CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 1 

CLEAR MARKETS SWAP EXECUTION FACILITY (“CMSEF”)

COMPLIANCE WITH CORE SEF PRINCIPLES

Swap Execution Facility

Core Principle

Description of Compliance Relevant Reference

Core Principle 1

Sec. 5h (f)(1) Compliance with Core Principles 

–

(A) IN GENERAL. To be registered, and maintain

registration, as a swap execution facility, the

swap execution facility shall comply with—(i)

the core principles described in this

subsection; and (ii) any requirement that the

Commission may impose by rule or regulation

pursuant to section 8a(5).

(B) REASONABLE DISCRETION OF SWAP

EXECUTION FACILITY – Unless otherwise

determined by the Commission by rule or

regulation, a swap execution facility described

in subparagraph (A) shall have reasonable

discretion in establishing the manner in which

the swap execution facility complies with the

core principles described in this subsection.”

CMSEF application and all its associated materials 

submitted for designation as a SEF (“Application”) as a 

whole satisfies this Core Principle. 

CMSEF Application and 

supporting information, 

including

CMSEF Rulebook (Exhibit M)

CMSEF Compliance Manual 

(Exhibit O)

CMSEF Market Maker 

Participant Agreement (Exhibit 

N-3)

CMSEF Non-Market Maker 

Participant Agreement (Exhibit 

N-4)

CMSEF Dues, Fees & Other 

Charges (Exhibit K)

CMSEF Maintenance of Trade 

Data (Exhibit S)

CMSEF Financial Information 

(Exhibit I)

CMSEF Technology 

Questionnaire (Exhibit V)

CMSEF Personnel 

Qualifications (Exhibit E)

Core Principle 2
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 2 

Sec. 5h(f)(2) Compliance with Rules –

“A Swap execution facility shall – 

(A) establish and enforce compliance with any 

rule of the swap execution facility, including –

(i) the terms and conditions of the swaps 

execution facility; and (ii) any limitation on 

access to the swap execution facility; 

(B) establish and enforce trading, trade 

processing, and participation rules that will 

deter abuses and have the capacity to detect, 

investigate, and enforce those rules, including 

means – (i) to provide market participants with 

impartial access to the market; and (ii) to 

capture information that may be used in 

establishing whether rule violations have 

occurred;

(C) establish rules governing the operation of 

the facility, including rules specifying trading 

procedures to be used in entering and 

executing orders traded or posted on the 

facility, including block trades; and

(D) provide by its rules that when a swap 

dealer or major swap participant enters into or 

facilitates a swap that is subject to the 

mandatory clearing requirement of section 

2(h), the swap dealer or major swap participant 

shall be responsible for compliance with the 

mandatory trading requirement under section 

2(h)(8).”

Operation of the SEF and Compliance with Rules 

CMSEF has adopted and will impartially enforce a 

comprehensive set of Rules for the conduct of trading on the 

SEF. Rule 407A requires Participants to execute Required 

Transactions that do not qualify as Block Trades through either 

the Order Book or the RFQ system described in Rule 406. 

Rule 416 sets forth the procedures for entering Block Trades. 

See also Rule 418 (Dissemination of Prices and Trading 

Information). 

CMSEF has established and enforces compliance with the 

Rules, including the Rules related to the terms and conditions 

of swaps traded or processed on or through the SEF (Rule 

401), access to the SEF (Chapter 3 of the Rules), disciplinary 

procedures (Chapter 5 of the Rules) and mandatory trading 

requirements (Rule 311). 

As a condition to trading on the SEF, each SEF Participant is 

required to enter into either a CMSEF Market Maker 

Participant Agreement (Exhibit N-3) or a CMSEF Non-Market 

Maker Participant Agreement (Exhibit N-4), as the case may 

be, in which the Participant undertakes to comply with the 

Rules of the SEF. 

Access Requirements 

Chapter 3 of the Rules provides clear and transparent access 

criteria and requirements for Participants, Authorized Users 

and Authorized Persons. Rule 303A sets forth the qualification 

standards for Participants, including that an applicant must 

represent that it qualifies as an eligible contract participant 

(“ECP”) and must itself be a member of or have entered into 

an arrangement with a Derivatives Clearing Organization or 

other CFTC-approved clearinghouse to clear Swaps that it 

executes on or pursuant to the Rules of the SEF. Rule 304 

provides clear and transparent criteria and requirements for 

Authorized Users who access the SEF. 

Rules 418, 406, 407A and 416

Chapters 3 and 5 of the Rules;

Rules 401 and 311

Exhibit N-3;

Exhibit N-4

Chapter 3 of the Rules

Rules 303A and 304
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 3 

Rule 303A provides CMSEF’s access criteria, which will be 

applied in an impartial manner through the application process 

described in Rule 306. Failure of an applicant to demonstrate 

a capacity to comply with the requirements of the Rules or of 

Applicable Law may lead to a denial of the application under 

Rule 302. Other provisions in the Rulebook, including Rules 

302, 304 and 313, describe CMSEF’s authority to revoke, 

suspend or limit the access of a Participant or Authorized 

User.

As set forth in CMSEF Dues, Fees & Other Charges (Exhibit 

K), CMSEF shall charge consistent fees for all Participants that 

receive comparable access to the SEF.

Rule 301 requires any Participants, Authorized Users and 

other Persons accessing the SEF to abide by the Rules and 

consent to CMSEF’s jurisdiction when entering orders or 

executing trades on or pursuant to the Rules of the SEF. Rule 

302 provides CMSEF with the right to deny the Trading 

Privileges of any Person (i) if such Person is unable to 

demonstrate a capacity to adhere to all of the Rules and 

Applicable Law; or (ii) if such Person would bring CMSEF into 

disrepute; or (iii) for other causes as CMSEF may reasonably 

decide. Rule 302 provides that CMSEF may suspend, 

condition or revoke the Trading Privileges of any Person that 

fails to meet any of the qualification requirements for Trading 

Privileges, fails to meet any condition placed on such Trading 

Privileges, violates any agreement with CMSEF, or has 

summary action taken against it by CMSEF. Under Rule 521, 

the Chief Compliance Officer (“CCO”) may, after consultation 

with the Regulatory Oversight Committee (“ROC”) if 

practicable, summarily suspend, revoke, limit, condition, 

restrict or qualify the Trading Privileges of a Participant, or 

Authorized User. The hearing and appeals process described 

in Rule 519 will ensure that any limitations on access are 

applied in a fair and impartial manner. 

Rule Enforcement Program

CMSEF has established and enforces compliance with its 

Rules 302, 303A, 306, 304 and 

313

Exhibit K

Rules 301, 302, 519 and 521

Compliance Manual
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 4 

trading, trade practice and participation Rules. See the Rules 

and Exhibit O-1, CMSEF Compliance Manual (the 

“Compliance Manual”). 

Capacity to detect and investigate rule violations. CMSEF has 

made adequate arrangements and has adequate resources to 

enforce its Rules. CMSEF’s ROC and the Compliance 

Department (including any Regulatory Service Provider 

(“RSP”) if CMSEF contracts for such services) are responsible 

for detecting, investigating and taking disciplinary action with 

respect to violations of the Rules. Pursuant to Rule 502, 

CMSEF (and CMSEF ‘s RSP if CMSEF contracts with an RSP) 

have the right to inspect the systems, equipment and software 

of Participants, including Authorized Persons, Authorized 

Users, and Customers (also includes Clearing Members). 

Rule 502 requires Participants, including Authorized Persons, 

Authorized Users and other Customers to produce books and 

records related to a Rule, inquiry or investigation as requested 

by the Compliance Department (including the staff of any 

CMSEF RSP). As set forth in Chapter 8 of the Compliance 

Manual, the Compliance Department performs trade practice 

surveillance, market surveillance and real-time market 

monitoring to analyze the data collected by the SEF and 

determine whether any Rule violations have occurred. 

Compliance staff and resources. CMSEF has established 

sufficient compliance resources to ensure that it can conduct 

audit trail reviews, trade practice surveillance, market 

surveillance, real-time market monitoring and complete any 

inquiries or investigations in a timely manner. CMSEF’s 

compliance staffing and resources include: a ROC, the CCO, 

the Compliance Department and the resources available 

through any Regulatory Services Agreement (“RSA”) with an 

RSP if CMSEF contracts with an RSP. Pursuant to Rule 203, 

the ROC will review and approve the annual compliance 

budget and resources to ensure that they are sufficient to meet 

compliance obligations.

As set forth in Sections 3.3 of the Compliance Manual, in the 

event CMSEF retains an RSP, CMSEF’s Compliance 

Compliance Manual, Chapter 

8; Rule 502

Rule 203

Compliance Manual, Sections 

3.3
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 5 

Department will retain ultimate decision-making responsibility 

with respect to any functions contracted to any RSP. The 

Compliance Department or RSP may review CMSEF’s trades 

on a routine basis to determine whether suspicious activity 

relating to CMSEF’s trading standards exists. Initially, CMSEF 

does not intend to use an RSP. CMSEF shall initially be 

responsible for financial surveillance, daily market surveillance, 

daily trade practice surveillance and inquiries and 

investigations. In the future, CMSEF may choose to outsource 

some services related to disciplinary proceedings.

Rule 203 authorizes the ROC to be responsible for monitoring 

the sufficiency, independence and effectiveness of CMSEF’s 

regulatory program. 

Trade surveillance system. CMSEF shall be responsible for 

performing trade practice and market surveillance. Additional 

information on the CMSEF’s market surveillance practices is 

provided in Chapter 8 of the Compliance Manual. As set forth 

in Section 8.2 of the Compliance Manual, CMSEF’s Market 

Monitor Team (“MMT”) shall monitor trading on the CMSEF 

Platform for certain types of suspicious transactions. The 

MMT shall monitor CMSEF’s Platform for suspicious activity by 

watching for suspicious transactions on a view-only trading 

screen during trading hours. On a T+1 basis, the MMT and 

Compliance Department shall also review specialized reports 

to look for unusual activity. Any unusual activity will be 

reviewed and such review shall be documented. 

The MMT looks for the following types of suspicious 

transactions on a real-time basis by watching trading activity 

on CMSEF’s trading platform:

(i) abnormal price movements

(ii) unusual order volumes

(iii) unusual order cancellations or modifications

(iv) unusual trading volumes

(v) attempted manipulation. 

Real-time market monitoring. As set forth in Section 8.4 of the 

Compliance Manual, the MMT will perform real-time market 

Rule 203

Compliance Manual, Chapter 

8; Section 8.2

Compliance Manual, Section 

8.4
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 6 

monitoring of trading activity on the CMSEF by using Scila and 

a view-only market monitor screen through which the MMT can 

track the activity of specific traders, and monitor price and 

volume information. The MMT shall also review Scila alerts 

and look for aberrational prices, excessive volume and other 

anomalies in trading on the CMSEF Platform as part of its 

market monitoring process. The Compliance Department will 

review all potentially prohibited trading activity on CMSEF’s 

Platform. 

Pursuant to Rule 409, CMSEF may cancel or adjust trades 

when necessary, including if there is a trade entered at a price 

that would disrupt the market, there is a platform on the 

CMSEF system or both counterparties agree to cancel or 

amend a transaction. CMSEF will notify Participants pursuant 

to Rule 409 that a trade is under review. 

Investigations and investigative reports. The Compliance 

Department, directly or indirectly through an RSP, will be 

primarily responsible for performing most of the investigatory 

work. Chapter 5 of the Rules describes CMSEF’s disciplinary 

and enforcement procedures and demonstrates CMSEF’s 

capacity to detect and investigate rule violations. In 

accordance with Rules 501 through 506, the Compliance 

Department will conduct investigations relating to real-time 

surveillance, financial surveillance, trade practices and market 

surveillance. Rules 507 through 525 govern disciplinary 

proceedings, including the initiation, litigation, and resolution of 

such proceedings.

Regulatory Services Provided by a Third Party

In the future, CMSEF may choose to enter into an RSA with an 

RSP. In such case, any such RSP will perform certain 

surveillance, investigative, and regulatory functions for CMSEF 

as described in the Rules and the Compliance Manual. 

CMSEF’s ROC is charged with monitoring the sufficiency, 

effectiveness and independence of all facets of CMSEF’s 

regulatory program as set forth in Section 3.2 of the 

Compliance Manual, including ensuring that the RSP has the 

Rule 409

Chapter 5 of the Rules;

Rules 501 -506 and 507 -525

Compliance Manual, Section 

3.2
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 7 

capacity and resources necessary to provide timely and 

effective regulatory services. 

CMSEF’s CCO has supervisory authority with respect to any 

functions performed by an RSP. As set forth in Section 3.3.4 

of the Compliance Manual, the RSP and CCO will hold 

monthly meetings to discuss new inquiries and investigations 

and provide a general update relating to the status of 

continuing inquiries and investigations. The RSP and the CCO 

will also evaluate the staff and resources devoted to 

enforcement of the Rules. 

CMSEF will retain exclusive authority over regulatory 

decisions. Under Rule 409, CMSEF maintains exclusive 

authority over decisions to cancel or adjust the price of trades, 

based on the fair and transparent standards set forth in the 

Rulebook. The decision to issue disciplinary charges will be 

made by the Compliance Department, and will, therefore, 

remain under the exclusive authority of CMSEF. Pursuant to 

Rule 302, CMSEF also retains exclusive authority to deny 

access to CMSEF. 

As described in Section 3.4.5 of the Compliance Manual, in the 

event CMSEF contracts with an RSP, the Compliance 

Department shall be responsible for documenting any 

differences between actions taken by CMSEF and any 

recommendation made by CMSEF’s RSP. 

Audit Trail

As described in Section 8.6 of the Compliance Manual, 

CMSEF has established audit trail processes that capture 

trading information to facilitate CMSEF’s trade practice and 

market surveillance activities. The Audit Trail Program allows 

CMSEF to track a customer order from the time of receipt 

through fill, allocation, or other disposition, and includes both 

order and trade data, which allows the Compliance 

Department to reconstruct all order placement, modification 

and trade executions take place on CMSEF’s Platform.

Compliance Manual, Section 

3.3.4

Rules 409 and 302

Compliance Manual, Section 

3.4.5

Compliance Manual, Section 

8.6
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 8 

As described in Section 6.1 of the Compliance Manual, the 

Compliance Department will review CMSEF’s Participants for 

compliance with CMSEF’s audit trail and record keeping to 

ensure they are in compliance with any applicable Rules or 

requirements. Upon completion of such review, the 

Compliance Department will identify Participants that have 

demonstrated deficiencies in complying with CMSEF’s audit 

trail requirements, and the Compliance Department may 

sanction such Participants for purposes of deterring additional 

violations. Such sanctions are subject to the restrictions on 

warning letters described in Rule 507.

Disciplinary Procedures and Sanctions

Chapter 5 of the Rules provides the framework for the SEF’s 

disciplinary procedures. These procedures are designed to 

allow CMSEF to discipline, suspend, or expel any Person that 

violates the Rules.

Enforcement Staff. The Compliance Department is 

responsible for enforcing the Rules and conducting 

investigations into alleged violations of the Rules. The 

Compliance Department consists of the CCO and his staff, and 

the staff of any RSP responsible for providing services to 

CMSEF pursuant to the RSA. As described in Rule 203, the 

ROC will review the size and allocation of regulatory resources 

and number of regulatory personnel to ensure that CMSEF 

has adequate enforcement staff. Rule 210 ensures that any 

person with a conflict of interest will not be permitted to 

participate in any CMSEF enforcement action, Hearing Panel 

or Disciplinary Panel. 

Disciplinary Panels. Pursuant to Rule 513, each Disciplinary 

Panel will be composed of three individuals selected by the 

CCO. Except in cases limited to the timely submission of 

accurate records, an individual who would not be disqualified 

from serving as a Public Director will chair each Disciplinary 

Panel.

 

Compliance Manual, Section 

6.1; Rule 507

Chapter 5 of the Rules

Rules 203 and 210

Rule 513
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 9 

Notice of Charges. If the Compliance Department authorizes 

disciplinary proceedings, it will prepare a notice of charges in 

accordance with Rule 508. Rule 509 provides CMSEF’s 

procedures for service of the notice of charges. 

Right to Representation. Rule 508 requires the notice of 

charges to advise the respondent of its right to be represented 

by legal counsel or any other representative of its choosing 

(other than a Director, Officer, CMSEF employee, member of 

the Disciplinary Panel or other person substantially related to 

the underlying investigation) in all succeeding stages of the 

disciplinary proceedings. 

Answer to charges. Rule 510 provides that if the respondent 

answers a notice of charges, the respondent must file its 

response within 20 days after being served the notice, or 

within such other time period determined appropriate by the 

CCO. Rule 510 also sets forth the requirements for the 

answer, the consequences of failing to file a timely answer, 

and the consequences of failing to deny the allegations 

described in the notice of charges.

Admission or failure to deny charges. Under Rule 510, if a 

respondent admits or fails to specifically deny any of the 

allegations in the notice of charges, the Disciplinary Panel 

shall find that the violations set forth in such allegations have 

been committed and shall impose a sanction for such 

violations. The Disciplinary Panel shall promptly notify the 

respondent in writing of any sanction imposed pursuant to 

CMSEF rules and advise the respondent that the respondent 

may request a hearing on such sanction within 20 days of the 

respondent being served with such notice. 

Denial of Charges; Right to Hearing. Pursuant to Rule 510, a 

respondent may request a hearing before a Disciplinary Panel 

in an answer to a statement of charges. A respondent may 

also request a hearing following the imposition of a sanction 

under Rule 510.

Settlement offers. Pursuant to Rule 512, a respondent or 

Rules 508 and 509

Rule 508

Rule 510

Rule 510

Rule 510

Rule 512
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 10

potential respondent may, at any time, submit a written offer to 

settle anticipated or instituted disciplinary proceedings. The 

Disciplinary Panel may accept the offer of settlement, but may 

not alter the terms of a settlement offer unless the respondent 

or potential respondent agrees. 

Hearings. Rules 513, 514, 515 and 516 establish detailed 

procedures for forming a Disciplinary Panel, convening a 

disciplinary proceeding, reviewing evidence and conducting 

hearings. Under Rule 514, all hearings will be conducted 

before a Disciplinary Panel, which will be promptly convened 

following reasonable notice to each respondent.

Decisions. Pursuant to Rule 517, following a hearing, the 

Disciplinary Panel will issue an order rendering its decision 

based on the weight of the evidence. A decision by a majority 

of the Disciplinary Panel will constitute the decision of the 

Disciplinary Panel. CMSEF will serve a copy of the order of 

the Disciplinary Panel to the respondent and the Compliance 

Department within 30 days. 

Right to appeal. Rule 519 provides appeal procedures that 

allow the respondent to appeal an adverse decision of the 

Disciplinary Panel to an Appeals Panel. The Appeals Panel’s 

written order will be the final action of CMSEF and is not 

subject to appeal within CMSEF. 

Summary Fines. Pursuant to Rule 520, the CCO may 

summarily impose a fine against a Participant, Authorized 

User, Customer or Clearing Member. CMSEF will set the 

amount of summary fines imposed pursuant to Rule 520, with 

the maximum fine not exceeding $5,000 for each violation.

Summary Actions. If the CCO reasonably believes that 

immediate action is necessary to protect the best interests of 

CMSEF or the marketplace, the CCO may, in accordance with 

Rule 521, summarily suspend, revoke, limit, condition, restrict 

or qualify the Trading Privileges of a Participant or Authorized 

User and may take other summary action against a Participant 

or any of its Authorized Users in accordance with the Rules. 

Rules 513 - 516

Rule 517

Rule 519

Rule 520

Rule 521
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 11

Before taking such action, the CCO must consult with the 

ROC. 

Whenever practicable, the Compliance Department will 

provide prior written notice to the Participant, Authorized User 

or other Person against whom the action is brought. If prior 

written notice is not practicable, CMSEF will give notice at the 

earliest possible opportunity pursuant to Rule 521. Such 

notice will state the action, the reasons for the action, and the 

effective time, date and duration of the action. Upon serving 

the notice, the Compliance Department will advise the 

recipient of its right to a prompt hearing before a Disciplinary 

Panel and its right to be represented by legal counsel or other 

representative at such hearing. 

If a hearing is requested, the Disciplinary Panel will promptly 

convene a hearing to be conducted in accordance with Rule 

516. After the hearing, the Disciplinary Panel will issue to the 

respondent a written order affirming, modifying or reversing the 

summary action. The order will include a description of the 

summary action taken, a summary of the evidence introduced 

at the reinstatement hearing, a statement of findings of fact 

and conclusions, a description of any action taken or to be 

taken by CMSEF and the effective date, time and duration 

thereof. 

A respondent whose Trading Privileges are suspended, 

revoked, limited, conditioned, restricted or qualified pursuant to 

Rule 521 may apply for reinstatement through the process 

described in Rule 522.

Rule 521

Rule 516

Rules 521 and 522

Core Principle 3

Sec. 5h (f)(3) Swaps Not Readily Susceptible 

to Manipulation – 

“The swap execution facility shall permit 

trading only in swaps that are not readily 

susceptible to manipulation”

CMSEF intends to permit trading only in swaps based on 

underlying markets such as those for currencies, interest rates 

and default indices that are large and highly liquid and thus are 

inherently unlikely candidates for manipulation. CMSEF 

proposes to list interest rate Swaps for which the Chicago 

Mercantile Exchange (“CME”), and LCH Clearnet Limited 

(“LCH”) act as a Derivatives Clearing Organization (“DCO”). 

Pursuant to Rule 312, CMSEF does not permit trading of 

uncleared Swaps (unless the Participant or Customer is an 

Rule 312
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 12

end-user and completes process for exemption from clearing)

and requires that all Swaps that will be traded on CMSEF be

settled in cash by the DCO. 

Core Principle 4

Sec 5h (f)(4) Monitoring of Trading and 

Trading processing –

“(A) establish and enforce rules or terms and 

conditions defining, or specifications 

detailing—(i) trading procedures to be used in 

entering and executing orders traded on or 

through the facilities of the swap execution 

facility; and (ii) procedures for trade processing 

of swaps on or through the facilities of the 

swap execution facility; and 

(B) monitor trading in swaps to prevent 

manipulation, price distortion, and disruptions 

of the delivery or cash settlement process 

through surveillance, compliance, and 

disciplinary practices and procedures, 

including methods for conducting real-time 

monitoring of trading and comprehensive and 

accurate trade reconstructions.”

Disciplinary Procedures

Under the oversight of the ROC, the Compliance Department 

(including any RSP) will implement CMSEF’s monitoring, 

surveillance and other enforcement functions. The Rules, 

RSA and the Compliance Manual provide the framework for 

CMSEF’s surveillance activities. CMSEF also provides market 

monitoring on a real-time basis (In the event CMSEF contracts 

with an RSP, CMSEF shall provide the RSP with a view-only 

screen so that it can act as a second set of eyes. As 

described in Section 8.4 of the Compliance Manual, CMSEF 

reviews reports of aberrational prices, excessive volume and 

other anomalies in trading on the SEF as part of its real-time 

market monitoring process. 

CMSEF has established comprehensive audit trail processes 

that capture trading information to facilitate the surveillance 

activities described above. See Section 8.6 of the Compliance 

Manual for additional information. 

Pursuant to the CMSEF Market Maker Participant Agreement 

(Exhibit N-3) and the CMSEF Non-Market Maker Participant 

Agreement (Exhibit N-4), all Participants including Authorized 

Users consent to CMSEF and its agents to conduct electronic 

and non-electronic surveillance of trading activities, trade 

practices, and position limits for Swaps executed on the 

CMSEF platform.

The Compliance Department or its RSP conducts product 

specific monitoring for all SEF products. The product specific 

monitoring procedures are set forth in Section 8.7 of the 

Compliance Manual and vary depending on whether the 

specific Swap is physically delivered or cash-settled. 

Additional Requirements for Physical-Delivery Swaps 

Compliance Manual, Section 

8.4

Compliance Manual, Section 

8.6

Exhibit N-3

Exhibit N-4

Compliance Manual, Section 

8.7
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 13

The SEF does not list swaps that are physically delivered. If 

the SEF lists such a product in the future, CMSEF or its RSP 

will monitor the swap’s terms and conditions as they related to 

the underlying commodity market, the convergence between 

the contract price and the price of the underlying commodity 

and the adequacy of the deliverable supply in the underlying 

commodity. 

Additional Requirements for Cash-Settled Swaps 

As described in Section 8.7 of the Compliance Manual, in 

respect of cash-settled swaps linked to a commodity index that 

are listed for trading on or pursuant to the SEF Rules. The 

Compliance Department or its RSP will monitor the pricing of 

the index against which the swap will be settled. 

Ability to Obtain Information 

Pursuant to Section 8.7 of the Compliance Manual, to achieve 

sufficient monitoring of cash-settled swaps linked to a price or 

index derived from prices of products listed for trading on 

another venue, CMSEF must have either Rules or agreements 

that allow CMSEF to have access to information on the 

activities of its Participants on such other venue(s). 

Pursuant to Rule 309, all Participants must maintain all records 

required by the CEA, CFTC or the Rules including all records 

of trading, activity in the underlying commodity and activity in 

related markets. All such books and records shall be made 

available for inspection by, and copies thereof shall be 

delivered to, CMSEF and its authorized representatives upon 

request.

In addition, under Rule 303, in order to be eligible for 

admission as a Participant and to maintain continued access 

to CMSEF, the applicant must be in compliance with all record 

keeping requirements set forth in the Rules as well as the 

Applicable Law. 

Compliance Manual, Section 

8.7

Compliance Manual, Section 

8.7

Rule 309

Rule 303
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 14

Risk Controls for Trading 

As described in Chapter 11 of the Compliance Manual, 

CMSEF has established certain risk controls, including the 

imposition of trading pauses or halts, to address risks posed 

by potential market disruptions. To the extent practicable, 

CMSEF will coordinate its trading controls with other DCM(s) 

and/or SEF(s).

Trade Reconstruction 

As set forth in Sections 5.2 of the Compliance Manual, CMSEF 

will maintain comprehensive audit trail data to accurately 

reconstruct all trading on the SEF. 

Compliance Manual, Chapter 

11

Compliance Manual, Sections 

5.2

Core Principle 5

Sec 5h (f)(5) Ability to Obtain Information –

“(A) establish and enforce rules that will allow 

the facility to obtain any necessary information 

to perform any of the functions described in 

this section; 

(B) provide the information to the Commission 

on request; and 

(C) have the capacity to carry out such 

international information-sharing agreements 

as the Commission may require.”

Establish and Enforce Rules 

Rule 309 requires each Participant to prepare and maintain all 

books, ledgers and other records required by CFTC 

Regulations and the Rules and make them available at the 

request of CMSEF, the Commission or the Department of 

Justice. Pursuant to Rule 502, CMSEF and its RSP have the 

right to inspect the systems, equipment and software of 

Participants, Authorized Users or Clearing Members. These 

rules will be binding on all Participants including Authorized 

Users, pursuant to CMSEF Market Maker Participant 

Agreement (Exhibit N-3) or CMSEF Non-Market Maker 

Participant Agreement (Exhibit N-4) or CMSEF Clearing 

Member Agreement (Exhibit N-16).

Collection of Information 

Rule 318 and 502 requires Participants, Authorized Users and 

Clearing Members to collect and produce books and records, 

including detailed trading records on a routine and non-routine 

basis as requested by the CMSEF Compliance Department or 

any RSP that CMSEF may employ in the future. 

Provide Information to the Commission 

Rules 309 and 502

Exhibit N-3

Exhibit N-4

Rules 318 and 502
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 15

As set forth in Rule 218, CMSEF will keep, or cause to be 

kept, all books and records required to be maintained pursuant 

to the CEA and CFTC Regulations and will make such books 

and records readily accessible for inspection, in each case in 

the form and manner required under the CEA and CFTC 

Regulations.

Information-Sharing Agreements 

Pursuant to Chapter 12 of the Compliance Manual, CMSEF 

has broad discretion to enter into information-sharing 

agreements to coordinate surveillance with other markets that 

trade financial instruments related to the swaps listed for 

trading on the SEF or pursuant to the Rules. CMSEF may 

enter into agreements or other arrangements or procedures to 

coordinate surveillance with domestic or foreign regulators, 

self-regulatory organizations, clearing organizations, 

exchanges, markets or other execution facilities to share 

information and provide other forms of mutual assistance for 

market surveillance, audits, investigations, enforcement 

actions and other regulatory purposes CMSEF deems 

necessary or appropriate for CMSEF or required by Applicable 

Law. 

Rule 218

Compliance Manual, Chapter 

12

Core Principle 6

Sec. 5h(f)(6)Position Limits or Accountability – 

“(A) IN GENERAL – To reduce the potential 

threat of market manipulation or congestion, 

especially during trading in the delivery month, 

a swap execution facility that is a trading 

facility shall adopt for each of the contracts of 

the facility, as is necessary and appropriate, 

position limitations or position accountability for 

speculators.

(B) POSITION LIMITS – For any contract that 

is subject to a position limitation established by 

the Commission pursuant to section 4a(a), the 

Position Limits 

Pursuant to Rule 413A, CMSEF may adopt position limits for 

swaps and grant exemptions from position limits, as it may 

determine to be necessary and appropriate, in accordance 

with CFTC Regulations. CMSEF shall not set its position limit 

for any swap subject to a position limit set by the CFTC at a 

level higher than the CFTC’s limit. CMSEF’s procedures for 

monitoring for position limit violations are set forth in Chapter 

13 of the Compliance Manual.

Pursuant to the CMSEF Market Maker Participant Agreement 

(Exhibit N-3) and the CMSEF Non-Market Maker Participant 

Agreement (Exhibit N-4), all Participants including Authorized 

Rule 413A

Compliance Manual, Chapter 

13

Exhibit N-3

Exhibit N-4
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 16

swap execution facility shall – (i) set its 

position limitation at a level no higher than the 

Commission limitation; and (ii) monitor 

positions established on or through the swap 

execution facility for compliance with the limit 

set by the Commission and the limit, if any, set 

by the swap execution facility.”

Users consent to abide by any position limits set from time to 

time by CMSEF, the CFTC or other Applicable Law regulation

Position Accountability Levels 

Rule 413B provides for the adoption of position accountability 

levels for swaps that are not subject to a position limit pursuant 

to Section 4a(a) of the CEA. As set forth in Section 13.1 of the 

Compliance Manual, the SEF will set such levels prudently 

below the level at which position concentrations may present a 

market integrity concern. Any position accountability rules 

established by the SEF must require traders to provide, upon 

request by the Compliance Department, information about 

their positions in excess of the relevant position accountability 

threshold and to consent to halt any further increases in its 

positions. 

Rule 413B

Compliance Manual, Section 

13.1

Core Principle 7

Sec. 5h (f)(7) Financial Integrity of 

Transactions – 

“The swap execution facility shall establish and 

enforce rules and procedures for ensuring the 

financial integrity of swaps entered on or 

through the facilities of the swap execution 

facility, including the clearance and settlement 

of the swaps pursuant to section 2(h)(1).’

CMSEF has established a comprehensive set of Rules and 

procedures to attempt to ensure the financial integrity of 

transactions entered into on the SEF. Rule 411 and Chapter 9 

of the Compliance Manual establish CMSEF’s requirements 

for clearing transactions. If the CFTC has determined that the 

clearing requirement under Applicable Law applies to a certain 

type or class of swap, then CMSEF Participants must submit 

all such swaps traded on or pursuant to the Rules of the SEF 

to a DCO, unless they ascertain that Applicable Law exempts 

one or both of the parties to the swap from such clearing 

requirement. To increase awareness of financial integrity 

among Participants, and since financial risk can be transferred 

or mitigated but not eliminated, Rule 410A emphasizes that it 

is the responsibility of the Participant to evaluate the credit 

quality of his Prime Broker, FCM, and or Clearinghouse, and 

his counterparty on uncleared swaps. 

Pursuant to Rule 309A, each Participant must notify CMSEF 

immediately upon becoming aware that it fails to satisfy the 

minimum financial requirements applicable to it, including the 

requirement to qualify as an ECP. Participants are also 

required to submit financial and related information to CMSEF 

Rules 410A and 411

Compliance Manual, Chapter 9

Rule 309A

Compliance Manual, Section 

8.4
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 17

and its RSP in the form and manner requested. As set forth in 

Section 8.4 of the Compliance Manual, the Compliance 

Department is primarily responsible for reviewing financial and 

related information for compliance with the SEF’s minimum 

standards. 

Core Principle 8

Sec. 5h (f)(8) Emergency Authority – 

“The swap execution facility shall adopt rules 

to provide for the exercise of emergency 

authority, in consultation or cooperation with 

the Commission, as is necessary and 

appropriate, including the authority to liquidate 

or transfer open positions in any swap or to 

suspend or curtail trading in a swap.”

Under Rule 419 CMSEF has adopted procedures and 

guidelines for implementing an emergency intervention in the 

market. An “Emergency” 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, swaps or transactions or the timely collection and 

payment of funds in connection with clearing and settlement by 

a derivatives clearing organization, 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, 

swaps or transactions, including failure of the payment system 

or the bankruptcy or insolvency of any participant; (d) any 

action taken by any governmental body, or any other 

registered entity, board of trade, market or facility which may 

have a direct impact on trading or clearing and settlement; (e) 

at the request of the CFTC; and (f) any other circumstance 

which may have a severe, adverse effect upon the functioning 

of CMSEF.

In the event of an Emergency, CMSEF may implement 

temporary Emergency procedures and Emergency Rules, 

subject to the applicable provisions of the CEA and CFTC 

Regulations. Implementation of Emergency Rules shall be 

done in consultation with the CFTC. Emergency Rules may 

require or authorize CMSEF, the Board, any committee of the 

Board, the President, or any other Officer to take actions 

necessary or appropriate to respond to the Emergency

Rule 419

Exhibit N-3

Exhibit N-4
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 18

If CMSEF determines that Emergency Rules must be 

implemented, the decision must be reviewed by the Board as 

soon as practicable under the circumstances and may be 

revoked, suspended or modified by the Board. 

Before any Emergency Rule may be adopted and enforced, a 

required vote of the Board must approve the implementation of 

such Emergency Rule at a duly convened meeting requested 

by the President or any other Officer. CMSEF will post a 

Notice to Participants regarding such Emergency, as soon as 

practicable.

CMSEF will use reasonable efforts to notify the CFTC prior to 

implementing, modifying or terminating an Emergency Rule. If 

such prior notification is not possible or practicable, CMSEF 

will notify the CFTC as soon as possible or reasonably 

practicable, but in all circumstances within twenty-four (24) 

hours of the implementation, modification or termination of 

such Emergency Rule. 

CMSEF will promptly notify its Participants whenever CMSEF 

implements an Emergency Rule. CMSEF will use reasonable 

efforts to notify the Commission prior to implementing, 

modifying or terminating an Emergency Rule. If such prior 

notification is not possible or practicable, CMSEF will notify the 

Commission as soon as reasonably practicable, but in all 

circumstances within 24 hours of the implementation, 

modification or termination of such Emergency Rule. Upon 

taking any action in response to an Emergency, CMSEF will 

document the decision-making process related to such action. 

Pursuant to the CMSEF Market Maker Participant Agreement 

(Exhibit N-3), the CMSEF Non-Market Maker Participant 

Agreement (Exhibit N-4) and the CMSEF Clearing Member 

Agreement (Exhibit N-16), all Participants including Authorized 

Users and all Clearing Members agree to permit CMSEF, in its 

sole discretion, to take Emergency Action as it alone sees fit in 

any situation deemed by CMSEF to be an Emergency.

Compliance Manual, Section 

8.8

Core Principle 9

Sec. 5h (f)(9) – Timely Publication of Trading 

Information – 

Consistent with Rule 418, CMSEF will publish information on 

its Website daily regarding prices, trading volume and other 

Rule 418
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 19

“(A) IN GENERAL – “The swap execution 

facility shall make public timely information on 

price, trading volume, and other trading data 

on swaps to the extent prescribed by the 

Commission.

(B) CAPACITY OF SWAP EXECUTION 

FACILITY – The swap execution facility shall 

be required to have the capacity to 

electronically capture and transmit trade 

information with respect to transactions 

executed on the facility.”

data as required by CFTC Regulations. CMSEF will also make 

available a centralized pricing screen on the SEF providing a 

real-time view of resting Orders and any indicative bids and 

offers. 

Rule 418 requires CMSEF to transmit Required Swap Creation 

Data for each Swap executed or pursuant to the Rules to the 

appropriate SDR in the form and manner, and within the 

timeframe, required by the CEA and CFTC Regulations. 

CMSEF may provide such Required Swap Creation Data to 

Participants and Authorized Users no earlier than the time it 

transmits such information to an SDR and in a form that does 

not disclose the identities, or otherwise facilitate identification, 

of the parties to the Swap. 

Rule 418

Core Principle 10

Sec. 5h (f)(10) – Recordkeeping and Reporting 

– 

“(A) IN GENERAL – A swap execution facility 

shall –(i) maintain records of all activities 

relating to the business of the facility, including 

a complete audit trail, in a form and manner 

acceptable to the Commission for a period of 5 

years; (ii) report to the Commission, in a form 

and manner acceptable to the Commission, 

such information as the Commission 

determines to be necessary or appropriate for 

the Commission to perform its duties of the 

Commission under this Act; and (iii) shall keep 

any such records relating to swaps defined in 

section 1a(47)(A)(v) open to inspection and 

examination by the Securities and Exchange 

Commission.

(B) REQUIREMENTS- The Commission shall 

adopt data collection and reporting 

requirements for swap execution facilities that 

are comparable to corresponding requirements 

for derivatives clearing organizations and swap 

CMSEF’s record keeping program will satisfy the relevant 

criteria set forth in Commission Regulation 1.31 and Part 45 of 

the Commission Regulations. As described in Section 16.5 of 

the Compliance Manual, CMSEF will retain all books and 

records on electronic storage media in a non-rewritable, nonerasable format that fulfill the criteria set forth in CFTC 

Regulation 1.31(b). 

Pursuant to Rule 218, the SEF will: (i) keep, or cause to be 

kept, complete and accurate books and records of accounts of 

CMSEF, including all books and records required to be 

maintained pursuant to the CEA and CFTC Regulations; (ii) 

retain all such books and records for the life of each Swap 

transacted pursuant to the Rules and five years following the 

termination of such Swap, and shall make such books and 

records readily accessible for inspection, in each case in the 

form and manner required under the CEA and CFTC 

Regulations; and (iii) may disclose such books and records to 

any government agency, self-regulatory organization or other 

Person if CMSEF believes such disclosure is necessary and 

appropriate in exercising a legal or regulatory function, 

whether or not a formal arrangement governing the disclosure 

exists or a request for information was made. 

Compliance Manual, Section 

16.5

Rule 218
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 20

data repositories.” Under Rule 314, CMSEF may, but is not obligated to, record 

conversations and retain copies of electronic communications 

between Officers, employees or agents of CMSEF, on one 

hand, and Participants, Authorized Users and other Persons, 

on the other hand. Any such recordings or copies thereof may 

be retained as required by Applicable Law. 

CMSEF also maintains records relating to the Swaps traded 

on or pursuant to the Rules of the SEF, including in particular 

an obligation to maintain full, complete, and systematic 

records, together with all pertinent data and memoranda, of all 

of CMSEF’s activities with respect to Swaps, including the realtime swap data reporting requirements set out in Part 43 of the 

Commission’s Regulations as well as the swap creation data 

reporting requirements in Part 45 of the Commission’s 

Regulations. In the event that CMSEF chooses to contract 

with an RSP in the future, such RSP shall generate records 

relating to the provision of services pursuant to an RSA. Such 

records shall be maintained in accordance with the CEA and 

Commission Regulations, and will be provided to CMSEF upon 

request. 

CMSEF Maintenance of Trade Data (Exhibit S) describes the 

procedures for maintaining trade data for transactions on 

CMSEF. In addition, CMSEF maintains records of Board and 

Committee meetings in accordance with the Bylaws of 

CMSEF. 

Rule 314

Exhibit S

Core Principle 11

Sec 5h(f)(11) – Antitrust Considerations –

“Unless necessary or appropriate to achieve 

the purposes of this Act, the swap execution 

facility shall not –

(A) adopt any rules or take any actions that 

result in any unreasonable restraint of trade; or 

(B) impose any material anticompetitive 

burden on trading or clearing.”

CMSEF’s Rules and policies have been designed to avoid 

unreasonable restraints of trade or the imposition of any 

material anticompetitive burden on CMSEF. CMSEF has not 

adopted any rule or taken any action with the intent or result of 

restraining trade. CMSEF will not require Participants to 

acquire an equity interest in CMSEF and access will be 

available and, presumably, granted to a broad number of 

Participants. 

As set forth in Core Principle 2 (Compliance with Rules), 

CMSEF will not restrict access or impose burdens on access in 
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 21

a discriminatory manner within each category or class of 

Participants or between similarly situated categories or classes 

of Participants. Moreover, CMSEF will make public daily 

information related to Swaps traded on the SEF. See Core 

Principle 9 (Timely Publication of Trading Information). 

Core Principle 12

Sec 5h(f)(12) – Conflicts of Interest – The 

swap execution facility shall – 

(A) establish and enforce rules to minimize 

conflicts of interest in its decision-making 

process; and 

(B) establish a process for resolving the 

conflicts of interest.

Rule 201 minimizes conflicts of interest by requiring that, at all 

times, the Board adheres to the Commission’s guidance 

related to Public Directors. The qualifications for Public 

Directors are set forth in Rule 207. In addition, Rule 203 

requires the SEF to establish an ROC that is primarily 

composed of Public Directors. The ROC will oversee 

CMSEF’s regulatory program and supervise the CCO on 

behalf of the Board. Rule 212 requires a written report to be 

sent to the Commission in the event that the Board rejects a 

recommendation of, or supersedes an action of, the ROC. 

Rule 210 provides the Rules for minimizing and resolving 

conflicts of interest. Under Rule 210, no member of the Board 

or any Disciplinary Panel or Appeals Panel of CMSEF may 

knowingly participate in such body’s deliberations or voting on 

any significant action if such member: (1) Is a named party in 

interest; (2) Is an employer, Employee, or fellow Employee of a 

named party in interest; (3) Is associated with a named party in 

interest through a “broker association” as defined in CFTC 

Regulation 156.1; (4) Has any other significant, ongoing 

business relationship with a named party in interest, not 

including relationships limited to executing futures or option 

transactions opposite of each other or to clearing futures or 

option transactions through the same clearing member; or (5) 

Has a family relationship with a named party in interest.

Rule 210 also establishes a process for determining if a 

conflict of interest exists, resolving conflicts of interest and 

requires documentation of all conflicts. Section 2.5 of the 

Compliance Manual details specific conflicts of interest with 

regard to (i) Board Membership; (ii) Close Personal 

Relationships; (iii) Investments; (iv) and Gifts. Section 3.1.3 of 

the Compliance Manual provides additional details on the 

Rules 201, 207, 203 and 212

Rule 210

Compliance Manual, Section 

3.1.3

Compliance Manual, Section 

2.5
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 22

CCO’s responsibilities when resolving conflicts.

Rule 211 limits the use and disclosure of material, non-public 

information gained in connection with a Board member’s 

participation on the Board or any committee for any purpose 

other than the performance of his or her official duties as a 

member of the Board or committee (unless such information is 

requested by the CFTC). In addition, Chapter 5 of the 

Compliance Manual describes CMSEF’s policies regarding the 

use of data collected in connection with its regulatory 

obligations.

Pursuant to Rule 513, a respondent may seek to disqualify any 

individual named to a Disciplinary Panel or Appeals Panel due 

to a conflict of interest or for any other reasonable grounds. 

See also Core Principle 2 (Compliance with Rules). 

Rule 211

Compliance Manual, Chapter 5

Rule 513

Core Principle 13. Financial resources. 

(A) In general. The swap execution facility 

shall have adequate financial, operational, and 

managerial resources to discharge each 

responsibility of the swap execution facility. 

(B) Determination of resource adequacy. The 

financial resources of a swap execution facility 

shall be considered to be adequate if the value 

of the financial resources exceeds the total 

amount that would enable the swap execution 

facility to cover the operating costs of the swap 

execution facility for a one-year period, as 

calculated on a rolling basis. 

CMSEF has adequate financial, operational and managerial 

resources to satisfy its financial responsibilities. CMSEF 

calculates its financial resources quarterly to ensure that the 

amount of such resources is sufficient (and sufficiently liquid) 

to cover its operating costs for a one-year period, as calculated 

on a rolling basis. In addition, CMSEF will maintain 

unencumbered, liquid financial assets (i.e., cash and/or highly 

liquid securities) equal to at least six months’ operating costs. 

In preparing these financial resources calculations, CMSEF 

applies “haircuts” to the market value of certain resources 

where appropriate to reflect market and credit risk, and the 

ROC may require that the value of financial resources be 

calculated more often than quarterly if the ROC determines 

that doing so is necessary or advisable. CMSEF also submits 

quarterly reports of its financial resources calculations to the 

Commission. See Chapter 14 of the Compliance Manual. 

See also CMSEF Financial Information (Exhibit I) 

Compliance Manual, Chapter 

14

Exhibit I

Core Principle 14. System safeguards. 

The swap execution facility shall: Pursuant to Chapter 15 of the Compliance Manual, CMSEF 
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 23

(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 

procedures, and automated systems, that: 

(1) Are reliable and secure; and 

(2) Have adequate scalable capacity; 

(B) Establish and maintain emergency 

procedures, backup facilities, and a plan for 

disaster recovery that allow for: 

(1) The timely recovery and resumption of 

operations; and 

(2) The fulfillment of the responsibilities and 

obligations of the swap execution facility; and 

(C) Periodically conduct tests to verify that the 

backup resources of the swap execution 

facility are sufficient to ensure continued: 

(1) Order processing and trade matching; 

(2) Price reporting; 

(3) Market surveillance; and 

(4) Maintenance of a comprehensive and 

accurate audit trail. 

has developed a program of risk analysis and oversight to 

identify and minimize sources of operational risk by 

implementing appropriate controls and procedures and 

automated systems that are reliable, secure and scalable as 

described in CMSEF Technology Questionnaire (Exhibit V). It 

also describes CMSEF’s emergency plan and includes a 

description of the back-up systems and emergency procedures 

that include recovery time objectives. 

Business Continuity-Disaster Recovery Planning and 

Resources 

CMSEF’s trading platform is fully redundant and replicated 

real-time in its two primary locations in New Jersey and 

London, England, which are designed to prevent interruptions 

in the performance of the system as a result of any abnormal 

conditions or disaster scenarios. CMSEF has implemented 

the following specific backup features for the system: 

1. The network architecture supporting CMSEF’s system has 

been designed to minimize single points of failure by providing 

equipment and route redundancy. Redundancy in the system 

provides for high systemic availability. CMSEF’s systems have 

dimensioned sufficient bandwidth to handle peak volume. 

CMSEF maintains connections to the internet through multiple

independent internet service providers (“ISPs”) from its New 

Jersey and Chicago data centers. Traffic is automatically 

rerouted in the case of a problem with one of the ISPs. Data 

on the system is continually mirrored between our two data 

centers. Furthermore, data is backed up daily and removed to 

an appropriate off-site location twice per week. Full backups 

are available off-site for up to six months.

2. The network architecture of CMSEF’s systems is designed 

to allow for real-time replication between CMSEF’s data 

centers such that CMSEF’s systems can be operated from

either location in case the other location becomes nonfunctional. In the event that either of the main facility becomes 

inoperable Participants are rerouted to the alternate site.

3. CMSEF monitors the availability of the network architecture 

supporting its systems for normal operations, including 

Compliance Manual, Chapter 

15

Exhibit V
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 24

monitoring of network traffic and congestion levels. Specific 

monitoring occurs with respect to: functionality and 

performance of servers and applications, messaging 

infrastructure, trade and post trade connectivity for 

Participants, and connectivity for remote access users. 

Appropriate escalation procedures are in place for resolving 

any performance or capacity issues.

4. CMSEF maintains an inventory of pre-configured hardware 

that may be used should network hardware fail. The hardware 

inventory is tested periodically in an effort to ensure that it will 

be operational upon installation.

5. CMSEF recommends that Participants put in place certain 

controls with respect to their internal operations related to their 

activity on CMSEF. These recommended controls include: 

proper configuration of firewalls and network routers; 

appropriate limitations on access to CMSEF; adequate 

security protocols for account and customer profiles, including 

password/PIN security; entitlement review of their user 

accounts; and development and implementation of data 

backup and recovery plans.

In addition, Rule 419 authorizes CMSEF to adopt and 

implement Emergency Rules. Rule 419

Core Principle 15. Designation of Chief 

Compliance Officer. 

(A) In general. Each swap execution facility 

shall designate an individual to serve as a 

chief compliance officer. 

(B) Duties. The chief compliance officer shall: 

(1) Report directly to the board or to the senior 

officer of the facility; 

(2) Review compliance with the core principles 

in this subsection; 

(3) In consultation with the board of the facility, 

a body performing a function similar to that of a 

board, or the senior officer of the facility, 

resolve any conflicts of interest that may arise; 

(4) Be responsible for establishing and 

Designation and Qualifications of CCO 

CMSEF has appointed a CCO and has conferred to the CCO 

all of the obligations and powers specified by the CEA and the 

Commission Regulations. The authority and resources of the 

CCO to enforce CMSEF’s policies and procedures designed to 

achieve compliance with the CEA and Commission 

Regulations are set forth in Section 3.1 of the Compliance 

Manual. Under Rule 209 and Section 3.1.4 of the Compliance 

Manual, the CCO is responsible for supervision of the SEF’s 

self-regulatory program and the Compliance Department. The 

minimum qualifications of the CCO are set forth in CMSEF 

Personnel Qualifications (Exhibit E). 

Rule 209

Compliance Manual, Section 

3.1 and 3.1.4

Exhibit E
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 25

administering the policies and procedures 

required to be established pursuant to this 

section; 

(5) Ensure compliance with the Act and the 

rules and regulations issued under the Act, 

including rules prescribed by the Commission 

pursuant to section 5h of the Act; and 

(6) Establish procedures for the remediation of 

noncompliance issues found during 

compliance office reviews, look backs, internal 

or external audit findings, self-reported errors, 

or through validated complaints. 

(C) Requirements for procedures. Establishing

procedures under paragraph (b)(6) of this 

section, the chief compliance officer shall 

design the procedures to establish the 

handling, management response, remediation, 

retesting, and closing of noncompliance 

issues. 

(D) Annual reports. 

(1) In general. In accordance with rules 

prescribed by the Commission, the chief 

compliance officer shall annually prepare and 

sign a report that contains a description of: 

(i) The compliance of the swap execution 

facility with the Act; and 

(ii) The policies and procedures, including the 

code of ethics and conflict of interest policies, 

of the swap execution facility. 

(2) Requirements. The chief compliance 

officer shall: 

(i) Submit each report described in clause (1) 

with the appropriate financial report of the 

swap execution facility that is required to be 

submitted to the Commission pursuant to this 

section; and 

Include in the report a certification that, under 

penalty of law, the report is accurate and 

Appointment, Supervision and Removal of CCO 

Rule 209 requires the Board to designate an individual to 

serve as the CCO, who will report directly to the CEO. As set 

forth in Section 3.7 of the Compliance Manual, the CCO shall 

meet annually with the Board and quarterly with the ROC to 

provide an overview of the compliance and market surveillance 

programs of the SEF. 

Duties of the CCO 

Under Rule 209 and Section 3.1.2 of the Compliance Manual, 

the CCO shall: 

(i) oversee and review CMSEF’s compliance with the Core 

Principles for SEFs set forth in the CEA and Part 37 of the 

CFTC Regulations; 

(ii) resolve, in consultation with the Board, the ROC or the 

CEO, any conflicts of interest that may arise, including: 

a. conflicts between business considerations and compliance 

requirements; 

b. conflicts between business considerations and the 

requirement that the SEF provide fair, open, and impartial 

access; or 

c. conflicts between the SEF’s management and members of 

the Board; 

(iii) establish and administer written policies and procedures 

reasonably designed to prevent violations of the CEA and 

CFTC Regulations, including, without limitation, the rules 

comprising Part 37 of such Regulations; 

(iv) take reasonable steps to ensure compliance with the CEA 

and CFTC Regulations; 

(v) monitor compliance with provisions of the Exchange Act 

and SEC Regulations thereunder applicable to security-based 

swap transactions on the security-based SEF (if applicable); 

(vi) establish and follow appropriate procedures for the 

handling, management response, remediation, retesting, and 

closing of 

noncompliance issues identified through compliance office 

reviews, look-backs, internal or external audit findings, selfreported errors or validated complaints; 

Rule 209

Compliance Manual, Section 

3.7

Rule 209

Compliance Manual, Section 

3.1.2
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 26

complete. (vii) supervise the SEF’s self-regulatory program administered 

by the Market Regulation Team with respect to trade practice 

surveillance, market surveillance, real-time market monitoring, 

compliance with audit trail requirements, enforcement and 

disciplinary proceedings, audits, examinations, and other 

regulatory responsibilities with respect to members and market 

participants in accordance with CFTC Regulations; and 

(viii) prepare CMSEF’s Annual Compliance Report. 

Annual Report 

CMSEF’s policies and procedures for the CCO’s annual 

compliance report are set forth in Section 6.2 of the 

Compliance Manual. As described in Section 6.2.1 of the 

Compliance Manual, the CCO’s annual compliance report will 

contain: (i) a summary description of CMSEF’s written policies 

and procedures, including CMSEF’s Code of Conduct and 

conflict of interest policies; (ii) a list of any material changes to 

CMSEF’s compliance policies and procedures; (iii) a 

compliance chart containing a description of CMSEF’s 

compliance policies and procedures, an assessment of the 

effectiveness of these policies and procedures and a summary 

of areas for improvement; (iv) a description of CMSEF’s 

compliance resources; and (v) a discussion of material 

compliance matters arising in the previous year. The CCO 

must certify that, to the best of his or her knowledge and 

reasonable belief, and under penalty of perjury, the report is 

accurate and complete. 

Submission of the Annual Report 

As set forth in Section 6.2.2 of the Compliance Manual, the 

CCO’s annual compliance report will be provided to the Board 

prior to submission to the CFTC. The Board does not have the 

authority to compel the CCO to make any changes to the 

contents of the Report. Section 6.2.3 of the Compliance 

Manual provides that the CCO’s annual compliance report 

must be submitted to the CFTC not later than 60 days after the 

end of the SEF’s fiscal year and that the CCO must file an 

amendment to correct any material error or omission.

Compliance Manual, Section 

6.2 and 6.2.1

Compliance Manual, Section 

6.2.2 and 6.2.3
CMSEF Exhibit L

Core Principles

CMSEF Exhibit L Page 27