Release: #3865-95

For Release: September 21, 1995

CFTC Approves Final Rules to Establish a Three-Year Pilot Program to Test Various Trading Innovations

WASHINGTON -- The Commodity Futures Trading Commission (CFTC) at an open meeting held today approved final rules establishing a three-year pilot program to permit certain transactions to trade under an exemption from specified requirements of the Commodity Exchange Act and CFTC regulations. The final rules, which add a new Part 36 to the CFTC's rules, also provide for stand-alone anti-fraud prohibitions, in addition to the existing anti-fraud provisions under the Act and CFTC regulations.

The CFTC first proposed rules to add a new Part 36 on October 28, 1994, (see 59 Federal Register 54139, October 28, 1994) in response to petitions for exemptive relief submitted by the Chicago Mercantile Exchange and the Chicago Board of Trade, joined by the New York Mercantile Exchange. As adopted Part 36 permits greater flexibility with respect to: trading rules; the listing of transactions; reporting requirements; registration requirements; and risk disclosure for a new class of exchange-traded market transactions, which can be offered only to specified categories of individuals or entities.

CFTC Chairman Mary L. Schapiro said that the new Part 36 pilot program "strikes that delicate balance of fostering innovation and competitiveness consistent with the public interest. . . . These rules retain essential customer and financial integrity protections, including those protections which apply through a high-level of self-regulation by the futures industry."

Schapiro said the new rulemaking will provide U.S. futures exchanges with "greater flexibility to allow exchange products offered to sophisticated traders to remain attractive trading vehicles when compared with foreign and domestic over-the-counter (OTC) instruments and with foreign exchange-traded instruments, while retaining the essential customer and market protections that make these markets a model for the world."

Commissioner John Tull, while otherwise supporting the Part 36 proposal, dissented from the portion of the proposed rules that adopted a stand-alone anti-fraud rule for transactions subject to Part 36, based on his belief that the Commission should not adopt such a stand-alone anti-fraud provision for the Part 36 market without also adopting one for the OTC swaps market.

For copies of the new rulemaking, contact the CFTC's Office of Public Affairs at (202) 254-8630.