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[Federal Register: February 3, 1998 (Volume 63, Number 22)]

[Notices]

[Page 5505-5506]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr03fe98-39]



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COMMODITY FUTURES TRADING COMMISSION





Application of Cantor Financial Futures Exchange as a Contract

Market in US Treasury Bond, Ten-Year Note, Five-Year Note and Two-Year

Note Futures Contracts



AGENCY: Commodity Futures Trading Commission.



ACTION: Notice of availability of the terms and conditions of proposed

commodity futures contracts.



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SUMMARY: The Cantor Financial Futures Exchange, Inc. ("CFFE" or

"Exchange") has applied for designation as a contract market for the

computer-based trading of US Treasury bond, ten-year note, five-year

note and two-year note futures contracts. CFFE has been formed pursuant

to an agreement between the New York Cotton Exchange ("NYCE") and

CFFE, LLC ("Cantor") which is wholly owned by Cantor Fitzgerald, LP.

Under the agreement, CFFE trading would be conducted on the same

trading system that another Cantor Fitzgerald, LP subsidiary, Cantor

Fitzgerald Securities, LLC, currently operates as an interdealer-broker

in the US Treasury securities market. CFFE's regulatory

responsibilities would be handled by NYCE. CFFE has not previously been

approved by the Commission as a contract market in any commodity.

Accordingly, in addition to the terms and conditions of the proposed

futures contracts, the Exchange has submitted to the Commission a

proposed trade-matching algorithm; proposed rules pertaining to CFFE

governance, disciplinary and arbitration procedures, trading standards

and recordkeeping requirements; and various other materials to meet the

requirements for a board of trade seeking initial designation as a

contract market. CFFE trades would be cleared and settled by a newly-

formed clearing organization--the New York Board of Clearing, Inc.

("NYBOC"), a wholly-owned subsidiary of the Commodity Clearing

Corporation ("CCC") which is wholly owned by NYCE. NYBOC has

submitted its proposed rules to the Commission in conjunction with

CFFE's designation application. Acting pursuant to the authority

delegated by Commission Regulation 140.96, the Division of Economic

Analysis and the Division of Trading and Markets have determined to

publish CFFE's proposal for public comment. The Divisions believe that

publication of the proposal for comment at this time is in the public

interest, will assist the Commission in considering the views of

interested persons, and is consistent with the purposes of the

Commodity Exchange Act. The Divisions seek comment regarding all

aspects of CFFE's application and addressing any issues commenters

believe the Commission should consider.



DATES: Comments must be received on or before April 6, 1998.



FOR FURTHER INFORMATION CONTACT: With respect to questions about the

terms and conditions of CFFE's proposed futures contracts, please

contact Thomas M. Leahy of the Division of Economic Analysis, Commodity

Futures Trading Commission, at Three Lafayette Centre, 1155 21st

Street, NW, Washington, DC 20581; Telephone number: (202) 418-5278;

Facsimile number: (202) 418-5527; or Electronic mail: [email protected].

With respect to questions about any of CFFE's other proposed rules or

NYBOC's proposed rules, please contact David Van Wagner of the Division

of Trading and Markets at the same address; Telephone number: (202)

418-5481; Facsimile number: (202) 418-5536; or Electronic mail:

[email protected].



SUPPLEMENTARY INFORMATION:



I. Description of Proposal



    CFFE, a New York not-for-profit corporation, has applied for

designation as a contract market for the computer-based trading of US

Treasury bond, ten-year note, five-year note and two-year note futures

contracts. CFFE has not been approved previously by the Commission as a

contract market in any commodity. Thus, in addition to the terms and

conditions of the proposed futures contracts, the Exchange has

submitted, among other things, proposed trade-matching algorithm

procedures and rules pertaining to CFFE governance, disciplinary and

arbitration procedures, trading standards and recordkeeping

requirements.

    CFFE would be wholly-owned by CFFE Regulatory Services, LLC. Equity

interest in CFFE Regulatory Services, LLC would be held entirely by

NYCE (ten percent equity interest) and NYCE's members (ninety percent

equity interest).\1\ CFFE's contracts would trade over a computer-based

trading system maintained by Cantor Fitzgerald Securities, LLC (the

"Cantor System"). Cantor Fitzgerald Securities, LLC is an

interdealer-broker in the US Treasury securities market and it

currently operates the Cantor System to match orders placed with it by

broker-dealers and other customers. Although neither Cantor nor any of

its affiliates would have any equity interest in CFFE, Cantor would

collect a transaction fee for each trade executed at CFFE through the

Cantor System.

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    \1\ NYCE would have the sole voting interest in CFFE Regulatory

Services, LLC.

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    CFFE would be governed by a thirteen-person board of directors--

eight of whom would be appointed by Cantor and five of whom would be

appointed by NYCE.\2\ NYCE would be responsible for providing all of

CFFE's regulatory services including its compliance, surveillance,

arbitration and disciplinary programs.\3\ Accordingly, all CFFE rule

changes that involved regulatory procedures would have to be approved

by NYCE's Board of Managers in addition to CFFE's board.

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    \2\ Three of the eight CFFE directors appointed by Cantor would

be public directors who could not be NYCE members or be employed by

or affiliated with NYCE or Cantor.

    \3\ In this regard, CFFE's proposed rules would incorporate by

reference certain NYCE rules, such as its rules governing

arbitration and disciplinary procedures.

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    CFFE proposes to trade each of its four contracts from 7:30 a.m. to

5:30 p.m., New York time, on each business day. Under the proposal, all

CFFE trading would be conducted through NYBOC clearing members and

certain registered persons guaranteed by NYBOC clearing members

(collectively referred to in CFFE's proposed rules as "authorized

traders"). Authorized traders would place orders, whether for their

own or for their customers' accounts, by phoning CFFE terminal

operators \4\ located at a Cantor Fitzgerald Securities, LLC

facility.\5\ For each order, an authorized trader would be required



[[Page 5506]]



to provide the terminal operator with a customer or proprietary account

identifier, the relevant contract and the quantity and price.\6\ The

CFFE terminal operator would promptly enter this information into the

Cantor System via a terminal keyboard.

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    \4\ All CFFE terminal operators would be jointly employed by

CFFE and Cantor. Terminal operators would be registered as

government securities representatives with the National Association

of Securities Dealers and would be supervised by a registered floor

broker.

    \5\ All phone conversations between NYCE authorized traders and

CFFE terminal operators would be recorded and timed by a Cantor

tape-recording system.

    \6\ Authorized traders also would be required to fill out an

order ticket for each order.

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    The Cantor System would match eligible CFFE orders according to a

trade-matching algorithm that is similar to the algorithm that Cantor

Fitzgerald Securities, LLC currently uses to match orders as an

interdealer-broker in the government securities market. Under the

algorithm, the Cantor System would post the best bid (best offer)

available at any given time and its quantity. Any inferior bids

(offers) that were posted earlier would be removed from the Cantor

System, while inferior bids (offers) entered subsequently would be

rejected by the Cantor System. Responsive offers (bids) would be

matched with the best bid (best offer) on a time-priority basis at the

designated bid (offer) price. Upon filling the best bid's (best

offer's) stated quantity, the Cantor System would provide the

authorized trader who made that bid (offer) with the exclusive right to

buy (sell) all or part of the offers (bids) subsequently posted on the

Cantor System at that same bid (offer) price for a pre-determined,

limited period of time. During this exclusive period, the Cantor System

would accept bids (offers) at the same price as the trader's best bid

(best offer), and they would be matched on a time-priority basis to the

extent possible after the exclusive period.

    Upon the execution of a CFFE transaction, the terminal operator

would provide an oral confirmation of the trade to the submitting

authorized trader by telephone, and the authorized trader would record

the details of the trade on an order ticket.\7\ Upon execution of a

trade, the Cantor System also would electronically transmit matched-

trade data to NYBOC for clearing and settlement purposes. For each

trade, NYBOC would transmit transaction information to the appropriate

clearing members via the Trade Input Processing System ("TIPS"). \8\

Clearing members would be required to accept or reject each trade

within thirty minutes of its posting on TIPS.

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    \7\ The terminal operators' duties would be limited to receiving

and inputing orders from authorized traders and relaying back trade

confirmations. Terminal operators could not maintain any sort of

order book or deck, nor could they exercise any discretion over

orders.

    \8\ NYBOC estimates that CFFE trades would be posted on TIPS

within fifteen minutes of their execution.

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    The Cantor System also would transmit relevant trade data to NYCE

each day for compliance and surveillance purposes.



III. Request for Comments



    Any person interested in submitting written data, views, or

arguments on the proposal to designate CFFE should submit their views

and comments by the specified date to Jean A. Webb, Secretary,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street, NW, Washington, DC 20581. In addition, comments may be sent by

facsimile transmission to facsimile number (202) 418-5521, or by

electronic mail to [email protected]. The Division seeks comment on

all aspects of CFFE's application for designation as a new contract

market, as well as NYBOC's proposal to serve as CFFE's clearing

organization. Reference should be made to the CFFE application for

designation as a contract market in US Treasury bond, ten-year note,

five-year note and two-year note futures contracts. Copies of the

proposed terms and conditions are available for inspection at the

Office of the Secretariat at the above address. Copies also may be

obtained through the Office of the Secretariat at the above address or

by telephoning (202) 418-5100.

    Other materials submitted by CFFE and NYBOC may be available upon

request pursuant to the Freedom of Information Act (5 U.S.C. 552),

except to the extent that they are entitled to confidential treatment

pursuant to 17 CFR 145.5 or 145.9. Requests for copies of such

materials should be made to the Freedom of Information, Privacy and

Sunshine Act compliance staff of the Office of the Secretariat at the

Commission headquarters in accordance with 17 CFR 145.7 and 145.8.



    Issued in Washington, DC, on January 29, 1998.

John R. Mielke,

Acting Director.

[FR Doc. 98-2622 Filed 2-2-98; 8:45 am]

BILLING CODE 6351-01-P
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