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.

Proposed Rules Federal Register

33198 

Vol. 75, No. 112 

Friday, June 11, 2010 

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. 

2Commodity 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. 

4ECMs 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. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 36, 37, and 38 

Co-Location/Proximity Hosting 

Services 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Proposed rule. 

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 nondiscriminatory, 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 colocation 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 selfregulatory 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 

colocation@cftc.gov. ‘‘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.’’ 

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 

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5Rosenblatt 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. 

6Other 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. 

7While 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). 

8Section 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. 

contracts that rival DCM contracts, and 

with contracts that serve a significant 

price discovery function. 

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

In response to the emphasis on speed 

by trading firms, DCMs and ECMs have 

adopted highly automated trading 

systems that can offer extremely highspeed 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 colocation 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 colocation 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 colocation 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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9See 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. 

10The 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). 

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 thirdparty 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 thirdparty proximity hosting services to 

decrease their network and other trading 

latencies. 

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. 

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 thirdparty 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 colocation 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 selfregulatory 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 thirdparty 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’’ 

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11 7 U.S.C. 19(a). 

12E.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). 

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. 

(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

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. 

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 § 36.3 by adding paragraph 

(e) to read as follows: 

§ 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 

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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 thirdparties 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 thirdparties 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 § 37.10 to read as follows: 

§ 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 thirdparties to provide proximity hosting 

services to market participants shall 

ensure it obtains on an ongoing basis all 

information necessary from those thirdparties 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 thirdparties 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 § 38.7 to read as follows: 

§ 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 thirdparties 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 thirdparties 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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