Exhibit L: Compliance Chart

Attach as Exhibit L, a narrative and any other form of documentation that may be provided under other Exhibits herein, that describes the manner in which the 

Applicant is able to comply with each core principle. Such documentation must include a regulatory compliance chart setting forth each core principle and 

providing citations to the Applicant’s relevant rules, policies, and procedures that address each core principle. To the extent that the application raises issues 

that are novel or for which compliance with a core principle is not self- evident, include an explanation of how that item and the application satisfy the core 

principles.

All capitalized terms used in this Exhibit L and not defined have the meanings ascribed in the Rulebook, which is included as Exhibit M to this Application. All 

references to “Rules” contained in this Exhibit are references to the Rules of the Exchange’s Rulebook.

CONTRACT MARKET CORE PRINCIPLES EXPLANATIONS AND REFERENCES TO RELEVANT SMALL EXCHANGE, INC.

DOCUMENTS, RULES AND AGREEMENTS

Core Principle 1 – Designation as Contract Market

(a) In general. To be designated, and 

maintain designation, as a contract market, 

the board of trade shall comply with:

(1) Any core principle described in 5(d) of the 

Act, and

(2) Any requirement that the Commission 

may impose by rule or regulation pursuant to 

section 8a(5) of the Act.

(b) Reasonable discretion of designated 

contract market. Unless otherwise 

determined by the Commission by rule or 

regulation, a board of trade described in 

subparagraph (a) shall have reasonable 

discretion in establishing the manner in 

which the board of trade complies with the 

core principles described in this subsection.

Small Exchange, Inc. (“Exchange”, “SMFE”) is applying for registration as a Designated Contract 

Market (“DCM”) by submitting Form DCM and exhibits thereto in accordance with 17 CFR Part 

38.

SMFE has designed the Exchange to be compliant with the DCM Core Principles and the 

Commodity Exchange Act, as amended (“CEA”) and other applicable Commodity Futures 

Trading Commission (“CFTC”) regulations promulgated thereunder.

Core Principle 2 – Compliance with Rules
 

(a) In general.

The board of trade shall establish, monitor, 

and enforce compliance with the rules of the 

contract market, including:

(1) Access requirements;

(2) The terms and conditions of any contracts 

to be traded on the contract market; and

(3) Rules prohibiting abusive trade practices

on the contract market

(b) Capacity of contract market. The board of 

trade shall have the capacity to detect, 

investigate, and apply appropriate sanctions 

to any person that violates any rule of the 

contract market.

(c) Requirement of the rules. The rules of the 

contract market shall provide the board of 

trade with the ability and authority to obtain 

any necessary information to perform any 

function described in this subsection, 

including the capacity to carry out such 

international information-sharing 

agreements, as the Commission may require.

SMFE will be an intermediated market and a fully electronic exchange. All Persons requesting 

Membership will complete their registration online through the Exchange’s onboarding 

process. All Members accessing the Exchange’s secure website and Trading System will do so 

through a unique user ID and password. Each Member and/or Authorized User will have their 

own user ID and password. Pursuant to the Membership Agreement and Rule 301, Members 

and Related Parties must consent to the jurisdiction of the Exchange before being granted 

access to the Exchange Trading System. Rule 302 clearly defines criteria for becoming a 

Member of the Exchange, while Rule 303 defines the three types of Exchange Membership 

which include Clearing Member, Corporate Member and Individual Member. Clearing and 

Corporate Members may designate an Authorized Trader to access the Exchange Trading 

System. Rule 304 details requirements for Authorized Traders. Chapter 4 provides the 

obligations of the Members, including Rule 413 which requires the Member to make its books 

and records available to the Exchange.

The Exchange’s Fee Schedule along with contract specifications will be made publicly available 

on the Exchange website. The fees are discussed in greater detail in Exhibit K.

SMFE has contracted the National Futures Association (“NFA”) to be a Regulatory Service 

Provider of the Exchange (see Exhibit N for the Regulatory Service Agreement with the NFA). 

The NFA will work with the Exchange on trade practice surveillance, market surveillance, 

investigations and disciplinary matters, regulatory reporting and recordkeeping, arbitration 

services and audit trail requirements. These regulatory functions will be supported by SMFE’s 

technology which will collect and transmit the bid, offer, and trade data to the NFA. The 

Exchange has also contracted Eventus as a software provider (Exhibit N) to assist with realtime market surveillance. The Exchange's regulatory staff will use technology and services 

provided by Eventus along with the SMFE Admin and Risk Monitor (“ARM”) application to 

monitor trading in real-time to detect potential market anomalies, trade practice violations, 

and large trader position monitoring. The ARM will assist the Exchange staff in monitoring 

trading and the market in real time with the ability to query orders, trades and current 

positions. The ARM also monitors firm’s risk limit usage and prevents new orders if pre-trade 

limits are breached. Further, individual traders generally must first establish a relationship 

with an Introducing Broker (“IB”) or Futures Commission Merchant (“FCM”) in order to trade

the Exchange’s products. IBs and FCMs will monitor their customer’s access and activity. In 

accordance with NFA Compliance Rule 2-9, Clearing Members are responsible for supervising 
 

the use and access to the Exchange Trading System by its customers. The SMFE Regulatory 

Department will supervise these functions and act as the liaison with the NFA. The Regulatory 

Oversight Committee (“ROC”) oversees all facets of the Exchange’s regulatory program, as 

addressed in Rule 207. The ROC will prepare an annual report for the Board and the CFTC that 

assess the Exchange’s regulatory program. The report shall set forth the program’s expenses, 

describe its staffing and structure, catalogue investigations and disciplinary proceedings taken 

during the year, and review the Disciplinary Panel as established from time to time. Exchange 

market surveillance staff will be responsible for monitoring trading on a real-time basis. The 

Exchange will also provide the NFA with access into the real-time monitoring risk application to 

ensure integration into NFA’s surveillance.

Rules 601-603 of the SMFE Rulebook imposes trading business conduct Rules designed to 

encourage ethical trading conduct and protect Members, Related Parties, and Participants 

from fraudulent (Rule 604), non-competitive (Rule 605), manipulative (Rule 606), abusive (Rule 

608) and disruptive trading practices (Rule 607). See also Core Principal 4 and Exhibit R. As 

mentioned above, the Exchange will monitor for these violations using the NFA, Eventus and 

the SMFE ARM.

Discipline and enforcement rules set forth in Chapter 7 of the Rulebook give the Exchange the 

capacity to detect, investigate and apply appropriate sanctions to any person that violates any 

rule of the Exchange. The NFA (as the Exchange’s Regulatory Service Provider), in conjunction 

with the Exchange Regulatory Department and Disciplinary Panel, will enforce compliance with 

the Rules. Under Rule 703 the Regulatory Department of the Exchange may resolve an 

investigation through an informal disposition, including the issuance of a Warning Letter. No 

more than one (1) Warning Letter for the same potential violation may be issued to the same 

Member, Related Party or Participant during a rolling twelve (12) month period. Under Rule 

704, the Chief Regulatory Officer (“CRO”) will review investigation reports submitted to 

determine whether a reasonable basis exists to believe a violation within the Exchange’s 

jurisdiction has occurred or is about to occur. The Disciplinary Panel, detailed in Rule 709, will 

conduct disciplinary hearings and render a decision following each hearing pursuant to the 

procedures detailed in Chapter 7. Under Rule 716, the decisions of the Disciplinary Panel may 

be appealed before the Appeals Panel. The CRO will be supervised by and report to the ROC.
 

See Exhibits E, F, N, 0, P and R for a description of the Exchange's staffing and resources for a 

description concerning the enforcement of Exchange Rules. In addition to the staffing and 

resources, the Exchange has Rules in places to discipline Participants in Chapter 7, also 

referenced in Exhibit P, including the authority to examine books and records (Rule 413).

Pursuant to Exchange Rule 213, the Exchange may enter into information-sharing agreements, 

including the capacity to carry out international information-sharing agreements, as the 

Commission may require, as the Exchange determines necessary or advisable, or where the 

Exchange determines such arrangements exercises a legal or regulatory function under any 

Applicable Law or considers such arrangement to be in furtherance of the operation or duties 

of the Exchange under Applicable Law. SMFE has joined the Futures Industry Association 

(“FIA”) as of October 2018. FIA is the leading global trade organization for the futures, options 

and centrally cleared derivatives markets. FIA’s membership includes clearing firms, 

exchanges, clearinghouses, trading firms and commodities specialists from more than 48 

countries as well as technology vendors, lawyers and other professionals serving the industry.

FIA’s mission is to support open, transparent and competitive markets, protect and enhance 

the integrity of the financial system, and promote high standards of professional conduct. 

SMFE is also in the process of joining the Joint Compliance Committee (“JCC”). The JCC is a 

voluntary committee of self-regulatory organizations including DCMs, swap execution facilities 

and registered futures associations. The JCC operates through its members to protect market 

integrity within and across the members’ markets. It provides a forum to share information 

and ideas on regulatory topics of interest, as well as identify issues within the industry or 

elsewhere that may impact their markets, members or self-regulatory responsibilities.

Core Principle 3 – Contracts Not Readily Subject to Manipulation

The board of trade shall list on the contract 

market only contracts that are not readily 

susceptible to manipulation.

The Exchange will submit Contracts for listing pursuant to Commission Regulation 40.2.

The Contracts that will trade on the Exchange are all financially settled and do not involve

physical delivery.

Contract specifications will be made publicly available on the Exchange website.

All activity in the products that will trade on the Exchange will be subject to extensive 

monitoring and surveillance by the Exchange Regulatory Department using the SMFE ARM and 

software provided by Eventus as mentioned in Core Principle 2. In addition, the NFA will also 
 

assist SMFE with surveillance pursuant to the provisions of the Regulatory Services Agreement 

which is provided in Exhibit N.

Core Principle 4 – Prevention of Market Disruption

The board of trade shall have the capacity 

and responsibility to prevent manipulation,

price distortion, and disruptions of the 

delivery or cash-settlement process through 

market surveillance, compliance, and 

enforcement practices and procedures, 

including:

(a) Methods for conducting real-time 

monitoring of trading; and

(b) Comprehensive and accurate trade 

reconstructions.

Pursuant to Rule 207, the ROC shall oversee the regulatory program of the Exchange on behalf 

of the Board. The Board shall delegate sufficient authority, dedicate sufficient resources and 

allow sufficient time for the ROC to fulfill its mandate. The ROC shall oversee all facets of the 

Exchange’s regulatory program, including trade practice and market surveillance, regulatory 

audits, examinations, and other regulatory responsibilities with respect to Members and 

Participants (including ensuring compliance with, if applicable, financial integrity, financial 

reporting, sales practice, recordkeeping and other requirements), and the conduct of 

investigations.

Pursuant to Chapter 6 of the Rules, the Exchange prohibits manipulation (Rule 606) and 

disruptive trading practices (Rule 607). The Exchange has contracted the NFA as its Regulatory 

Service Provider, the Regulatory Services Agreement is provided in Exhibit N. As part of the 

Regulatory Service Agreement, the NFA will be working in conjunction with the Exchange on 

services including, but not limited, to market and trade surveillance. These services are 

described in the Exchange’s Surveillance Manual, as provided in Exhibit O. The Exchange has 

contracted Eventus and its software, Validus, to assist in real-time surveillance along with the 

SMFE ARM. The NFA’s automated market surveillance system DETECT and Eventus’ platform 

Validus will use the Exchange’s audit trail as the primary source of data. These systems, along 

with the SMFE ARM, will allow the Exchange’s compliance staff to monitor large trader 

positions and to detect potential market anomalies and trade practice violations in real-time 

and on a T+1 basis. The SMFE ARM, along with DETECT and Validus, will notify the Exchange’s

compliance staff, by way of market alerts, of potential position limit violations and other 

potential market irregularities as they develop and before market disruptions occur or become 

more serious. System alerts are reviewed on a daily basis by Exchange and NFA staff to 

determine if a formal investigation may be opened. Exhibit P describes the Exchange’s 

disciplinary and enforcement protocols, tools, procedures and the arrangement for dispute 

resolution. Pursuant to Rule 523, Clearing Members are required to submit a daily report of all 

reportable positions to the Exchange which will also be reviewed by SMFE compliance staff 

and the NFA. This, along with the Exchange audit trail data and market data will be used by 

DETECT to create comprehensive and accurate trade reconstruction.
 

All contracts that trade on the Exchange will be cash settled. The Exchange will perform crossmarket surveillance for components of the indexes using real-time and T + 1 monitoring as per 

the Service Agreement with the NFA. The Exchange, using Eventus’s Validius software, will 

monitor the pricing of the cash index which could be used in settlement depending on market 

liquidity. See Exhibits M and Q for more information on settlement procedures.

Pursuant to Rule 213, The Exchange may enter into information-sharing arrangements, as the 

Commission may require or as it determines necessary or advisable, to coordinate surveillance 

with other markets where financial products trade that may relate to Exchange products. As 

part of any information-share agreement, the Exchange may: (i) share trade and market 

surveillance reports to other markets; (ii) share completed and on-going investigations with 

other markets; (iii) share information concerning current and former Participants with other 

markets; (iv) and/or require current and former Participants to provide the Exchange 

information requested by other markets that are part of an information-share agreement with 

the Exchange.

SMFE is also in the process of joining the Joint Compliance Committee (“JCC”). The JCC is a 

voluntary committee of self-regulatory organizations including DCMs, swap execution facilities 

and registered futures associations. The JCC operates through its members to protect market 

integrity within and across the members’ markets. It also provides a forum to share 

information and ideas on regulatory topics of interest, as well as identify issues within the 

industry or elsewhere that may impact their markets, members or self-regulatory 

responsibilities.

The Exchange will keep records of all trade data for a period of five (5) years, with two (2) 

years easily accessible, per CFTC regulations. Pursuant to Rule 524, Clearing Members must 

guarantee any connection allowed for access by a Member, Related Party or Participant to the 

Trading System and are responsible for maintaining or causing to be maintained the order 

routing/front-end audit trail for all electronic orders, including order entry, modification, 

cancellation and responses to such messages (referred to as the “Electronic Audit Trail”),

entered into the Trading System through any gateway to the Trading System for a period of 

five (5) years, with two (2) years easily accessible. The Electronic Audit Trail records must be 

maintained for a minimum of 5 years, with two (2) years easily accessible, and Clearing 

Members must have the ability to produce this data in a standard format compliant with 
 

Applicable Law upon request of the Exchange. This Electronic Audit Trail must contain all order 

receipt, order entry, order modification, and response/receipt times to the highest level of 

precision achievable by the operating system, but to at least hundredth of a second

granularity. The times captured must not be able to be modified by the person entering the 

order as is required by Applicable Law for record retention. The data must also contain all FIX 

tag information and fields, which should include, with limitation, the following: A record of all 

fields relating to order entry, including transaction date, product, Exchange code, expiration 

month, quantity, order type, order qualifier, price, buy/sell indicator, stop/trigger price, order 

number, unique transaction number, account number, session ID, operator ID, host order 

number, trader order number, Clearing Member, type of action, action status code, customer 

type indicator, origin, and timestamps. For executed orders the audit trail must record the 

execution time (including milliseconds) of the trade along with all fill information. In the case 

where the guaranteeing Clearing Member has a direct connect customer that is another 

Clearing Member, the Clearing Member may notify the customer Clearing Member in writing 

that it is their obligation to maintain the Electronic Audit Trail. It shall be the duty of the 

customer Clearing Member to maintain an Electronic Audit Trail pursuant to this Rule. The 

Exchange Trading System captures all order and trade execution related data and assembles it 

in the Electronic Audit Trail. The Electronic Audit Trail is provided to the NFA daily. In addition, 

all Trading System data is captured in a data warehouse.

The Exchange utilizes risk controls and has the ability to pause and halt its market as a way to 

prevent market disruption. As described in Exhibit Q the Exchange has three levels of risk 

controls: Exchange, firm, and FIX API. Exchange wide risk controls include order validations, 

dynamic order protections and price limits. Dynamic order protection validates incoming 

orders to prevent erroneously priced orders from hitting the market while price limits protect 

the market from significant moves from prior day’s settlement. Firm level risk controls include 

max order quantity limits, daily position exposure limits, a kill switch, self-trade match 

prevention and execution rate protection. Max order limits can be set by Clearing Members on 

their trading firms to limit the size of orders that can be placed through the exchange. Daily 

position exposure limits can be set by Clearing Members on their trading firms to limit 

positions that can be held by trading firms. A kill switch can be enabled by the Exchange, a 

clearing firm, or trading firm through a FIX session or the Exchange’s Trading System to 

simultaneously cancel all existing orders on all Exchange markets and to prevent placing any 

new orders until the kill switch has been disabled. Self-trade match prevention is an optional 
 

risk control intended to prevent matching of orders with common ownership. Execution rate 

protection is a form of a risk control placed on a market maker’s grouped orders to limit the 

number of trades over a specified time range. On the FIX API level there is an optional cancel 

on disconnect risk control in which all day orders are canceled within a FIX session when 

disconnected from the gateway.

Pursuant to Rule 525 and Appendix B of the Rules, the Exchange has an error trade policy to 

ensure a fair and equitable market.

Pursuant to Rule 902, the Exchange will work in conjunction with the DCO on setting and 

maintaining margin requirements on SMFE products. Clearing Members of the Exchange will 

be bound by Exchange and DCO Rules.

Core Principle 5 – Position Limitations or Accountability

To reduce the potential threat of market 

manipulation or congestion (especially 

during trading in the delivery month), the 

board of trade shall adopt for each contract 

of the board of trade, as is necessary and 

appropriate, position limitations or position 

accountability for speculators. For any 

contract that is subject to a position 

limitation established by the Commission, 

pursuant to section 4a(a), the board of trade 

shall set the position limitation of the board 

of trade at a level not higher than the 

position limitation established by the 

Commission.

The Exchange does not currently have position limits set for any Contract, due to the fact that 

the Contracts do not have a deliverable supply (and are not subject to minimum position limits 

under statute or Commission regulations); instead the Contracts are cash settled and such 

settlement does not depend on the supply of physical commodities or related securities. The 

Exchange has determined that position accountability limits (Rules 521 and 522) will allow the 

Exchange to monitor the market and enforce the Rules of the Exchange. The Regulatory 

department along with the NFA will monitor for positions that meet or exceed accountability 

levels.

Pursuant to Rule 902, the Exchange will work in conjunction with the DCO on setting and 

maintaining margin requirements on SMFE products.

The Exchange, in conjunction with the NFA, will track Member’s and Participant’s positions by

large trader reports received from the Clearing Firms and the Exchange’s Trading System. 

While monitoring trading on the Exchange, the NFA will provide alerts that include (but are not 

limited to) the following: (a) whenever an account is identified as a large trader for the first 

time; (b) whenever large trader positions exceed reportable levels; (c) whenever large trader 

positions exceed speculative position limits, if any; and (d) whenever a Participant’s open 

interest exceeds contract open interest by predefined limits. See Regulatory Services 

Agreement with NFA in Exhibit N.
 

The Exchange may impose or modify position accountability limits or order reduction of 

positions in the event of an Emergency addressed in Rule 211 and also in connection 

compliance with Core Principle 6.

Core Principle 6 — Emergency Authority

The board of trade, in consultation or 

cooperation with the Commission, shall 

adopt rules to provide for the exercise of 

emergency authority, as is necessary and 

appropriate, including the authority:

(a) To liquidate or transfer open positions in 

any contract;

(b) To suspend or curtail trading in any 

contract; and

(c) To require market participants in any 

contract to meet special margin 

requirements

The term "emergency" means any occurrence or circumstance that, in the opinion of the 

Board, or a Person or Persons duly authorized to issue such an opinion on behalf of the Board 

under circumstances and pursuant to procedures that are specified, requires immediate action 

and threatens or may threaten such things as the fair and orderly trading in, or the liquidation 

of or delivery pursuant to, any agreements, contracts or transactions or the timely collection 

and payment of funds including: (a) any manipulative or attempted manipulative activity; (b) 

any actual, attempted or threatened corner, squeeze, congestion or undue concentration of 

positions; (c) any circumstances which may materially affect the performance of agreements, 

contracts or transactions, including failure of the payment system or the bankruptcy or 

insolvency of any Member; (d) any action taken by any Governmental Agency, or any other 

registered entity, board of trade, market or facility which may have a direct impact on trading 

and settlement; and (e) any other circumstance which may have a severe, adverse effect upon 

the functioning of SMFE Futures.

Rule 211 describes the Emergency Action available to the Exchange. Subsection (a) of this Rule 

requires the Board of Directors to determine the existence of an emergency. Additionally, the 

President or an Officer of the Exchange may determine that an emergency exists if a situation 

demonstrates a severe, adverse effect upon the functioning of the Exchange.

Pursuant to subsection (b) of Rule 211, Emergency Action may require or authorize the 

Exchange, the Board, any committee of the Board, the President, or any other Officer to take 

actions necessary or appropriate to respond to the Emergency, on its own or in coordination 

with another relevant person, including, but not limited to: (i) imposing or modifying position 

limits; (ii) imposing or modifying price limits; (iii) imposing or modifying intraday market 

restrictions; (iv) imposing special margin requirements; (v) ordering the liquidation or transfer 

of open positions in any Contract; (vi) ordering the fixing of a settlement price; (vii) extending 

or shortening the expiration date or the Trading Hours; (viii) suspending or curtailing trading in 

any Contract; (ix) transferring Contracts and the margin associated therewith as permitted by 

Applicable Law; (x) altering any Contract’s settlement terms or conditions; (xi) limit access to 
 

the Platform by any Member, Client, Authorized Trader or ISV; or (xii) taking such other actions 

as may be directed by the CFTC or other regulatory authority.

Pursuant to subsection (c) of Rule 211, The Exchange will document the decision-making 

process related to any Emergency Action. The Exchange will promptly notify the CFTC of any 

Emergency Action, explaining the decision-making process, the reasons for taking such action, 

and how conflicts of interest were minimized. Such documentation will be maintained in 

accordance with applicable CFTC Regulations. In addition, measures available to the Exchange 

concerning system redundancy, reliability and disaster recovery are further detailed in Exhibit 

V and the Exchange Business Continuity Plan. In the case of an Emergency, SMFE will work 

closely with its Board of Directors, Executive Staff and Senior Management to notify the CFTC,

DCO and other relevant vendors and to keep them informed as the situation evolves.

Please see the escalation procedures chart in Exhibit V for additional information on 

escalation.

Emergency actions taken pursuant to Rule 211 are subject to the conflict of interest in 

emergencies requirements set forth in Rule 212.

Core Principle 7 —Availability of General Information

The board of trade shall make available to 

market authorities, market participants, and 

the public accurate information concerning:

(a) The terms and conditions of the contracts 

of the contract market; and

(b)(i) The rules, regulations, and mechanisms 

for executing transactions on or through the 

facilities of the contract market, and

(2) The rules and specifications describing 

the operation of the contract market’s:

(i) Electronic matching platform, or

(ii) Trade execution facility.

The Exchange will post general information, including but not limited to contract 

specifications, rulebook, exchange trading hours, settlement procedures, requirements for 

membership and access, FIX documentation, on-boarding procedure and general Exchange 

Trading System descriptions on its website with the goal of open and fair access for all 

participants. Any rule amendments and product changes (including terms and conditions of 

the contracts) will also be made available through the Exchange website. Notice of new 

product listings, new rules, and rule amendments will be placed on the Exchange website 

concurrent with the filing of such information or submissions with the Secretary of the 

Commission.

The Exchange Rulebook includes a description of orders that may be submitted to the trading 

system in Rule 507. The Exchange matching algorithm is described in Rule 516. Additional 

details on the Exchange Trading System can be found in Chapter 5 and also in Exhibit Q.
 

Rules 310 and 311 in the Exchange Rulebook outline the process of providing general notices 

to Members and Participants of the Exchange.

SMFE will post to its website any non-confidential material associated with regulatory filings 

relating to rules and new products at the time SMFE submits the filings to the CFTC.

Core Principle 8 — Daily Publication of Trading Information

The board of trade shall make public daily 

information on settlement prices, volume, 

open interest, and opening and closing 

ranges for actively traded contracts on the 

contract market.

Pursuant to Rule 904, the Exchange will publish to its website daily information on settlement 

prices, volume, open interest, and opening and closing ranges for contracts on the Exchange.

The Exchange will work with the NFA as part of the Regulatory Services Agreement on 

regulatory reporting as described in CFTC Part 16 of the Act. Such daily reports to the 

Commission shall include transaction-level data and related order information for each futures 

contract. Reports shall include time and sales data, reference files and any other information 

the Commission may require.

Core Principle 9 — Execution of Transactions

The board of trade shall provide a 

competitive, open, and efficient market and 

mechanism for executing transactions that 

protects the price discovery process of 

trading in the centralized market of the 

board of trade. The rules of the board of 

trade may authorize, for bona fide business 

purposes:

(a) Transfer trades or office trades;

(b) An exchange of:

(1) Futures in connection with a cash 

commodity transaction;

(2) Futures for cash commodities; or

(3) Futures for swaps; or

(c) A futures commission merchant, acting as 

principal or agent, to enter into or confirm 

the execution of a contract for the purchase 

or sale of a commodity for future delivery if 

the contract is reported, recorded, or cleared 

The Exchange Trading System provides Members and Participants with the ability to execute 

transactions from the interaction of multiple bids and multiple offers within a predetermined, 

nondiscretionary automated trade matching and execution algorithms. Additional detail on 

the Exchange Trading System can be found in Exhibit Q. The Exchange will conduct periodic 

objective testing of the Trading System, and trade environment generally, pursuant to the 

provisions contemplated in the CFTC Technology Questionnaire in Exhibit V.

Contracts trade under the terms publicly provided for in the contract specifications, and as 

certified pursuant to Commission Regulation § 40.2.

Rule 906 allows the transfer of trade(s) from one Clearing Member to another Clearing 

Member upon notice to the Exchange and in accordance with the Rules of the Clearing House.

A Futures Commission Merchant can act as principal or agent on SMFE trades and is subject to 

Exchange and DCO Rules.
 

in accordance with the rules of the contract 

market or a derivatives clearing organization.

Core Principle 10 — Trade Information

The board of trade shall maintain rules and 

procedures to provide for the recording and 

safe storage of all identifying trade 

information in a manner that enables the 

contract market to use the information:

(a) To assist in the prevention of customer 

and market abuses; and

(b) To provide evidence of any violations of 

the rules of the contract market.

The Exchange Trading System will capture and maintain all information with respect to each 

Order. This will include information on Orders that were executed and those that were not 

executed as well as all other information relating to the trade environment that determines 

the matching and clearing of trades such as information related to clearing and number and 

types of contracts. Orders entered into the Trading System can be tracked from the time 

entered until the time that it is matched, canceled or otherwise removed. All of this

information is contained in the Exchange Audit Trail.

In accordance with the Regulatory Service Agreement with the NFA, the Exchange has audit 

trail processes that capture trading information to facilitate trade practice and market 

surveillance activities which are sent to the NFA daily. The audit trail program is based on 

original source documents that are unalterable, sequentially identified records. The audit trail 

contains a history of all orders as well as other identifying information. All data gathered as 

part of the audit trail is maintained in accordance with the Commission's recordkeeping 

requirements and in a manner that does not allow for unauthorized alteration, erasure or 

other potential loss.

Exchange Members, Related Parties, Participants and Authorized Traders are additionally 

required to maintain audit trail information as specified in the Rulebook at Rules 524, which 

sets forth the Exchange recordkeeping policies for orders entered into the Platform. Pursuant 

to CFTC Rule §38.553, the Exchange will review applicable Member’s audit trails at least 

annually as outlined in the Compliance Manual provided in Exhibit O. The NFA will also 

perform a review of Member’s audit trail as part of their Regulatory Service Agreement and 

will report any potential violations to the Exchange. Chapter 7 of the Rulebook details the 

disciplinary actions available to the Exchange if a Member is found to be in violation.

The Exchange will keep records in accordance with CFTC Regulation CFTC Regulation 1.31. 

Clearing Members are required to keep their records as set forth by Part 16 as set forth by the 

CFTC. Any IB, FCM or other Participant registered with the NFA will maintain and keep their 

records as prescribed under NFA Rule 2-10. Procedures relating to SMFE data retention are 

contained in Exhibit S.
 

Core Principle 11 — Financial Integrity of Transactions

The board of trade shall establish and 

enforce:

(a) Rules and procedures for ensuring the 

financial integrity of transactions entered 

into on or through the facilities of the 

contract market (including the clearance and 

settlement of the transactions with a 

derivatives clearing organization); and

(b) Rules to ensure:

(1) The financial integrity of any:

(i) Futures commission merchant, and

(ii) Introducing broker; and

(2) The protection of customer funds.

SMFE is currently in the process of conducting due diligence on 3 prospective Designated 

Clearing Organizations (“DCO”). The relevant Letters of Intent from these DCOs has been 

added to Exhibit T. Prior to engaging in any business, a Clearing Services Agreement will be 

executed with a DCO and provided to the CFTC.

The Rulebook has several chapters which state the rules that were created to ensure the 

financial integrity of transactions and will grant authority to SMFE to impartially enforce the 

rules. Chapter 3, 4, 5, and 6 of the Rulebook and Exhibits P, Q and R explains the membership 

process, obligations of Members and trading conduct. Rule 404 specifically discusses the 

financial requirements for Clearing Members. Chapters 7 and 8 describe the Exchange’s

disciplinary and arbitration procedures. Disciplinary rules are generally accounted for in

Chapter 7 of the Rulebook, with Rule 718(a) providing the authority to revoke, suspend, limit, 

condition, restrict or qualify a Participant’s Trading Privileges and/or ability to access the 

Platform, if, in the sole discretion of the Exchange, such action is in the best interests of the 

exchange or the marketplace. These Chapters and Exhibits outline how the Exchange will 

ensure financial integrity to the marketplace.

The Exchange will have the ability to monitor IBs and FCMs as they are subject CFTC minimum 

financial and reporting requirements. Clearing Members of the Exchange must also be 

members with the Exchange’s DCO and meet the requirements set forth by the DCO. The 

Exchange and the DCO will conduct a routine review of financials and related information from 

Corporate and Clearing Members in order to ensure they are in capital compliance and 

protecting customer funds in accordance with CFTC rules, as described in Rule 404. Corporate 

and Clearing Members are responsible for conducting due diligence on its customers, including 

any customer for which it authorizes access to the Exchange. Corporate and Clearing Members 

will conduct an appropriate level of due diligence and screening of their customers as they are 

financially liable for all Transactions they execute. As stated in Rule 301(a)(x), Clearing 

Members will guarantee the financial obligations of its customers/authorized traders.

A Clearing Firm will conduct an appropriate level of due diligence and screening of its 

customers as it is financially liable for all trades of any Authorized Participant or Direct Market 

Access Authorized Participant. In accordance with NFA Rule 2-9, Clearing Members, IBs, FCMs, 

and other Members registered with the NFA are responsible for supervising customers given 

access to the Exchange Trading System. Additionally, the Exchange will work with the DCO to 
 

set appropriate margin requirements for the products. As stated in Rule 211, the Exchange 

may change this requirement as needed. Generally, Clearing Firms, FCMs, and IBs reserve the 

right to impose their own margin requirements for clients, as deemed necessary.

As part of the Exchange’s Trading System, Clearing Members will be required to set pre-trade 

risk controls to a level that is appropriate for the Trading Activity of a Member or Participant 

for which the Clearing Member Firm is the designated Clearing FCM, as discussed in Rule 506. 

Clearing Members will also be responsible for implementing appropriate risk limits for 

Members and Participants as detailed in Rule 401.

Pursuant to Rule 902, the DCO will work with the Exchange to establish performance bond 

requirements from time to time as published by the Exchange in a Notice to Members. 

Clearing Members must call for performance bonds from their Customers and postperformance bonds with the DCO as set forth in the DCO and CFTC Rules. All performance 

bond collateral must be in a form acceptable to the DCO pursuant to DCO Rules.

Core Principle 12: Protection of Markets and Market Participants

The board of trade shall establish and 

enforce rules:

(a) To protect markets and market 

participants from abusive practices 

committed by any party, including abusive 

practices committed by a party acting as an

agent for a participant; and

(b) To promote fair and equitable trading on 

the contract market.

Pursuant to Rulebook Chapters 4, 5 and 6 and Exhibits Q and R, the Exchange has established 

various Rules designed to protect the market and market participants from abusive, disruptive, 

fraudulent, noncompetitive and unfair conduct and trades practices.

As described in Exhibit N, SMFE has engaged NFA Regulatory Services to monitor and provide 

market surveillance that will assist the Exchange in identifying and prosecuting any abusive 

trade practices or Rule Violations. Improper conduct and trade practices will be investigated 

and adjudicated as described in Chapter 7 of the Rulebook and in Exhibit P. The Exchange, 

through software provided by Eventus and the SMFE ARM, conducts real-time market 

monitoring as well as trade practice, market and financial monitoring as described in Exhibit O.

In additional, Clearing Members are subject to the financial requirements as set by the DCO

and its Rules.

Core Principle 13: Disciplinary Procedures

The board of trade shall establish and 

enforce disciplinary procedures that 

authorize the board of trade to discipline, 

suspend, or expel members or market 

The Exchange has provided Rules for disciplinary procedures set forth in Chapter 7 that allow 

for SMFE to discipline, suspend, expel or otherwise sanction Members, Participants, Related 

Parties and Persons that violate SMFE Rules. SMFE has engaged the NFA Regulatory Services 

to monitor and provide market surveillance and will work together with Exchange staff to 
 

participants that violate the rules of the 

board of trade, or similar methods for 

performing the same functions, including 

delegation of the functions to third parties.

investigate or enforce any potential violations. If a potential violation is found, the NFA will 

perform an investigation. At the conclusion of the investigation, the NFA will provide its 

findings to the Exchange and the Exchange will determine whether the facts warrant formal 

disciplinary charges.

The Exchange’s CRO will oversee the Regulatory Department. SMFE’s Regulatory Department, 

pursuant to Rule 702, can initiate and conduct investigations when information obtained 

indicates a possible Exchange violation may have occurred. The Regulatory Department will 

determine the nature and scope of its inquiries and investigations and will function 

independently of any commercial interests of the Exchange. The Regulatory Department also 

has the authority to: inspect books and records of all Members and Participants and can 

require such persons to appear before it and answer questions regarding possible iolations; 

prepare investigation reports and make recommendations to the CRO concerning initiating 

disciplinary proceedings; determine whether a reasonable basis exists for finding a Violation, 

and for authorizing the issuance of Notices of Charges against Respondents alleged to have 

committed Violations if the CRO believes the matter should be adjudicated; prosecute alleged 

Violations within Exchange disciplinary jurisdiction; may delegate its authority under these 

Rules to initiate and conduct investigations and prosecute Violations to a Regulatory Services 

Provider. SMFE will work with the DCO with respect to a disciplinary matter involving a 

Clearing Member.

Rule 709 details the functions the SMFE Disciplinary Panel. The Disciplinary Panel will be made 

up of a Review Panel which will determine if a violation of the SMFE Rules has occurred, and a 

Hearing Panel which will adjudicate the matter. Rule 709 also specifies the make-up of the 

individuals on the Disciplinary Panel.

If the CRO determines that a matter should be adjudicated in a formal hearing before the 

Disciplinary Panel, the Regulatory Department will be instructed to serve a Notice of Charges. 

A Notice of Charges will be served to the Respondent(s) stating, among other things, the 

allegation; the Rule the allegation violates; that the Respondent can request a hearing and the 

time period in which the Respondent needs to request the hearing. Any charge in the Notice 

of Charges not denied whole or in part shall be deemed as admitted.
 

As stated in Chapter 7 of the Rulebook, any Member, Related Party or Participant may be 

represented by counsel during any Disciplinary Action. Within the Notice of Charges, the 

Respondent will be advised that they have the right to be represented by counsel or any other 

representative of its choosing in all succeeding stages of the disciplinary process except by any 

member of the Board or disciplinary panel, any employee of the Exchange, or any Person 

substantially related to the underlying investigations, such as a material witness or 

Respondent.

The Notice of Charges delivered to the Respondent will provide a timeline for response to the 

allegations. As stated in Rule 705, the Respondent will be given not less than twenty (20) 

business days after service of the Notice of Charges to respond. Rule 708 provides the 

Respondent with instructions on how to respond to the allegations, including denying the 

charges and how to request a hearing. Respondent may serve the SMFE Regulatory 

Department with a written response. At a minimum, the response to the allegation shall 

specify if the Respondent denies or admits the allegation or if the Respondent does not have 

enough information to deny or admit the allegation.

In accordance with Rule 713, the hearing will be fair and conducted before the members of the 

Hearing Panel. The hearing will take place promptly after a reasonable notice to Respondent. 

The Exchange will be represented by the Regulatory Department which includes the 

Compliance and Enforcement Staff. The Respondent is entitled to attend the hearing as stated 

to them in the notice of charges. The hearing will be presented to the Hearing Panel.

The Disciplinary Panel, the Regulatory Department and the Respondent shall be entitled to 

present evidence, call witnesses and cross-examine witnesses called by other parties. SMFE 

will make reasonable efforts to secure the presence of all other Persons called as witnesses 

whose testimony would be relevant. If the Respondent has requested a hearing, a copy of the 

hearing request shall be made and shall become a part of the record of the proceeding. The 

record of the hearing shall not be required to be transcribed unless: the transcript is requested 

by Commission staff or the Respondent, the Decision is appealed pursuant to the Rules, or the 

Decision is reviewed by the Commission pursuant to Section 8c of the CEA or 17 C.F.R. Part 9. 

In all other instances, a summary record of a hearing is permitted.
 

As specified in Rule 712, prior to the commencement of a Hearing, each Respondent will be 

given the opportunity to review all books, records, documents, papers, transcripts of 

testimony and other evidence in the possession or under the control of the Exchange that the 

Regulatory Department will use to support the allegations and proposed sanctions in the 

Notice of Charges or which the Chair of the Disciplinary Panel deems relevant to the 

disciplinary proceedings. Notwithstanding the foregoing, no Respondent will have the right to 

review, and the Exchange will have no obligation to disclose, any information protected by 

attorney-client privilege. If any books, records, documents, papers, transcripts of testimony, 

or other evidence contain information that could adversely affect the competitive position of 

the Person providing the information or if such information might compromise other 

investigations being conducted by the Regulatory Department, the Regulatory Department 

may redact, edit or code such information before furnishing it to the Respondent.

The Exchange’s will be represented by the Review Panel and/or the Regulatory Department 

and the hearing will be presented to the Hearing Panel.

As stated in Rule 714, as promptly as is reasonable following a hearing, the Hearing Panel will 

issue a written order rendering its decision based on the weight of the evidence contained in 

the record of the disciplinary proceedings. A Decision by a majority of the Hearing Panel will 

constitute the Decision of the Disciplinary Panel.

The Exchange will serve a copy of the order of the disciplinary proceedings to the Respondent 

and the Regulatory Department. The order will include: the Notice of Charges or summary of 

the allegations; the Answer, if any, or a summary of the Answer; a summary of the evidence 

introduced at the hearing or, where appropriate, incorporation by reference of the 

investigation report; findings of fact and conclusions concerning each allegation, including a 

complete explanation of the evidentiary and other basis for such findings and conclusions with 

respect to each allegation; each specific Rule and/or provision of Applicable Law that the 

Respondent is found to have violated; the sanctions, if any, imposed including the basis for 

such sanctions and the effective date of each sanction; and the availability to the Respondent 

under CFTC Regulation 9.11(b)(6) of review of any disciplinary action or denial of access.

A Respondent found by the Disciplinary Panel to have violated a Rule of the Exchange or a 

provision of Applicable Law or who is subject to any summary fine imposed pursuant to Rule 
 

717 or any summary action imposed pursuant to Rule 718 may appeal the Decision within 

twenty (20) Business Days of receiving the order of the disciplinary proceedings or the Notice 

of Summary Action, as the case may be, by filing a Notice of Appeal with the CRO. The Appeal 

Panel’s decision will be the final action of the Exchange and will not be subject to appeal. If the 

decision is not appealed, it will become final twenty (20) business days after the order is 

served by the Hearing Panel.

As outlined in Rule 715, disciplinary sanctions, including sanctions imposed pursuant to an 

accepted Offer of Settlement, shall take into account the Respondent’s disciplinary history. 

Sanctions shall be commensurate with the violations committed and sufficient to deter 

recidivism or similar violations by any other Member, Related Party or Participant that directly 

or indirectly violates an Exchange Rule. In the event of a Violation resulting in demonstrated 

harm, sanctions shall include full Customer restitution, except where the amount of the 

restitution or to whom it should be provided cannot be reasonably determined.

SMFE may issue a Warning Letter that will not constitute a finding of a violation or a sanction.

No more than one Warning letter for the same potential violation may be issued to the same 

Member, Related Party or Participant during a rolling twelve (12) month period.

Pursuant to Rule 211, SMFE, the Board, any committee of the Board, or the President has the 

authority to take emergency action including but not limited to: imposing or modifying 

position accountability limits; imposing or modifying price limits; imposing or modifying 

intraday market restrictions; imposing special margin requirements; ordering the liquidation or 

transfer of open positions in any Contract; ordering the fixing of a settlement price; extending 

or shortening the expiration date or the Trading Hours; suspending or curtailing trading in any 

Contract; transferring Contracts and the margin associated therewith as permitted by 

Applicable Law; altering any Contract's settlement terms or conditions; limiting access to the 

Trading System by any Member, Participant or ISV; or taking such other actions as may be 

directed by the CFTC or other regulatory authority.

The Respondent may, at any time, propose an Offer of Settlement to the Disciplinary Panel. If 

the Offer is accepted, the Disciplinary Panel accepting the Offer of Settlement must issue a 

written decision specifying the Violations it has reason to believe were committed, including 

the basis or reasons for the Disciplinary Panel’s conclusions, and any sanction to be imposed, 
 

which must include full Customer restitution where Customer harm is demonstrated. If the 

Offer of Settlement is rejected by the Disciplinary Panel, the rationale for the rejection will be 

documented.

Pursuant to Rule 306, when the Exchange accepts the withdrawal of a Member, all rights and 

privileges of such Member terminate (including, without limitation, the Trading Privileges and 

ability to access the Trading System). The accepted withdrawal of a Member shall not affect 

the rights of the Exchange under the Rules or relieve the former Member of its Obligations 

under the Rules, to perform all contracts involving any Contracts entered into by such, or to 

pay any the Exchange fees, costs, or charges incurred, before the withdrawal, including any 

obligations by the Member for activity by its Authorized Traders. Notwithstanding the 

accepted withdrawal of a Member, the withdrawn Member remains subject to the Rules, the 

Obligations and the jurisdiction of the Exchange for acts done and omissions made while a 

Member and must cooperate in any Exchange Proceeding as if the withdrawn Member were 

still a Member.

Rule 411 states that when the Trading Privileges of a Member are terminated, all of a 

Member’s rights and Trading Privileges will terminate (including those of any Related Parties), 

except for the right of the Member in question to assert claims against others, as provided in 

Exchange Rules. Any such termination will not affect the rights of creditors under the 

Exchange Rules. A suspended or terminated Member, Related Party or Participant remains 

subject to Exchange Rules and the jurisdiction of the Exchange for acts and omissions prior to 

the suspension or termination, and must cooperate in any inquiry, investigation, or disciplinary 

proceeding, summary suspension or other summary action as if the suspended or terminated 

Member still had Trading Privileges. The Exchange may discipline a suspended Member or 

Participant under the Rules for any violation of an Exchange Rule, Obligation, or provision of 

Applicable Law committed by the Member or Participant before, during or after the 

suspension.

Core Principle 14: Dispute Resolution

The board of trade shall establish and 

enforce rules regarding, and provide facilities 

for alternative dispute resolution as 

appropriate for, market participants and any 

market intermediaries.

Pursuant to Rule 801 any dispute, claim or controversy between Members or Participants for 

which arbitration is sought may be arbitrated in accordance with and subject to the NFA’s 

Code of Arbitration and subject to the NFA’s Member Arbitration Rules which may be found on 

the NFA website: https://www.nfa.futures.org/arbitration/member-arbitration/index.html.
 

The Exchange will provide fair and equitable guidance on arbitration and will post this 

information to its website.

Arbitration proceedings are administered for Members, Related Parties and Participants

through NFA pursuant to the NFA member arbitration rules, as if each Member, Related Party 

or Participant that is party to such arbitration were an NFA Member, and references in such 

member arbitration rules to the Associates of an NFA Member shall mean and include any 

Authorized User and any individual who is employed by or is an agent of a Member, Related 

Party or Participant.

To initiate arbitration, a Person shall notify the NFA, either in writing or orally. The NFA shall 

maintain a record of the receipt of such notice and shall promptly provide such Person with a 

copy of the member arbitration rules and an Arbitration Claim. The intent to arbitrate must be 

received by NFA within two years from the date when the party filing the Arbitration Claim 

form knew or should have known of the act or transaction that is the subject of the 

controversy. This is also addressed in Exhibit P.

Pursuant to Rule 306, when the Exchange accepts the withdrawal of a Member, all rights and 

privileges of such Member terminate (including, without limitation, the Trading Privileges and 

ability to access the Trading System). The accepted withdrawal of a Member shall not affect 

the rights of the Exchange under the Rules or relieve the former Member of its Obligations 

under the Rules, to perform all contracts involving any Contracts entered into by such, or to 

pay any the Exchange fees, costs, or charges incurred, before the withdrawal, including any 

obligations by the Member for activity by its Authorized Traders. Notwithstanding the 

accepted withdrawal of a Member, the withdrawn Member remains subject to the Rules, the 

Obligations and the jurisdiction of the Exchange for acts done and omissions made while a 

Member and must cooperate in any Exchange Proceeding as if the withdrawn Member were 

still a Member.

Rule 411 states that when the Trading Privileges of a Member are terminated, all of a 

Member’s rights and Trading Privileges will terminate (including those of any Related Parties), 

except for the right of the Member in question to assert claims against others, as provided in 

Exchange Rules. Any such termination will not affect the rights of creditors under the 

Exchange Rules. A suspended or terminated Member, Related Party or Participant remains 
 

subject to Exchange Rules and the jurisdiction of the Exchange for acts and omissions prior to 

the suspension or termination, and must cooperate in any inquiry, investigation, or disciplinary 

proceeding, summary suspension or other summary action as if the suspended or terminated 

Member still had Trading Privileges. The Exchange may discipline a suspended Member or 

Participant under the Rules for any violation of an Exchange Rule, Obligation, or provision of 

Applicable Law committed by the Member or Participant before, during or after the 

suspension.

Core Principle 15: Governance Fitness Standards

The board of trade shall establish and 

enforce appropriate fitness standards for 

directors, members of any disciplinary 

committee, members of the contract market, 

and any other person with direct access to 

the facility (including any party affiliated with 

any person described in this paragraph).

The Exchange lays out rules which govern the fitness standards for its Board Members and 

Committee Members in Rule 203 and also Exhibit C-1.

Rule 203 further prescribes that no person shall be eligible to serve on the Board or any 

Committee who: (a) Was found within the prior three years by a final decision of a SelfRegulatory Organization, an administrative law judge, a court of competent jurisdiction or the 

Commission to have committed a disciplinary offense; (b) Entered into a settlement agreement 

within the prior three years in which any of the findings or, in the absence of such findings, any 

of the acts charged included a disciplinary offense; (c) Currently is suspended from trading on 

any Contract market, is suspended or expelled from membership with any Self-Regulatory 

Organization, is serving any sentence of probation or owes any portion of a fine imposed 

pursuant to either: (i) A finding of a disciplinary offense by a final decision of a Self-Regulatory 

Organization, an administrative law judge, a court of competent jurisdiction or the 

Commission; or (ii) A settlement agreement in which any of the findings or, in the absence of 

such findings, any of the acts charged included a disciplinary offense; (d) Currently is subject to 

an agreement with the Commission or any Self-Regulatory Organization not to apply for 

registration with the Commission or membership in any Self-Regulatory Organization; (e)

Currently is subject to or has been subject within the prior three years a Commission 

registration revocation or suspension in any capacity for any reason, or has been convicted 

within the prior three years of any of the felonies listed in section 8a(2)(D) (ii) through (iv) of 

the Commodity Exchange Act; (f) Currently is subject to a denial, suspension or disqualification 

from serving on a Committee or governing board of any Self-Regulatory Organization as that 

term is defined in section 3(a)(26) of the Securities Exchange Act of 1934, as amended.

Members of the contract market will be held to standards which are found in Rule 302.

Core Principle 16: Conflicts of Interest
 

The board of trade shall establish and 

enforce rules:

(a) To minimize conflicts of interest in the 

decision-making process of the contract

market; and

(b) To establish a process for resolving 

conflicts of interest described in paragraph 

(a) of this section.

In Chapter 2 of the Rulebook, specifically Rule 202, outlines the Board composition, 

Committees and qualifications that a director must satisfy in order to serve on the Board or 

one of the Committees of the SMFE. The Exchange has instituted a Board that will maintain at 

least 35% public directors which is outlined in Rule 202. The Exchange has also identified three 

standing committees that are defined in Rules 204-207.

The Rulebook contains rules in Chapter 2 that address conflicts of interest in decision-making, 

methods to ascertain the presence of conflicts of interest and to make decisions in the event of 

such a conflict. In addition, Rule 216 contains rules on limitations on the use or disclosure of 

material non-public information gained through the performance of official duties by Board 

Members, Committee members and Exchange Personnel gained through the performance of 

their duties or through an ownership interest in the contract market.

SMFE has a Regulatory Oversight Committee detailed in Rule 207 that is composed of 100% 

Public Directors. The ROC oversees the Exchange’s regulatory program on behalf of the Board.

The ROC makes recommendations to the Board that will, in its judgment, be best to promote 

the interests of the SMFE Futures. The ROC assists the exchange in minimizing actual and 

potential conflicts of interest.

As discussed in Rule 709, SMFE also maintains a Disciplinary Panel that is subject to certain 

rules regarding composition as to preclude any group or class of industry participants from 

dominating or exercising disproportionate influence on the Panels. The Panels will include at 

least one member who would qualify as a Public Director.

Rulebook Chapter 8 also provides for appeal to a panel appointed by the Board and that 

appellate body must also include at least one person who would qualify as a Public Director.

As detailed in Rule 210, no member of the Board, any Committee which has authority to take 

action for and in the name of the Exchange (not including any Committee which is only 

authorized to make recommendations for action by the Board or some other Committee) or 

any Disciplinary Panel shall knowingly participate in such body's deliberations or voting in any 

matter involving a Named Party or has material interest where such member: (i) is a Named 

Party or has material interest; (ii) is an employer, employee or fellow employee of a Named 

Party; (iii) is associated with a Named Party through a broker association; (iv) has a Family 
 

Relationship with a Named Party; or (v) has any other significant, ongoing business relationship 

with a Named Party, excluding relationships limited to executing Transactions opposite each 

other.

Core Principle 17: Composition of Governing Boards of Contract Markets

The governance arrangements of the board 

of trade shall be designed to permit 

consideration of the views of market 

participants.

Exhibit C includes the fitness standards of the Board of Directors and Rule 202 states that the 

Board shall include at least 35% of the Board Members to be Public Directors. 

As stated in Rule 204, the Exchange will establish three (3) Standing Committees: the Audit 

Committee, the Member Committee and the Regulatory Oversight Committee.

Pursuant to Rule 207, the Regulatory Oversight Committee will be composed of 100% Public 

Directors. The ROC oversees SMFE’s regulatory program on behalf of the Board. It makes 

recommendations to the Board as will, in its judgment, best promote the interests of the 

exchange. Likewise, the ROC assists SMFE in minimizing actual and potential conflicts of 

interest.

The Audit Committee, defined in Rule 205, will be composed of at least 35% Public Directors. 

The Audit Committee is responsible for oversight of the Exchange’s financial responsibilities. 

The Member Committee will be composed of at least 35% Public Directors. The Member

Committee is responsible for determining requirements for Member, Participant, and Clearing 

Firm eligibility, reviewing appeals of denied applications, and approving rules as related to 

Member access to the Exchange. Additional information on the Membership Committee can 

be found in Rule 206.

SMFE may, from time to time, establish one or more advisory Committees as it may deem 

necessary or advisable. Each Advisory Committee may consist of Directors, Officers, 

representatives of Members and other Participants, as determined by the Exchange. Advisory 

Committees may make recommendations to the Board but will not be authorized to make 

decisions or act on behalf of the Exchange.

Core Principle 18: Recordkeeping
 

The board of trade shall maintain records of 

all activities relating to the business of the 

contract market:

(a) In a form and manner that is acceptable 

to the Commission; and

(b) For a period of at least 5 years

SMFE’s recordkeeping program satisfies the criteria set forth in § 1.31 of the Commission 

Regulations. Pursuant to Rule 209, the ROC will oversee all facets of the regulatory program, 

including compliance with recordkeeping requirements.

Exhibit S describes the procedures for maintaining trade data for transactions on the exchange. 

SMFE also maintains records of Board and committee meetings in accordance with its 

governance documents.

Records will be maintained by the Exchange for a minimum of five years, with two years in a 

readily accessible place.

Core Principle 19: Antitrust Consideration

Unless necessary or appropriate to achieve 

the purposes of this Act, the board of trade 

shall not:

(a) Adopt any rule or taking any action that 

results in any unreasonable restraint of 

trade; or

(b) Impose any material anticompetitive 

burden on trading on the contract market.

SMFE’s Rulebook and business have been designed to avoid any unreasonable restraints on 

trade or the imposition of any material anticompetitive burden on trading.

As defined in the responsibilities of the Member Committee in Rule 206, this Committee will 

ensure that the Exchange does not restrict access or impose burdens on access in a 

discriminatory manner. Rule 516 and Exhibit Q details the Exchange’s algorithm for order 

matching.

The Exchange will post general information, including its contract specifications and the 

Rulebook, on its website. A copy of the Rulebook, any rule amendments, and products

(including terms and conditions of the contracts) will be made available through the Exchange

website. Notice of new product listings, new rules, and rule amendments will be placed on the 

Exchange website concurrent with the filing of such information or submissions with the 

Secretary of the Commission. All relevant information as related to the Exchange and its 

contracts will be made available to Members and Participants so they are able to make their 

own determination if participation in the Exchange’s market is appropriate considering their 

experience, objectives, financial resources, and other relevant circumstances.

Core Principle 20: System Safeguard

Each designated contract market shall:

(a) Establish and maintain a program of risk 

analysis and oversight to identify and 

minimize sources of operational risk, through 

the development of appropriate controls and 

As detailed in Exhibit V, SMFE has implemented a Risk Management Process and Framework to 

Identify, Assess, Prioritize, Mitigate and Adapt to evolving risks inherent to operating the

Exchange. SMFE’s Enterprise Risk Management Framework will guide the Exchange in 

completing the assessment of risk and implementation of the risk management process. The 

analysis and assessment of IT and Cybersecurity risks aligns with the CIS Controls, Policies, 
 

procedures, and the development of 

automated systems, that are reliable, secure, 

and have adequate scalable capacity;

(b) Establish and maintain emergency 

procedures, backup facilities, and a plan for 

disaster recovery that allow for the timely 

recovery and resumption of operations and 

the fulfillment of the responsibilities and 

obligations of the board of trade; and

(c) Periodically conduct tests to verify that 

backup resources are sufficient to ensure 

continued order processing and trade 

matching, transmission of matched orders to 

a designated clearing organization for 

clearing, price reporting, market surveillance, 

and maintenance of a comprehensive and 

accurate audit trail.

Standards and Guidelines in order to adopt industry best practices and guidance. A matrix of 

risks was generated by the Exchange’s management and tech teams, and each potential risk, 

including information security, was scored for likelihood and impact and ranked so that priority 

is assigned to the greatest risks and negative outcomes and their associated mitigation 

strategies.

The Exchange’s Business Continuity Plan (“BCP”) provides procedures that will, in the case of 

an Emergency, safeguard Participant data and firm property including books and records, 

assess financial and operational damage or interruptions considering the circumstance 

surrounding the disaster at hand, facilitate quick recovery and resumption of operations, 

communicate with critical vendors, regulatory authorities and Members/Participants. This 

plan also accounts for disaster recovery testing.

The Exchange disaster recovery (“DR”) site is located in Equinix NY2, Secaucus, NJ. The site is 

currently intended to be a warm backup, with replication of transactional data over 10GB cross 

connection circuits from the primary site at Cyrus One, Aurora, IL. A comprehensive DR and 

BCP Plan has been developed that includes all steps and procedures required to declare an 

Emergency, notify market participants and the CFTC, failover to backup facilities, and reopen 

the market. See Exhibit V for more details.

SMFE shall review the viability of backup resources in tandem with resource evaluations and 

technology refreshes of its production facilities. Along with industry wide testing, the

Exchange will conduct quarterly internal testing of its own backup systems, in coordination 

with all critical regulatory and technology service providers. See Exhibit V for more details.

The Exchange will conduct periodic objective testing of the Trading System, and trade 

environment generally, pursuant to the provisions contemplated in the CFTC Technology 

Questionnaire. The Exchange will also periodically conduct tests and assessments, including: 

vulnerability testing, penetration testing, controls testing, security incident response plan 

testing and enterprise technology risk assessment. As a member of FIA, the Exchange will 

participate in the FIA’s annual industry wide Disaster Recovery Test.

The Exchange has addressed the CFTC’s Technology Questionnaire in Exhibit V which addresses 

all aspects of Core Principle 20.
 

Core Principle 21: Financial Resources

(a) In general: The board of trade shall have 

adequate financial, operational, and 

managerial resources to discharge each 

responsibility of the board of trade.

(b) Determination of adequacy:

The financial resources of the board of trade 

shall be considered to be adequate if the 

value of the financial resources exceeds the 

total amount that would enable the contract 

market to cover the operating costs of the 

contract market for a 1-year period, as 

calculated on a rolling basis.

As defined in Chapter 2, the Exchange has a Board of Directors that the Chief Financial Officer

will be responsible to report the Exchange’s financial status, at a minimum of once a quarter. 

As detailed in Chapter 2, the Exchange also has an Audit Committee which has several 

responsibilities including, but not limited to, reviewing financial statements and internal 

controls.

SMFE will maintain adequate financial resources which exceed the amount that is required for 

the contract market to operate for a one-year period, as calculated on a rolling basis. In Exhibit 

I, we have defined our operating expenses and have attached a capital computation which is 

Exhibit I-2. The Exchange has its own capital which has been contributed by two owners and 

they may contribute more capital if needed in order to maintain capital compliance with CFTC 

rules. The Exchange’s ownership is detailed in Exhibit A.

SMFE will submit financial reports to the CFTC as prescribed.

Core Principle 22: Diversity of Board of directors

The board of trade, if a publicly traded 

company, shall endeavor to recruit 

individuals to serve on the board of directors 

and the other decision-making bodies (as 

determined by the Commission) of the board 

of trade from among, and to have the 

composition of the bodies reflect, a broad 

and culturally diverse pool of qualified 

candidates.

SMFE is not a publicly traded company and accordingly falls outside the scope of this Core 

Principle. SMFE does have a Board of Directors which is covered in Chapter 2.

Chapter 2 of the SMFE Rulebook outlines the ownership and governance of the exchange. 

Specially in Rule 202, 203 and 204 of the SMFE Rulebook it describes the Board/Committees 

responsibilities and ineligibility to serve on Boards and Committees of the SMFE. Exhibit C also 

outlines BOD fitness requirements.

Core Principle 23: Securities and Exchange Commission

The board of trade shall keep any such 

records relating to swaps defined in section 

1a(47)(A)(v) of the Act open to inspection 

and examination by the Securities and 

Exchange Commission.

SMFE does not offer any security-based contracts and accordingly falls outside the scope of 

this Core Principle.