60912 Federal Register / Vol. 65, No. 199 / Friday, October 13, 2000 / Notices

1ONXCC is organized as a Delaware non-stock,

membership corporation with two classes of

members. Class A members of ONXCC are entitled

to elect and remove directors, and decide all

matters which require a vote of the corporation’s

members. Only the holders of Class A shares would

be entitled to receive any dividends or distributions

that may be declared or paid by the corporation.

OnExchangeSM, Inc. initially will be the sole Class

A member. Class B members, comprised of all

ONXBOT Subscribers, are not entitled to vote on

any matter. ONXCC’s Board would initially be

comprised of three directors.

Matters to Be Considered

November 8, 2000

Budget Review/Update, Marine

Protected Areas Report, Strategy for

Development of ‘‘Views Paper’’ for

Transition Team

November 9, 2000

Preparation of ‘‘Views Paper’’,

Dialogue with Students of York College,

Tour of Food and Drug Administration

Laboratory in Queens

November 10, 2000

Steering Committee Report,

Completion of ‘‘Views Paper’’

Time will be set aside for public

comment on agenda items.

Special Accommodations

These meetings are physically

accessible to people with disabilities.

Requests for sign language

interpretation or other auxiliary aids

should be directed to MAFAC (see

ADDRESSES).

Dated: October 3, 2000.

William T. Hogarth,

Deputy Assistant Administrator, National

Marine Fisheries Service.

FR Doc. 00–26360 Filed 10–12–00; 845 am]

BILLING CODE 3510–22–S

COMMODITY FUTURES TRADING

COMMISSION

Application of onExchangeSM Board of

Trade, Inc. for Designation as a

Contract Market in Five Year U.S.

Treasury Note Futures Contracts

AGENCY: Commodity Futures Trading

Commission.

ACTION: Notice of availability of the

terms and conditions of proposed

commodity futures contracts.

SUMMARY: OnExchangeSM Board of

Trade, Inc. (‘‘ONXBOT’’ or ‘‘Exchange’’)

has applied for designation as a contract

market for the automated trading of Five

Year U.S. Treasury Note futures

contracts on its electronic trading

system, onTradeSM. The Exchange has

not previously been approved by the

Commodity Futures Trading

Commission (‘‘Commission’’) as a

contract market in any commodity.

Accordingly, in addition to the terms

and conditions of the proposed futures

contract, ONXBOT has submitted to the

Commission proposed bylaws and rules

pertaining to ONXBOT membership,

governance, trading standards,

disciplinary and arbitration procedures,

and various other materials necessary to

meet the requirements for a board of

trade seeking initial designation as a

contract market, including a description

of its trade-matching algorithm.

ONXBOT’s submission also includes

various proposed bylaws and rules of

the onExchangeSM Clearing Corporation

(‘‘ONXCC’’), an affiliate that would be

responsible for clearing and settlement

functions for the Exchange.

Acting pursuant to the authority

delegated by Commission Regulation

140.96, the Division of Economic

Analysis and the Division of Trading

and Markets (‘‘the Divisions’’) have

determined to publish the Exchange’s

proposal for public comment. The

Divisions believe that publication of the

proposal for comment at this time is in

the public interest, will assist the

Commission in considering the views of

interested persons, and is consistent

with the Commodity Exchange Act. The

Divisions seek comment pertaining to

all aspects of ONXBOT’s application

and which address any issue

commenters believe the Commission

should consider.

DATES: Comments must be received on

or before November 13, 2000.

FOR FURTHER INFORMATION CONTACT:

With respect to questions about the

terms and conditions of ONXBOT’s

proposed futures contract, please

contact Thomas M. Leahy, Jr., Chief of

Financial Instruments, Division of

Economic Analysis, Commodity Futures

Trading Commission, Three Lafayette

Centre, 1155 21st Street, NW,

Washington, DC 20581; telephone

number (202) 418–5278; facsimile

number (202) 418–5527; or electronic

mail: tleahy@cftc.gov. With respect to

ONXBOT’s and ONXCC’s other

proposed rules, please contact Lois J.

Gregory, Special Counsel, Division of

Trading and Markets, at the same

address, by telephone at (202) 418–

5483, by facsimile at (202) 418–5536, or

by electronic mail at lgregory@cftc.gov;

or Joshua R. Marlow, Attorney-Advisor,

Division of Trading and Markets, at the

same address, by telephone at (202)

418–5484, by facsimile at (202) 418–

5536, or by electronic mail at

jmarlow@cftc.gov.

SUPPLEMENTARY INFORMATION:

I. Description of Proposal

By letters dated September 12, 2000

and September 27, 2000, ONXBOT, a

subsidiary of onExchangeSM, Inc., has

applied to the Commission for

designation as a contract market for

electronic trading of futures contracts in

Five Year U.S. Treasury Notes. The

Exchange has not previously been

approved as a contract market in any

commodity. Thus, in addition to the

terms and conditions of the proposed

futures contract, ONXBOT has

submitted, among other things,

proposed bylaws and rules pertaining to

ONXBOT membership rights and

obligations, governance, trading

standards, and disciplinary and

arbitration procedures, along with a

description of its trading system’s tradematching algorithm. ONXBOT’s

submission also includes various

proposed ONXCC bylaws, rules, and

procedures.

ONXBOT is organized as a Delaware

corporation with one class of shares. All

shares in ONXBOT are currently held by

onExchangeSM, Inc. OnExchangeSM, Inc.

is majority owned by its officers,

employees, and venture capital

investment firms. Once operational, the

Exchange would be governed by a Board

of Directors (‘‘ONXBOT Board’’), which

would include seven directors elected

by the shareholders and two public

directors appointed by the seven nonpublic directors. The ONXBOT Board

would appoint a Chairman of the Board,

President, Secretary, and Treasurer, and

the President would be the chief

executive officer of the Exchange.

ONXCC would similarly be governed by

a Board of Directors that, among other

things, would appoint a President as

chief executive officer of the company.1

Trading privileges on ONXBOT

would be limited to ONXBOT

Subscribers, who would be required to

qualify as Eligible Swap Participants

under Commission Regulation

35.1(b)(2). Each Subscriber would be

limited to trading for its own accounts,

with no intermediation permitted.

Subscribers could designate an

unlimited number of Authorized

Traders (‘‘ATs’’) to exercise discretion

over their trading accounts, and would

be responsible for supervising all

activities of their ATs relating to

transactions effected on the Exchange or

subject to its rules. Each Subscriber

would also be responsible for training

and testing its ATs with respect to the

proper use of the Exchange and its rules.

Any violation of the rules and bylaws of

the Exchange by any AT would be

deemed a violation of the AT’s

Subscriber.

Federal Register / Vol. 65, No. 199 / Friday, October 13, 2000 / Notices 60913

2The proposed trading hours for Five Year U.S.

Treasury Note futures would be from 8:20 a.m. to

3:00 p.m. EST.

3Subject to this priority, orders for combination

trades would be executed, and the legs thereof

would be priced, pursuant to an algorithm that

gives priority to execution of each leg of the

transaction as a separate transaction rather than to

execution of the transaction at a differential, if the

prices for the legs of the transaction are better than,

or equal to, the differential price.

4ONXBOT also would permit Subscribers to

execute exchanges of futures for physicals and

exchanges of futures for swaps.

5OnExchangeSM, Inc. representatives have

informed Commission staff that this margin asset

verification process would take place within a

fraction of a second before trade execution.

6ONXCC rules do not preclude custody

agreements with more than one custody bank.

Initially, ONXCC plans to have only one custody

bank, but might enter into other custody bank

relationships in the future, in which case it would

establish a master settlement account for the

purpose of netting pays and collects across

settlement accounts.

7Subscribers are permitted to have more than one

trading account and more than one subcustody

account.

8Assets in subcustody accounts would be held by

ONXCC, subject to Commission regulations

requiring segregation of funds at clearing

organizations.

9Original margin will consist of an amount no

less than any assets necessary to cover three

consecutive days of ‘‘maximum price movement,’’

as defined by each ONXBOT contract’s terms and

conditions.

10The guaranty fund would increase, as

necessary, to provide an amount equal to 1% of the

aggregate original margin required to be maintained

by Subscribers at ONXCC. At no time, however,

would it drop below $10,000,000, regardless of the

level of aggregate original margin, except when

money from the fund has been applied to cover a

Subscriber default. ONXCC would not have the

power to impose assessments on non-defaulting

Subscribers to cover shortfalls caused by the default

of other Subscribers.

ONXBOT contracts would trade over

onTradeSM, an electronic trading system

developed by onExchangeSM and

accessed by Subscribers via the

Internet.2 Under the proposal, orders

could be entered into onTradeSM only

by ONXBOT Subscribers and their ATs.

OnTradeSM would accept orders for

purchase or sale of futures contracts,

combination trades, and calendar

spreads. Orders would be required to

include user identity (including

Subscriber identity), intention to buy or

sell, quantity, designation as a ‘‘market

order’’ or specification of a price limit,

time period the order would remain

open, and an activation price if

designated as a stop order. Orders

would be executed pursuant to a tradematching algorithm that would give first

priority to orders at the best prices, and

then give priority among orders at the

same price based upon time of entry

into onTradeSM.3

ONXBOT also plans to permit

Subscribers to execute block trades

away from the trade matching system.4

Both parties to the transaction must

request a Block Order Trade ID from the

Exchange in advance and then submit

identical orders to ONXBOT within 10

minutes of obtaining such ID. The price

designated for the block trade must be

‘‘fair and reasonable’’ in light of, among

other factors, market liquidity, size of

the transaction, and current market

prices (including the underlying cash

market and other related futures

markets). ONXBOT would publicize

details of the transaction immediately

after receipt of such information.

All orders would be verified with

ONXCC for sufficient margin assets

prior to execution.5 Upon execution,

transaction data would be

instantaneously transmitted to

onClearSM, ONXCC’s automated clearing

system. The transaction would clear

immediately, and electronic

confirmation notices would then be sent

to both parties. ONXCC would have a

settlement account at each ONXCC

approved custody bank,6 and would

maintain at least one subcustody

account for each ONXBOT Subscriber at

an approved custody bank,7 subject to

the terms of an agreement between

ONXCC and the custody bank.8

Subscribers would deposit margin assets

in these accounts for purposes of

original margin, delivery margin, and

variation margin.9

In the event of Subscriber default,

ONXCC would take control of the

Subscriber’s open positions and would

be empowered by ONXCC rules to take

steps to ensure minimum market

disruption, including the closing out of

open positions and liquidation of

margin assets. If such proceeds would

be insufficient to cover the default,

ONXCC could meet the shortfall from a

number of sources, including its

guaranty fund which will initially

consist of $10,000,000.10

ONXBOT’s provisions for compliance

and surveillance programs would

include market surveillance, trade

practice surveillance, disciplinary

functions, financial surveillance in

cases where onExchangeSM is the

Subscriber’s designated self-regulatory

organization, and arbitration. ONXBOT

would secure an agreement with the

National Futures Association to perform

many of these functions. Investigations

of any suspected violation of ONXBOT

and ONXCC bylaws and rules by

Subscribers or ATs would be presented

to ONXBOT’s Business Conduct

Committee (‘‘BCC’’). If the BCC

concludes that a violation may have

occurred, it may authorize a settlement

agreement, issue a warning letter, or

direct the enforcement staff to institute

disciplinary proceedings. Disciplinary

proceedings would be conducted in

front of a hearing panel drawn from the

Exchange’s Hearing Committee, whose

decision may be appealed to the Board.

ONXBOT rules also would permit

summary proceedings against

Subscribers and ATs for certain

violations. ONXBOT rules do not

contemplate fines as penalties. Penalties

resulting from disciplinary action would

only include suspension or termination.

II. Request for Comments

Any person interested in submitting

written data, views, or arguments on the

proposal to designate ONXBOT as a

contract market should submit their

comments by the specified date to Jean

A. Webb, Secretary, Commodity Futures

Trading Commission, Three Lafayette

Centre, 1155 21st Street, NW,

Washington, DC 20581. In addition,

comments may be sent via facsimile to

(202) 418–5521, or by electronic mail to

secretary@cftc.gov. The Divisions seek

comment on all aspects of ONXBOT’s

application for designation as a new

contract market. Reference should be

made to onExchangeSM Board of Trade’s

application for designation as a contract

market in Five Year U.S. Treasury Note

futures contracts. Copies of the

proposed contract’s terms and

conditions, as well as the proposed

trading rules, clearing rules, and other

governing rules of ONXBOT and

ONXCC, are available for inspection at

the Office of the Secretariat, or may be

obtained at the above address or by

telephoning (202) 418–5100.

Other materials submitted by

ONXBOT may be available upon request

pursuant to the Freedom of Information

Act (5 U.S.C. 552), except to the extent

that they are entitled to confidential

treatment pursuant to 17 CFR 145.5 or

145.9. Requests for copies of such

materials should be made to the

Freedom of Information, Privacy and

Sunshine Act compliance staff of the

Office of the Secretariat at Commission

headquarters in accordance with 17 CFR

145.7, 145.8.

Issued in Washington, DC, on October 10,

2000.

Alan L. Seifert,

Deputy Director.

[FR Doc. 00–26388 Filed 10–12–00; 8:45 am]

BILLING CODE 6351–01–P