Release: #4550-01
For Release: August 13, 2001


CFTC Adopts First Set of Final Rules on Single-Stock Futures

Washington, D.C. -- In accordance with the Commodity Futures Modernization Act of 2000 (CFMA), the Commodity Futures Trading Commission (CFTC) has adopted the first set of final rules relating to the trading of futures contracts based on single securities and narrow-based security indices (together, security futures products or SFPs) as its moves ahead with implementation of the CFMA.

Because SFPs are considered to be both securities and futures contracts under the new law, an entity that wishes to engage in SFP trading activities must be registered with both the CFTC and the Securities and Exchange Commission (SEC). However, in order to facilitate active trading of these new financial products, which had been prohibited by law for almost two decades, the CFMA directs both agencies to change their respective rules to permit an entity that is already registered with one agency to “notice-register” with the other agency, without unreasonable restraints or requirements, for the limited purpose of trading SFPs.

Accordingly, with this first set of final rules, the CFTC has amended rule 3.10 to allow SEC-registered securities broker-dealers (BDs) to notice-register with the CFTC as futures commission merchants (FCMs) or introducing brokers (IBs) for the purpose of engaging in SFP trading activities. Consistent with the delegation of front-line oversight of traditional FCMs and IBs to an industry self-regulatory organization, the National Futures Association (NFA), the CFTC has issued a Notice and Order authorizing the NFA to process notice-registration filings by BDs and to maintain records on such BDs.

The CFTC has also adopted new rule 41.41, which establishes procedures whereby BDs that notice-register as FCMs or IBs, or BDs that are exempt from having to register as a floor broker or floor trader, may apply for orders exempting them from provisions of the Commodity Exchange Act and certain rules promulgated thereunder. The CFTC may grant such requests if it determines that the exemption is necessary or appropriate in the public interest and consistent with the protection of investors. The new rule also permits security industry self-regulatory organizations to submit such requests for exemptive orders on behalf of their members.

The rule amendments, notice and order, and new rule are being published in the Federal Register and will become effective thirty days after publication. Copies of these documents can be obtained by contacting the Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC 20581, (202) 418-5100 or by accessing the Commodity Futures Trading Commission website.