Designated Contract Markets
Designated contract markets (DCMs) are exchanges that may list for trading futures or option contracts based on all types of commodities and that may allow access to their facilities by all types of traders, including retail customers. Some DCMs have been operating for many years as traditional futures exchanges, while others are new markets that were only recently designated as contract markets by the CFTC. CFTC staff perform regular reviews of each DCM's ongoing compliance with the required core principles called Rule Enforcement Reviews.
Swap Execution Facilities
Section 733 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) adopts new Section 5h of the Commodity Exchange Act (“CEA”), which provides that no person may operate a facility for the trading or processing of swaps unless the facility is registered as a swap execution facility (“SEF”) or as a designated contract market (“DCM”). To be registered and maintain registration, a SEF must comply with fifteen enumerated core principles and any requirement that the CFTC may impose by rule or regulation. On May 16, 2013, the CFTC voted to approve for publication in the Federal Register final SEF regulations, guidance and acceptable practices.
Exempt Markets: Exempt Boards of Trade and Exempt Commercial Markets
Exempt markets are exempted from most requirements of the Act. In order to be exempt from most CFTC regulatory oversight, the exempt market must satisfy the conditions for the exemption, including a requirement to notify the CFTC of the market’s intention to rely on the exemption. There are two types of exempt markets, both limit access, intermediation and/or products, in all cases to lower the regulatory concerns.
Exempt boards of trade (EBOTs) are markets that limit trading to transactions by eligible contract participants in a selected limited group of commodities. Section 5d of the CEA, 7 USC 7a-3, and Part 36.2 of the CFTC’s regulations, 17 CFR 36.2, contain requirements and provisions related to EBOTs.
Exempt commercial markets (ECMs) are markets that limit trading to principal-to-principal transactions between eligible commercial entities in exempt commodities. Sections 2(h)(3)-(5) of the CEA, 7 USC 2(h)(3)-(5), and Part 36.3 of the CFTC’s regulations contain requirements and provisions related to ECMs. Under Section 2(h)(4) of the CEA, an ECM is subject to antifraud and antimanipulation provisions and a requirement that, if performing a significant price discovery function, the market must provide pricing information to the public.
Effective July 16, 2011, Title VII of the Dodd-Frank Act eliminated the sections of the CEA containing the exemptions that allowed the operation of ECMs and EBOTs. The Commission has allowed ECMs and EBOTs to continue to operate pursuant to a series of exemptive orders (i.e. Final Order, Effective Date of Swap Regulation, 76 FR 42508, July 19, 2011 (effective July 14, 2011); Amendment to the July 14, 2011 Order for Swap Regulation, 76 FR 80233, December 23, 2011; and Second Amendment to the July 14, 2011 Order for Swap Regulation, 77 FR 41260, July 13, 2012).
On June 17, 2013, the CFTC released CFTC Letter Number 13-28 (“Letter 13-28”), which provides no-action relief that allows ECMs and EBOTs to operate until October 2, 2013, the compliance date for the SEF final rulemaking. Under Letter 13-28, in order to avoid an interruption in operations, an ECM or EBOT must achieve temporary SEF registration status, full SEF registration status, or full DCM registration status by October 2, 2013. An ECM or EBOT that achieves temporary SEF registration status must immediately come into full compliance with all applicable SEF rules and regulations, however no SEF can begin operations until August 5, 2013, the effective date for the SEF final rulemaking.