Designated contract markets (DCMs) may list for trading new contracts by filing a self-certification with the Commission that the new contract complies with the Commodity Exchange Act (CEA) and the Commission’s regulations or by requesting Commission approval.
To meet its statutory mission of ensuring market integrity and customer protection with respect to products listed under self-certification procedures, the CFTC places greater reliance on its oversight authority, including market surveillance, rule enforcement reviews, reviews of contract terms, dialogue with the regulated entities, and enforcement actions. For contracts filed under self-certification procedures, the regulated entities are expected to assume primary responsibility for ensuring that the contracts meet, on a continuing basis, the applicable statutory and regulatory requirements.
Listing of New Contracts by Self-Certification
DCMs may list new contracts for trading by filing a written self-certification with the CFTC by close of business on the Commission’s business day preceding the Commission’s business day on which the rule is to be implemented. CFTC Regulation 38.4 and CFTC Regulation 40.2 set forth the procedures for new contract self-certification filings.
Approval of New Contracts
DCMs may request Commission approval of any new contract listed for trading under Section 5c(c) of the CEA, 7 USC § 7a-2(c), CFTC Regulation 38.4(a) and CFTC Regulation 40.3. A DCM that voluntarily requests CFTC approval of a new contract may do so by submitting its request prior to, concurrently with, or subsequent to a new contract self-certification filing.
Security Futures Products
Trading of futures on single securities and futures on narrow-based security indexes, collectively called security futures products or SFPs, is jointly regulated by the CFTC and the Securities and Exchange Commission (SEC). Security futures products have features of both securities and futures. Subpart C of Commission Part 41 specifies the requirements and standards for listing security futures products.
Agricultural Trade Options
Agricultural trade options are tools for managing agricultural price risk exposure. They are referred to as “trade options” because, unlike exchange-traded options, which are bought and sold on a designated contract market, agricultural trade options are bought and sold off-exchange directly between commercial market participants for business-related purposes.
An event contract, also known as a prediction or information contract, is a derivative contract whose payoff is based on a specified event, occurrence, or value such as the value of a macroeconomic indicator, corporate earnings, level of snowfall, or dollar value of damages caused by a hurricane. CFTC Regulation 40.11 prohibits event contracts that reference terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law, or that involves, relates to, or references an activity that is similar to any of those activities and that the CFTC determines by rule or regulation to be contrary to the public interest.
- On April 2, 2012, the CFTC issued an Order Prohibiting the Listing or Trading of certain Political Event Contracts at the North American Derivatives Exchange. The contracts, which would have paid out based upon the outcome of certain US federal elections, were determined to involve gaming and to be contrary to the public interest.
Economic Requirements for Listed Products
The economic requirements, that listed futures and option contracts meet specified criteria, have been a fundamental tool of Federal regulation of commodity futures exchanges since the Future Trading Act of 1921, Pub. L. No. 67-66, 42 Stat. 187 (1921). Currently, the statutory requirements for listing contracts are found in Section 5 of the CEA, 7 USC § 7, and for security futures, in Section 2(a)(1)(D) of the CEA, 7 USC § 2(a)(1)(D).