[Federal Register: January 12, 2006 (Volume 71, Number 8)]
[Rules and Regulations]
[Page 1953-1971]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ja06-14]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 36, 37, 38, 39 and 40
RIN 3038-AC23
Technical and Clarifying Amendments to Rules for Exempt Markets,
Derivatives Transaction Execution Facilities and Designated Contract
Markets, and Procedural Changes for Derivatives Clearing Organization
Registration Applications
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rulemaking.
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SUMMARY: On August 10, 2001, the Commodity Futures Trading Commission
(``Commission'') published final rules implementing the provisions of
the Commodity Futures Modernization Act of 2000 (``CFMA'') relating to
trading facilities.\1\ These amendments are intended to clarify and
codify acceptable practices under the rules for trading facilities,
based on the Commission's experience over the intervening four years in
applying those rules, including the adoption of several amendments to
the original rules over the same period. The amendments also include
various technical corrections and conforming amendments to the rules.
[[Page 1954]]
In addition, these amendments revise the application and review
process for registration as a derivatives clearing organization
(``DCO'') by eliminating the presumption of automatic fast-track review
of applications and replacing it with the presumption that all
applications will be reviewed pursuant to the 180-day timeframe and
procedures specified in Section 6(a) of the Commodity Exchange Act
(``CEA'' or ``Act''). In lieu of the current 60-day automatic fast-
track review, the Commission will permit applicants to request
expedited review and to be registered as a DCO by affirmative
Commission action not later than 90 days after the Commission receives
the application.
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\1\ 66 FR 42256, August 10, 2001.
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DATES: Effective Date: February 13, 2006.
FOR FURTHER INFORMATION CONTACT: Donald Heitman, Senior Special Counsel
(telephone 202-418-5041, e-mail [email protected]), Division of Market
Oversight, or Lois Gregory, Special Counsel (telephone 202-418-5521, e-
mail [email protected]), Division of Clearing and Intermediary
Oversight, Commodity Futures Trading Commission, Three Lafayette
Center, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
The CFMA amended the Commodity Exchange Act to profoundly alter
Federal regulation of commodity futures and option markets. The new
statutory framework created by the CFMA established two categories of
markets subject to Commission regulatory oversight, designated contract
markets (``DCMs'') and registered derivatives transaction execution
facilities (``DTEFs''), and two categories of exempt markets, exempt
boards of trade (``EBOTs'') and exempt commercial markets (``ECMs'').
The original rules applicable to these trading facilities \2\
established administrative procedures necessary to implement the CFMA,
interpreted certain of the CFMA's provisions, and provided guidance on
compliance with various of the CFMA's requirements. In addition, the
Commission, under the general exemptive authority of Section 4(c) of
the Act, in a limited number of instances provided relief from, or
greater flexibility than, the CFMA's provisions.
In addition, over the four years during which these new rules for
trading facilities have been in effect, they have been amended several
times.\3\ These amendments are intended to clarify and codify
acceptable practices under the Commission's rules for trading
facilities, as amended, based on the Commission's experience in
applying those rules over the last four years. The amendments also
include a number of technical and clarifying corrections and conforming
amendments to enhance the consistency and clarity of the rules.
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\2\ Id.
\3\ See, for example: Regulation To Restrict Dual Trading in
Security Futures Products, 67 FR 11223 (March 15, 2002); Changes in
Divisional Structure and Delegations of Authority, 67 FR 62350
(October 7, 2002); Amendments to New Regulatory Framework for
Trading Facilities and Clearing Organizations, 67 FR 62873 (October
9, 2002); Exempt Commercial Markets, 69 FR 43285 (July 20, 2004);
Confidential Information and Commission Records and Information, 69
FR 67503 (November 18, 2004); and Application Procedures for
Registration as a Derivatives Transaction Execution Facility or
Designation as a Contract Market, 69 FR 67811 (November 22, 2004).
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It should also be noted that the Commission has provided
information that may be helpful to those subject to the rules for
trading facilities on its Web site at href="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov" shape="rect">http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov. In
particular, the Web site includes charts setting out information that
may be helpful in: (1) Complying with the registration criteria as a
DTEF (see Appendix A to Part 37); (2) complying with the designation
criteria as a DCM (see Appendix A to Part 38); and (3) complying with
the requirements for designation of physical delivery futures contracts
(see Appendix A to Part 40--Guideline No. 1). While these charts are
not intended to be used as mandatory checklists, they may provide
helpful guidance to those subject to the regulations governing trading
facilities.
In addition, these amendments revise the application and review
procedures for registration as a DCO. Specifically, the amendments
eliminate the presumption of automatic fast-track review of
applications and replace it with the presumption that all applications
will be reviewed pursuant to the 180-day timeframe and procedures
specified in Section 6(a) of the Act. In lieu of the automatic fast-
track review (under which applicants were deemed to be registered as
DCOs 60 days after receipt of an application), the amendments permit
applicants to request expedited review and to be registered as a DCO by
the Commission not later than 90 days after the date of receipt of the
application. The amendments also provide that review under the
expedited review procedures may be terminated if it appears that the
application is materially incomplete, raises novel or complex issues
that require additional time for review, or has undergone substantive
amendment or supplementation during the review period. The amendments
are based upon the Commission's experience in processing applications,
including administrative practices that have been implemented since the
rules were first adopted. These amendments establish procedures
substantially similar, where appropriate, to those recently amended in
Parts 37 and 38 for processing applications for registration of
derivatives transaction execution facilities and contract market
designation, respectively.\4\
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\4\ 69 FR 67811, November 22, 2004.
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II. The Comments
The Commission received a total of five comments, all from entities
that are designated contract markets and/or derivatives clearing
organizations, including the U.S. Futures Exchange, L.L.C.--Eurex U.S.
(``Eurex''), the Minneapolis Grain Exchange (``MGEX''), the Chicago
Mercantile Exchange (``CME''), the New York Mercantile Exchange
(``NYMEX'') and the Chicago Board of Trade (``CBOT''). All of the
commenters supported the Commission's efforts to clarify and update the
Part 36-40 rules. However, the comments included various questions and
suggestions regarding the interpretation and application of certain of
the proposed amendments. In view of the limited number of comments, as
well as the overlapping nature of some of the comments, and for the
convenience of the reader, all of the comments and the Commission's
responses will be discussed below in this section of the preamble.
NYMEX expressed concern about the proposed amendment to rule 38.2
to make clear that the references therein to the reserved provisions of
the regulations applicable to DCMs ``also include related definitions
and cross-referenced sections cited in those reserved provisions.''
NYMEX suggests that the provision could ``have the unintended effect of
bringing back into force overly prescriptive regulations of the kind
the CFMA was appropriately intended to eliminate.'' In particular,
NYMEX notes that applying the definitions in Sec. 1.63(a) to reserved
Sec. 1.63(c) would include the definition of ``disciplinary offense.''
That definition specifies that violations of SRO reporting or
recordkeeping rules that result in fines aggregating more than $5,000
in any calendar year will be included among the disciplinary offenses
that would disqualify a person from service on SRO governing boards,
disciplinary committees and arbitration
[[Page 1955]]
or oversight panels. NYMEX points out that in January 2002, it
submitted a self-certified rule, which the Commission did not
disapprove, deleting a provision modeled after the $5,000 threshold
approach set forth in Sec. 1.63(a) and replacing it with a policy of
reviewing potential disqualifications based on reporting/recordkeeping
fines or settlements on a case-by-case basis. On July 12, 2005, NYMEX
self-certified further amendments ``codifying the procedure by which
reporting and recordkeeping violations resulting in cumulative fines of
over $5,000 in a calendar year would be considered with regard to Board
and disciplinary committee service.''
NYMEX contends that its procedures satisfy Core Principle 14, which
requires DCMs to establish and enforce appropriate fitness standards
for directors and disciplinary committee members. NYMEX argues that
reimposing the $5,000 limit would deprive DCMs of the self-regulatory
flexibility intended by the CFMA, affect NYMEX (which has ``greater
representation from the floor community than some other DCMs'' on its
board) unequally, and have a chilling effect on DCMs setting sanction
levels high enough to promote compliance for fear of triggering
consequences that would disrupt exchange governance. If the Commission
does reimpose the $5,000 standard, NYMEX asks that it be applied only
prospectively.
The Commission believes that the $5,000 limit in Sec. 1.63(a)
continues appropriately to reflect conduct that ``demonstrates a lack
of respect for SRO rules sufficient to warrant [a] bar from service on
SRO committees.'' \5\ Therefore, the amendment to Sec. 38.2 will be
implemented as proposed. The Commission acknowledges, however, that it
did not object to NYMEX's adoption of rules implementing a case-by-case
review of reporting/recordkeeping disciplinary actions in lieu of the
fine schedule in Sec. 1.63(a). The Commission agrees that applying the
Sec. 1.63(a) fine schedule could be unfair to persons who, in agreeing
to settle exchange disciplinary actions, acted in reliance on exchange
rules that were at variance with that schedule. Therefore, the
Commission will not bring action for violating Sec. 1.63(a) against
any NYMEX board, committee or arbitration panel member elected while a
rule at variance with Sec. 1.63(a) was in effect, in reliance on such
rule, during the remainder of that person's current term of office,
provided that the Sec. 1.63(a) fine schedule will apply prospectively
to all such individuals.
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\5\ 55 FR 7884 at 7885 (March 6, 1990).
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Two of the commenters expressed concern over proposed new Sec.
38.5(c), which would delegate to staff the Commission's authority under
revised Sec. 38.5(b) to request additional information from a DCM
demonstrating that it is in compliance with one or more designation
criteria or core principles or that is requested by the Commission to
satisfy its obligations under the Act. Eurex contends that regulation
38.5(b) and its permitting of compliance demonstration requests is
patterned after former Commission regulation 1.50 and would be
``anything but a routine request.'' \6\ Eurex suggests that responding
to such a request ``is likely to place a very heavy (and costly) burden
on an exchange.'' Thus, this authority should be reserved to the
Commission. MGEX expressed concern that the proposed amendment
indicates that exchanges ``can expect more frequent requests for
information outside the routine [rule enforcement] review process,''
which could become an ``unnecessary regulatory burden.''
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\6\ Regulation 1.50, ``Demonstration of continued compliance
with the requirements for contract market designation,'' was used
only in cases of significant issues of exchange compliance and the
authority to invoke it was never delegated to the staff.
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The amendments to Sec. Sec. 38.5(b) and (c) are not intended to
impose regulatory burdens on the exchanges, but rather to relieve
administrative burdens on the Commission. The matters described in
Sec. 38.5(b) potentially cover a wide variety of possible written
requests, from a routine request for details concerning a new exchange
policy to a comprehensive inquiry regarding a potential exchange
violation of designation criteria or core principles. In the case of
the former, such routine requests are appropriately delegated to staff.
In the case of the latter more significant requests, it should be noted
that new Sec. 38.5(c) both allows the Director of DMO to submit any
matter delegated thereunder to the Commission and allows the Commission
to exercise the authority directly. Accordingly, the Commission has
determined to implement the amendments to Sec. Sec. 38.5(b) and (c) as
proposed.
In response to a comment by Eurex, the Commission wishes to make
clear that in amending Appendix B to Part 38, Core Principle 2, to make
clear that trade practice surveillance programs may be carried out by
contracting-out to a third party (subject to appropriate supervision by
the DCM), the Commission does not intend to preclude out-sourcing in
other contexts, such as IT services, or even a trade matching platform.
Of course, the DCM remains ultimately liable for compliance with the
Act and Commission regulations. Thus, as noted above, it must retain
appropriate supervisory authority in all such cases.
With respect to the proposed amendment to Appendix B, Part 38, Core
Principle 7, regarding availability of general information to the
public, CBOT states that it generally supports posting important
information on its Web site promptly. However, CBOT expresses concern
that the proposed requirement that the rulebook posted on the Web site
must be current to within one day of implementation of a new or amended
rule does not allow for staffing or system issues that could delay
posting of a new rule. The CBOT suggests that, provided substantive
rule changes are posted on the Web site within one day of
implementation, through a press release, newsletter or notice, the
Commission should allow five days for rule changes (including non-
substantive, housekeeping changes) to be incorporated into the
exchange's online rulebook. The Commission agrees with this point and
has revised the relevant provision accordingly.
Three of the five commenters express opinions concerning the
amendments to Part 39. CME and CBOT both support the revisions. CME
states it believes the revisions will positively impact the futures
markets by ensuring that the Commission and interested parties not only
have access to all relevant information, but an ample opportunity to
consider the implications of complex or novel issues. CBOT supports
treating the time frames for review of DCO applications consistent with
the time frames for review of DCM and DTEF applications.
Eurex expresses its concern that the amendments will result in
unnecessary barriers to entry and adversely affect competition and
innovation. Specifically, Eurex is concerned that a new entrant will
lose flexibility if required to provide executed or executable
contracts as part of its application. The language of the rule, which
requires the submission of contracts entered or to be entered into,
does not mean that contracts must be in force such that contract costs
are being incurred before DCO registration or before the service for
which the costs are incurred is supplied. Nevertheless, in light of
this comment, the Commission has further clarified what is required in
the language of the rule itself. The amended rule requires an applicant
to submit agreements entered into or to be entered into between or
[[Page 1956]]
among the applicant, its operator/service provider or its participants
that identify the services that will be provided that will enable the
applicant to comply or demonstrate the applicant's ability to comply
with the core principles specified in Section 5b(c)(2) of the Act. When
the arrangement submitted is not final and executed, the rule also
requires evidence that provides reasonable assurance that the agreed
upon services will be provided when the operations that require the
services begin. This may include evidence that the service provider is
prepared to provide the services when they are needed and, to the
extent not otherwise obvious, that the applicant has the financial
resources to pay the fees required under the agreement.
Eurex also contends that procedural fairness requires a mechanism
to hold staff accountable for a decision to terminate expedited review.
The Commission notes that the Act does not establish any timeframe for
review of DCO applicants. However, under Part 39, the Commission
voluntarily committed itself to the timeframe under Section 6(a) and
pursuant to Sec. 39.3(g)(3), the Commission retains supervisory
authority over staff decisions in this area.
NYMEX suggests that the definition of ``emergency'' in Sec. 40.1
should be amended to make clear that the authority to declare an
emergency is vested not only in a DCM's governing board, but also in
``a subcommittee or exchange official that is duly authorized under a
DCM's rules to act with the governing board's authority in such
circumstances.'' While the existing language may possibly be read to
permit such an interpretation, the Commission believes that such an
amendment may have merit in avoiding uncertainty. However, because
nothing in the original Part 36-40 notice of proposed rulemaking
provided notice that such an amendment was contemplated, the public was
not given the opportunity to comment on it. Therefore, it would not be
appropriate to include such an amendment in these final rules. However,
the Commission may consider including such an amendment in a future
rulemaking proposal.
Several exchanges commented on Sec. Sec. 40.2(b), 40.3(a)(9) and
40.6(a)(4), all of which would make clear that registered entities
shall provide, if requested by Commission staff, additional evidence,
information or data relating to whether new products, rules or rule
amendments meet the requirements of the Act or Commission regulations
or policies thereunder. The preamble to the proposed rules noted that
such evidence may be beneficial to the Commission in conducting due
diligence assessments of such products and rules.
Eurex suggests that requests to demonstrate compliance with the Act
should be more formally treated, pursuant to Rule 38.5, than requests
for information related to routine due diligence reviews. Eurex notes
that, ``the authority to request information, if misused, can
constitute a significant burden on registered entities.'' MGEX
expresses concern that staff requests for additional evidence,
information or data under Sec. Sec. 40.2(b) or 40.6(a) might have a
``chilling effect'' on the self-certification process. However, rather
than oppose the amendments, the exchange urges the Commission staff to
use this authority ``reasonably and judiciously.'' CBOT likewise
expresses concern that routine requests for ``sometimes voluminous
supporting data'' regarding self-certified contracts could have a
``chilling effect'' on listing products immediately after certification
because an exchange may be hesitant to begin trading until it knows the
Commission has requested any additional data and completed its review.
CBOT asks the Commission to make clear that any requests for additional
information under Sec. Sec. 40.2(b) or 40.6(a), and any due diligence
assessment by the Commission, ``is not intended implicitly or
explicitly to operate as a stay'' with respect to listing self-
certified products or implementing self-certified rules.
All of these comments reflect the need to balance the flexibility
the CFMA gives a DCM in being able to self-certify new products and
rules quickly against the obligations of both the DCM and the
Commission to assure themselves that the certification is accurate--
i.e., that the product or rule does indeed comply with applicable
designation criteria and core principles. It is certainly not the
intention of the Commission or its staff to inject a chilling effect
into the self-certification process or to conduct the required due
diligence oversight of that process in anything less than a reasonable
and judicious manner. Nor are such information requests intended to
operate as a stay with regard to immediately listing new products or
implementing new rules. The listing of a new product or implementation
of a new rule may be stayed only during the pendency of a Commission
proceeding for filing a false certification or to alter or supplement
the contract terms or the rule under Section 8a(7) of the Act. Further,
pursuant to Sec. Sec. 40.2(c) and 40.6(b), respectively, the decision
to impose such a stay rests with the Commission alone and cannot be
delegated to the staff.
However, the fact remains that under the Act DCMs are responsible
in the first instance, and the Commission is ultimately responsible in
its oversight role, for assuring that DCM products and rules comply
with applicable designation criteria and core principles. When a DCM
self-certifies a product or rule it is, in effect, pledging that the
product or rule does meet those standards. Assuming the DCM is acting
in good faith, it must have some reasonable basis for making that
pledge. Therefore, when reasonable questions arise, it should not be
burdensome for the DCM to share information regarding the reasonable
basis underlying the new product or rule with the Commission or its
staff. Therefore, Sec. Sec. 40.2(b), 40.3(a)(9) and 40.6(a)(4) will be
implemented as proposed.
CBOT expressed concern about the proposed amendment to conform the
review periods in Sec. 40.3 (voluntary submission of new products for
Commission review and approval) and Sec. 40.5 (voluntary submission of
rules for Commission review and approval). Both sections establish an
initial review period of 45 days, with a possible additional extension.
The proposed amendments provide for an extension of 45 days under Sec.
40.5 (as opposed to the 30-day extension allowed under the current
rules) to conform it to the 45-day extension period under Sec. 40.3.
CBOT points out that, when the proposed Part 40 rules were published in
2001, the Commission initially proposed a 45-day extension under Sec.
40.5. In the final rules, however, the Commission lowered the period to
the current 30 days after the CBOT commented that a 45-day extension
period for rule reviews would have resulted in a potentially longer
review process than that allowed under the pre-CFMA fast-track rule
review procedure. CBOT argues that the reasons it expressed in favor of
a 30-day extension period in 2001, and the reasons the Commission
relied on in adopting such period, remain valid and recommends that the
current 30-day extension period in Sec. 40.5 should not be amended.
The Commission notes that new products generally include
accompanying rule amendments. These new rules can raise questions just
as complex, and requiring just as much additional review, as the new
products to which they apply. Therefore, the review periods for both
products and rules should be identical. It should also be noted that,
based on actual experience, the effect of equalizing the review periods
for products and rules
[[Page 1957]]
should be negligible since the extended review period is rarely invoked
(only six times since the regulations were adopted in 2001). Therefore,
the Commission has determined to implement the amendment to Sec. 40.5
as proposed.
III. The Amendments
A. Part 36--Exempt Markets
Sections 36.2(b) and 36.3(a) are amended by deleting the reference
to ``hard copy'' in the provisions requiring trading facilities
operating as EBOTs and ECMs, respectively, to notify the Commission. In
order to simplify and modernize the notification process, the amended
rules require that such notifications be filed electronically. Similar
amendments are made in other sections requiring notifications or
filings with the Commission, so that under the amended rules, all
formal filings from ECMs, EBOTs, DTEFs, DCMs and DCOs must be filed
electronically.
Section 36.2(c)(2), relating to market data dissemination for
EBOTs, is revised to implement price discovery/price dissemination
rules for EBOTs that closely parallel those currently applicable to
ECMs. The wording of the Act's price discovery/price dissemination
provision for EBOTs is substantially similar to the provision
applicable to ECMs and both provisions are identical in their ultimate
purpose. Also, parallel provisions will be easier for the industry to
apply, since the price discovery/price dissemination rules will be
essentially identical for both types of exempt markets.
The amendments also add new Sec. Sec. 36.2(c)(3) and 36.3(c)(4)
requiring EBOTs and ECMs, respectively, to annually file a notice with
the Commission, no later than the end of each calendar year. The notice
must include a statement that the entity continues to operate under the
exemption and a certification that the information in its original
notification of operation is still correct. Annual notification of
operation by the facility will allow the Commission to track whether
facilities that notified the Commission of their intent to operate
actually commenced operations and will allow the Commission to
eliminate inactive facilities from any listing of active EBOTs or ECMs
maintained on its Web site.
B. Part 37--Derivatives Transaction Execution Facilities
Section 37.1(a) is amended to make clear that the provisions of
Part 37 apply not only to boards of trade operating as registered
DTEFs, but also to applicants for registration as DTEFs.
Section 37.2 is revised to identify certain reserved provisions of
the Commission's regulations that specifically and comprehensively
reference DTEFs separately from other reserved provisions that do not.
The revisions also make clear that all the references in Sec. 37.2 to
reserved provisions of the regulations applicable to DTEFs also include
related definitions and cross-referenced sections cited in those
reserved provisions. Finally, Sec. 1.60 is added to the list of
reserved provisions of the regulations applicable to DTEFs under Sec.
37.2 to make clear that DTEFs need to notify the Commission of any
material legal proceeding to which the DTEF is a party or to which its
property or assets are subject.
In Sec. 37.3, subparagraph (a)(5) is renumbered as subparagraph
(b) and the remaining subparagraphs are renumbered accordingly.
Section 37.6, Compliance with Core Principles, is revised to
harmonize DTEF core principle compliance with the previously noted new
application procedures for DCMs and DTEFs.\7\
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\7\ 69 FR 67811 (November 22, 2004).
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New Sec. 37.6(c)(2) is added delegating to the Division of Market
Oversight (the ``Division'') the authority under Sec. 37.6(c)(1) to
request additional information in reviewing a DTEF's continued
compliance with one or more core principles, or to enable the
Commission to satisfy its obligations under the Act. The delegation
provides that the Commission, at its election, may exercise the
delegated authority directly. A similar delegation is made in new Sec.
38.5(c) to allow the Division to request additional information in
reviewing a DCM's continued compliance with designation criteria and
core principles, or to enable the Commission to satisfy its obligations
under the Act. The foregoing delegated authority also extends to other
requests by Commission staff to DTEFs or DCMs for additional
information: (1) Under new Sec. 40.2(b), regarding compliance with
respect to new products listed by certification; (2) under Sec.
40.3(a)(9), regarding voluntary submission of new products for
Commission review and approval; and (3) under new Sec. 40.6(a)(4),
regarding compliance with respect to self-certified rules. This
delegated authority will aid the staff in reviewing DTEF and DCM
compliance with the requirements of the Act or Commission regulations
or policies thereunder without involving the Commission in day-to-day
oversight of trading facilities.
In addition, the guidance in current Sec. 37.6(d) is deleted as
duplicative of ``Appendix B to Part 37--Guidance on Compliance with
Core Principles'' and replaced with a reference to Appendix B.
Section 37.8(b), regarding special calls for information, is
amended to make clear that the section applies not only to futures
commission merchants, but to foreign brokers (as defined in Sec.
15.00) as well.
The title of Appendix A to Part 37 is reworded to read, ``Appendix
A to Part 37--Guidance on Compliance with Registration Criteria,'' to
be consistent with the wording of the titles of the other appendices to
Parts 37 and 38. The introductory paragraph of the appendix also is
revised to make clear that registration criteria guidance applies both
to new registrants that register by application and to DTEFs operated
by DCMs, which do not need to file an application, but can become
registered by notification/certification. The revised language also is
consistent with the requirement that the registration criteria must be
met initially and on an ongoing basis, rather than just upon
application.
In Appendix B to Part 37, subsection 1 of the appendix is revised
to make clear that the guidance therein applies to all registered
DTEFs, whether they come in by notification under Sec. 37.5(a) or by
application. Subsection 3 of the appendix is revised to make clear
that, consistent with Sec. 37.6(b)(2), the guidance therein applies to
applicants for registration, rather than registered DTEFs.
Core Principle 5 of Appendix B to Part 37, ``Daily Publication of
Trading Information,'' is revised in a manner consistent with the price
discovery/price dissemination provisions applicable to EBOTs and ECMs,
which are not as comprehensive as those applicable to DCMs. This
reflects the fact that DTEFs are subject to a different informational
standard than DCMs. DCMs are subject to a blanket requirement, under
Core Principle 8 of Appendix B to Part 38, to publish daily trading
information for all actively traded contracts. DTEFs, however, are
subject to Core Principle 5 (Section 5a(d)(5) of the Act), which
includes language similar to that applicable to EBOTs and ECMs (under
Sections 5d(d) and 2(h)(4)(D) of the Act, respectively) requiring DTEFs
to make public certain daily trading information only if the Commission
determines that contracts traded on the facility perform a significant
price discovery function for transactions in the cash market for the
commodity underlying the contracts.
[[Page 1958]]
Thus, the revised core principle explanatory language applies to DTEFs
the same standards that apply to EBOTs and ECMs (see Sec. Sec.
36.2(b)(2) and 36.3(c)(2), respectively) whereby a DTEF performs a
significant price discovery function if: (1) cash market bids, offers
or transactions are directly based on, or quoted at a differential to,
the prices generated on the market on a more than occasional basis; or
(2) the market's prices are routinely disseminated in a widely
distributed industry publication and are routinely consulted by
industry participants in pricing cash market transactions. If the
Commission has reason to believe that a DTEF may meet either of these
standards, or if the facility holds itself out to the public as
performing a price discovery function, the Commission will notify the
DTEF and provide it with an opportunity for a hearing through the
submission of written data, views and arguments. If, after considering
all relevant matters, the Commission finds that the DTEF meets the
price discovery standards, it will direct the DTEF to publish daily
trading information in accordance with the core principle. The
information could be published by providing it to a financial
information service or by placing it on the facility's Web site. The
information should be made available to the public without charge no
later than the business day following the day to which the information
pertains.
C. Part 38--Designated Contract Markets
In Sec. 38.1, language is added to make clear that the provisions
of Part 38 apply to applicants for designation as well as to already
designated contract markets, and redundant and inapplicable references
are deleted.
In Sec. 38.2, language is added to make clear that the references
therein to reserved provisions of the regulations applicable to DCMs
also include related definitions and cross-referenced sections cited in
those reserved provisions. Similar clarifying amendments, reserving the
applicability of related definitions and cross-referenced sections,
appear in other sections of these final rules. Also, Sec. 1.60 is
added to the list of reserved provisions of the regulations applicable
to DCMs under Sec. 38.2 to make clear that DCMs need to notify the
Commission of any material legal proceeding to which the DCM is a party
or to which its property or assets are subject.
In Sec. 38.5, subparagraph (b) is amended to make clear that DCMs
are required to comply with the designation criteria and the core
principles both initially and on an ongoing basis, and to conform its
language to Sec. 37.6(c)(1). As noted in the discussion of new Sec.
37.6(c)(2) above, new Sec. 38.5(c) is added, delegating to the
Division of Market Oversight the authority under Sec. 38.5(b) to
request additional information in reviewing a DCM's continued
compliance with designation criteria or core principles, or to enable
the Commission to satisfy its obligations under the Act.
The title of Appendix A to Part 38 is revised to refer to
``Guidance on Compliance with Designation Criteria,'' and the
introductory paragraph of the appendix is revised in conformity with
the revisions to the introductory paragraph of Appendix A to Part 37,
to make clear that the obligation to comply with the designation
criteria applies not just to applicants, but is ongoing.
Designation Criterion 7 under Appendix A to Part 38 is updated to
provide, consistent with the wording of other provisions regarding
designation criteria and core principles, that a DCM ``should'' (rather
than ``may'') provide information to the public by placing the
information on its Web site.
In Appendix B to Part 38, language is added in subparagraph (1) to
harmonize Part 38, Appendices A and B, with Part 37, Appendices A and
B, consistent with the idea that the obligation to comply with the core
principles applies both initially and on an ongoing basis. In
subparagraph (2), a reference to ``selected'' requirements of the core
principles is added to make clear that the enumerated acceptable
practices under each core principle are neither the complete nor the
exclusive requirements for meeting that core principle. With respect to
the completeness issue, the selected requirements in the acceptable
practices section of a particular core principle may not address all
the requirements necessary for compliance with the core principle. With
respect to the exclusivity issue, the acceptable practices that are
listed for a particular core principle requirement are for illustrative
purposes only and do not state the only means of satisfying the
particular requirement they address. There may be other ways of
complying with that requirement of the core principle that would also
be acceptable.
Under Core Principle 2 of Appendix B to Part 38, a reference is
added in subparagraph (a)(1) to clarify that a DCM may carry out trade
practice surveillance programs through delegation or ``contracting
out.'' A delegation confers upon the delegee/third party contractor the
authority to act on behalf of the delegating authority. A third party
contractor would not act in the DCM's name, but the DCM will be
required to maintain sufficient control over the contractor because it
remains the DCM's responsibility to assure that its obligations under
the Act are met.\8\
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\8\ See the discussion in 66 FR 42256, at 42266 (August 10,
2001).
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Under Core Principle 6 of Appendix B, ``Emergency Authority,'' the
language now appearing under subparagraph (b), ``Acceptable
Practices,'' is moved to subparagraph (a), ``Application Guidance.''
This amendment reflects that the language moved to subparagraph (a)
more accurately describes guidance on establishing rules to exercise
emergency authority in the first instance, rather than acceptable
practices in implementing such rules.
Under Core Principle 7 of Appendix B, guidance is added in
subparagraph (b) as to what constitutes ``timely placement'' of
information on a DCM's Web site. In noting that the DCM's rulebook
should be ``available to the public,'' the intent of the subparagraph
is that the rulebook should be freely accessible to anyone who visits
the Web site without the need to register, log in, provide a user name
or obtain a password.
Core Principle 8 of Appendix B requires that a DCM shall make
public daily information on settlement prices, volume, open interest,
and opening and closing ranges for actively traded contracts. New
language is added to subparagraph (b), Acceptable Practices, whereby
compliance with Sec. 16.01 of the Commission's regulations, which is
mandatory since Sec. 16.01 is one of the sections reserved under Sec.
38.2, constitutes an acceptable practice under Core Principle 8. All
currently designated DCMs are in compliance with Sec. 16.01.
Under Core Principle 16 of Appendix B, paragraph (a) is revised to
refer to a contract market's board (rather than the contract market as
a whole) in conformity with the language of the core principle.
D. Part 39--Derivatives Clearing Organizations
The Commission adopted the application procedures specified in
Commission Regulation 39.3 \9\ for entities applying to be registered
as DCOs in 2001 when it first implemented the CFMA.\10\ The Commission
is modifying the application procedures in a number of respects. Most
of these
[[Page 1959]]
modifications mirror changes recently made to Parts 37 and 38
regarding, among other things, the review and processing of
applications for registration of DTEFs and DCMs.\11\ With respect to
the review period for applications generally, it is establishing, as it
has under Parts 37 and 38, the presumption that all applications are
submitted for review under the 180-day timeframe specified in Section
6(a) of the Act for DCMs and DTEFs.\12\ An expedited 90-day review can
be requested by the applicant, in which case the Commission will
register the applicant as a DCO during or by the end of the 90-day
period unless the Commission, or staff under delegated authority,
terminates the expedited review for certain specifically identified
reasons. In comparison to the former rules, the Commission is
lengthening the expedited review period for DCO applications by 30
days. The Commission believes, based upon its experience in processing
DCO applications and in light of certain administrative practices that
have developed since these rules were first adopted, that this
potentially longer review period is necessary to ensure a comprehensive
review of applications and to meet other public policy objectives.
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\9\ 17 CFR 39.3 (2001).
\10\ See 66 FR 45604 (August 29, 2001). The CFMA, Appendix E of
Pub. L. 106-554, 114 Stat. 2763, substantially revised the Commodity
Exchange Act (Act or CEA), 7 U.S.C. 1 et seq.
\11\ 69 FR 67811 (November 22, 2004).
\12\ Under the former rules, DCO applications were routinely
reviewed under the fast-track procedures unless the applicant were
to instruct the Commission in writing at the time of the submission
of the application or during the review period to review the
application pursuant to the time provisions of and procedures under
Section 6 of the Act.
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The Commission has reviewed nine DCO applications since passage of
the CFMA. The applications were large and complex and contained
technical documents describing operations and operational outsourcing
agreements. The applications frequently generated a series of requests
for information by Commission staff responsible for reviewing the
applications. In addition, a new Commission policy to promote
transparency in Commission operations, implemented in August of 2003,
provides for the posting of all such applications on the Commission's
Web site for a period of at least 15 days for public review and
comment.\13\ This lengthens the review process. The 90-day review
period is intended to provide the Commission with sufficient time to
review these substantial applications, to consider any public comments,
and to take informed action. The Commission notes that the new 90-day
``fast-track'' review period, while longer than the former fast-track
review period, would continue to be substantially shorter than the 180-
day review period set forth in Section 6(a) for DCMs and DTEFs.
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\13\ The Commission has proposed revisions to Commission
Regulation 40.8 to specify which portions of an application for
registration as a DTEF or designation as a DCO will be made public.
See 69 FR 44981 (July 28, 2004).
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The Commission also is modifying its internal processing procedures
under which an applicant would be registered as a DCO. An applicant
shall no longer be deemed to be registered based upon the passage of
time. If an applicant requests expedited review, the Commission will
take affirmative action to register or designate the applicant as a
DCO, subject to conditions if appropriate, not later than 90 days after
receipt of the application, unless the Commission (or staff under
delegated authority) terminates the expedited review. Thus,
registration as a DCO will involve affirmative action by the
Commission, which will normally be in the form of issuance of a
Commission order. It should be noted that it remains possible, under
the procedures, for applicants who submit applications that are
complete and not amended or supplemented during the review period to be
designated as a DCO in less than 90 days.
The expedited review period will be terminated if: (1) The
application is materially incomplete; (ii) the application's form or
substance fails to meet the requirements of Part 39; or (iii) the
application undergoes major amendment or supplementation. The
Commission also is providing for termination of expedited review if an
application raises novel or complex issues that require additional time
for review. This is responsive to the public interest that the
Commission has witnessed to date with respect to the DCO applications
and is substantially the same as it now is for DCMs and DTEFs. Fast-
track review also may be terminated upon written instruction of the
applicant during the review period.
With respect to the additional information that would be required
to be submitted as part of the application, the rule requires that
applicants demonstrate how they are able to satisfy each of the core
principles specified in Section 5b of the Act. As amended, the rule
eliminates the proviso, ``to the extent it is not self-evident from the
applicant's rules.'' Based upon experience in reviewing DCO
applications, the Commission recognizes that this additional
information is necessary for Commission review of the application when
determining whether the applicant satisfies the core principles. The
amended rule eliminates the requirement that the applicant support
requests for confidential treatment of information included in the
application with reasonable justification. The Commission believes that
the procedures provided in Commission Regulation 145.9, ``Petition for
confidential treatment of information submitted to the Commission,''
should be followed by all applicants.
The Commission continues to encourage applicants to consult with
Commission staff prior to formally submitting an application for DCO
registration to help ensure that an application, once submitted, will
be able to be reviewed in a timely manner.
E. Part 40--Provisions Common to Contract Markets, Derivatives
Transaction Execution Facilities and Derivatives Clearing Organizations
In Sec. 40.1, the definitions therein are redesignated as numbered
subparagraphs, beginning with subparagraph (a). In redesignated
subparagraphs 40.1(b)-(e), the definitions of dormant contract/product,
dormant contract market, dormant derivatives clearing organization and
dormant derivatives transaction execution facility, respectively, the
length of time during which no trading (or clearing) has occurred
before dormancy can be declared is extended from six to twelve calendar
months. Also, in Sec. 40.1(b), in the proviso granting a 36-month
grace period after initial certification or Commission approval before
a contract/product can be considered dormant, language is added to make
clear that, if the DCM or DTEF itself becomes dormant prior to the
running of the 36-month period, the contract/product will likewise be
considered dormant. Finally, language is added to Sec. 40.1(b) to
allow a board of trade to self-declare a contract/product to be dormant
at any time after initial certification or Commission approval.
Under new Sec. 40.1(f), a definition of ``dormant rule'' is added
whereby a new rule or rule amendment that is not made effective and
implemented within twelve months of initial certification or Commission
approval will be considered dormant and will have to be resubmitted,
either by certification or for approval, before it may be implemented.
Sections 40.2, 40.3, 40.5 and 40.6 are revised for internal
consistency between sections. In addition, in Sec. 40.2, relating to
listing new products for trading by certification, new subparagraph
40.2(b) makes clear that a registered entity shall provide, if
requested by Commission staff, additional evidence, information
[[Page 1960]]
or data relating to whether the contract meets, initially or on a
continuing basis, any of the requirements of the Act or Commission
regulations or policies thereunder. Such evidence may be beneficial to
the Commission in conducting a due diligence assessment of the product
and the registered entity's compliance with these requirements,
including the obligation that the registered entity must have reason to
believe the certification is proper. This language is consistent with
the Commission's obligation to assure that the Act and Commission
regulations and policies thereunder are not being violated. Similar
language is added in Sec. 40.3(a)(9) with respect to voluntary
submission of new products for approval, and in Sec. 40.6(a)(4) with
respect to self-certification of rules by DCMs and DTEFs. DCMs and
DTEFs should be aware that, in conducting routine due diligence reviews
of self-certified new product listings and new rules or rule amendments
under Sec. 40.2(b) and Sec. 40.6(a)(4), respectively, the staff gives
special consideration to particular requirements. For DTEFs, the key
requirements are: Sec. 5a(b)(2) of the Act (requirements for
underlying commodities); Core Principle 3 (monitoring trading to assure
an orderly market); and Core Principle 4 (disclosure of general
information). For DCMs, the key requirements are: Core Principle 3
(listing contracts that are not readily susceptible to manipulation);
Core Principle 4 (monitoring trading to prevent manipulation, price
distortion or disruptions of the delivery or cash-settlement process);
and Core Principle 5 (adopting position limits or position
accountability rules to reduce the threat of market manipulation or
distortion, especially in the delivery month). To the extent that a DCM
or DTEF includes with its initial submission, data, research reports,
trade interview reports, exchange or third party analyses, or other
background information demonstrating compliance with these
requirements, a DTEF or DCM can minimize the prospect of requests for
additional information under Sec. 40.2(b) or Sec. 40.6(a)(4),
respectively.
The revisions to Sec. 40.3 set forth with greater particularity
the information Commission staff needs to make a determination on
whether to approve a new product voluntarily submitted for Commission
review and approval.
Section 5c(c)(2)(B) of the Act and Sec. 40.4 of the regulations
require prior Commission approval of DCM rule amendments that, for a
delivery month having open interest, would materially change a term or
condition of a contract for future delivery of an enumerated
agricultural commodity, or an option on such a contract or
commodity.\14\ These amendments add new subsection 40.4(b)(8) to
include fees or fee changes that are $1.00 or more per contract and are
established by an independent third party or are unrelated to delivery,
trading, clearing or dispute resolution to the types of rule changes
for which a materiality determination is not required. The amendments
also make clear that the non-material changes described in Sec.
40.4(b), subparagraphs (1)-(8), fall within the provisions of revised
Sec. 40.6(c) and will be subject to the weekly notification procedures
set out therein. Also, in Sec. 40.4(b)(9) under subparagraph (i), the
deadline for Commission review of ``non-material agricultural rule
changes'' is changed from 10 calendar days to 10 business days to
provide for a consistent review period for all submissions and to allow
for more time for review. Under subparagraph (ii), the DCM will be
required to provide an explanation of why the DCM believes the proposed
rule change is non-material. Similarly, in Sec. 40.5(c)(1), the review
period for rules that are voluntarily submitted by DCMs or DTEFs for
approval is extended from 30 days to 45 days, to be consistent with
Sec. 40.3.
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\14\ The ``enumerated commodities'' are those agricultural
commodities listed in Sec. 1a(4) of the Act.
---------------------------------------------------------------------------
Under Sec. 40.6, current Sec. 40.6(a) sets out the conditions
under which a DCM or DCO may implement new rules by certifying them to
the Commission. Subparagraph 40.6(a)(1) provides that the certification
procedure does not apply to rules of a DCM that materially change a
term or condition of a futures or option contract on an enumerated
agricultural commodity in a delivery month with open interest.
Subparagraphs 40.6(a)(2) and (3) set out the filing requirements for
rule certifications and the information to be provided in such
certifications. Section 40.6(c) establishes an exception to the rule
certification requirements of Sec. Sec. 40.6 (a)(2) and (3) whereby
DCMs and DCOs may place certain rules and rule amendments into effect
without certification, provided that certain conditions are met. The
conditions are that: (1) The DCM or DCO provide to the Commission a
weekly summary of rule changes made effective pursuant to this
paragraph; and (2) the rule change governs such routine matters as
nonmaterial revisions, changes to delivery standards made by third
parties that do not affect deliverable supplies or the pricing basis
for the product, changes in the composition of an index (other than a
stock index) that do not affect the pricing basis of the index, routine
changes to option contract terms, and certain fee changes established
by independent third parties. These amendments add a reference to Sec.
40.6(a)(1) to the exception established in Sec. 40.6(c). The effect is
to make clear that, while material rule changes involving contract
months with open interest in enumerated agricultural commodities may
not be certified to the Commission, the type of routine changes
described in Sec. 40.6(c)(2), as well as the partially overlapping
list of non-material changes in Sec. Sec. 40.4(b)(1)-(8), do not
constitute material changes within the meaning of the Act or Commission
regulations. Therefore, DCMs may inform the Commission of such rule
changes on a weekly basis under the provisions of Sec. 40.6(c). Also,
new Sec. 40.6(c)(2)(vi) adds to the list of items that may be reported
weekly under Sec. 40.6(c)(1), changes in survey lists of banks,
brokers or dealers that provide market information to an independent
third party and that are incorporated by reference as product terms.
Finally, new Sec. 40.6(c)(3)(ii)(F) adds minor changes to security
indexes to the list of information the Commission does not require to
be certified or reported weekly by a DCM or DCO.
Under Sec. 40.7, Delegations, new Sec. 40.7(a)(3) delegates to
the Division, with the concurrence of the Office of the General
Counsel, the authority to determine whether a rule change submitted by
a DCM for a materiality determination under Sec. 40.4(b)(9) is not
material (in which case it may be reported pursuant to the provisions
of Sec. 40.6(c)), or is material and, therefore, must be submitted for
Commission prior approval. Finally, new Sec. 40.7(b)(3) will increase
the Division of Market Oversight's delegated authority to allow it,
with the concurrence of the Office of the General Counsel, to approve
rules regarding speculative limits or position accountability.
IV. Cost-Benefit Analysis
Section 15(a) of the Act, as amended by Section 119 of the CFMA,
requires the Commission to consider the costs and benefits of its
action before issuing a new regulation or order under the Act. By its
terms, Sec. 15(a) does not require the Commission to quantify the
costs and benefits of its action or to determine whether the benefits
of the action outweigh its costs. Rather, Sec. 15(a) simply requires
the Commission to ``consider the costs and benefits'' of the subject
rule or order.
Section 15(a) further specifies that the costs and benefits of the
proposed rule
[[Page 1961]]
or order shall 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. The Commission may, in its
discretion, give greater weight to any one of the five enumerated areas
of concern and may, in its discretion, determine that, notwithstanding
its costs, a particular rule or order is necessary or appropriate to
protect the public interest or to effectuate any of the provisions or
to accomplish any of the purposes of the Act.
These amendments are intended to clarify and codify acceptable
practices under the rules for trading facilities, based on the
Commission's experience over the past four years in applying those
rules, including the adoption of several amendments to the original
rules over the same period. The amendments also make various technical
corrections and conforming amendments to the rules.
In addition, the amendments revise the application and review
process for registration as a DCO by eliminating the presumption of
automatic fast-track review of applications and replacing it with the
presumption that all applications will be reviewed pursuant to the 180-
day timeframe and procedures specified in Section 6(a) of the Act. In
lieu of the current 60-day automatic fast-track review, the amendments
permit applicants to request expedited review and to be registered as a
DCO not later than 90 days after the Commission receives the
application.
The Commission's proposal contained an analysis of its
consideration of theses costs and benefits and solicited public comment
thereon. 70 FR at 39678. The Commission specifically invited commenters
to submit any data that they had quantifying the costs and benefits of
the proposed amendments with their comment letters. Id. The Commission
has considered all the comment letters received, some of which
contained narrative discussion of the costs and benefits of specific
provisions of the proposed amendments, but none of which set forth any
data that quantified such costs and benefits.
The Commission has considered the costs and benefits of these
amendments in light of the specific areas of concern identified in
Sec. 15. The Commission has endeavored in these amendments to impose
the minimum requirements necessary to enable the Commission to perform
its oversight functions, to carry out its mandate of assuring the
continued existence of competitive and efficient markets and to protect
the public interest in markets free of fraud and abuse. After
considering their costs and benefits, the Commission has decided to
adopt these amendments as discussed above.
V. Related Matters
A. 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 rule amendments adopted
herein will affect exempt commercial markets, exempt boards of trade,
derivatives transaction execution facilities, designated contract
markets and designated clearing organizations. The Commission has
previously determined that the foregoing entities are not small
entities for purposes of the RFA.\15\ Accordingly, the Chairman, on
behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b)
that the rule amendments will not have a significant economic impact on
a substantial number of small entities.
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\15\ 47 FR 18618, 18619 (April 30, 1982) discussing contract
markets; 66 FR 42256, 42268 (August 10, 2001) discussing exempt
boards of trade, exempt commercial markets and derivatives
transaction execution facilities; 66 FR 45605, 45609 (August 29,
2001) discussing derivatives clearing organizations.
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B. Paperwork Reduction Act of 1995
This rulemaking contains information collection requirements. As
required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)),
the Commission submitted a copy of this section to the Office of
Management and Budget (OMB) for its review. No comments were received
in response to the Commission's invitation in the notice of proposed
rulemaking to comment on any potential paperwork burden associated with
these rules.
List of Subjects
17 CFR Part 36
Commodity futures, Commodity Futures Trading Commission.
17 CFR Part 37
Commodity futures, Commodity Futures Trading Commission.
17 CFR Part 38
Commodity futures, Commodity Futures Trading Commission.
17 CFR Part 39
Commodity futures, Consumer Protection.
17 CFR Part 40
Commodity futures, Contract markets, Designation application,
Reporting and recordkeeping requirements.
0
In consideration of the foregoing, and pursuant to the authority in the
Commodity Exchange Act and, in particular, Sections 1a, 2, 3, 4, 4c,
4i, 5, 5a, 5b, 5c, 5d, 6 and 8a of the Act, the Commission hereby
amends Chapter I of Title 17 of the Code of Federal Regulations as
follows:
PART 36--EXEMPT MARKETS
0
1. The authority citation for part 36 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6, 6c and 12a, as amended by the
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L.
106-554, 114 Stat. 2763 (2000).
0
2. Section 36.2 is amended by revising paragraphs (b) and (c) to read
as follows:
Sec. 36.2 Exempt boards of trade.
* * * * *
(b) Notification. Boards of trade operating under Section 5d of the
Act as exempt boards of trade shall so notify the Commission. This
notification shall be filed with the Secretary of the Commission at its
Washington, DC headquarters, in electronic form, shall be labeled as
``Notification of Operation as an Exempt Board of Trade,'' and shall
include:
(1) The name and address of the exempt board of trade; and
(2) The name and telephone number of a contact person.
(c) Additional requirements. (1) Prohibited representation. A board
of trade notifying the Commission that it meets the criteria of Section
5d of the Act and elects to operate as an exempt board of trade shall
not represent to any person that it is registered with, designated,
recognized, licensed or approved by the Commission.
(2) Market data dissemination. (i) Criteria for price discovery
determination. An exempt board of trade operating a market in reliance
on the exemption in Section 5d of the Act performs a significant price
discovery function for transactions in the cash market for a commodity
underlying any agreement, contract, or transaction executed or traded
on the facility when:
(A) Cash market bids, offers or transactions are directly based on,
or quoted at a differential to, the prices generated on the market on a
more than occasional basis; or
(B) The market's prices are routinely disseminated in a widely
distributed industry publication and are routinely consulted by
industry participants in pricing cash market transactions.
[[Page 1962]]
(ii) Notification. An exempt board of trade operating a market in
reliance on the exemption in Section 5d of the Act shall notify the
Commission when:
(A) It has reason to believe that cash market bids, offers or
transactions are directly based on, or quoted at a differential to, the
prices generated on the market on a more than occasional basis;
(B) It has reason to believe that the market's prices are routinely
disseminated in a widely distributed industry publication and are
routinely consulted by industry participants in pricing cash market
transactions; or
(C) The exempt board of trade holds out the market to the public as
performing a price discovery function for the cash market for the
commodity.
(iii) Price discovery determination. Following receipt of a notice
under paragraph (c)(2)(ii) of this section, or on its own initiative,
the Commission may notify an exempt board of trade operating a market
in reliance on the exemption in Section 5d of the Act that the facility
appears to meet the criteria for performing a significant price
discovery function under paragraph (c)(2)(i)(A) or (B) of this section.
Before making a final price discovery determination under this
paragraph, the Commission shall provide the exempt board of trade with
an opportunity for a hearing through the submission of written data,
views and arguments. Any such written data, views and arguments shall
be filed with the Secretary of the Commission in the form and manner
and within the time specified by the Commission. After consideration of
all relevant matters, the Commission shall issue an order containing
its determination whether the facility performs a significant price
discovery function under the criteria of paragraph (c)(2)(i)(A) or (B)
of this section.
(iv) Price dissemination. (A) An exempt board of trade that the
Commission has determined performs a significant price discovery
function under paragraph (c)(2)(iii) of this section shall disseminate
publicly, and on a daily basis, all of the following information with
respect to transactions executed in reliance on the exemption in
Section 5d of the Act:
(1) Contract terms and conditions, or a product description, and
trading conventions, mechanisms and practices;
(2) Trading volume by commodity and, if available, open interest;
and
(3) The opening and closing prices or price ranges, the daily high
and low prices, a volume-weighted average price that is representative
of trading on the board of trade, or such other daily price information
as proposed by the board of trade and approved by the Commission.
(B) The exempt board of trade shall make such information readily
available to the news media and the general public without charge no
later than the business day following the day to which the information
pertains.
(v) Modification of price discovery determination. An exempt board
of trade that the Commission has determined performs a significant
price discovery function under paragraph (c)(2)(iii) of this section
may petition the Commission at any time to modify or vacate that
determination. The petition shall contain an appropriate justification
for the request. The Commission, after notice and opportunity for a
hearing through the submission of written data, views and arguments,
shall by order grant, grant subject to conditions, or deny such
request.
(3) Annual Certification. A board of trade operating under Section
5d of the Act as an exempt board of trade shall file with the
Commission annually, no later than the end of each calendar year, a
notice that includes: (i) A statement that it continues to operate
under the exemption; and (ii) a certification that the information
contained in the previous Notification of Operation as an Exempt Board
of Trade is still correct.
0
3. Section 36.3 is amended by revising paragraph (a) revising paragraph
(c)(2)(ii), and adding a new paragraph (c)(4) to read as follows:
Sec. 36.3 Exempt commercial markets.
(a) Notification. An electronic trading facility relying upon the
exemption in Section 2(h)(3) of the Act shall notify the Commission of
its intention to do so. This notification, and subsequent notification
of any material changes in the information initially provided, shall be
filed with the Secretary of the Commission at its Washington, DC
headquarters, in electronic form, shall be labeled as ``Notification of
Operation as an Exempt Commercial Market,'' and shall include the
information and certifications specified in Section 2(h)(5)(A) of the
Act.
* * * * *
(c) Additional requirements. * * *
(2) Market data dissemination. * * *
(ii) Notification. An electronic trading facility operating in
reliance on Section 2(h)(3) of the Act shall notify the Commission
when:
(A) It has reason to believe that cash market bids, offers or
transactions are directly based on, or quoted at a differential to, the
prices generated on the market on a more than occasional basis;
(B) It has reason to believe that the market's prices are routinely
disseminated in a widely distributed industry publication and are
routinely consulted by industry participants in pricing cash market
transactions; or
(C) The market holds itself out to the public as performing a price
discovery function for the cash market for the commodity.
* * * * *
(4) Annual Certification. An electronic trading facility operating
in reliance upon the exemption in Section 2(h)(3) of the Act shall file
with the Commission annually, no later than the end of each calendar
year, a notice that includes: (i) A statement that it continues to
operate under the exemption; and (ii) a certification that the
information contained in the previous Notification of Operation as an
Exempt Commercial Market is still correct.
PART 37--DERIVATIVES TRANSACTION EXECUTION FACILITIES
0
4. 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.
0
5. Section 37.1 is amended by revising paragraph (a) to read as
follows:
Sec. 37.1 Scope and definition.
(a) Scope. The provisions of this part apply to any board of trade
operating as or applying to become registered as a derivatives
transaction execution facility under Sections 5a and 6 of the Act.
* * * * *
0
6. Section 37.2 is revised to read as follows:
Sec. 37.2 Exemption.
Contracts, agreements or transactions traded on a derivatives
transaction execution facility registered as such with the Commission
under Section 5a of the Act, the facility and the facility's operator
are exempt from all Commission regulations for such activity, except
for the requirements of this Part 37 and:
(a) Section 15.05, Part 40 and Part 41 of this chapter, including
any related definitions and cross-referenced sections; and
(b) Sections 1.3, 1.31, 1.59(d), 1.60, 1.63(c), 33.10, and Part 190
of this chapter and, as applicable to the market, Sec. Sec. 15.00 to
15.04 and Parts 16 through 21 of this chapter, including any related
definitions and cross-referenced
[[Page 1963]]
sections, which are applicable as though they were set forth in this
Part 37 and included specific reference to derivatives transaction
execution facilities.
Sec. 37.3 [Amended]
0
7. Section 37.3 is amended as follows:
0
a. By redesignating paragraphs (b) and (c) as paragraphs (d) and (e);
0
b. By redesignating paragraph (a)(5) as paragraph (b);
0
c. By redesignating paragraph (a)(6) introductory text as paragraph
(c);
0
d. By redesignating paragraphs (a)(6)(i) and (ii) as paragraphs (c)(1)
and (2); and
0
e. By redesignating paragraphs (a)(6)(ii)(A) through (H) as paragraphs
(c)(2)(i) through (viii).
0
8. Section 37.6 is revised to read as follows:
Sec. 37.6 Compliance with core principles.
(a) In general. To maintain registration as a derivatives
transaction execution facility upon commencing operations by listing
products for trading or otherwise, or for a dormant derivatives
transaction execution facility as defined in Sec. 40.1 of this chapter
that has been reinstated under Sec. 37.5(d) upon recommencing
operations by relisting products for trading or otherwise, and on a
continuing basis thereafter, the derivatives transaction execution
facility must have the capacity to be, and be, in compliance with the
core principles of Section 5a(d) of the Act.
(b) New and reinstated derivatives transaction execution
facilities--(1) Certification of compliance. Unless an applicant for
registration or for reinstatement of registration has chosen to make a
voluntary demonstration under paragraph (b)(2) of this section, a newly
registered derivatives transaction execution facility at the time it
commences operations, or a dormant derivatives transaction execution
facility as defined in Sec. 40.1 of this chapter at the time that it
recommences operations, must certify to the Commission that it has the
capacity to, and will, operate in compliance with the core principles
under Section 5a(d) of the Act.
(2) Voluntary demonstration of compliance. An applicant for
registration or for reinstatement of registration may choose to make a
voluntary demonstration of its capacity to operate in compliance with
the core principles. Such demonstration may be included in an
application submitted pursuant to Sec. 37.5 of this part.
(i) The demonstration would include the following:
(A) The label, ``Demonstration of Compliance with Core Principles
for Operation'';
(B) A document that describes the manner in which the applicant
will comply with each core principle (such as a regulatory chart),
which could cite to documents previously submitted including documents
submitted pursuant to Sec. 37.5(b)(1)(ii)(A)-(E); and
(C) To the extent that any of the items in Sec. 37.5(b)(1)(ii)(A)-
(E) raise issues that are novel, or for which compliance with a core
principle is not self-evident, an explanation as to how that item and
the application satisfy the core principle.
(ii) If it appears that the applicant has failed to make the
requisite showing, the Commission will so notify the applicant at the
end of that period. Upon commencement or recommencement of operations
by the derivatives transaction execution facility, such a notice may be
considered by the Commission in a determination to issue a notice of
violation of core principles under Section 5c(d) of the Act.
(c) Existing derivatives transaction execution facilities--(1) In
general. Upon request by the Commission, a registered derivatives
transaction execution facility shall file with the Commission such
data, documents and other information as the Commission may specify in
its request that demonstrates that the registered derivatives
transaction execution facility is in compliance with one or more core
principles as specified in the request or that is requested by the
Commission to enable the Commission to satisfy its obligations under
the Act.
(2) Delegation of authority. The Commission hereby delegates, until
it orders otherwise, the authority set forth in paragraph (c)(1) of
this section to the Director of the Division of Market Oversight or
such other employee or employees as the Director may designate from
time to time. The Director may submit to the Commission for its
consideration any matter that has been delegated in this paragraph.
Nothing in this paragraph prohibits the Commission, at its election,
from exercising the authority delegated in this paragraph.
(3) Change of owners. Upon a change of ownership of an existing
registered derivatives transaction execution facility, the new owner
shall file electronically with the Secretary of the Commission at its
Washington, DC, headquarters, a certification that the derivatives
transaction execution facility meets the requirements for trading and
the criteria for registration of Sections 5a(b) and 5a(c) of the Act,
respectively.
(d) Guidance regarding compliance with core principles. Appendix B
to this part provides guidance to registered derivatives transaction
execution facilities on compliance with the core principles under
Section 5a(d) of the Act.
0
9. Section 37.7 is amended by revising paragraph (b) to read as
follows:
Sec. 37.7 Additional requirements.
* * * * *
(b) Material modifications. Notwithstanding the provisions of
Section 5c(c) of the Act, registered derivatives transaction execution
facilities need not certify rules or rule amendments under Sec. 40.6
of this chapter, and must only notify the Commission prior to placing
into effect or amending such a rule, (as defined in Sec. 40.1 of this
chapter):
(1) By electronic notification to the Commission of the rule to be
placed into effect or to be changed, in a format approved by the
Secretary of the Commission, at the time traders or participants in the
market are notified, but (unless taken as an emergency action) in no
event later than the close of business on the business day preceding
implementation. The submission notification shall be labeled ``DTEF
Rule Notices'' and shall include the text of the rule or rule amendment
(with deletions and additions indicated). Provided, however, the
derivatives transaction execution facility need not notify the
Commission of rules or rule amendments for which no certification is
required under Sec. 40.6(c) of this chapter.
(2) The derivatives transaction execution facility must maintain
documentation regarding all changes to rules, terms and conditions or
trading protocols.
* * * * *
0
10. Section 37.8 is amended by revising paragraph (b) to read as
follows:
Sec. 37.8 Information relating to transactions on derivatives
transaction execution facilities.
* * * * *
(b) Special calls for information from futures commission merchants
or foreign brokers. Upon special call by the Commission, each person
registered as a futures commission merchant or a foreign broker (as
defined in Sec. 15.00 of this title) that carries or has carried an
account for a customer on a derivatives transaction execution facility
shall provide information to the Commission concerning such accounts or
related positions carried for the customer on that or other facilities
or markets, in the form and manner and within the time
[[Page 1964]]
specified by the Commission in the special call.
* * * * *
0
11. Appendix A to Part 37 is amended by revising the heading of the
appendix and the first paragraph of the appendix to read as follows:
Appendix A to Part 37--Guidance on Compliance With Registration
Criteria
This appendix provides guidance on meeting the criteria for
registration under Sections 5a(c) and 6 of the Act and this part, both
initially and on an ongoing basis. The guidance following each
registration criterion is illustrative only of the types of matters an
applicant may address, as applicable, and is not intended to be used as
a mandatory checklist. Addressing the issues and questions set forth in
this appendix would help the Commission in its consideration of whether
the application has met the criteria for registration. To the extent
that compliance with, or satisfaction of, a criterion for registration
is not self-explanatory from the face of the derivatives transaction
execution facility's rules, (as defined in Sec. 40.1 of this chapter),
the application should include an explanation or other form of
documentation demonstrating that the applicant meets the registration
criteria of Section 5a(c) of the Act and Sec. 37.5.
* * * * *
0
12. Appendix B to Part 37 is amended by revising paragraphs 1. and 3.
of the appendix to read as follows:
Appendix B to Part 37--Guidance on Compliance With Core Principles
1. This appendix provides guidance on complying with the core
principles in order to maintain registration under Section 5a(d) of the
Act and this part. This guidance is illustrative only and is not
intended to be used as a mandatory checklist.
* * * * *
3. Alternatively, if an applicant for registration or for
reinstatement of registration under Sec. 37.6(b)(2) chooses to provide
the Commission with a demonstration of its compliance with core
principles, addressing the issues set forth in this appendix would help
the Commission in its consideration of such compliance. To the extent
that compliance with, or satisfaction of, the core principles is not
self-explanatory from the face of the derivatives transaction execution
facility's rules, (as defined in Sec. 40.1 of this chapter) a
submission under Sec. 37.6(b)(2) should include an explanation or
other form of documentation demonstrating that the derivatives
transaction execution facility complies with the core principles.
* * * * *
0
13. Appendix B to Part 37 is further amended by revising the second
paragraph of Core Principle 5 to read as follows:
Appendix B to Part 37--Guidance on Compliance With Core Principles
* * * * *
Core Principle 5 of Section 5a(d)(5) of the Act: DAILY PUBLICATION
OF TRADING INFORMATION * * *
* * * * *
A board of trade operating as a registered derivatives transaction
execution facility should provide to the public information regarding
settlement prices, price range, trading volume, open interest and other
related market information for all applicable contracts, as determined
by the Commission. In making such determination, the Commission will
consider whether a contract performs a significant price discovery
function for transactions in the cash market for the commodity
underlying the contract. The Commission will apply the same standards
applicable to exempt boards of trade and exempt commercial markets (see
Sec. Sec. 36.2(b)(2) and 36.3(c)(2), respectively) whereby a market
performs a significant price discovery function for transactions in the
cash market for an underlying commodity if: (1) Cash market bids,
offers or transactions are directly based on, or quoted at a
differential to, the prices generated on the market on a more than
occasional basis; or (2) the market's prices are routinely disseminated
in a widely distributed industry publication and are routinely
consulted by industry participants in pricing cash market transactions.
In the event the Commission has reason to believe that a derivatives
transaction execution facility may meet either of the foregoing
standards, or if the facility holds itself out to the public as
performing a price discovery function for the cash market for the
underlying commodity, the Commission shall notify the facility that it
appears to meet the criteria for performing a significant price
discovery function under Core Principle 5. Before making a final price
discovery determination under this core principle, the Commission shall
provide the facility with an opportunity for a hearing through the
submission of written data, views and arguments. After consideration of
all relevant matters, the Commission shall issue an order containing
its determination whether the requirement of the core principle on
publication of trading information under Section 5a(d)(5) of the Act
applies to a particular contract traded on a facility. Provision of
information for any applicable contract could be through such means as
providing the information to a financial information service or by
placing the information on a facility's Web site. Such information
shall be made available to the public without charge no later than the
business day following the day to which the information pertains.
* * * * *
PART 38--DESIGNATED CONTRACT MARKETS
0
14. The authority citation for Part 38 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6, 6c, 7 and 12a, as amended by
Appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.
0
15. Section 38.1 is revised to read as follows:
Sec. 38.1 Scope.
The provisions of this Part 38 shall apply to every board of trade
that has been designated or is applying to become designated as a
contract market under Sections 5 and 6 of the Act. Provided, however,
nothing in this provision affects the eligibility of designated
contract markets to operate under the provisions of Parts 36 or 37 of
this chapter.
0
16. Section 38.2 is revised to read as follows:
Sec. 38.2 Exemption.
Agreements, contracts, or transactions traded on a designated
contract market under Section 5 of the Act, the contract market and the
contract market's operator are exempt from all Commission regulations
for such activity, except for the requirements of this Part 38 and
Sec. Sec. 1.3, 1.12(e), 1.31, 1.37(c)-(d), 1.38, 1.52, 1.59(d), 1.60,
1.63(c), 1.67, 33.10, Part 9, Parts 15 through 21, Part 40, Part 41 and
Part 190 of this chapter, including any related definitions and cross-
referenced sections.
0
17. Section 38.5 is amended by revising paragraph (b), redesignating
paragraph (c) as paragraph (d), and adding new paragraph (c) as
follows:
Sec. 38.5 Information relating to contract market compliance.
* * * * *
(b) Upon request by the Commission, a designated contract market
shall file with the Commission a written demonstration, containing such
supporting data, information and
[[Page 1965]]
documents, in the form and manner and within such time as the
Commission may specify, that the designated contract market is in
compliance with one or more designation criteria or core principles as
specified in the request, or that is requested by the Commission to
enable the Commission to satisfy its obligations under the Act.
(c) Delegation of authority. The Commission hereby delegates, until
it orders otherwise, the authority set forth in paragraph (b) to the
Director of the Division of Market Oversight or such other employee or
employees as the Director may designate from time to time. The Director
may submit to the Commission for its consideration any matter that has
been delegated in this paragraph. Nothing in this paragraph prohibits
the Commission, at its election, from exercising the authority
delegated in this paragraph.
* * * * *
0
18. Appendix A to Part 38 is amended by revising the heading of the
appendix and the first paragraph of the appendix to read as follows:
Appendix A to Part 38--Guidance on Compliance With Designation Criteria
This appendix provides guidance on meeting the criteria for
designation under Sections 5(b) and 6 of the Act and this part, both
initially and on an ongoing basis. The guidance following each
designation criterion is illustrative only of the types of matters an
applicant may address, as applicable, and is not intended to be used as
a mandatory checklist. Addressing the issues and questions set forth in
this appendix would help the Commission in its consideration of whether
the application has met the criteria for designation. To the extent
that compliance with, or satisfaction of, a criterion for designation
is not self-explanatory from the face of the contract market's rules
(as defined in Sec. 40.1 of this chapter), the application should
include an explanation or other form of documentation demonstrating
that the applicant meets the designation criteria of Section 5(b) of
the Act.
* * * * *
0
19. Appendix A to Part 38 is further amended by revising the second
paragraph of Designation Criterion 7 to read as follows:
Appendix A to Part 38--Guidance on Compliance with Designation Criteria
* * * * *
Designation Criterion 7 of Section 5(b) of the Act: PUBLIC ACCESS *
* *
* * * * *
A designated contract market should provide information to the
public by placing the information on its Web site.
* * * * *
0
20. Appendix B to Part 38 is amended by revising paragraphs 1. and 2.
to read as follows:
Appendix B to Part 38--Guidance on, and Acceptable Practices in,
Compliance With Core Principles
1. This appendix provides guidance on complying with the core
principles, both initially and on an ongoing basis, to maintain
designation under Section 5(d) of the Act and this part. The guidance
is provided in paragraph (a) following each core principle and it can
be used to demonstrate to the Commission core principle compliance,
under Sec. Sec. 38.3(a) and 38.5. The guidance for each core principle
is illustrative only of the types of matters a board of trade may
address, as applicable, and is not intended to be used as a mandatory
checklist. Addressing the issues and questions set forth in this
appendix would help the Commission in its consideration of whether the
board of trade is in compliance with the core principles. To the extent
that compliance with, or satisfaction of, a core principle is not self-
explanatory from the face of the board of trade's rules (as defined in
Sec. 40.1 of this chapter), an application pursuant to Sec. 38.3, or
a submission pursuant to Sec. 38.5 should include an explanation or
other form of documentation demonstrating that the board of trade
complies with the core principles.
2. Acceptable practices meeting selected requirements of the core
principles are set forth in paragraph (b) following each core
principle. Boards of trade that follow the specific practices outlined
under paragraph (b) for any core principle in this appendix will meet
the selected requirements of the applicable core principle. Paragraph
(b) is for illustrative purposes only, and does not state the exclusive
means for satisfying a core principle.
* * * * *
0
21. Appendix B to Part 38 is further amended by revising paragraph
(a)(1) of Core Principle 2 to read as follows:
Appendix B to Part 38--Guidance on, and Acceptable Practices in,
Compliance With Core Principles
* * * * *
Core Principle 2 of Section 5(d) of the Act: COMPLIANCE WITH RULES
* * *
(a) Application guidance. (1) A designated contract market should
have arrangements and resources for effective trade practice
surveillance programs, with the authority to collect information and
documents on both a routine and non-routine basis, including the
examination of books and records kept by the contract market's members
and by non-intermediated market participants. The arrangements and
resources should facilitate the direct supervision of the market and
the analysis of data collected. Trade practice surveillance programs
may be carried out by the contract market itself or through delegation
or contracting-out to a third party. If the contract market delegates
or contracts-out the trade practice surveillance responsibility to a
third party, such third party should have the capacity and authority to
carry out such program, and the contract market should retain
appropriate supervisory authority over the third party.
* * * * *
0
22. Appendix B to Part 38 is further amended by revising paragraphs (a)
and (b) of Core Principle 6 to read as follows:
Appendix B to Part 38--Guidance on, and Acceptable Practices in,
Compliance With Core Principles
* * * * *
Core Principle 6 of Section 5(d) of the Act: EMERGENCY AUTHORITY *
* *
(a) Application guidance. A designated contract market should have
clear procedures and guidelines for contract market decision-making
regarding emergency intervention in the market, including procedures
and guidelines to avoid conflicts of interest while carrying out such
decision-making. A contract market should also have the authority to
intervene as necessary to maintain markets with fair and orderly
trading as well as procedures for carrying out the intervention.
Procedures and guidelines should include notifying the Commission of
the exercise of a contract market's regulatory emergency authority,
explaining how conflicts of interest are minimized, and documenting the
contract market's decision-making process and the reasons for using its
emergency action authority. Information on steps taken under such
procedures should be included in a submission of a certified rule and
any related submissions for rule approval pursuant to Part 40, when
carried out pursuant to a contract market's emergency authority. To
address perceived market threats, the contract market, among other
things, should be able to impose position limits in the delivery month,
impose or modify price limits, modify circuit breakers,
[[Page 1966]]
call for additional margin either from customers or clearing members,
order the liquidation or transfer of open positions, order the fixing
of a settlement price, order a reduction in positions, extend or
shorten the expiration date or the trading hours, suspend or curtail
trading on the market, order the transfer of customer contracts and the
margin for such contracts from one member including non-intermediated
market participants of the contract market to another, or alter the
delivery terms or conditions, or, if applicable, should provide for
such actions through its agreements with its third-party provider of
clearing services.
(b) Acceptable practices. [Reserved]
* * * * *
0
23. Appendix B to Part 38 is further amended by adding paragraph (b) of
Core Principle 7 to read as follows:
Appendix B to Part 38--Guidance on, and Acceptable Practices in,
Compliance With Core Principles
* * * * *
Core Principle 7 of Section 5(d) of the Act: AVAILABILITY OF
GENERAL INFORMATION * * *
* * * * *
(b) Acceptable practices. In making information available to market
participants and the public, on its Web site, a designated contract
market should place information on the Web site no later than the day a
new product is listed, the day a new or amended rule is implemented or
the day previously disclosed information is changed. For example, the
timely provision of this information on a contract market's Web site
could be done through press releases, newsletters or notices to
members. Additionally, a contract market should ensure that the
rulebook posted on its Web site is available to the public (i.e., can
be accessed by visitors to the Web site without the need to register,
log in, provide a user name or obtain a password) and is kept current.
A rulebook will be considered current if: (1) Notice of any substantive
new or amended rule is provided within one day of implementation,
either by press release, newsletter, notice to members or actual
posting of the change in the rulebook; and (2) all new rules, both
substantive and non-substantive, are posted in the rulebook within five
days of implementation.
* * * * *
0
24. Appendix B to Part 38 is further amended by adding paragraph (b) of
Core Principle 8 to read as follows:
Appendix B to Part 38--Guidance on, and Acceptable Practices in,
Compliance With Core Principles
* * * * *
Core Principle 8 of Section 5(d) of the Act: DAILY PUBLICATION OF
TRADING INFORMATION * * *
* * * * *
(b) Acceptable Practices. The mandatory compliance with Section
16.01, ``Trading volume, open contracts, prices and critical dates,''
required under the regulations, would constitute an acceptable practice
under Core Principle 8.
* * * * *
0
25. Appendix B to Part 38 is further amended by revising paragraph (a)
of Core Principle 16 to read as follows:
Appendix B to Part 38--Guidance on, and Acceptable Practices in,
Compliance With Core Principles
* * * * *
Core Principle 16 of Section 5(d) of the Act: COMPOSITION OF BOARDS
OF MUTUALLY OWNED CONTRACT MARKETS * * *
(a) Application guidance. The composition of a mutually-owned
contract market's governing board should fairly represent the diversity
of interests of the contract market's market participants.
* * * * *
PART 39--DERIVATIVES CLEARING ORGANIZATIONS
0
26. The authority citation for Part 39 continues to read as follows:
Authority: 7 U.S.C. 7b, as amended by Appendix E of Pub. L. 106-
554, 114 Stat. 2763A-365.
0
27. Section 39.3 is revised to read as follows:
Sec. 39.3 Procedures for registration.
(a) Application Procedures. (1) 180-day review procedures. An
organization desiring to be registered as a derivatives clearing
organization shall file electronically an application for registration
with the Secretary of the Commission at its Washington, DC,
headquarters. Except as provided under the 90-day review procedures
described in paragraph (a)(3) of this section, the Commission will
review the application for registration as a derivatives clearing
organization pursuant to the 180-day timeframe and procedures specified
in section 6(a) of the Act. The Commission may approve or deny the
application or, if deemed appropriate, register the applicant as a
derivatives clearing organization subject to conditions.
(2) The following must be included:
(i) The application is labeled as being submitted pursuant to this
Part 39;
(ii) The applicant represents that it will operate in accordance
with the definition of derivatives clearing organization contained in
section 1a(9) of the Act;
(iii) The application includes a copy of the applicant's rules;
(iv) The application demonstrates how the applicant is able to
satisfy each of the core principles specified in section 5b(c)(2) of
the Act;
(v) The applicant submits agreements entered into or to be entered
into between or among the applicant, its operator/service provider or
its participants, that will enable the applicant to comply, or
demonstrate the applicant's ability to comply, with the core principles
specified in section 5b(c)(2) of the Act. The agreements must identify
the services that will be provided. If a submitted agreement is not
final and executed, the application must include evidence which
constitutes reasonable assurances that such services will be provided
as soon as operations require;
(vi) The applicant submits descriptions of system test procedures,
tests conducted or test results, that will enable the applicant to
comply, or demonstrate the applicant's ability to comply, with the core
principles specified in section 5b(c)(2) of the Act; and
(vii) The applicant identifies with particularity information in
the application that will be subject to a request for confidential
treatment and supports that request for confidential treatment.
(3) Ninety-day review procedures. An organization desiring to be
registered as a derivatives clearing organization may request that its
application be reviewed on a 90-day basis and that the applicant be
registered as a derivatives clearing organization 90 days after the
date of receipt of the application for registration by the Secretary of
the Commission. The 90-day period shall begin on the first business day
(during the business hours defined in Sec. 40.1 of this chapter) that
the Commission is in receipt of the application. Unless the Commission
notifies the applicant during the 90-day period that the expedited
review has been terminated pursuant to Sec. 39.3(b), the Commission
will register the applicant as a derivatives clearing organization
during the 90-day period. If deemed appropriate by the Commission, the
registration may be subject to such conditions as the Commission may
stipulate.
[[Page 1967]]
(i) The application must include the items described in Sec. Sec.
39.3(a)(2)(i) through (vi); and
(ii) The applicant must not amend or supplement the application
except as requested by the Commission or for correction of
typographical errors, renumbering or other nonsubstantive revisions,
during that period.
(b) Termination of 90-day review. (1) During the 90-day period for
review pursuant to paragraph (a)(3) of this section, the Commission
shall notify the applicant seeking registration that the Commission is
terminating review under this section and will review the proposal
under the 180-day time period and procedures of Section 6(a) of the
Act, if it appears to the Commission that the application:
(i) Is materially incomplete;
(ii) Fails in form or substance to meet the requirements of this
part;
(iii) Raises novel or complex issues that require additional time
for review; or
(iv) Is amended or supplemented in a manner that is inconsistent
with Sec. 39.3(a)(3)(ii).
(2) This termination notification shall identify the deficiencies
in the application that render it incomplete, the manner in which the
application fails to meet the requirements of this part, or the novel
or complex issues that require additional time for review. The
Commission shall also terminate review under this section if requested
in writing to do so by the applicant.
(c) Withdrawal of application for registration. An applicant for
registration may withdraw its application submitted pursuant to
paragraphs (a)(1) through (2) or (a)(3) of this section by filing with
the Commission such a request. Withdrawal of an application for
registration shall not affect any action taken or to be taken by the
Commission based upon actions, activities, or events occurring during
the time that the application for registration was pending with the
Commission.
(d) Guidance for applicants and registrants. Appendix A to this
part provides guidance to applicants and registrants on how the core
principles specified in Section 5b(c)(2) of the Act may be satisfied.
(e) Reinstatement of dormant registration. Before listing or
relisting contracts for clearing, a dormant registered derivatives
clearing organization as defined in Sec. 40.1 of this chapter must
reinstate its registration under the procedures of paragraph (a)(1)
through (2) or (a)(3) of this section; provided, however, that an
application for reinstatement may rely upon previously submitted
materials that still pertain to, and accurately describe, current
conditions.
(f) Request for vacation of registration. A registered derivatives
clearing organization may vacate its registration under Section 7 of
the Act by filing electronically such a request with the Commission at
its Washington, DC headquarters. Vacation of registration shall not
affect any action taken or to be taken by the Commission based upon
actions, activities or events occurring during the time that the
facility was designated by the Commission.
(g) Delegation of authority. (1) The Commission hereby delegates,
until it orders otherwise, to the Director of the Division of Clearing
and Intermediary Oversight or the Director's delegates, with the
concurrence of the General Counsel or the General Counsel's delegates,
the authority to notify an applicant seeking designation under Section
6(a) of the Act that the application is materially incomplete and the
running of the 180-day period is stayed or that the 90-day review under
paragraph (a)(3) of this section is terminated.
(2) The Director of the Division of Clearing and Intermediary
Oversight may submit to the Commission for its consideration any matter
which has been delegated in this paragraph.
(3) Nothing in this paragraph prohibits the Commission, at its
election, from exercising the authority delegated in paragraph (g)(1)
of this section.
PART 40--PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES
TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING
ORGANIZATIONS
0
28. The authority citation for Part 40 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 8 and 12a, as
amended by Appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.
0
29. Section 40.1 is revised to read as follows:
Sec. 40.1 Definitions.
As used in this part:
(a) Business hours means the hours between 8:15 a.m. and 4:45 p.m.,
eastern standard time or eastern daylight savings time, whichever is
currently in effect in Washington, DC, all days except Saturdays,
Sundays and legal public holidays.
(b) Dormant contract or dormant product means any commodity futures
or option contract or other agreement, contract, transaction or
instrument in which no trading has occurred in any future or option
expiration for a period of twelve complete calendar months and in which
there is no open interest; provided, however, no contract or instrument
shall be considered to be dormant until the end of 36 complete calendar
months following initial exchange certification or Commission approval,
or until the designated contract market or derivatives transaction
execution facility on which it is traded becomes dormant.
Notwithstanding the above, a board of trade may, by certifying to the
Commission, self-declare a contract to be dormant at any time following
initial exchange certification or Commission approval.
(c) Dormant contract market means any designated contract market on
which no trading has occurred for a period of twelve complete calendar
months; provided, however, no contract market shall be considered to be
dormant until the end of 36 complete calendar months following the day
that the initial order of designation was issued.
(d) Dormant derivatives clearing organization means any derivatives
clearing organization that has not accepted for clearing any agreement,
contract or transaction that is required or permitted to be cleared by
a derivatives clearing organization under Sections 5b(a) and 5b(b) of
the Act, respectively, for a period of twelve complete calendar months;
provided, however, no derivatives clearing organization shall be
considered to be dormant until the end of 36 complete calendar months
following the day that the initial order of registration was issued.
(e) Dormant derivatives transaction execution facility means any
derivatives transaction execution facility on which no trading has
occurred for a period of twelve complete calendar months; provided,
however, no derivatives transaction execution facility shall be
considered to be dormant until the end of 36 complete calendar months
following the day that the initial order of registration was issued.
(f) Dormant rule means any new rule or rule amendment which the
designated contract market, derivatives transaction execution facility
or derivatives clearing organization has not made effective and
implemented; provided, however, no new rule or rule amendment shall be
considered to be dormant until the end of twelve complete calendar
months following initial certification or Commission approval. Prior to
implementing a dormant rule, it should be resubmitted to the
Commission, either by certification or for approval.
[[Page 1968]]
(g) Emergency means any occurrence or circumstance which, in the
opinion of the governing board of the contract market, derivatives
transaction execution facility or derivatives clearing organization,
requires immediate action and threatens or may threaten such things as
the fair and orderly trading in, or the liquidation of or delivery
pursuant to, any agreements, contracts or transactions on such a
trading facility, including: Any manipulative or attempted manipulative
activity; any actual, attempted, or threatened corner, squeeze,
congestion, or undue concentration of positions; any circumstances
which may materially affect the performance of agreements, contracts or
transactions traded on the trading facility, including failure of the
payment system or the bankruptcy or insolvency of any participant; any
action taken by any governmental body, or any other board of trade,
market or facility which may have a direct impact on trading on the
trading facility; and any other circumstance which may have a severe,
adverse effect upon the functioning of a designated contract market or
derivatives transaction execution facility.
(h) Rule means any constitutional provision, article of
incorporation, bylaw, rule, regulation, resolution, interpretation,
stated policy, term and condition, trading protocol, agreement or
instrument corresponding thereto, in whatever form adopted, and any
amendment or addition thereto or repeal thereof, made or issued by a
contract market, derivatives transaction execution facility or
derivatives clearing organization or by the governing board thereof or
any committee thereof, except those provisions relating to the setting
of levels of margin for commodities other than those subject to the
provisions of Section 2(a)(1)(C)(v) of the Act and security futures as
defined in Section 1a(31) of the Act.
(i) Terms and conditions mean any definition of the trading unit or
the specific commodity underlying a contract for the future delivery of
a commodity or commodity option contract, specification of cash
settlement or delivery standards and procedures, and establishment of
buyers' and sellers' rights and obligations under the contract. Terms
and conditions include provisions relating to the following:
(1) Quality and other standards that define the commodity or
instrument underlying the contract;
(2) Quantity standards or other provisions related to contract
size;
(3) Any applicable premiums or discounts for delivery of nonpar
products;
(4) Trading hours, trading months and the listing of contracts;
(5) The pricing basis and minimum price fluctuations;
(6) Any price limits, trading halts, or circuit breaker provisions,
and procedures for the establishment of daily settlement prices;
(7) Position limits, position accountability standards, and
position reporting requirements;
(8) Delivery points and locational price differentials;
(9) Delivery standards and procedures, including fees related to
delivery or the delivery process, alternatives to delivery and
applicable penalties or sanctions for failure to perform;
(10) If cash settled; all provisions related to the definition,
composition, calculation and revision of the cash settlement price or
index; and
(11) Payment or collection of commodity option premiums or margins.
0
30. Section 40.2 is revised to read as follows:
Sec. 40.2 Listing products for trading by certification.
(a) A registered entity may list a new product for trading, list a
product for trading that has become dormant, or accept for clearing a
product that is not traded on a designated contract market or a
registered derivatives transaction execution facility, if the following
conditions have been met:
(1) The registered entity has filed its submission electronically
with the Secretary of the Commission and at the regional office having
local jurisdiction over the registered entity, in a format specified by
the Secretary of the Commission;
(2) The Commission has received the submission at its headquarters
by close of business on the business day preceding the product's
listing or acceptance for clearing, and:
(3) The submission includes:
(i) A copy of the submission cover sheet in accordance with the
instructions in Appendix D to this part;
(ii) A copy of the product's rules, including all rules related to
its terms and conditions, or the rules establishing the terms and
conditions of the listed product that make it acceptable for clearing;
(iii) The intended listing date; and
(iv) A certification by the registered entity that the product to
be listed complies with the Act and regulations thereunder.
(b) A registered entity shall provide, if requested by Commission
staff, additional evidence, information or data relating to whether the
contract meets, initially or on a continuing basis, any of the
requirements of the Act or Commission regulations or policies
thereunder which may be beneficial to the Commission in conducting a
due diligence assessment of the product and the entity's compliance
with these requirements.
(c) Stay. The Commission may stay the listing of a contract
pursuant to paragraph (a) of this section during the pendency of
Commission proceedings for filing a false certification or to alter or
amend the contract terms and conditions pursuant to Section 8a(7) of
the Act. The decision to stay the listing of a contract in such
circumstances shall not be delegable to any employee of the Commission.
0
31. Section 40.3 is amended by revising paragraphs (a), (c), and (e)(2)
to read as follows:
Sec. 40.3 Voluntary submission of new products for Commission review
and approval.
(a) Request for approval. A designated contract market or
registered derivatives transaction execution facility may request under
Section 5c(c)(2) of the Act that the Commission approve new products. A
submission requesting approval shall:
(1) Be filed electronically with the Secretary of the Commission
and at the regional office of the Commission having local jurisdiction
over the submitting registered entity in a format specified by the
Secretary of the Commission;
(2) Include a copy of the submission cover sheet in accordance with
the instructions in Appendix D to this part;
(3) Include a copy of the rules that set forth the contract's terms
and conditions;
(4) Comply with the requirements of Appendix A to this part--
Guideline No. 1. To demonstrate compliance, the submission shall
include:
(i) An explanation, if not self-evident from the rules, as to how
the specific terms and conditions satisfy the acceptable practices set
forth in Guideline No. 1, Appendix A to Part 40. This information may
be provided in narrative form or by completion of the applicable chart.
(ii) For physical delivery contracts, an explanation as to how the
terms and conditions as a whole will result in a deliverable supply
such that the contract will not be conducive to price manipulation or
distortion and that the deliverable supply reasonably can be
[[Page 1969]]
expected to be available to short traders and salable by long traders
at its market value in normal cash marketing channels.
(iii) For cash settled contracts, an explanation as to how the cash
settlement of the contract is at a price reflecting the underlying cash
market, will not be subject to manipulation or distortion, and is based
on a cash price series that is reliable, acceptable, publicly available
and timely.
(iv)(A) A brief description of the cash market for the commodity,
instrument, index or interest that underlies the contract. The
description may include materials prepared by the designated contract
market or registered derivatives transaction execution facility,
existing studies by industry trade groups, academics, governmental
bodies or other entities, reports of consultants, or other materials,
which provide a description of the underlying cash market.
(B) The cash market description may, however, be confined only to
those aspects relevant to particular term(s) or condition(s) that
differ from an existing contract, where a contract based on the same,
or a closely related, commodity is already listed for trading and is
not dormant.
(5) Describe any agreements or contracts entered into with other
parties that enable the designated contract market or derivatives
transaction execution facility to carry out its responsibilities.
(6) Include the certifications required in Sec. 41.22 for product
approval of a commodity that is a security future or a security futures
product as defined in Sections 1a(31) or 1a(32) of the Act,
respectively;
(7) Identify with particularity information in the submission
(except for the product's terms and conditions which are made publicly
available at the time of submission) that will be subject to a request
for confidential treatment and support that request for confidential
treatment with reasonable justification;
(8) Include the filing fee required under Appendix B to this part;
and
(9) Include, if requested by Commission staff, additional evidence,
information or data relating to whether the contract meets, initially
or on a continuing basis, any of the specific requirements of the Act,
or any other requirement for designation under the Act or Commission
regulations or policies thereunder.
* * * * *
(c) Extension of time. The Commission may extend the forty-five day
review period in paragraph (b) of this section for:
(1) An additional forty-five days, if the product raises novel or
complex issues that require additional time for review or is of major
economic significance, in which case, the Commission would notify the
submitting registered entity within the initial forty-five day review
period and would briefly describe the nature of the specific issues for
which additional time for review would be required; or
(2) Such extended period as the submitting registered entity so
instructs the Commission in writing.
* * * * *
(e) Effect of non-approval.
(1) * * *
(2) Notification to a submitting registered entity under paragraph
(d) of this section of the Commission's refusal to approve a product
shall be presumptive evidence that the entity may not truthfully
certify under Sec. 40.2 that the same, or substantially the same,
product does not violate the Act or regulations thereunder.
0
32. Section 40.4 is revised to read as follows:
Sec. 40.4 Amendments to terms or conditions of enumerated
agricultural contracts.
(a) Designated contract markets must submit for Commission approval
under the procedures of Sec. 40.5, prior to its implementation, any
rule or rule amendment that, for a delivery month having open interest,
would materially change a term or condition as defined in Sec.
40.1(i), of a contract for future delivery in an agricultural commodity
enumerated in Section 1a(4) of the Act, or of an option on such a
contract or commodity.
(b) The following rules or rule amendments are not material changes
and, except as provided in paragraph (b)(9) of this section, may be
reported to the Commission pursuant to the provisions of Sec. 40.6(c):
(1) Changes in trading hours;
(2) Changes in lists of approved delivery facilities pursuant to
previously set standards or criteria;
(3) Changes to terms and conditions of options on futures other
than those relating to last trading day, expiration date, option strike
price delistings, and speculative position limits;
(4) Reductions in the minimum price fluctuation (or ``tick'');
(5) Changes required to comply with a binding order of a court of
competent jurisdiction, or of a rule, regulation or order of the
Commission or of another federal regulatory authority;
(6) Corrections of typographical errors, renumbering, periodic
routine updates to identifying information about approved entities and
other such nonsubstantive revisions of a product's terms and conditions
that have no effect on the economic characteristics of the product;
(7) Fees or fee changes of less than $1.00 per contract;
(8) Fees or fee changes that are $1.00 or more per contract and are
established by an independent third party or are unrelated to delivery,
trading, clearing or dispute resolution; and
(9) Any other rule:
(i) The text of which has been submitted for review to the
Secretary of the Commission electronically in a format specified by the
Secretary of the Commission, at least ten business days prior to its
implementation and that has been labeled ``Non-Material Agricultural
Rule Change;''
(ii) For which the registered entity has provided an explanation as
to why it considers the rule ``non-material,'' and any other
information that may be beneficial to the Commission in analyzing the
merits of the entity's claim of non-materiality; and
(iii) With respect to which the Commission has not notified the
contract market during the review period that the rule appears to
require or does require prior approval under this section.
0
33. Section 40.5 is amended by revising paragraph (a), revising
paragraph (c)(1) and revising paragraph (e)(2) to read as follows:
Sec. 40.5 Voluntary submission of rules for Commission review and
approval.
(a) Request for approval of rules. A registered entity may request
pursuant to Section 5c(c) of the Act that the Commission approve any
proposed rule or rule amendment. A submission requesting approval
shall:
(1) Be filed electronically with the Secretary of the Commission
and at the regional office of the Commission having local jurisdiction
over the registered entity in a format specified by the Secretary of
the Commission.
(2) Include a copy of the submission cover sheet in accordance with
the instructions in Appendix D to this part;
(3) Set forth the text of the proposed rule or rule amendment (in
the case of a rule amendment, deletions and additions must be
indicated);
(4) Describe the proposed effective date of a proposed rule and any
action taken or anticipated to be taken to adopt the proposed rule by
the registered entity or by its governing board or by any committee
thereof, and cite the rules of the entity that authorize the adoption
of the proposed rule;
(5) Explain the operation, purpose, and effect of the proposed
rule,
[[Page 1970]]
including, as applicable, a description of the anticipated benefits to
market participants or others, any potential anticompetitive effects on
market participants or others, how the rule fits into the registered
entity's framework of self-regulation, a demonstration that the
submission complies with the requirements of Appendix A to this part--
Guideline No. 1, and any other information which may be beneficial to
the Commission in analyzing the proposed rule. If a proposed rule
affects, directly or indirectly, the application of any other rule of
the submitting registered entity, set forth the pertinent text of any
such rule and describe the anticipated effect;
(6) Briefly describe any substantive opposing views expressed to
the registered entity by governing board or committee members, members
of the entity or market participants with respect to the proposed rule
that were not incorporated into the proposed rule;
(7) Identify any Commission regulation that the Commission may need
to amend, or sections of the Act or Commission regulations that the
Commission may need to interpret, in order to approve the proposed
rule. To the extent that such an amendment or interpretation is
necessary to accommodate a proposed rule, the submission should include
a reasoned analysis supporting the amendment to the Commission
regulation or the interpretation;
(8) Identify with particularity information in the submission
(except for a product's terms and conditions, which are made publicly
available at the time of submission) that will be subject to a request
for confidential treatment and support that request for confidential
treatment with reasonable justification; and
(9) Include a copy of the submission cover sheet in accordance with
the instructions in Appendix D to this part.
* * * * *
(c) Extensions of time. * * *
(1) An additional forty-five days, if the proposed rule raises
novel or complex issues that require additional time for review or is
of major economic significance, in which case, the Commission would
notify the submitting registered entity within the initial forty-five
day review period and would briefly describe the nature of the specific
issues for which additional time for review would be required; or
* * * * *
(e) Effect of non-approval. * * *
(2) Notification to a registered entity under paragraph (d) of this
section of the Commission's refusal to approve a proposed rule or rule
amendment of a registered entity shall be presumptive evidence that the
entity may not truthfully certify that the same, or substantially the
same, proposed rule or rule amendment does not violate the Act or
regulations thereunder.
* * * * *
0
34. Section 40.6 is amended by revising paragraph (a) introductory
text, paragraphs (a)(2) and (3), paragraph (c) introductory text, and
paragraphs (c)(1), (c)(2)(iii) and (c)(2)(v), and by adding new
paragraphs (a)(4), (c)(2)(vi) and (c)(3)(ii)(F) to read as follows:
Sec. 40.6 Self-certification of rules by designated contract markets
and registered derivatives clearing organizations.
(a) Required certification. A designated contract market or a
registered derivatives clearing organization may implement any new rule
or rule amendment (other than a rule or rule amendment approved or
deemed approved by the Commission under Sec. 40.5) if the following
conditions have been met:
* * * * *
(2) The designated contract market or registered derivatives
clearing organization has filed a submission electronically for the
rule or rule amendment with the Secretary of the Commission and at the
regional office having local jurisdiction over the submitting
registered entity in a format specified by the Secretary of the
Commission, and the Commission has received the submission at its
headquarters by close of business on the business day preceding
implementation of the rule; provided, however, rules or rule amendments
implemented under procedures of the governing board to respond to an
emergency as defined in Sec. 40.1, shall, if practicable, be filed
with the Commission prior to the implementation or, if not practicable,
be filed with the Commission at the earliest possible time after
implementation, but in no event more than 24 hours after
implementation; and
(3) The rule submission includes:
(i) A copy of the submission cover sheet in accordance with the
instructions in Appendix D to this part (in the case of a rule or rule
amendment that responds to an emergency, ``Emergency Rule
Certification'' should be noted in the Description section of the
submission coversheet);
(ii) The text of the rule (in the case of a rule amendment,
deletions and additions must be indicated);
(iii) The date of implementation;
(iv) A brief explanation of any substantive opposing views
expressed to the registered entity by governing board or committee
members, members of the entity or market participants, that were not
incorporated into the rule; and
(v) A certification by the registered entity that the rule complies
with the Act and regulations thereunder.
(4) The registered entity shall provide, if requested by Commission
staff, additional evidence, information or data that may be beneficial
to the Commission in conducting a due diligence assessment of the
certification filing and the entity's compliance with any of the
requirements of the Act or Commission regulations or policies
thereunder.
* * * * *
(c) Notification of rule amendments. Notwithstanding the rule
certification requirement of Section 5c(c)(1) of the Act, and
paragraphs (a)(1), (a)(2) and (a)(3) of this section, a designated
contract market or a registered derivatives clearing organization may
place the following rules or rule amendments into effect without
certification to the Commission if the following conditions are met:
(1) The designated contract market or registered derivatives
clearing organization provides to the Commission at least weekly a
summary notice of all rule changes made effective pursuant to this
paragraph during the preceding week. Such notice must be labeled
``Weekly Notification of Rule Changes'' and need not be filed for weeks
during which no such actions have been taken. One copy of each such
submission shall be furnished electronically in a format specified by
the Secretary of the Commission; and
(2) * * *
(iii) Index products. Routine changes in the composition,
computation, or method of selection of component entities of an index
(other than a stock index) referenced and defined in the product's
terms, that do not affect the pricing basis of the index, which are
made by an independent third party whose business relates to the
collection or dissemination of price information and which was not
formed solely for the purpose of compiling an index for use in
connection with a futures or option product;
* * * * *
(v) Fees. Fees or fee changes that are $1.00 or more per contract
and are established by an independent third party or are unrelated to
delivery, trading, clearing or dispute resolution.
(vi) Survey lists. Changes to lists of banks, brokers, dealers, or
other entities that provide price or cash market information to an
independent third
[[Page 1971]]
party and that are incorporated by reference as product terms.
(3) * * *
(ii) * * *
(F) Securities Indexes. Routine changes to the composition,
computation or method of security selection of an index that is
referenced and defined in the product's rules, and which are made by an
independent third party.
0
35. Section 40.7 is amended by adding paragraphs (a)(3) and (b)(3) to
read as follows:
Sec. 40.7 Delegations.
(a) Procedural matters * * *
(3) The Commission hereby delegates to the Director of the Division
of Market Oversight or to the Director's delegate, with the concurrence
of the General Counsel or the General Counsel's delegate, the authority
to determine whether a rule change submitted by a DCM for a materiality
determination under Sec. 40.4(b)(9) is not material (in which case it
may be reported pursuant to the provisions of Sec. 40.6(c)), or is
material, in which case he or she shall notify the DCM that the rule
change must be submitted for the Commission's prior approval.
(b) Approval authority. * * *
(3) Establish or amend speculative limits or position
accountability provisions that are in compliance with the requirements
of the Act and Commission regulations;
* * * * *
0
36. Section 40.8 is amended by revising paragraph (b) to read as
follows:
Sec. 40.8 Availability of public information.
* * * * *
(b) Any information required to be made publicly available by a
registered entity under Sections 5(d)(7), 5a(d)(4) and 5b(c)(2)(L) of
the Act, respectively, will be treated as public information by the
Commission at the time an order of designation or registration is
issued by the Commission, a registered entity is deemed to be
designated or registered, or a rule or rule amendment of the registered
entity is approved or deemed to be approved by the Commission or can
first be made effective the day following its certification by the
registered entity.
0
37. Appendix D to Part 40 is amended by revising the first paragraph to
read as follows:
Appendix D to Part 40--Submission Cover Sheet and Instructions
A properly completed submission cover sheet must accompany all rule
submissions submitted electronically by a designated contract market,
registered derivatives transaction execution facility, or registered
derivatives clearing organization to the Secretary of the Commodity
Futures Trading Commission, at [email protected] in a format
specified by the Secretary of the Commission. Each submission should
include the following:
* * * * *
Issued in Washington, DC, this 5th day of January, 2006, by the
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 06-242 Filed 1-11-06; 8:45 am]
BILLING CODE 6351-01-P