MEMORANDUM OF UNDERSTANDING 

BETWEEN 

THE U.S. SECURITIES AND EXCHANGE COMMISSION ("SEC") 

AND 

THE U.S. COMMODITY FUTURES TRADING COMMISSION ("CFTC") 

REGARDING 

THE OVERSIGHT OF SECURITY FUTURES PRODUCT TRADING 

AND 

THE SHARING OF SECURITY FUTURES PRODUCT 

INFORMATION 

Defined Terms and Phrases 

"CEA" shall refer to the Commodity Exchange Act. 

"CFMA" shall refer to the Commodity Futures Modernization Act of2000. 

"CFMA Notice-Registered BD" shall mean a futures commission merchant ("FCM") or 

an introducing broker ("IB") that is registered with the SEC as a broker-dealer ("BD") 

under Section 15(b)(ll) ofthe Exchange Act. 

"CFMA Notice-Registered FCM or CFMA Notice-Registered IB" shall mean a BD 

that is registered with the CFTC as an FCM or as an IB under Section 4f(a)(2) of the 

CEA. 

"CFMA Notice-Registered Futures Exchange" shall mean a national securities 

exchange, a national securities association, or an alternative trading system that is a 

designated contract market under Section Sf of the CEA. 

"CFMA Notice-Registered Exchange(s)" shall mean a CFMA Notice-Registered 

Futures Exchange and/or a CFMA Notice-Registered Securities Exchange. 

"CFMA Notice-Registered Intermediaries" shall mean a CFMA Notice-Registered 

BD and/or a CFMA Notice-Registered FCM and/or a CFMA Notice-Registered IB. 

"CFMA Notice-Registered Securities Exchange" shall mean a designated contract 

market or derivatives transaction execution facility that is registered with the SEC as a 

national securities exchange under Section 6(g) of the Exchange Act. 

"Dual Registrant" shall mean a person that is registered both with the CFTC as an FCM 

or an IB under Section 4f(a)(l) of the CEA and with the SEC as a BD under Section 

15(b)(l) ofthe Exchange Act. 

"Exchange Act" shall mean the Securities Exchange Act of 1934. 

"Limited Purpose National Securities Association" shall mean a futures association 

that is a registered national securities association under Section 15A(k) of the Exchange 
Act. 

"MOU" shall mean this Memorandum of Understanding. 

"NF A" shall mean the National Futures Association. 

"Parties" shall mean the SEC and the CFTC. 

"Security Futures Product ("SFP") Regulator" shall mean: (a) the SEC, with respect 

to CFMA Notice-Registered Securities Exchanges, Limited Purpose National Securities 

Associations, and CFMA Notice-Registered BDs; and (b) the CFTC, with respect to 

CFMA Notice-Registered Futures Exchanges, CFMA Notice-Registered FCMs, and 

CFMA Notice-Registered IBs. 

"SFP" shall mean security futures product, as defined in Section la(32) of the CEA and 

Section 3(a)(56) ofthe Exchange Act. 

"SFP Primary Regulator" shall mean: (a) the SEC, with respect to CFMA NoticeRegistered Futures Exchanges, CFMA Notice-Registered FCMs, and CFMA NoticeRegistered IBs; and (b) the CFTC, with respect to CFMA Notice-Registered Securities 

Exchanges, Limited Purpose National Securities Associations, and CFMA NoticeRegistered BDs. 

Information Sharing and Oversight of SFP Trading 

The Commodity Futures Modernization Act of 2000 permits the trading of SFPs and 

amended the CEA and the Exchange Act to give the SEC and the CFTC joint authority 

for regulating SFPs. Facilities that trade SFPs and intermediaries of SFP transactions 

must be registered with both the SEC and the CFTC. 

The SEC and the CFTC recognize that in light of these obligations, sharing SFP 

examination-related information concerning certain futures and securities exchanges, 

associations, and firms is important to provide effective oversight and to avoid 

duplicative oversight. In addition, the SEC and the CFTC recognize the importance of 

sharing trading data and related information with respect to trading activity in SFPs in 

connection with surveillance activities and enforcement inquiries and investigations. The 

Parties agree that a primary goal of the MOU is to avoid unnecessary regulatory 

duplication or undue regulatory burdens. Further, the Parties agree that nothing in this 

agreement modifies in any way each Party's ability and responsibility to enforce its 

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statute and regulations. Therefore, in order to expedite this cooperation, the SEC and the 

CFTC wish to enter into a MOU that incorporates the following agreement. 

The Parties agree to the following: 

1. Each Party will request that the NF A develop and regularly update a listing of all 

CFMA Notice-Registered Intermediaries about which the agencies will share 

information. 

2. Notwithstanding any other provision of this MOU, the records of a CFMA NoticeRegistered Exchange, Limited Purpose National Securities Association or 

CFMA Notice-Registered Intermediary shall not be subject to routine periodic 

examinations by its SFP Regulator. 

3. With regard to examinations other than those referenced in paragraph 2, each Party 

will provide the SFP Primary Regulator with notice of any examination of a CFMA 

Notice-Registered Exchange, CFMA Notice-Registered Intermediary, or Limited Purpose 

National Securities Association within a reasonable period of time prior to conducting 

any such examination, consult with the SFP Primary Regulator, advise the SFP Primary 

Regulator of the reasons for the intended examination, discuss the feasibility and 

desirability of coordinating any examinations, discuss examinations completed by either 

Party during the quarter, and use the reports of examinations if the information made 

available therein is sufficient for the purposes of the examinations. The SEC and CFTC 

will provide to the other Party all SFP examination-related information upon request of 

the other Party. In furtherance of the stated goals ofthis MOU, the Parties agree that the 

SFP Regulator may, after consultation, conduct those examinations that are not timesensitive together with examinations scheduled by the SFP Primary Regulator, provided 

that the scheduled examination occurs within a reasonable period of time of the 

examination request by the SFP Regulator. The SFP Primary Regulator shall provide the 

SFP Regulator sufficient notice of its examination schedule in order to facilitate such 

coordination between the Parties. 

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4. Prior to conducting an examination of a CFMA Notice-Registered Exchange, Limited 

Purpose National Securities Association, or CFMA Notice-Registered Intermediary, each 

Party will consider whether any reports that have been made available by the other Party 

or a designated self-regulatory organization, or a designated examining authority, as 

applicable, are sufficient for conducting the examination. 

5. The SEC will notify the CFTC promptly of significant issues pertaining to investor 

protection and the public interest noted in its oversight of the trading of SFPs or in 

connection with SFPs, including, but not limited to, market manipulation, abusive trading 

and sales practices, insider trading, and other types of fraud. 

6. The CFTC will notify the SEC promptly of significant issues pertaining to investor 

protection and the public interest noted in its oversight of the trading of SFPs or in 

connection with SFPs, including, but not limited to, market manipulation, abusive trading 

and sales practices, insider trading, and other types of fraud. 

7. The Parties will work together to share information stored in their respective 

electronic databases relating to trading in SFPs. 

8. The Parties will share trading data and related information within their possession or 

control with respect to trading activity in SFPs in connection with surveillance activities 

and enforcement inquiries and investigations upon written request. 

9. The Parties agree to treat as confidential, to the extent permitted by applicable laws, 

all non-public information provided pursuant to this MOU. Nothing in this MOU waives 

or alters any provisions of any applicable laws relating to non-public information. 

10. The Parties will protect the confidentiality of non-public information furnished under 

the MOU, in matters not involving actions or proceedings brought by a Party or the 

United States by: 

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a. Establishing and maintaining such safeguards as are necessary and appropriate to 

protect the confidentiality of any such information provided; 

b. Unless prohibited by law, promptly notifying the other Party in writing of any 

legally enforceable demand or request for such information (including, but not 

limited to, a subpoena, court order, or request pursuant to the Freedom of 

Information Act), providing the other Party a reasonable opportunity to respond to 

the demand prior to complying with the demand or request, and asserting all legal 

exemptions or privileges on the other Party's behalf as such Party may request; 

c. Not furnishing such information to any third party other than those identified in 

paragraph b above or otherwise making public such information without prior 

written approval of the Party providing the information; and 

d. Consenting to application by the other Party to intervene in any related action for 

the purposes of asserting and preserving any privileges or claims of confidentiality 

with respect to the originating Party's non-public information. 

11. Notwithstanding the confidentiality provisions of paragraph 9 and paragraph 10, the 

MOU does not prevent the Parties from using non-public information furnished under the 

MOU in either Party's investigations or proceedings. The Parties may also transfer the 

information to criminal law enforcement authorities. Consistent with restrictions found 

in applicable laws, the Parties will cooperate to facilitate transfer of data to criminal law 

enforcement authorities, and will notify each other of any such transfer and use their best 

efforts to obtain appropriate assurances of confidentiality. 

12. The SEC designates: 

• The Chief Counsel and/or his or her designee(s) in its Office of Compliance 

Inspections and Examinations ("OCIE") as its point(s) of contact for requesting 

examination-related information and for initiating inquiries regarding other examination5 
related matters. 

• The Chief ofthe Office of Market Surveillance in the Division of Enforcement and/or 

his or her designee(s) as its point(s) of contact for requesting trading data and related 

information in connection with surveillance activities, enforcement inquiries, and 

investigations. 

Each SEC regional and district office will designate liaisons with whom examinationrelated information regarding firms that are trading SFPs can be discussed. 

13. The CFTC designates: 

• The Director of the Division of Clearing and Intermediary Oversight and/or his or her 

designee(s) as its point(s) of contact for requesting registration, financial, sales practice 

and related recordkeeping and reporting examination-related information and for 

initiating inquiries regarding such examination-related matters. 

• The Director ofthe Division of Market Oversight and/or his or her designee(s) as its 

point(s) of contact for requesting (i) trade practice and related recordkeeping and 

reporting examination-related information and for initiating inquiries on such 

examination-related matters, and (ii) trading data and related information in connection 

with surveillance activities. 

• The Director of the Division of Enforcement and/or his or her designee(s) as its 

point(s) of contact for requesting information in connection with enforcement inquiries 

and investigations . 

Each CFTC regional office will designate liaisons to share information with and discuss 

particular firms that are trading SFPs. 

14. The Parties intend that the disclosure of non-public information pursuant to the terms 

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of the MOU will not constitute a waiver with regard to any confidentiality or privilege of 

such information. In addition, this MOU does not create any legally binding obligations 

on the SEC or the CFTC, and does not create any right enforceable against the SEC or the 

CFTC or any of their officers or employees or any other person. 

15. This MOU shall become effective as of the date of its signing, and may be revised or 

modified, upon agreement, or as required by changes in relevant laws. The Party 

recommending the revision or modification shall provide the other Party with 30 days' 

written notice of the proposed change. Issues raised by the Parties relating to 

administration of this agreement shall be resolved by the Chairmen of the respective 

Parties, or by the Chairmen's designees. 

16. Either Party may terminate this MOU upon 30 days' written notice to the other Party. 

Following termination, all information that was provided subject to this MOU shall 

remain confidential pursuant to its terms. 

Agreed to this 17th day of_---=M=a=r:...:c=h=---------' 2004. 

William 

~-?;~ H. DonaldsoJI 

Chairman 

Securities and Exchange Commission Commodity Futures Trading Commission 

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