Commodity Futures Trading Commission.
This document contains a correcting amendment to the final rule amendments that were published on October 23, 2001 (66 FR 53510). Those rule amendments related to various aspects of the operations of intermediaries of commodity interest transactions. The particular rule in issue concerns the close out of offsetting positions. The correcting amendment makes clear that an account controller, in addition to the customer, may instruct a futures commission merchant (FCM) to hold open offsetting long and short commodity interest positions.
October 5, 2004.Start Further Info
FOR FURTHER INFORMATION CONTACT:
Lawrence B. Patent, Deputy Director, Compliance and Registration Section, Division of Clearing and Intermediary Oversight, Commodity Futures Trading Commission, 1155 21st Street NW., Washington, DC 20581. Telephone (202) 418-5439.End Further Info End Preamble Start Supplemental Information
On October 23, 2001, the Commodity Futures Trading Commission (Commission) published final amendments to Commission Rule 1.46, among others. The Commission amended Rule 1.46 to permit customers or account controllers to instruct FCMs (in writing or orally) if they wish to deviate from the default rule that requires FCMs to close out offsetting long and short commodity interest positions on a first-in, first-out basis, looking across all accounts carried for the same customer. 66 FR 53510, 53514, 53517-18. The Commission stated that, “[i]n order to implement this revision of Rule 1.46, the Commission is amending Start Printed Page 59545the rule by inserting, after the words ‘omnibus accounts’ in paragraph (a), the phrase ‘or where the customer or account controller has instructed otherwise.’ ” Id. at 53514 (emphasis added).
Despite this clear statement of the Commission's intent in the preamble of the adopting Federal Register release, the regulatory text neglected to include the words “or account controller,” so that it appears that only the customer may direct an FCM to deviate from the default rule requiring closing out of offsetting long and short commodity interest positions. Id. at 53517. The same discrepancy between the Commission's clear intention as expressed in the preamble and the regulatory text appears in the proposing release,  as well as in earlier releases proposing and adopting the same rule amendment.  The Commission's clear intention to permit account controllers as well as customers to instruct an FCM to hold open an offsetting position is bolstered by the fact that, prior to the rule amendments, the rule contained exceptions that permitted account controllers to make such an instruction, albeit subject to certain conditions. Amendments intended to broaden, simplify and streamline the rule would not further restrict those persons able to take advantage of the ability to deviate from the normal procedure.
The Commission, to eliminate the inadvertent confusion that it may have created in this area, has determined to make a technical amendment to the introductory text of Rule 1.46(a) so that it is clear that an account controller, as well as the customer, may instruct an FCM to hold open offsetting commodity interest positions. Of course, an FCM retains the discretion to refuse to honor any such instruction from a customer or account controller and to apply the general rule of closing out offsetting long and short commodity interest positions on a first-in, first-out basis.
Need for Correction
As published, the final rules contain regulatory text that may prove to be misleading and is in need of clarification.Start List of Subjects
List of Subjects in 17 CFR Part 1End List of Subjects Start Part
PART 1—GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACTEnd Part Start Amendment Part
Accordingly,End Amendment Part Start Amendment Part
1. The authority citation for Part 1 continues to read as follows:End Amendment Part Start Amendment Part
2. In § 1.46, paragraph (a) introductory text is revised to read as follows: (a)End Amendment Part
Issued in Washington, DC on September 28, 2004 by the Commission.
Jean A. Webb,
Secretary of the Commission.
2. 66 FR 39008, 39017, 39022 (June 22, 2000) (proposed rules); 66 FR 77993, 78007, 78013 (December 13, 2000) (final rules). Due to the intervening enactment of revisions to the Commodity Exchange Act by the Commodity Futures Modernization Act of 2000 (CFMA), the Commission withdrew almost all of the final rules relating to intermediaries adopted in November 2000, including the amendments to Rule 1.46. Upon further review of the amendments to Rule 1.46 in light of the enactment of the CFMA, the Commission re-proposed and re-adopted the amendments to Rule 1.46 in 2001 without substantive change. Although comments were received on both proposals to amend Rule 1.46, no one pointed out the discrepancy between the preamble and the regulatory text cited above.Back to Citation
[FR Doc. 04-22298 Filed 10-4-04; 8:45 am]
BILLING CODE 6351-01-M