Rules & Rule Amendments

The Commission recently Adopted regulations to implement Section 5c of the Act, as amended by Section 745 of the Dodd-Frank Act.  See 17 CFR Part 40 Provisions Common to Registered Entities, 76 FR 44776 (July 27, 2011).  THIS WEBPAGE will be updated BEFORE September 26, 2011, the effective date for these regulations.

Designated contract markets (DCMs), registered swap execution facilities (SEFs), registered derivatives clearing organizations (DCOs), and registered swap data repositories (SDRs) generally may implement new rules or rule amendments by filing with the Commission a certification that the new rule or rule amendment complies with the Commodity Exchange Act (CEA) and the Commission’s regulations and/or by requesting CFTC approval of such rules and amendments.

To meet its statutory mission of ensuring market integrity and customer protection with respect to rules and rule amendments implemented under self-certification procedures, the CFTC places greater reliance on its oversight authorities, including market surveillance, rule enforcement reviews, review of new rules and rule amendments, reviews of contract terms, dialogue with the regulated entities, and enforcement actions. For rules and amendments adopted under self-certification procedures, registered entities are expected to assume primary responsibility for ensuring that the rules and rule amendments meet, on a continuing basis, the applicable statutory and regulatory requirements.

Rules and Amendments Required to be Certified

Section 745 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) amended Section 5c of the Commodity Exchange Act (“Act”) to provide new procedures for the submission of rules and rule amendments by designated contract markets (“DCMs”), swap execution facilities (“SEFs”), derivatives clearing organizations (“DCOs”), and swap data repositories (“SDRs”).  The Commission proposed amendments to Part 40 of its regulations to implement the amended provisions of Section 5c of the Act, but it has not yet finalized these regulations.  The following provides information on the requirements of the Act, as amended by the Dodd-Frank Act.

Submitting Self-Regulatory Rules and Rule Amendments to the Commission by Certification:

Effectiveness timeline for self regulatory rules under the Dodd-Frank Act:

Under the Act, as amended by the Dodd-Frank Act, a new timeline applies before new rules or rule amendments that are submitted by certification may be made effective.  The following provides information concerning this new timeline.

Initial Rule Submission Review Period:  New rules and rule amendments, including amendments to the terms and conditions of a product, become effective, pursuant to the certification of the registered entity and notice of such certification to the entity’s members and market participants, on the date that is 10 business days after the date on which the Commission receives the certification unless the Commission notifies the registered entity prior to the expiration of those 10 business days that it is staying the certification because there exist novel or complex issues that require additional time to analyze, is an inadequate explanation of the rule or rule amendment by the submitting registered entity, or is a potential inconsistency with any provision of the Act or any of the Commission’s regulations thereunder.

Extended Submission Review Period:  The Commission may notify a registered entity that it is staying a certified rule or rule amendment for as many as 90 days from the date of the notification.  A rule or rule amendment subject to a stay becomes effective, pursuant to the certification of the registered entity, at the expiration of the additional 90-day period unless the Commission withdraws the stay prior to that time or the Commission notifies the registered entity during the additional 90-day periodthat it objects to the proposed certification on the grounds that it is inconsistent with any provision of the Act or any of the Commission’s regulations thereunder. 

The Commission will provide a not less than 30-day public comment period, within the 90-day period in which the stay is in effect, whenever the Commission issues a notification of stay and subjects a rule submission to extended review.  The public comment period will be announced on the Commission’s website.

CFTC Rules and Products Submission Cover Sheet

Rules and Amendments Not Required to be Certified

Designated contract markets and derivatives clearing organizations may place certain rules or rule amendments into effect without a self-certification. A DCM or DCO need only provide a weekly notification of all rule changes involving:

• nonmaterial revisions (e.g., renumbering);
• delivery standards set by third parties;
• routine changes in index products (e.g., composition or computation) made by independent third parties; and
• changes to option contract terms relating to strike prices (e.g., strike price intervals).

Certain other rules may be implemented without either self-certification or notice to the CFTC, provided only that the DCM or DCO maintain documentation of all rule changes. Rules subject to this procedure include those that govern:

• transfer of ownership or membership;
• administrative procedures (e.g., organization of boards and committees);
• administration (e.g., direction of employees, declaration of holidays); and
• standards of decorum.

Rules and Rule Amendments That Must Obtain Prior CFTC Approval

The only rules and rule amendments not eligible for self-certification are those that materially change a term or condition of a contract for future delivery of an enumerated agricultural commodity as listed in Section 1a(4) of the CEA, 7 USC § 1a(4), or an option on such a contract or commodity, in a delivery month having open interest. Under CFTC Regulation 40.4, such rules or rule amendments must be submitted to the CFTC for prior approval under the procedures of CFTC Regulation 40.5. A registered entity may elect to submit any such new rule or rule amendment to the CFTC under the ten-day review procedure of CFTC Regulation 40.4 for a determination as to whether such rule must be submitted for prior approval.

However, CFTC Regulation 40.4 specifies that certain categories of new rules and rule amendments affecting a term or condition of a futures contract on an enumerated agricultural commodity are deemed not to be material and thus do not require prior CFTC approval. DCMs, therefore, may implement any new rule or rule change falling within these categories pursuant to self-certification provisions.

The categories of new rules and rule amendments deemed to be not material for this purpose are:

• changes in trading hours;
• changes in lists of delivery facilities pursuant to previously set standards or criteria;
• changes in option contracts other than those relating to last trading day, expiration date, strike price de-listings, and speculative position limits;
• reductions in the minimum price tick;
• changes required by a court, or by a regulation of the CFTC or another Federal agency;
• fees or fee changes of less than $1.00 per contract;
• fees or fee changes of $1.00 or more that are established by an independent third party or are unrelated to delivery, trading, clearing, or dispute resolution.

CFTC Rules and Products Submission Cover Sheet

Rules and Rule Amendments voluntarily Submitted for CFTC Approval

New Standard of Review of Requests for Approval of Rules:

The Commission must approve a new rule or rule amendment of a registered entity unless the Commission finds that the new rule or rule amendment is inconsistent with any provision of the Act or any of the Commission’s regulations thereunder.

CFTC Rules and Products Submission Cover Sheet