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2010-13613

  • FR Doc 2010-13613[Federal Register: June 11, 2010 (Volume 75, Number 112)]

    [Proposed Rules]

    [Page 33198-33202]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr11jn10-15]

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    Proposed Rules

    Federal Register

    ________________________________________________________________________

    This section of the FEDERAL REGISTER contains notices to the public of

    the proposed issuance of rules and regulations. The purpose of these

    notices is to give interested persons an opportunity to participate in

    the rule making prior to the adoption of the final rules.

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    [[Page 33198]]

    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Parts 36, 37, and 38

    Co-Location/Proximity Hosting Services

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Proposed rule.

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    SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or

    ``Commission'') proposes a rule (``Proposal'') that requires Designated

    Contract Markets (DCMs), Derivatives Transaction Execution Facilities

    (DTEFs), and Exempt Commercial Markets (ECMs) that list significant

    price discovery contracts (SPDCs) that offer co-location and/or

    proximity hosting services to market participants to have equal access

    to co-location and/or proximity hosting services without artificial

    barriers that act to exclude some market participants from accessing

    these services or that act to bar otherwise qualified third-party

    vendors from providing these services. The Proposal also addresses fees

    for these services and would require that fees be equitable, uniform,

    and non-discriminatory, while taking into account the different level

    of services that may be required by various market participants and

    requires DCMs, DTEFs, and ECMs with SPDCs, that offer co-location and/

    or proximity hosting services, to disclose publicly, via their Web

    sites, the longest, shortest, and average latencies for each

    connectivity option. Finally, the Proposal would require DCMs, DTEFs,

    and ECMs with SPDCs, that approve third-parties to provide co-location

    and/or proximity hosting services to ensure they have sufficient

    agreements in place to obtain all information necessary from those

    third-parties to carry out their self-regulatory obligations and other

    obligations under the Commodity Exchange Act (``Act'') and Commission

    Regulations.

    DATES: Comments must be received on or before July 12, 2010.

    ADDRESSES: Comments should be sent to David Stawick, Secretary,

    Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

    Street, NW., Washington, DC 20581. Comments may be submitted via e-mail

    at colocation@cftc.gov. ``Co-location/Proximity Hosting Services'' must

    be in the subject field of responses submitted via e-mail, and clearly

    indicated on written submissions. Comments may also be submitted at

    http://www.regulations.gov. All comments must be in English, or, if

    not, accompanied by an English translation.

    FOR FURTHER INFORMATION CONTACT: Melissa Mitchell, Attorney-Advisor,

    202-418-5448, Division of Market Oversight, Commodity Futures Trading

    Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,

    DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background

    In 1990, the Commission issued a Policy Statement Concerning the

    Oversight of Screen-Based Trading Systems (``Policy Statement'').\1\

    The Policy Statement consisted of ten principles that set out broad

    regulatory considerations arising from cross-border screen-based

    trading. Principles 4 and 6 are relevant to this Proposal. Principle 4

    states, ``From a technical perspective, the system should be designed

    to operate in a manner which is equitable to all market participants

    and any differences in treatment among classes of participants should

    be identified.'' Principle 6 states, ``Procedures should be established

    to ensure the competence, integrity, and authority of system users, to

    ensure that system users are adequately supervised, and that access to

    the system is not arbitrarily or discriminatorily denied.''

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    \1\ 55 FR 48670 (November 21, 1990). The Policy Statement was

    the Commission adopting the ``Principles for the Oversight of

    Screen-Based Trading Systems for Derivatives Products'' recommended

    by the International Organization of Securities Commissions

    (``IOSCO'') to all member jurisdictions. The IOSCO Principles were

    formulated by eight jurisdictions which comprised Working Party 7 to

    the IOSCO Technical Committee, under the Chairmanship of the

    Commission.

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    At the time of the Commission Policy Statement, screen-based

    trading of derivatives was a relatively recent development. In fact, in

    issuing the Policy Statement, the Commission stated its belief that

    ``[T]he Principles reflect the policy considerations underlying the

    Commission's recent evaluation and approval of the Chicago Mercantile

    Exchange's Globex trading system and the Amex Commodities Corporation's

    Amex Access system.'' The Commission noted that in issuing the Policy

    Statement, it ``[W]ishes to add its support toward achieving the goal

    of effective regulation of cross border systems which facilitates

    international cooperation but does not impair the ability of system

    providers and sponsors to develop and implement innovative

    technologies.''

    In the time since the Commission's 1990 Policy Statement, futures

    and option trading has changed substantially as system providers and

    sponsors did, in fact, develop and implement innovative technologies.

    In particular, technological advances affecting futures and option

    trading have been more pronounced and extensive over the last ten

    years. For example, DCMs have undergone a decade-long transition from

    geographically-defined trading pits to global electronic trading

    platforms. From 2000 to 2009, electronic trading grew from

    approximately 9 percent to approximately 81 percent of volume on U.S.

    DCMs. Over the same period, the number of actively traded futures and

    option contracts listed on U.S. exchanges increased more than seven

    fold, from 266 contracts in 2000 to 1,866 contracts in 2009.\2\

    Moreover, total DCM futures and option trading volume rose from

    approximately 594.5 million contracts in 2000 to approximately 2.78

    billion contracts in 2009, an increase of over 368%.\3\ In addition to

    drastic changes in trading on DCMs, during that same ten year period,

    ECMs were first authorized by statute,\4\ and have since gone from a

    group of nascent trading facilities to, in some cases, large, global

    electronic trading platforms with significant trading volume, with

    [[Page 33199]]

    contracts that rival DCM contracts, and with contracts that serve a

    significant price discovery function.

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    \2\ Commodity Futures Trading Commission, FY 2009 Performance

    and Accountability Report, p.14.

    \3\ In addition, futures and option trading volume reached a

    peak of approximately 3.37 billion contracts in 2008, an increase of

    over 466% over the trading volume in 2000.

    \4\ ECMs were first authorized in the Commodity Futures

    Modernization Act of 2000 (``CFMA''). DTEFs were also first

    authorized in the CFMA; however there are not, and have never been,

    any active DTEFs.

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    A primary driver of these drastic changes in futures and option

    trading has been the continual evolution of technologies for generating

    and executing orders. These technologies have dramatically improved the

    speed, capacity, and sophistication of the trading functions that are

    available to market participants.

    Many trading firms have trading strategies that are highly

    dependent upon speed in a number of areas: Speed of market data

    delivery from exchange servers to the firms' servers; speed of

    processing of firms' trading engines; speed of access to exchange

    servers by firms' servers; and, speed of order execution and response

    by exchanges. For some trading firms, speed is now measured in

    microseconds, and any latency or delay in order arrival or execution

    can adversely affect their trading strategy. These trading firms are

    typically referred to as ``high frequency'' and/or ``algorithmic''

    traders.\5\ High frequency traders are professional traders that use

    sophisticated computer systems to engage in strategies that generate a

    large number of trades on a daily basis. Competition among high

    frequency traders has led to extensive use of co-location and/or

    proximity hosting services.\6\

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    \5\ Rosenblatt Securities recently estimated that high frequency

    trading amounts to approximately 35% of U.S. future markets volume.

    See Futures Industry, January 2010. at p. 21. Similarly, the Tabb

    Group forecasts that total U.S. futures volume executed on an

    automated basis will increase 60% by the close of 2010. Tabb

    believes this is largely through high frequency trading. See ``US

    Futures Markets in the Crosshairs of Algorithmic Revolution,''

    published on Hedgeweek at http://www.hedgeweek.com dated November

    16, 2009.

    \6\ Other characteristics of high frequency trading may also

    include: (1) The use of sophisticated computer systems to generate,

    route and execute orders, (2) short time-frames for establishing and

    liquidating positions, (3) submission of numerous orders that are

    cancelled shortly thereafter, and/or (4) ending the trading day in a

    neutral overall position.

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    In response to the emphasis on speed by trading firms, DCMs and

    ECMs have adopted highly automated trading systems that can offer

    extremely high-speed order entry and execution. In addition, to further

    reduce latency in transmitting market data and order messages, many

    trading markets offer co-location and/or proximity hosting services

    that enable market participants to place their servers in close

    proximity to the trading market's matching engine. Accordingly, the

    growth of co-location and/or proximity hosting services is largely

    related to the development of high frequency trading in the futures and

    option markets.

    Co-location and proximity services refer to trading market and/or

    certain third-party facility space that is made available to market

    participants for the purpose of locating their network and computing

    hardware closer to the trading market's matching engine. Along with

    space, co-location and proximity hosting services usually involve

    providing various levels of power, telecommunications, and other

    ancillary products and services necessary to maintain the trading

    firms' trading systems.

    Co-location and proximity services are typically offered by trading

    markets that operate their own data centers or by third-party providers

    that host or connect to the computer systems of the trading markets.

    These services may permit: (1) Market participant servers to be located

    within the trading market's dedicated space in a data center; (2)

    market participant servers to be located in their own dedicated space

    within the same data center as the trading market; (3) market

    participant servers to be located in a separate data center on the same

    floor or in the same building as the trading market's data center; and/

    or (4) approved third-party vendors to manage a market participant's

    connectivity arrangements through proximity hosting services located in

    various data centers near the trading market's data center. During the

    Division's review of co-location and proximity hosting services, the

    Division learned that entities that utilize co-location and/or

    proximity hosting services include clearing firms, proprietary trading

    groups, market makers, algorithmic traders, hedge funds, introducing

    brokers, data centers, and quote vendors. Some firms directly co-

    locate, while others do so indirectly by trading through a firm that

    directly co-locates.

    While there are multiple co-location and proximity hosting service

    options available to market participants depending on the trading

    market involved and the needs of the particular client, it has become

    clear to the Commission that trading volumes from firms that utilize

    co-location and/or proximity hosting services is significant. In its

    review of co-location and proximity hosting services undertaken prior

    to this Proposal, the Commission learned that volumes from market

    participants that utilize co-location and/or proximity hosting services

    varied a great deal. Some regulated trading markets have little to no

    volume generated thru the use of such services, while others have

    significant volume. One regulated trading market reported that 29

    percent of its traders utilized such services, representing 68 percent

    of its trading volume, while another reported that well over 100 market

    participants utilized the service, representing 39 percent of its

    trading volume, just to name a few. Moreover, the Commission learned

    that some regulated trading markets plan on expanding co-location and

    proximity hosting services in the very near future.

    In light of the fundamental changes in the technology, products,

    and platforms of U.S. futures and option trading since the Commission's

    1990 Policy Statement, and the significant volume generated by market

    participants utilizing co-location and/or proximity hosting services,

    the Commission believes it is necessary to re-address some of the

    issues raised in the Policy Statement in the form of a proposed rule to

    deter and prevent potential disruptions to market integrity. Moreover,

    given the differences in co-location and proximity hosting services

    offered to market participants, the Commission believes that consistent

    standards applicable to all regulated trading markets--DCMs, DTEFs, and

    ECMs with SPDCs--will ensure that co-location and proximity hosting

    services are offered and administered in an equitable, fair, and

    transparent manner that will protect all market participants.\7\

    Ensuring that Commission-regulated markets, and trading on those

    markets, are equitable, fair, and transparent are critical functions of

    the Commission and any activity that negatively impacts equitable,

    fair, and transparent trading on those markets could constitute a

    disruption to market integrity, for which it is a specific purpose of

    the Act to detect and prevent.\8\

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    \7\ While this Proposal only sets forth requirements for co-

    location and third-party proximity hosting services, the Commission

    is actively considering an appropriate regulatory response to the

    proliferation of high-frequency and algorithmic traders to ensure

    that these traders do not have a negative impact on the stability of

    Commission-regulated futures and option markets or on the critical

    price discovery and risk management functions of these markets. The

    Commission notes that similar developments in the U.S. equity

    markets have been identified by the Securities and Exchange

    Commission (``SEC''). On January 13, 2010, the SEC issued a concept

    release requesting public comment on various equity market structure

    developments, including, among other things, co-location and high

    frequency trading. See SEC, Concept Release on Equity Market

    Structure, Securities Exchange Act Release No. 61358 (January 13,

    2010), 75 FR 3594 (January 21, 2010).

    \8\ Section 3(b), 7 U.S.C. 5(c). Congress gave the Commission

    broad authority in Section 8a(5) of the Act, 7 U.S.C. 12a(5), to

    make and promulgate rules, such as those contained in this Proposal,

    reasonably necessary to prevent disruptions to market integrity.

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    [[Page 33200]]

    II. The Proposal

    Commission Regulation Part 36 generally sets forth the provisions

    governing exempt markets (including ECMs), Part 37 generally sets forth

    the provisions governing DTEFs, and Part 38 generally sets forth the

    provisions governing DCMs. The Proposal would add language to Parts 36,

    37, and 38 to impose identical requirements relating to co-location and

    proximity hosting services offered by ECMs with SPDCs, DTEFs, and DCMs.

    For purposes of the Proposal the term ``Co-Location/Proximity

    Hosting Services'' is defined as trading market and certain third-party

    facility space, power, telecommunications, and other ancillary products

    and services that are made available to market participants for the

    purpose of locating their computer systems/servers in close proximity

    to the trading market's trade and execution system. These services help

    to minimize network and other trading latencies, which is essential for

    high frequency traders.

    The provision relating to ``Equal access'' would require that co-

    location and proximity hosting services be available to all qualified

    market participants willing to pay for the services. Consequently, co-

    location and proximity hosting services could not be offered on a

    discriminatory basis to only select market participants or to select

    categories of market participants. The Commission's view is that access

    should be equitable, open and fair, and that view is expressed in the

    Act and Commission Regulations.\9\ As a component of open and fair, the

    Commission believes that DCMs, DTEFs, and ECMs with SPDCs, that offer

    co-location and/or proximity hosting services must ensure that there is

    sufficient availability of such services for any and all willing and

    qualified market participants. For example, if the availability of a

    service became limited, thereby leaving some market participants or

    third-party hosting providers without adequate access, the Commission

    would not view access to those services as open and fair. In addition,

    the provision relating to ``Equal access'' would require that fair and

    open access be available to third-party hosting service providers

    seeking to provide proximity hosting services to market participants.

    By this provision, the Commission is seeking to ensure that DCMs,

    DTEFs, and ECMs with SPDCs, are not the ``only game in town'' when it

    comes to co-location and proximity hosting services. Currently, there

    are third-parties that provide proximity hosting services. If market

    participants choose not to co-locate directly with the DCM, DTEF, or

    ECM, they should still have the opportunity to utilize qualified and

    approved third-party proximity hosting services to decrease their

    network and other trading latencies.

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    \9\ See e.g. Sections 5(b)(3), 7 U.S.C. 7(b)(3); Section

    5(d)(9), 7 U.S.C. 7(d)(9); Commission Regulation Part 38, Appendix

    B, Core Principle 9; Sections 5a(c)(2) and (3), 7 U.S.C. 7(a)(c)(2)

    and (3); and Commission Regulation Part 37, Appendix A, Registration

    Criteria 2 and 3.

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    The provision relating to ``Fees'' would ensure that fees are not

    used as a means to deny access to some market participants by ``pricing

    them out of the market.'' The Commission recognizes that offering co-

    location and proximity hosting services involves costs to the trading

    market and third-party host, such as floor/rack space, power, data

    connections, and technical support, to name just a few. However, the

    Commission seeks to ensure that the fees charged to market participants

    and third-party proximity hosting services remain equitable and do not

    become an artificial barrier to effective market access. Moreover, the

    Commission's view is that an equitable fee would be a uniform, non-

    discriminatory set of fees for the various services provided, including

    but not limited to fees for cabinet space usage, installation and

    related power provided to market participants, connectivity

    requirements, and maintenance and other ancillary services. The

    Commission would not view preferential pricing for certain market

    participants or certain classes of market participants as equitable

    pricing.

    The provision relating to ``Latency transparency'' would ensure

    that general information concerning the longest, shortest, and average

    latencies for all connectivity options are separately detailed and

    readily available to the public on regulated trading markets' Web

    sites. Alternatively, the Commission is studying an alternate approach

    for disclosing latency information that would be based on the

    percentile of speed rather than longest, shortest and average

    latencies.\10\ The Commission requests comment on this issue and asks

    commenters to detail how they believe latency information should best

    be disclosed so market participants can make fully informed decisions

    about whether the benefits to be obtained from co-location and/or

    proximity hosting services are worth the cost.

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    \10\ The Commission is considering whether it would be more

    useful for trading markets to detail latency information in

    percentiles of speed, for instance the 1% and 99% percentiles of

    speed rather than high low, or the percentage of transactions at no

    worse than a given speed (i.e. 99% of all transactions had latencies

    of ``x'' milliseconds or less).

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    Specific and separate detail should be set forth for options where

    a market participant is directly co-located with a trading market;

    where a market participant is indirectly co-located through a clearing

    firm, futures commission merchant, introducing broker, or some other

    entity or market participant; where a market participant is connected

    via the services of a third-party proximity hosting provider; and all

    other manners by which market participants connect to the trading

    markets' electronic trading system(s). This would ensure that any

    market participant considering co-location or proximity hosting

    services could easily assess whether incurring the cost is worth the

    benefit, and would ensure that market participants utilizing co-

    location or proximity hosting services could regularly assess whether

    the continued cost of the services is worth the benefits obtained. The

    Commission believes regulated trading markets should on a monthly basis

    update latency information on their Web sites. The Commission invites

    the public to comment on whether the proposed monthly disclosure of

    latency information is appropriate, or whether an alternative frequency

    parameter should be adopted. Commenters are specifically instructed to

    provide information on how such latency frequency disclosure would

    benefit markets, market participants, and the public.

    Finally, the provision relating to ``Third-party providers'' would

    ensure that DCMs, DTEFs, and ECMs with SPDCs obtain all information

    about market participants, their systems, and their transactions from

    third-party providers necessary to carry out self-regulatory

    obligations and other obligations under the Act and Commission

    Regulations. In connection with this obligation, the Commission

    believes that DCMs, DTEFs, and ECMs with SPDCs should enter into

    contractual agreements with such third-party providers on terms

    consistent with the Act and Commission Regulations. In this manner,

    DCMs, DTEFs, and ECMs with SPDCs will be able to adequately perform

    their regulatory responsibilities. The Commission further notes that

    the proposed requirements would better prevent third-party proximity

    hosting service providers from improperly shielding the identities of

    market participants from the regulatory oversight of DCMs, DTEFs, ECMs,

    or the Commission. In addition, the provision relating to ``Third-party

    providers''

    [[Page 33201]]

    (along with the provision relating to ``Equal access'' as discussed

    above) would ensure that DCMs, DTEFs, and ECMs with SPDCs do not bar

    otherwise qualified third-parties from being providing co-location or

    proximity hosting services to market participants trading on that

    trading market.

    III. Related Matters

    A. Cost-Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the

    costs and benefits of its actions before issuing a new regulation or

    order under the Act.\11\ By its terms, Section 15(a) requires the

    Commission to ``consider the costs and benefits'' of a subject rule or

    order, without requiring it to quantify the costs and benefits of its

    action or to determine whether the benefits of the action outweigh its

    costs. Section 15(a) requires that the costs and benefits of proposed

    rules be evaluated in light of five broad areas of market and public

    concern: (1) Protection of market participants and the public; (2)

    efficiency, competitiveness, and financial integrity of futures

    markets; (3) price discovery; (4) sound risk management practices; and

    (5) other public interest considerations. In concluding its analysis,

    the Commission may, in its discretion, give greater weight to any one

    of the five enumerated areas of concern and may determine that

    notwithstanding its costs, a particular rule is necessary or

    appropriate to protect the public interest or to effectuate any

    provisions or to accomplish any of the purposes of the Act.\12\

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    \11\ 7 U.S.C. 19(a).

    \12\ E.g. Fisherman's Dock Co-op., Inc. v. Brown, 75 F3d 164

    (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F2d 1336 (DC

    Cir. 1985) (agency has discretion to weigh factors in undertaking

    cost benefit analyses).

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    The proposed regulations will ensure that all market participants

    have access to co-location and/or proximity hosting services on similar

    terms. An important goal of this rulemaking is to establish regulations

    for open and fair access and public disclosure of general latency

    information for each connectivity option offered by DCMs, DTEFs, and

    ECMs with SPDCs. The proposed regulations will not require entities to

    begin offering co-location and/or proximity hosting services, but only

    apply to those entities that choose to offer such services. The only

    costs that might be incurred by an entity complying with the proposed

    regulations (triggered only after an entity decides to offer co-

    location and/or proximity hosting services) include ensuring the public

    disclosure of latency information. The Commission believes such costs

    would be minimal and that the benefits, particularly the benefits to

    the efficiency, competitiveness and financial integrity of the futures

    markets and the protection of market participants will outweigh the

    costs to entities. The Commission also notes that many entities already

    offer co-location and/or proximity hosting services to their market

    participants. This means that many of the entities have already

    incurred costs relating to technology and infrastructure, unrelated to

    this proposed rule. As such, costs have already been incurred, and

    would continue to be incurred with or without the requirement to comply

    with this proposed rule.

    After considering the above mentioned factors and issues, the

    Commission has determined to propose these rules for co-location and/or

    proximity hosting services for DCMs, DTEFs and ECMs with SPDCs. The

    Commission specifically invites public comment on its application of

    the criteria contained in Section 15(a) of the Act and further invites

    interested parties to submit any quantifiable data that they may have

    concerning the costs and benefits of the proposed rules.

    B. Paperwork Reduction Act of 1995

    The proposed rules would require DCMs, DTEFs and ECMs with SPDCs

    that offer co-location and/or proximity hosting services to make

    information about the latencies for each connectivity option available

    to the public via their Web sites. This is information that most of

    those entities already have access to or keep in the normal course of

    business and can generally make available to the public via their Web

    site. Therefore, the Commission believes that the proposed rules will

    not impose new recordkeeping or information collection requirements, or

    other collections of information that require approval of the Office of

    Management and Budget under 44 U.S.C. 3501, et seq. Accordingly, the

    Paperwork Reduction Act does not apply. The Commission solicits comment

    on its estimate that no additional recordkeeping or information

    collection requirements or changes to existing collection requirements

    would result from the proposed rules.

    C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,

    requires federal agencies, in promulgating rules, to consider the

    impact of those rules on small entities. The rules proposed herein will

    affect DCMs, DTEFs, and ECMs with SPDCs. The Commission has previously

    determined that the foregoing entities are not small entities for

    purposes of the RFA.\13\ Accordingly, the Chairman, on behalf of the

    Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the

    proposed rules will not have a significant economic impact on a

    substantial number of small entities.

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    \13\ 47 FR 18618, 18619 (April 30, 1982) discussing contract

    markets; 66 FR 42256, 42268 (August 10, 2001) discussing exempt

    commercial markets and derivatives transaction execution facilities.

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    List of Subjects

    17 CFR Part 36

    Commodity futures, Exempt commercial markets, Significant price

    discovery contracts.

    17 CFR Part 37

    Commodity futures, Derivates transaction execution facilities.

    17 CFR Part 38

    Commodity futures, Designated contract markets.

    In consideration of the foregoing and pursuant to the authority

    contained in the Commodity Exchange Act, the Commission hereby proposes

    to amend 17 CFR Parts 36, 37, 38 as follows:

    PART 36--EXEMPT MARKETS

    1. The authority citation for Part 36 continues to read as follows:

    Authority: 7 U.S.C. 2, 2(h)(7), 6, 6c and 12a, as amended by

    Title XIII of the Food, Conservation and Energy Act of 2008, Public

    Law 110-246, 122 Stat. 1624 (June 18, 2008).

    2. Amend Sec. 36.3 by adding paragraph (e) to read as follows:

    Sec. 36.3 Exempt commercial markets.

    * * * * *

    (e) Co-location/Proximity Hosting Services.

    (1) Definition. The term ``co-location/proximity hosting services''

    means space, power, telecommunications, and other ancillary products

    and services made available to market participants for the purpose of

    enabling them to position their computer systems/servers in close

    proximity to the exempt commercial market's trade and execution

    systems.

    (2) Equal Access. An exempt commercial market that lists a

    significant price discovery contract and offers co-location services to

    market participants shall allow access to such services to all market

    participants and third-party proximity hosting service providers

    otherwise eligible and qualified to use the services.

    (3) Fees. An exempt commercial market that lists a significant

    price

    [[Page 33202]]

    discovery contract and offers co-location services to market

    participants shall ensure that the fees to market participants are

    imposed in a uniform, non-discriminatory manner. Fees shall not be used

    as an artificial barrier to access by any market participants. An

    exempt commercial market that lists a significant price discovery

    contract shall not offer preferential connectivity pricing arrangements

    to any market participant on any basis, including user profile, payment

    for order flow, or any other specialized pricing scheme.

    (4) Latency transparency. An exempt commercial market that lists a

    significant price discovery contract and offers co-location services to

    market participants shall disclose monthly to the public on its Web

    site the longest, shortest, and average latencies for each connectivity

    option provided by the exempt commercial market.

    (5) Third-party providers. An exempt commercial market that lists a

    significant price discovery contract and approves specific third-

    parties to provide proximity hosting services to market participants

    shall ensure it obtains on an ongoing basis all information necessary

    from those third-parties to carry out its self regulatory obligations

    and other obligations under the Commodity Exchange Act and Commission

    Regulations. An exempt commercial market that lists a significant price

    discovery contract and offers co-location services to market

    participants shall not act to bar otherwise eligible and qualified

    third-parties from providing co-location or proximity hosting services

    to market participants.

    PART 37--DERIVATIVES TRANSACTION EXECUTION FACILITIES

    3. The authority citation for Part 37 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6, 6c, 6(c), 7a and 12a, as amended

    by Appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

    4. Add Sec. 37.10 to read as follows:

    Sec. 37.10 Co-location/Proximity Hosting Services.

    (a) Definition. The term ``co-location/proximity hosting services''

    means space, power, telecommunications, and other ancillary products

    and services made available to market participants for the purpose of

    enabling them to position their computer systems/servers in close

    proximity to the derivatives transaction execution facility's trade and

    execution systems.

    (b) Equal Access. A derivatives transaction execution facility that

    offers co-location services to market participants shall allow access

    to such services to all market participants and third-party proximity

    hosting service providers eligible to use the services.

    (c) Fees. A derivatives transaction execution facility that offers

    co-location services to market participants shall ensure that the fees

    to market participants are imposed in a uniform, non-discriminatory

    manner. Fees shall not be used as an artificial barrier to access by

    any market participants. A derivatives transaction execution facility

    shall not offer preferential connectivity pricing arrangements to any

    market participant on any basis, including user profile, payment for

    order flow, or any other specialized pricing scheme.

    (d) Latency transparency. A derivatives transaction execution

    facility that offers co-location services to market participants shall

    disclose monthly to the public on its Web site the longest, shortest,

    and average latencies for each connectivity option provided by the

    derivatives transaction execution facility.

    (e) Third-party providers. A derivatives transaction execution

    facility that approves specific third-parties to provide proximity

    hosting services to market participants shall ensure it obtains on an

    ongoing basis all information necessary from those third-parties to

    carry out its self regulatory obligations and other obligations under

    the Commodity Exchange Act and Commission Regulations. A derivatives

    transaction execution facility that offers co-location services to

    market participants shall not act to bar otherwise eligible and

    qualified third-parties from providing co-location or proximity hosting

    services to market participants.

    PART 38--DESIGNATED CONTRACT MARKETS

    5. The authority citation for Part 38 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6, 6c, 7, 7a-2 and 12a, as amended by

    Appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

    6. Add Sec. 38.7 to read as follows:

    Sec. 38.7 Co-location/Proximity Hosting Services.

    (a) Definition. The term ``co-location/proximity hosting services''

    means space, power, telecommunications, and other ancillary products

    and services made available to market participants for the purpose of

    enabling them to position their computer systems/servers in close

    proximity to the designated contract market's trade and execution

    systems.

    (b) Equal Access. A designated contract market that offers co-

    location services to market participants shall allow access to such

    services to all market participants and third-party proximity hosting

    service providers eligible to use the services.

    (c) Fees. A designated contract market that offers co-location

    services to market participants shall ensure that the fees to market

    participants are imposed in a uniform, non-discriminatory manner. Fees

    shall not be used as an artificial barrier to access by any market

    participants. A designated contract market shall not offer preferential

    connectivity pricing arrangements to any market participant on any

    basis, including user profile, payment for order flow, or any other

    specialized pricing scheme.

    (d) Latency transparency. A designated contract market that offers

    co-location services to market participants shall disclose monthly to

    the public on its Web site the longest, shortest, and average latencies

    for each connectivity option provided by the designated contract

    market.

    (e) Third-party providers. A designated contract market that

    approves specific third-parties to provide proximity hosting services

    to market participants shall ensure it obtains on an ongoing basis all

    information necessary from those third-parties to effectively carry out

    its self regulatory obligations and other obligations under the

    Commodity Exchange Act and Commission Regulations. A designated

    contract market that offers co-location services to market participants

    shall not act to bar otherwise eligible and qualified third-parties

    from providing co-location or proximity hosting services to market

    participants.

    Issued in Washington, DC on June 1, 2010 by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. 2010-13613 Filed 6-10-10; 8:45 am]

    BILLING CODE P

    Last Updated: June 11, 2010



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