Commodity Futures Trading Commission - Justia

Federal Register / Vol. 78, No. 222 / Monday, November 18, 2013 / Rules and Regulationssroberts on DSK5SPTVN1PROD with RULESreporting rules and forms as theypertain to positions in open contracts.Specifically, the Commission isexpanding the reporting rules and formsso that they may also be used to identify‘‘volume threshold accounts,’’ definedas individual trading accounts thattrigger volume-based reportingthresholds on a reporting market 5 thatis a registered entity under sections1a(40)(A) or 1a(40)(D) of the CommodityExchange Act (‘‘CEA’’ or ‘‘Act’’) (i.e., adesignated contract market (‘‘DCM’’) ora swap execution facility (‘‘SEF’’)),regardless of whether such activityresults in reportable positions.6 Volumethreshold accounts associated withDCMs and SEFs will be required to bereported by clearing members, asdiscussed in sections V(B) and VIIbelow. The Commission notes thatvolume threshold accounts couldreflect, without limitation, trading infutures, options on futures, swaps, andany other products traded on or subjectto the rules of a DCM or SEF.The amendments to the reportingrules and forms will achieve threeprimary purposes. First, they willexpand and subdivide current Form 102into a new Form 102 (‘‘New Form 102’’),partitioned into three sections: Section102A for the identification of positionbased special accounts (‘‘102A,’’ ‘‘Form102A,’’ or ‘‘New Form 102A’’); section102B for the collection of ownershipand control information from clearingmembers on volume threshold accountsassociated with DCMs or SEFs (‘‘102B,’’‘‘Form 102B,’’ or ‘‘New Form 102B’’);and section 102S for the submission of102S filings for swap counterparty andcustomer consolidated accounts withreportable positions (‘‘102S,’’ ‘‘Form102S,’’ or ‘‘102S filings’’). Second, theamendments will enhance theCommission’s surveillance and largetrader reporting programs for futures,options on futures, and swaps througha variety of enhancements, including:Requiring the reporting on Form 102Aof the trading accounts that compriseeach special account; requiring thereporting of certain omnibus accountinformation on Form 71 (‘‘Form 71’’ or‘‘New Form 71’’) upon special call by5 ‘‘Reporting market’’ is defined in current§ 15.00(q) as a designated contract market,registered entity under section 1a(29) of the Act,and unless determined otherwise by theCommission, a derivatives transaction executionfacility. By way of these final rules, the Commissionis revising § 15.00(q) to define reporting market asa designated contract market or a registered entityunder section 1a(40) of the Act. This revision istechnical in nature, and serves to conform§ 15.00(q) with recent amendments to the Act. Seeinfra sections VII and IX.6 See infra section VII and IX for a discussion ofthe definition of volume threshold account.VerDate Mar 15 201020:54 Nov 15, 2013Jkt 232001the Commission; 7 updating Form 40(‘‘New Form 40’’); and integrating thesubmission of 102S and 40S filings intothe general Form 102 and Form 40reporting program. Finally, these ruleswill provide for the electronicsubmission of Forms 102, 40, and 71through either a web portal or secureFTP transmission.B. Benefits Derived From Final RulesThe benefits of reporting through adedicated ownership and control report(‘‘OCR’’) were discussed in proposedrulemakings that preceded these finalrules—specifically, the AdvancedNotice of Proposed Rulemakingpublished in July 2009 8 (the ‘‘2009Advanced NPRM’’), the Notice ofProposed Rulemaking published in July2010 9 (the ‘‘2010 OCR NPRM’’) and thesubsequent Notice of ProposedRulemaking published in July 2012 10(the ‘‘NPRM’’). Section IV belowdiscusses the history of certain previousOCR rulemakings in more detail. Asdiscussed in the NPRM, the final ruleswill enhance the Commission’s currenttrade practice and market surveillanceprograms for futures and options onfutures, and facilitate surveillanceprograms for swaps, by expanding theinformation presently collected oncurrent Forms 102 and 40, andintroducing a new informationcollection for omnibus volumethreshold accounts in New Form 71.11The rules will also help implement the102S and 40S filing requirementsadopted in connection with theCommission’s part 20 rules addressinglarge trader reporting for physicalcommodity swaps (discussed below).12Ultimately, the final rules willsignificantly enhance the Commission’sability to identify participants in the7 As explained below, information regarding theowners and controllers of volume thresholdaccounts reported on Form 102B and that areidentified as omnibus accounts (‘‘omnibus volumethreshold accounts’’) will be collected by theCommission directly from originating firms, viaForm 71.8 See Commission, Advanced Notice of ProposedRulemaking: Ownership and Control Report, 74 FR31642 (July 2, 2009).9 See Commission, Notice of ProposedRulemaking: Ownership and Control Report, 75 FR41775 (July 19, 2010).10 See Commission, Notice of ProposedRulemaking: Ownership and Control Reports,Forms 102/102S, 40/40S, and 71, 77 FR 43968 (July26, 2012).11 See id. at 43970. See infra section V for adiscussion of New Form 71 and omnibus volumethreshold accounts.12 See infra section V for a discussion of the 102Sand 40S filing requirements. See also 17 CFR20.5(a) and (b). Final part 20 was published in theFederal Register on July 22, 2011. See Commission,Large Trader Reporting for Physical CommoditySwaps, 76 FR 43851 (July 22, 2011) (‘‘Large TraderReporting for Physical Commodity Swaps’’).PO 00000Frm 00003Fmt 4701Sfmt 470069179derivatives markets and to understandrelationships between trading accounts,special accounts, reportable positions,and market activity. This will enable theCommission to better deter and preventmarket manipulation; deter and detectabusive or disruptive practices (such asmarking the close, ‘‘wash trading,’’ ormoney passing); and better perform riskbased monitoring and surveillancebetween related accounts.As discussed in the NPRM, the finalrules respond, in part, to the increaseddispersion and complexity of trading inU.S. futures markets following theirtransition from localized, open-outcryvenues to global electronic platforms.13Although electronic trading hasconferred important informationalbenefits upon regulators, the resultingincreases in trading volumes, productsoffered, and trader dispersion havecreated equally important regulatorychallenges. Effective surveillance nowrequires automated analysis and patternand anomaly detection involvingmillions of daily trade records 14 andhundreds of thousands of positionrecords 15 present in the surveillancedata sets received daily by theCommission.16 Although the final rulesare partly driven by these developmentsin the U.S. futures markets, as discussedabove, the rules will also facilitate thecreation of a robust surveillanceprogram for swaps that adequatelycaptures information with respect toswap market participants.In order to perform effectivesurveillance, the Commission mustreceive data sets that contain a sufficientnumber of reference points for theCommission to uncover relationshipsbetween related accounts, and analyzeinformation based on surveillancecriteria that are frequently evolving inresponse to market events. Thecollection of additional informationregarding trading accounts and traderswill enable the Commission to performmore efficient and effectivesurveillance. In particular, the OCR datacollection will enable the Commissionto link transaction-level data that itreceives (which includes tradingaccount numbers, but not traders’13 SeeNPRM supra note 10 at 43970.example, in November 2011, theCommission received an average of 7.4 milliontrade records per day from electronic trading onDCMs.15 For example, in November 2011, theCommission received an average of 617,000position records per day from reporting firms andexchanges.16 Daily trade and position records are providedto the Commission pursuant to §§ 16.02 and 17.00,respectively. For further discussion of theCommission’s large trader reporting program, seesections III(A) and (B), below.14 ForE:\FR\FM\18NOR2.SGM18NOR2

69180Federal Register / Vol. 78, No. 222 / Monday, November 18, 2013 / Rules and Regulationsnames) to position-based data (whichincludes large traders’ names, but nottheir trading account numbers), asexplained below.As noted in the NPRM, ‘‘Commissionstaff utilizes two distinct data platformsto conduct market surveillance: TheTrade Surveillance System (‘TSS’) andthe Integrated Surveillance System(‘ISS’). Broadly speaking, TSS capturestransaction-level details of trade data,while ISS facilitates the storage,analysis, and mining of large trader datafrom a position perspective. Oneimportant component of TSS is theTrade Capture Report (‘TCR’). TradeCapture Reports contain trade andrelated order data for every matchedtrade facilitated by an exchange,whether executed via open-outcry,electronically, or non-competitively.Among the data included in the TCR aretrade date, product, contract month,trade time, price, quantity, trade type(e.g., open outcry outright future,electronic outright option, give-up,spread, block, etc.), executing broker,clearing member, opposite broker andclearing member, customer typeindicator, trading account numbers, andnumerous other data points.’’ 17 TheOCR data collection will address a gapin the current system by providingcommon reference points between TSSand ISS data. New Form 102A, forexample, is structured to collect specialaccount numbers,18 trading accountnumbers that comprise the specialaccount, and the names of owners andcontrollers of both special accounts andsuch trading accounts, thereby linkingTSS data to ISS data.19The data collection will also help theCommission to better identify andcategorize individual trading accountsand market participants that triggerposition or newly-created volume-basedreporting thresholds. For example, NewForm 102A will require reporting firmsto identify the constituent trading17 SeeNPRM supra note 10 at 43970.discussed in section III(A) below, a specialaccount is a commodity futures or option accountthat has a reportable position, based on reportinglevels set by the Commission. A special accountnumber is a unique account identifier assigned byan FCM, clearing member, or foreign broker to aspecial account. See 17 CFR 17.00(g)(2)(iii) and 17CFR 17.01(a). Special account numbers areincluded in ISS data. The special account numberdoes not correspond to the trading account numberreported on the Trade Capture Report. Accordingly,the special account number is not sufficient to linkTSS data to ISS data.19 The final rules do not amend the currentreporting requirements with respect to ownershipinformation, in connection with both positionreporting pursuant to § 17.00 and Form 102reporting pursuant to § 17.01. For a completediscussion of the reporting requirements withrespect to ownership information, see sectionV(A)(i) below.sroberts on DSK5SPTVN1PROD with RULES18 AsVerDate Mar 15 201020:54 Nov 15, 2013Jkt 232001accounts of each reported specialaccount. In this manner, New Form102A will ensure a new level ofinteroperability between theCommission’s TSS trade data and ISSlarge trader data, and will permitCommission staff to quickly reconstructtrading for any special account. Inaddition to linking the two databases,New Form 102A will identify both theowners and controllers of suchconstituent trading accounts, therebyproviding the Commission with a newlens through which to identify andsurveil market activity that mightotherwise appear unrelated to theCommission’s surveillance programs.New Form 102B will, for the firsttime, require identification of tradingaccounts based solely on their totaltrading volume during a single tradingday. This new information collectionwill enhance the Commission’s tradepractice surveillance program byrevealing connections of ownership orcontrol between trading accounts thatotherwise appear unrelated in the TCR.More generally, it will facilitateCommission efforts to detect and deterattempted market disruptions that mayoccur even in the absence of large openpositions that are reportable on NewForm 102A. Finally, the automatedcollection of OCR information viaelectronic forms, rather than through adhoc, manual processes, will permit boththe Commission and market participantsto administer the reporting programsmore efficiently and effectively.Additional information on the formsaddressed by these final rules isprovided in section V below.II. Statutory Framework for PositionReporting and Trader and AccountIdentificationThe Commission’s current reportingrules, and those adopted herein, areprimarily implemented by theCommission pursuant to the authority ofsections 4a, 4c(b), 4g, and 4i of theAct.20 Section 4a of the Act, as amendedby the Dodd-Frank Act, requires theCommission to set and enforcespeculative position limits with respectto both futures and swaps.21 Section20 7U.S.C. 1 et seq. In addition, CEA section 8a(5)authorizes the Commission to promulgate suchregulations as, in its judgment, are reasonablynecessary to effectuate any provision of the Act orto accomplish any of the purposes of the Act. 7U.S.C. 12a(5). These final rules are also consistentwith the purposes enumerated in CEA section 3(b),which states that the Act seeks to ensure thefinancial integrity of regulated transactions and toprevent price manipulation and other disruptions tomarket integrity. 7 U.S.C. 5(b).21 7 U.S.C. 6a. See NPRM supra note 10 at 43970.See infra note 26 for a discussion of the Dodd-FrankAct.PO 00000Frm 00004Fmt 4701Sfmt 47004c(b) gives the Commission plenaryauthority to regulate transactions thatinvolve commodity options.22 Section4g(a) of the Act requires, among otherthings, each futures commissionmerchant (‘‘FCM’’), introducing broker,floor broker, and floor trader to file suchreports as the Commission may requireon proprietary and customertransactions and positions incommodities for future delivery on anyboard of trade in the United States orelsewhere.23 In addition, section 4g(b)requires registered entities to maintaindaily trading records as required by theCommission, and section 4g(c) requiresfloor brokers, introducing brokers, andFCMs to maintain their own dailytrading records for each customer insuch manner and form as to beidentifiable with the daily tradingrecords maintained by registeredentities. Section 4g(d) permits theCommission to require that such dailytrading records be made available to theCommission.24 Lastly, section 4i of theAct requires the filing of such reports asthe Commission may require whenpositions taken or obtained ondesignated contract markets equal orexceed Commission-set levels.25Collectively, these CEA provisionswarrant the maintenance of an effectiveand rigorous system of market andfinancial surveillance.As further discussed in the NPRM, inaddition to the CEA sections describedabove, on July 21, 2010, PresidentObama signed the Dodd-Frank WallStreet Reform and Consumer ProtectionAct (‘‘Dodd-Frank Act’’).26 Title VII ofthe Dodd-Frank Act 27 amended the CEAto establish a comprehensive newregulatory framework for swaps andsecurity-based swaps. The legislationwas enacted to reduce risk, increasetransparency, and promote marketintegrity within the financial system by,among other things: (1) Providing for theregistration and comprehensiveregulation of swap dealers and majorswap participants; (2) imposing clearingand trade execution requirements onstandardized derivative products; (3)creating robust recordkeeping and real22 7U.S.C. 6c(b).U.S.C. 6g(a).24 See supra section I(B) for a discussion of thetrade data transmitted daily to the Commission byregistered entities.25 7 U.S.C. 6i.26 See Dodd-Frank Wall Street Reform andConsumer Protection Act, Public Law 111–203, 124Stat. 1376 (2010). The text of the Dodd-Frank Actmay be accessed at index.htm. SeeNPRM supra note 10 at 43971.27 Pursuant to section 701 of the Dodd-Frank Act,Title VII may be cited as the ‘‘Wall StreetTransparency and Accountability Act of 2010.’’23 7E:\FR\FM\18NOR2.SGM18NOR2

Federal Register / Vol. 78, No. 222 / Monday, November 18, 2013 / Rules and Regulationstime reporting regimes; and (4)enhancing the Commission’srulemaking and enforcement authoritywith respect to, among other parties, allregistered entities and intermediariessubject to the Commission’s oversight.As part of the Commission’srulemaking program implementing theDodd-Frank Act,28 the rule changesadopted herein also include swapsrelated considerations in connectionwith the Commission’s large traderreporting rules for swaps, enacted in2011.29 New CEA section 4tacknowledges the Commission’sauthority to establish a large traderreporting system for swaps that theCommission has determined perform asignificant price discovery function;accordingly, the swaps-relatedconsiderations in the rules adoptedherein also rely in part on theCommission’s authority in CEA section4t. Similarly, new CEA section 4s(f)requires swap dealers and major swapparticipants to make such reports asrequired by the Commission by rule orregulation regarding the transactionsand positions of the registered swapdealer or major swap participant.30 Inaddition, new CEA section 5h(f)(10)requires SEFs to report to theCommission, in a form and manneracceptable to the Commission,information that the Commissiondetermines to be necessary orappropriate for the Commission toperform its duties under the CEA.31III. Current Trader and AccountIdentification ProgramsSection III below summarizes thecurrent trader and accountidentification program under Forms 102and 40, which is also discussed in detailin Section III of the NPRM.32sroberts on DSK5SPTVN1PROD with RULESA. Futures Large Trader Reporting—Current Forms 102 and 40Current § 17.00, in part 17 of theCommission’s regulations, forms thebasis of the Commission’s large traderreporting program.33 It requires eachFCM, clearing member, and foreignbroker to submit a daily report to theCommission for each ‘‘special account’’it carries—i.e., a commodity futures oroption account that has a reportableposition. Such ‘‘§ 17.00 position28 See generally, ex.htm.29 As noted supra in note 12, 17 CFR 20.5(a) and(b) contain the 102S and 40S filing requirements,discussed in greater detail below. Final part 20 waspublished in the Federal Register on July 22, 2011.30 7 U.S.C. 6s(f).31 7 U.S.C. 7b–3(f)(10).32 See NPRM supra note 10 at 43971.33 17 CFR 17.00.VerDate Mar 15 201020:54 Nov 15, 2013Jkt 232001reports’’ show the futures and optionpositions of traders with positions at orabove specific reporting levels set by theCommission. Current reporting positiontrigger levels are located in § 15.03(b).34The daily report is sent to theCommission as a single data file fromeach reporting party pursuant totechnical specifications identified in§ 17.00(g).35 The Commission’ssurveillance staff uses this report to,among other things: Assess individualtraders’ activities and potential marketpower; enforce speculative positionlimits; monitor for disruptions to marketintegrity; and calculate statistics that theCommission publishes to enhancemarket transparency (e.g., in theCommitments of Traders reports).i. Identification of Special Accounts—Current Form 102For each special account identified byan FCM, clearing member, or foreignbroker and reported to the Commissionin a § 17.00 position report, current§ 17.01 36 requires the reporting party toseparately identify the special accountto the Commission on Form 102.37Pursuant to current § 17.02(b)(2),38Form 102 must be submitted by suchparties within three days of an accountbecoming a special account. A Form 102submission may also be required by theCommission or its designee via a specialcall. The text of current § 17.01 39 statesthe requirement to submit Form 102,and enumerates the specific data fieldsthat are required to be completed onForm 102. Currently, Form 102 requiresthe filing of a separate ‘‘paper’’ form foreach special account, which is generallytransmitted to the Commission viaemail, facsimile, or regular mail. Asexplained below, these final rules willreplace current Form 102, and requirerespondents to electronically submitNew Form 102; the Commission will nolonger accept submissions by email,facsimile, or regular mail.As noted above, Form 102 identifiesand provides information with respectto special accounts carried by FCMs,clearing members, and foreign brokers.The current form, which will beupdated and replaced by these finalrules, provides the Commission withcontact information for the trader(s)who owns and/or controls trading ineach special account included in thedaily § 17.00 position reports. The Form102 questions, as currently detailed in34 17CFR 15.03(b).CFR 17.00(g).36 17 CFR 17.01.37 Current Form 102 is titled ‘‘Identification ofSpecial Accounts.’’ 17 CFR 15.02.38 17 CFR 17.02(b)(2).39 17 CFR 17.01.35 17PO 00000Frm 00005Fmt 4701Sfmt 470069181§ 17.01(a)–(f),40 require the reportingfirm to provide the following: A specialaccount number; the name, address, andother identification information for thecontroller, owner (if also the controller),or originator (if an omnibus account) ofthe account; an indication whethertrades and positions in the specialaccount are usually associated withcommercial activity of the accountowner in a related cash commodity oractivity; information regarding an FCM’srelationship to the account; and nameand address information for the partysubmitting the Form 102.41Based on the Commission’sexperience in receiving and reviewingForm 102 submissions, and as discussedbelow in the context of the final rules,the Commission has determined toupdate Form 102 in order toaccommodate more detailed ownershipand control information regardingidentified special accounts, and toidentify underlying trading accounts. Inaddition, the Commission isimplementing an automatedtransmission process for Form 102reporting, through either a web portal orsecure FTP transmission, so that boththe Commission and market participantsmay benefit from the efficiencies ofautomation.4240 17CFR 17.01(a)–(f).102 requires the reporting party toprovide the legal entity identifier (‘‘LEI’’) (if any) ofthe reporting party and of various other partiesreportable on the form, such as account owners,controllers, and originators. As noted in thefootnotes to the reporting forms in the Appendix,if a reporting party provides an LEI on New Form102 that was issued by the CICI Utility (or by anyother CFTC-accepted LEI provider), then thereporting party is not required to report any of thefields marked as ‘‘Optional Fields’’ in the relevantquestion (i.e., name and address), provided thatsuch Optional Fields were reported to the CICIUtility (or other CFTC-accepted LEI provider) andare associated with the relevant LEI. TheCommission is addressing such otherwiseduplicative reporting in order to leverageinformation regarding reporting parties that isavailab

any commodity futures or option account in which there is a reportable position. COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 15, 17, 18, and 20 RIN 3038-AD31 Ownership and Control Reports, Forms 102/102S, 40/40S, and 71 AGENCY: Commodity Futures Trading Commission. ACTION: Final rule. SUMMARY: The Commodity Futures