2010-13613

FR Doc 2010-13613[Federal Register: June 11, 2010 (Volume 75, Number 112)]
[Proposed Rules]               
[Page 33198-33202]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11jn10-15]                         

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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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[[Page 33198]]

COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 36, 37, and 38

 
Co-Location/Proximity Hosting Services

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rule.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or 
``Commission'') proposes a rule (``Proposal'') that requires Designated 
Contract Markets (DCMs), Derivatives Transaction Execution Facilities 
(DTEFs), and Exempt Commercial Markets (ECMs) that list significant 
price discovery contracts (SPDCs) that offer co-location and/or 
proximity hosting services to market participants to have equal access 
to co-location and/or proximity hosting services without artificial 
barriers that act to exclude some market participants from accessing 
these services or that act to bar otherwise qualified third-party 
vendors from providing these services. The Proposal also addresses fees 
for these services and would require that fees be equitable, uniform, 
and non-discriminatory, while taking into account the different level 
of services that may be required by various market participants and 
requires DCMs, DTEFs, and ECMs with SPDCs, that offer co-location and/
or proximity hosting services, to disclose publicly, via their Web 
sites, the longest, shortest, and average latencies for each 
connectivity option. Finally, the Proposal would require DCMs, DTEFs, 
and ECMs with SPDCs, that approve third-parties to provide co-location 
and/or proximity hosting services to ensure they have sufficient 
agreements in place to obtain all information necessary from those 
third-parties to carry out their self-regulatory obligations and other 
obligations under the Commodity Exchange Act (``Act'') and Commission 
Regulations.

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

ADDRESSES: Comments should be sent to David Stawick, Secretary, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. Comments may be submitted via e-mail 
at [email protected] ``Co-location/Proximity Hosting Services'' must 
be in the subject field of responses submitted via e-mail, and clearly 
indicated on written submissions. Comments may also be submitted at 
http://www.regulations.gov. All comments must be in English, or, if 
not, accompanied by an English translation.

FOR FURTHER INFORMATION CONTACT: Melissa Mitchell, Attorney-Advisor, 
202-418-5448, Division of Market Oversight, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

    In 1990, the Commission issued a Policy Statement Concerning the 
Oversight of Screen-Based Trading Systems (``Policy Statement'').\1\ 
The Policy Statement consisted of ten principles that set out broad 
regulatory considerations arising from cross-border screen-based 
trading. Principles 4 and 6 are relevant to this Proposal. Principle 4 
states, ``From a technical perspective, the system should be designed 
to operate in a manner which is equitable to all market participants 
and any differences in treatment among classes of participants should 
be identified.'' Principle 6 states, ``Procedures should be established 
to ensure the competence, integrity, and authority of system users, to 
ensure that system users are adequately supervised, and that access to 
the system is not arbitrarily or discriminatorily denied.''
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    \1\ 55 FR 48670 (November 21, 1990). The Policy Statement was 
the Commission adopting the ``Principles for the Oversight of 
Screen-Based Trading Systems for Derivatives Products'' recommended 
by the International Organization of Securities Commissions 
(``IOSCO'') to all member jurisdictions. The IOSCO Principles were 
formulated by eight jurisdictions which comprised Working Party 7 to 
the IOSCO Technical Committee, under the Chairmanship of the 
Commission.
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    At the time of the Commission Policy Statement, screen-based 
trading of derivatives was a relatively recent development. In fact, in 
issuing the Policy Statement, the Commission stated its belief that 
``[T]he Principles reflect the policy considerations underlying the 
Commission's recent evaluation and approval of the Chicago Mercantile 
Exchange's Globex trading system and the Amex Commodities Corporation's 
Amex Access system.'' The Commission noted that in issuing the Policy 
Statement, it ``[W]ishes to add its support toward achieving the goal 
of effective regulation of cross border systems which facilitates 
international cooperation but does not impair the ability of system 
providers and sponsors to develop and implement innovative 
technologies.''
    In the time since the Commission's 1990 Policy Statement, futures 
and option trading has changed substantially as system providers and 
sponsors did, in fact, develop and implement innovative technologies. 
In particular, technological advances affecting futures and option 
trading have been more pronounced and extensive over the last ten 
years. For example, DCMs have undergone a decade-long transition from 
geographically-defined trading pits to global electronic trading 
platforms. From 2000 to 2009, electronic trading grew from 
approximately 9 percent to approximately 81 percent of volume on U.S. 
DCMs. Over the same period, the number of actively traded futures and 
option contracts listed on U.S. exchanges increased more than seven 
fold, from 266 contracts in 2000 to 1,866 contracts in 2009.\2\ 
Moreover, total DCM futures and option trading volume rose from 
approximately 594.5 million contracts in 2000 to approximately 2.78 
billion contracts in 2009, an increase of over 368%.\3\ In addition to 
drastic changes in trading on DCMs, during that same ten year period, 
ECMs were first authorized by statute,\4\ and have since gone from a 
group of nascent trading facilities to, in some cases, large, global 
electronic trading platforms with significant trading volume, with

[[Page 33199]]

contracts that rival DCM contracts, and with contracts that serve a 
significant price discovery function.
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    \2\ Commodity Futures Trading Commission, FY 2009 Performance 
and Accountability Report, p.14.
    \3\ In addition, futures and option trading volume reached a 
peak of approximately 3.37 billion contracts in 2008, an increase of 
over 466% over the trading volume in 2000.
    \4\ ECMs were first authorized in the Commodity Futures 
Modernization Act of 2000 (``CFMA''). DTEFs were also first 
authorized in the CFMA; however there are not, and have never been, 
any active DTEFs.
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    A primary driver of these drastic changes in futures and option 
trading has been the continual evolution of technologies for generating 
and executing orders. These technologies have dramatically improved the 
speed, capacity, and sophistication of the trading functions that are 
available to market participants.
    Many trading firms have trading strategies that are highly 
dependent upon speed in a number of areas: Speed of market data 
delivery from exchange servers to the firms' servers; speed of 
processing of firms' trading engines; speed of access to exchange 
servers by firms' servers; and, speed of order execution and response 
by exchanges. For some trading firms, speed is now measured in 
microseconds, and any latency or delay in order arrival or execution 
can adversely affect their trading strategy. These trading firms are 
typically referred to as ``high frequency'' and/or ``algorithmic'' 
traders.\5\ High frequency traders are professional traders that use 
sophisticated computer systems to engage in strategies that generate a 
large number of trades on a daily basis. Competition among high 
frequency traders has led to extensive use of co-location and/or 
proximity hosting services.\6\
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    \5\ Rosenblatt Securities recently estimated that high frequency 
trading amounts to approximately 35% of U.S. future markets volume. 
See Futures Industry, January 2010. at p. 21. Similarly, the Tabb 
Group forecasts that total U.S. futures volume executed on an 
automated basis will increase 60% by the close of 2010. Tabb 
believes this is largely through high frequency trading. See ``US 
Futures Markets in the Crosshairs of Algorithmic Revolution,'' 
published on Hedgeweek at http://www.hedgeweek.com dated November 
16, 2009.
    \6\ Other characteristics of high frequency trading may also 
include: (1) The use of sophisticated computer systems to generate, 
route and execute orders, (2) short time-frames for establishing and 
liquidating positions, (3) submission of numerous orders that are 
cancelled shortly thereafter, and/or (4) ending the trading day in a 
neutral overall position.
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    In response to the emphasis on speed by trading firms, DCMs and 
ECMs have adopted highly automated trading systems that can offer 
extremely high-speed order entry and execution. In addition, to further 
reduce latency in transmitting market data and order messages, many 
trading markets offer co-location and/or proximity hosting services 
that enable market participants to place their servers in close 
proximity to the trading market's matching engine. Accordingly, the 
growth of co-location and/or proximity hosting services is largely 
related to the development of high frequency trading in the futures and 
option markets.
    Co-location and proximity services refer to trading market and/or 
certain third-party facility space that is made available to market 
participants for the purpose of locating their network and computing 
hardware closer to the trading market's matching engine. Along with 
space, co-location and proximity hosting services usually involve 
providing various levels of power, telecommunications, and other 
ancillary products and services necessary to maintain the trading 
firms' trading systems.
    Co-location and proximity services are typically offered by trading 
markets that operate their own data centers or by third-party providers 
that host or connect to the computer systems of the trading markets. 
These services may permit: (1) Market participant servers to be located 
within the trading market's dedicated space in a data center; (2) 
market participant servers to be located in their own dedicated space 
within the same data center as the trading market; (3) market 
participant servers to be located in a separate data center on the same 
floor or in the same building as the trading market's data center; and/
or (4) approved third-party vendors to manage a market participant's 
connectivity arrangements through proximity hosting services located in 
various data centers near the trading market's data center. During the 
Division's review of co-location and proximity hosting services, the 
Division learned that entities that utilize co-location and/or 
proximity hosting services include clearing firms, proprietary trading 
groups, market makers, algorithmic traders, hedge funds, introducing 
brokers, data centers, and quote vendors. Some firms directly co-
locate, while others do so indirectly by trading through a firm that 
directly co-locates.
    While there are multiple co-location and proximity hosting service 
options available to market participants depending on the trading 
market involved and the needs of the particular client, it has become 
clear to the Commission that trading volumes from firms that utilize 
co-location and/or proximity hosting services is significant. In its 
review of co-location and proximity hosting services undertaken prior 
to this Proposal, the Commission learned that volumes from market 
participants that utilize co-location and/or proximity hosting services 
varied a great deal. Some regulated trading markets have little to no 
volume generated thru the use of such services, while others have 
significant volume. One regulated trading market reported that 29 
percent of its traders utilized such services, representing 68 percent 
of its trading volume, while another reported that well over 100 market 
participants utilized the service, representing 39 percent of its 
trading volume, just to name a few. Moreover, the Commission learned 
that some regulated trading markets plan on expanding co-location and 
proximity hosting services in the very near future.
    In light of the fundamental changes in the technology, products, 
and platforms of U.S. futures and option trading since the Commission's 
1990 Policy Statement, and the significant volume generated by market 
participants utilizing co-location and/or proximity hosting services, 
the Commission believes it is necessary to re-address some of the 
issues raised in the Policy Statement in the form of a proposed rule to 
deter and prevent potential disruptions to market integrity. Moreover, 
given the differences in co-location and proximity hosting services 
offered to market participants, the Commission believes that consistent 
standards applicable to all regulated trading markets--DCMs, DTEFs, and 
ECMs with SPDCs--will ensure that co-location and proximity hosting 
services are offered and administered in an equitable, fair, and 
transparent manner that will protect all market participants.\7\ 
Ensuring that Commission-regulated markets, and trading on those 
markets, are equitable, fair, and transparent are critical functions of 
the Commission and any activity that negatively impacts equitable, 
fair, and transparent trading on those markets could constitute a 
disruption to market integrity, for which it is a specific purpose of 
the Act to detect and prevent.\8\
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    \7\ While this Proposal only sets forth requirements for co-
location and third-party proximity hosting services, the Commission 
is actively considering an appropriate regulatory response to the 
proliferation of high-frequency and algorithmic traders to ensure 
that these traders do not have a negative impact on the stability of 
Commission-regulated futures and option markets or on the critical 
price discovery and risk management functions of these markets. The 
Commission notes that similar developments in the U.S. equity 
markets have been identified by the Securities and Exchange 
Commission (``SEC''). On January 13, 2010, the SEC issued a concept 
release requesting public comment on various equity market structure 
developments, including, among other things, co-location and high 
frequency trading. See SEC, Concept Release on Equity Market 
Structure, Securities Exchange Act Release No. 61358 (January 13, 
2010), 75 FR 3594 (January 21, 2010).
    \8\ Section 3(b), 7 U.S.C. 5(c). Congress gave the Commission 
broad authority in Section 8a(5) of the Act, 7 U.S.C. 12a(5), to 
make and promulgate rules, such as those contained in this Proposal, 
reasonably necessary to prevent disruptions to market integrity.

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[[Page 33200]]

II. The Proposal

    Commission Regulation Part 36 generally sets forth the provisions 
governing exempt markets (including ECMs), Part 37 generally sets forth 
the provisions governing DTEFs, and Part 38 generally sets forth the 
provisions governing DCMs. The Proposal would add language to Parts 36, 
37, and 38 to impose identical requirements relating to co-location and 
proximity hosting services offered by ECMs with SPDCs, DTEFs, and DCMs.
    For purposes of the Proposal the term ``Co-Location/Proximity 
Hosting Services'' is defined as trading market and certain third-party 
facility space, power, telecommunications, and other ancillary products 
and services that are made available to market participants for the 
purpose of locating their computer systems/servers in close proximity 
to the trading market's trade and execution system. These services help 
to minimize network and other trading latencies, which is essential for 
high frequency traders.
    The provision relating to ``Equal access'' would require that co-
location and proximity hosting services be available to all qualified 
market participants willing to pay for the services. Consequently, co-
location and proximity hosting services could not be offered on a 
discriminatory basis to only select market participants or to select 
categories of market participants. The Commission's view is that access 
should be equitable, open and fair, and that view is expressed in the 
Act and Commission Regulations.\9\ As a component of open and fair, the 
Commission believes that DCMs, DTEFs, and ECMs with SPDCs, that offer 
co-location and/or proximity hosting services must ensure that there is 
sufficient availability of such services for any and all willing and 
qualified market participants. For example, if the availability of a 
service became limited, thereby leaving some market participants or 
third-party hosting providers without adequate access, the Commission 
would not view access to those services as open and fair. In addition, 
the provision relating to ``Equal access'' would require that fair and 
open access be available to third-party hosting service providers 
seeking to provide proximity hosting services to market participants. 
By this provision, the Commission is seeking to ensure that DCMs, 
DTEFs, and ECMs with SPDCs, are not the ``only game in town'' when it 
comes to co-location and proximity hosting services. Currently, there 
are third-parties that provide proximity hosting services. If market 
participants choose not to co-locate directly with the DCM, DTEF, or 
ECM, they should still have the opportunity to utilize qualified and 
approved third-party proximity hosting services to decrease their 
network and other trading latencies.
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    \9\ See e.g. Sections 5(b)(3), 7 U.S.C. 7(b)(3); Section 
5(d)(9), 7 U.S.C. 7(d)(9); Commission Regulation Part 38, Appendix 
B, Core Principle 9; Sections 5a(c)(2) and (3), 7 U.S.C. 7(a)(c)(2) 
and (3); and Commission Regulation Part 37, Appendix A, Registration 
Criteria 2 and 3.
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    The provision relating to ``Fees'' would ensure that fees are not 
used as a means to deny access to some market participants by ``pricing 
them out of the market.'' The Commission recognizes that offering co-
location and proximity hosting services involves costs to the trading 
market and third-party host, such as floor/rack space, power, data 
connections, and technical support, to name just a few. However, the 
Commission seeks to ensure that the fees charged to market participants 
and third-party proximity hosting services remain equitable and do not 
become an artificial barrier to effective market access. Moreover, the 
Commission's view is that an equitable fee would be a uniform, non-
discriminatory set of fees for the various services provided, including 
but not limited to fees for cabinet space usage, installation and 
related power provided to market participants, connectivity 
requirements, and maintenance and other ancillary services. The 
Commission would not view preferential pricing for certain market 
participants or certain classes of market participants as equitable 
pricing.
    The provision relating to ``Latency transparency'' would ensure 
that general information concerning the longest, shortest, and average 
latencies for all connectivity options are separately detailed and 
readily available to the public on regulated trading markets' Web 
sites. Alternatively, the Commission is studying an alternate approach 
for disclosing latency information that would be based on the 
percentile of speed rather than longest, shortest and average 
latencies.\10\ The Commission requests comment on this issue and asks 
commenters to detail how they believe latency information should best 
be disclosed so market participants can make fully informed decisions 
about whether the benefits to be obtained from co-location and/or 
proximity hosting services are worth the cost.
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    \10\ The Commission is considering whether it would be more 
useful for trading markets to detail latency information in 
percentiles of speed, for instance the 1% and 99% percentiles of 
speed rather than high low, or the percentage of transactions at no 
worse than a given speed (i.e. 99% of all transactions had latencies 
of ``x'' milliseconds or less).
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    Specific and separate detail should be set forth for options where 
a market participant is directly co-located with a trading market; 
where a market participant is indirectly co-located through a clearing 
firm, futures commission merchant, introducing broker, or some other 
entity or market participant; where a market participant is connected 
via the services of a third-party proximity hosting provider; and all 
other manners by which market participants connect to the trading 
markets' electronic trading system(s). This would ensure that any 
market participant considering co-location or proximity hosting 
services could easily assess whether incurring the cost is worth the 
benefit, and would ensure that market participants utilizing co-
location or proximity hosting services could regularly assess whether 
the continued cost of the services is worth the benefits obtained. The 
Commission believes regulated trading markets should on a monthly basis 
update latency information on their Web sites. The Commission invites 
the public to comment on whether the proposed monthly disclosure of 
latency information is appropriate, or whether an alternative frequency 
parameter should be adopted. Commenters are specifically instructed to 
provide information on how such latency frequency disclosure would 
benefit markets, market participants, and the public.
    Finally, the provision relating to ``Third-party providers'' would 
ensure that DCMs, DTEFs, and ECMs with SPDCs obtain all information 
about market participants, their systems, and their transactions from 
third-party providers necessary to carry out self-regulatory 
obligations and other obligations under the Act and Commission 
Regulations. In connection with this obligation, the Commission 
believes that DCMs, DTEFs, and ECMs with SPDCs should enter into 
contractual agreements with such third-party providers on terms 
consistent with the Act and Commission Regulations. In this manner, 
DCMs, DTEFs, and ECMs with SPDCs will be able to adequately perform 
their regulatory responsibilities. The Commission further notes that 
the proposed requirements would better prevent third-party proximity 
hosting service providers from improperly shielding the identities of 
market participants from the regulatory oversight of DCMs, DTEFs, ECMs, 
or the Commission. In addition, the provision relating to ``Third-party 
providers''

[[Page 33201]]

(along with the provision relating to ``Equal access'' as discussed 
above) would ensure that DCMs, DTEFs, and ECMs with SPDCs do not bar 
otherwise qualified third-parties from being providing co-location or 
proximity hosting services to market participants trading on that 
trading market.

III. Related Matters

A. Cost-Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its actions before issuing a new regulation or 
order under the Act.\11\ By its terms, Section 15(a) requires the 
Commission to ``consider the costs and benefits'' of a subject rule or 
order, without requiring it to quantify the costs and benefits of its 
action or to determine whether the benefits of the action outweigh its 
costs. Section 15(a) requires that the costs and benefits of proposed 
rules be evaluated in light of five broad areas of market and public 
concern: (1) Protection of market participants and the public; (2) 
efficiency, competitiveness, and financial integrity of futures 
markets; (3) price discovery; (4) sound risk management practices; and 
(5) other public interest considerations. In concluding its analysis, 
the Commission may, in its discretion, give greater weight to any one 
of the five enumerated areas of concern and may determine that 
notwithstanding its costs, a particular rule is necessary or 
appropriate to protect the public interest or to effectuate any 
provisions or to accomplish any of the purposes of the Act.\12\
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    \11\ 7 U.S.C. 19(a).
    \12\ E.g. Fisherman's Dock Co-op., Inc. v. Brown, 75 F3d 164 
(4th Cir. 1996); Center for Auto Safety v. Peck, 751 F2d 1336 (DC 
Cir. 1985) (agency has discretion to weigh factors in undertaking 
cost benefit analyses).
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    The proposed regulations will ensure that all market participants 
have access to co-location and/or proximity hosting services on similar 
terms. An important goal of this rulemaking is to establish regulations 
for open and fair access and public disclosure of general latency 
information for each connectivity option offered by DCMs, DTEFs, and 
ECMs with SPDCs. The proposed regulations will not require entities to 
begin offering co-location and/or proximity hosting services, but only 
apply to those entities that choose to offer such services. The only 
costs that might be incurred by an entity complying with the proposed 
regulations (triggered only after an entity decides to offer co-
location and/or proximity hosting services) include ensuring the public 
disclosure of latency information. The Commission believes such costs 
would be minimal and that the benefits, particularly the benefits to 
the efficiency, competitiveness and financial integrity of the futures 
markets and the protection of market participants will outweigh the 
costs to entities. The Commission also notes that many entities already 
offer co-location and/or proximity hosting services to their market 
participants. This means that many of the entities have already 
incurred costs relating to technology and infrastructure, unrelated to 
this proposed rule. As such, costs have already been incurred, and 
would continue to be incurred with or without the requirement to comply 
with this proposed rule.
    After considering the above mentioned factors and issues, the 
Commission has determined to propose these rules for co-location and/or 
proximity hosting services for DCMs, DTEFs and ECMs with SPDCs. The 
Commission specifically invites public comment on its application of 
the criteria contained in Section 15(a) of the Act and further invites 
interested parties to submit any quantifiable data that they may have 
concerning the costs and benefits of the proposed rules.

B. Paperwork Reduction Act of 1995

    The proposed rules would require DCMs, DTEFs and ECMs with SPDCs 
that offer co-location and/or proximity hosting services to make 
information about the latencies for each connectivity option available 
to the public via their Web sites. This is information that most of 
those entities already have access to or keep in the normal course of 
business and can generally make available to the public via their Web 
site. Therefore, the Commission believes that the proposed rules will 
not impose new recordkeeping or information collection requirements, or 
other collections of information that require approval of the Office of 
Management and Budget under 44 U.S.C. 3501, et seq. Accordingly, the 
Paperwork Reduction Act does not apply. The Commission solicits comment 
on its estimate that no additional recordkeeping or information 
collection requirements or changes to existing collection requirements 
would result from the proposed rules.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires federal agencies, in promulgating rules, to consider the 
impact of those rules on small entities. The rules proposed herein will 
affect DCMs, DTEFs, and ECMs with SPDCs. The Commission has previously 
determined that the foregoing entities are not small entities for 
purposes of the RFA.\13\ Accordingly, the Chairman, on behalf of the 
Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the 
proposed rules will not have a significant economic impact on a 
substantial number of small entities.
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    \13\ 47 FR 18618, 18619 (April 30, 1982) discussing contract 
markets; 66 FR 42256, 42268 (August 10, 2001) discussing exempt 
commercial markets and derivatives transaction execution facilities.
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List of Subjects

17 CFR Part 36

    Commodity futures, Exempt commercial markets, Significant price 
discovery contracts.

17 CFR Part 37

    Commodity futures, Derivates transaction execution facilities.

17 CFR Part 38

    Commodity futures, Designated contract markets.

    In consideration of the foregoing and pursuant to the authority 
contained in the Commodity Exchange Act, the Commission hereby proposes 
to amend 17 CFR Parts 36, 37, 38 as follows:

PART 36--EXEMPT MARKETS

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

    Authority:  7 U.S.C. 2, 2(h)(7), 6, 6c and 12a, as amended by 
Title XIII of the Food, Conservation and Energy Act of 2008, Public 
Law 110-246, 122 Stat. 1624 (June 18, 2008).

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


Sec.  36.3  Exempt commercial markets.

* * * * *
    (e) Co-location/Proximity Hosting Services.
    (1) Definition. The term ``co-location/proximity hosting services'' 
means space, power, telecommunications, and other ancillary products 
and services made available to market participants for the purpose of 
enabling them to position their computer systems/servers in close 
proximity to the exempt commercial market's trade and execution 
systems.
    (2) Equal Access. An exempt commercial market that lists a 
significant price discovery contract and offers co-location services to 
market participants shall allow access to such services to all market 
participants and third-party proximity hosting service providers 
otherwise eligible and qualified to use the services.
    (3) Fees. An exempt commercial market that lists a significant 
price

[[Page 33202]]

discovery contract and offers co-location services to market 
participants shall ensure that the fees to market participants are 
imposed in a uniform, non-discriminatory manner. Fees shall not be used 
as an artificial barrier to access by any market participants. An 
exempt commercial market that lists a significant price discovery 
contract shall not offer preferential connectivity pricing arrangements 
to any market participant on any basis, including user profile, payment 
for order flow, or any other specialized pricing scheme.
    (4) Latency transparency. An exempt commercial market that lists a 
significant price discovery contract and offers co-location services to 
market participants shall disclose monthly to the public on its Web 
site the longest, shortest, and average latencies for each connectivity 
option provided by the exempt commercial market.
    (5) Third-party providers. An exempt commercial market that lists a 
significant price discovery contract and approves specific third-
parties to provide proximity hosting services to market participants 
shall ensure it obtains on an ongoing basis all information necessary 
from those third-parties to carry out its self regulatory obligations 
and other obligations under the Commodity Exchange Act and Commission 
Regulations. An exempt commercial market that lists a significant price 
discovery contract and offers co-location services to market 
participants shall not act to bar otherwise eligible and qualified 
third-parties from providing co-location or proximity hosting services 
to market participants.

PART 37--DERIVATIVES TRANSACTION EXECUTION FACILITIES

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

    Authority:  7 U.S.C. 2, 5, 6, 6c, 6(c), 7a and 12a, as amended 
by Appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

    4. Add Sec.  37.10 to read as follows:


Sec.  37.10  Co-location/Proximity Hosting Services.

    (a) Definition. The term ``co-location/proximity hosting services'' 
means space, power, telecommunications, and other ancillary products 
and services made available to market participants for the purpose of 
enabling them to position their computer systems/servers in close 
proximity to the derivatives transaction execution facility's trade and 
execution systems.
    (b) Equal Access. A derivatives transaction execution facility that 
offers co-location services to market participants shall allow access 
to such services to all market participants and third-party proximity 
hosting service providers eligible to use the services.
    (c) Fees. A derivatives transaction execution facility that offers 
co-location services to market participants shall ensure that the fees 
to market participants are imposed in a uniform, non-discriminatory 
manner. Fees shall not be used as an artificial barrier to access by 
any market participants. A derivatives transaction execution facility 
shall not offer preferential connectivity pricing arrangements to any 
market participant on any basis, including user profile, payment for 
order flow, or any other specialized pricing scheme.
    (d) Latency transparency. A derivatives transaction execution 
facility that offers co-location services to market participants shall 
disclose monthly to the public on its Web site the longest, shortest, 
and average latencies for each connectivity option provided by the 
derivatives transaction execution facility.
    (e) Third-party providers. A derivatives transaction execution 
facility that approves specific third-parties to provide proximity 
hosting services to market participants shall ensure it obtains on an 
ongoing basis all information necessary from those third-parties to 
carry out its self regulatory obligations and other obligations under 
the Commodity Exchange Act and Commission Regulations. A derivatives 
transaction execution facility that offers co-location services to 
market participants shall not act to bar otherwise eligible and 
qualified third-parties from providing co-location or proximity hosting 
services to market participants.

PART 38--DESIGNATED CONTRACT MARKETS

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

    Authority:  7 U.S.C. 2, 5, 6, 6c, 7, 7a-2 and 12a, as amended by 
Appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

    6. Add Sec.  38.7 to read as follows:


Sec.  38.7  Co-location/Proximity Hosting Services.

    (a) Definition. The term ``co-location/proximity hosting services'' 
means space, power, telecommunications, and other ancillary products 
and services made available to market participants for the purpose of 
enabling them to position their computer systems/servers in close 
proximity to the designated contract market's trade and execution 
systems.
    (b) Equal Access. A designated contract market that offers co-
location services to market participants shall allow access to such 
services to all market participants and third-party proximity hosting 
service providers eligible to use the services.
    (c) Fees. A designated contract market that offers co-location 
services to market participants shall ensure that the fees to market 
participants are imposed in a uniform, non-discriminatory manner. Fees 
shall not be used as an artificial barrier to access by any market 
participants. A designated contract market shall not offer preferential 
connectivity pricing arrangements to any market participant on any 
basis, including user profile, payment for order flow, or any other 
specialized pricing scheme.
    (d) Latency transparency. A designated contract market that offers 
co-location services to market participants shall disclose monthly to 
the public on its Web site the longest, shortest, and average latencies 
for each connectivity option provided by the designated contract 
market.
    (e) Third-party providers. A designated contract market that 
approves specific third-parties to provide proximity hosting services 
to market participants shall ensure it obtains on an ongoing basis all 
information necessary from those third-parties to effectively carry out 
its self regulatory obligations and other obligations under the 
Commodity Exchange Act and Commission Regulations. A designated 
contract market that offers co-location services to market participants 
shall not act to bar otherwise eligible and qualified third-parties 
from providing co-location or proximity hosting services to market 
participants.

    Issued in Washington, DC on June 1, 2010 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2010-13613 Filed 6-10-10; 8:45 am]
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