting a statement that is certified by the requester to be true and correct to the best of that person's knowledge and belief. The Assistant Secretary, or his or her designee, will determine whether to provide expedited processing, and notice of the determination will be provided to the requester, within ten days after the date of the request. If the request for expedited processing is denied, the requester may file an appeal with the Office of General Counsel within ten days of the date of the denial by the Assistant Secretary. The Office of General Counsel will respond to the appeal within ten days after the date of the appeal.

13. Section 145.9 is amended by revising paragraph (e)(2) to read as follows:

§ 145.9

Petition for confidential treatment of information submitted to the Commission.

* * * * *

(e) * * *

(2) The period for filing a detailed written justification may be extended upon request and for good cause shown.

* * * * *

14. Appendix A is amended by revising paragraph (a)(2), the heading of paragraph (b), paragraphs (b)(2) and (b)(3), and adding paragraph (b)(13) to read as follows:

Appendix A to Part 145—Compilation of Commission Records Available to the Public

* * * * *

(a) * * *

(2) Weekly Advisory (solely available on the Commission's Web site at http://www.cftc.gov/​cftc/​cftcpressoffice.htm).

* * * * *

(b) Office of the Secretariat (Public reading area with copying facilities available). * * *

(2) Terms and conditions of proposed contracts.

(3) Registered entity filings relating to rules as defined in § 40.1 of this chapter, unless covered by a request for confidential treatment.

* * * * *

(13) Publicly available portions of applications to become a registered entity including the transmittal letter, proposed rules, proposed bylaws, corporate documents, any overview or similar summary provided by the applicant, any documents pertaining to the applicant's legal status and governance structure, including governance fitness information, and any other part of the application not covered by a request for confidential treatment.

* * * * *

15. Appendix B is amended by revising paragraphs (a)(1), (a)(2), (a)(3), (a)(5), (a)(6) and (b) to read as follows:

Appendix B to Part 145—Schedule of Fees

(a) * * *

(1) $4.75 for each quarter hour spent by clerical personnel in searching for or reviewing records.

(2) When a search or review cannot be performed by clerical personnel, $10.25 for each quarter hour spent by professional personnel in searching or reviewing records.

(3) When searches require the expertise of a computer specialist, staff time for programming and performing searches will be charged at $10.25 per quarter hour. For searches of records stored on personal computers used as workstations by Commission staff and shared access network servers, the computer processing time is included in the search time for the staff member using the workstation as set forth in paragraph (a) of this appendix.

* * * * *

(5) For copies of materials other than paper records, the requester will be charged the actual cost of materials and reproduction, including the time of clerical personnel at a rate of $4.75 per quarter hour.

(6) When a request has been made and granted to examine Commission records at an office of the Commission other than the office in which the records are routinely maintained, the requester:

(i) Will reimburse the Commission for the actual cost of transporting the records; and

(ii) Will be charged at a rate of $4.75 for each quarter hour spent by clerical personnel in preparing the records for transit.

* * * * *

(b) Waiver or reduction of fees. Fees will be waived or reduced by the Commission if:

(1) The fee is less than or equal to $10.00, the approximate cost to the Commission of collecting the fee; or,

(2) If the Commission determines that the disclosure of the information is likely to contribute significantly to public understanding of the operations or activities of the government and is not primarily in the commercial interest of the requester.

* * * * *

Appendix D [Removed]

16. Appendix D is removed.

Issued in Washington, DC, on November 12, 2004, by the Commission.

Jean A. Webb,

Secretary of the Commission.

Footnotes

1.  69 FR 44981.

2.  The rule proposal indicated that the identical sections of applications seeking designation or registration as a DCM or DTEF under section 6(a) of the CEA would be publicly available.

3.  Commission Regulations 40.6(a) and 41.24.

4.  Commission Regulations 40.2 and 41.23.

5.  Commission Regulations 40.4(a) and 40.5.

6.  Commission Regulation 40.3.

7.  Commission Regulation 40.6(c).

8.  Commission Regulation 40.4(b).

9.  47 FR 18618-18621 (Apr. 30, 1982).

10.  47 FR 18618, 18619 (April 30, 1982) (discussing contract markets); 66 FR 42256, 42268 (August 10, 2001) (discussing DTEFs); 66 FR 45605, 45609 (August 29, 2001) (discussing DCOs).

11.  Pub. L. 104-13 (May 13, 1995).

12.  69 FR 44981 at 44984 (July 28, 2004).