BYE-MAIL 

Received CFTC 

Records Section 

4~s-/o7 Ms. Eileen Donovan 

Acting Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 2151 Street, N.W. 

Washington, D.C. 20581 

April 25, 2007 

-· ~ -· ...~: ~I., · . .• · .; 

.. 

COMMENT 

• 

Re: Regulatory Governance -72 Fed. Reg. 14051 (March 26, 2007) 

Dear Ms. Donovan: 

The Board of Trade of the City of Chicago, Inc. ("CBOT®" or "Exchange") appreciates 

the opportunity to comment on the Commodity Futures Trading Commission's 

("Commission") proposed amendments to the Acceptable Practices for compliance with 

Section 5( d)( 15) ("Core Principle 15") of the Commodity Exchange Act ("CEA"). The 

Commission published its final Acceptable Practices on February 14, 2007. The 

Acceptable Practices, among other things, defined a "public director" for the purposes of 

describing those independent persons whom the Commission expected to serve on a 

designated contract market's board of directors, a Regulatory Oversight Committee and 

disciplinary panels. The Commission has indicated that its proposed amendments clarify 

the definition of public director in order to "remove potential ambiguities and correct a 

technical drafting error." 

The CBOT continues to question the need for the Acceptable Practices in general, as 

discussed in detail in the Exchange's September 7, 2006 comment letter to the 

Commission's Federal Register release proposing the Acceptable Practices (71 Fed. Reg. 

38740 (July 7, 2006), and specifically believes that the Commission's definition of a 

public director is overbroad. The Exchange has several comments on the proposed 

amendments. 

Specifically, the Commission has proposed to clarify Subsection (b )(2)(ii)(B) of the 

Acceptable Practices, which precludes members and persons employed by or affiliated 

with members from meeting the definition of a public director. As currently defined, a 

person would be considered to be affiliated with a member if he or she were an officer or 

director of the member, or had" . . . any other relationship with the member such that his 

or her impartiality could be called into question in matters concerning the member." The 

proposed amendment would eliminate the reference to any other relationship, and would 

instead explicitly define those persons affiliated with a member as officers, directors, and 

partners. Given that the Commission has determined that members and persons affiliated 

with members may not serve as independent directors, the CBOT agrees that it is 

appropriate to replace the current subjective standard with a specific definition of those 

particular relationships which the Commission considers to be disqualifying affiliations. 

• 
Ms. Eileen Donovan 

April 25, 2007 

Page 2 of 4 

The Commission's second proposed amendment relates to the $100,000 combined annual 

payments test for potential public directors and the firms with which they are affiliated. 

The amendments attempt to remove the confusion that may be caused by the multiple 

references to affiliations in the current language, and also specifically define the 

prohibited payments as "compensation for professional services." 

The CBOT appreciates the Commission's efforts to specifically define the nature of the 

prohibited payments, and the proposed definition as compensation for professional 

services does remove some ambiguity. It is now clear that the Commission does not 

intend for an individual to be barred from service as a public director, for example, if he 

is an officer of an organization that receives charitable donations from an exchange or an 

academic whose university receives contributions from members who are alumni. 

However, the Commission's definition of prohibited payments as compensation for 

professional services still casts the net too wide. It would presumably exclude payments 

that were strictly for goods, such that an exchange could tap an executive of a company 

that sold paper supplies to the exchange. However, it is unclear whether employees of 

companies that both sell equipment and service that equipment for the Exchange or its 

members would be disqualified as potential public directors. The analysis is further 

complicated by the Commission's requirement that this standard must be applied to the 

spouse, parents, children, and siblings of a member. Depending upon what the 

Commission considers to be "professional services," individuals who are themselves, or 

whose family members are employees, officers, directors, or partners of any of the 

following may be prohibited from serving as public directors if the $100,000 threshold is 

met: 

• Any insurance company that insures exchange members 

• Any bank that provides banking services to exchange members 

• Any accounting firm that provides accounting services to exchange members 

• Any law firm that provides legal services to exchange members 

• Any technology company that provides hardware, software, and related technical 

support to exchange members. 

• Any company that provides office equipment or communications equipment and 

related technical support to exchange members 

• Any provider of information services to exchange members; and 

• Any private school or any college or university that members' children attend 

Moreover, the nature of the disqualifying employment is not defined. It can be expected 

that the potential director is likely t'o be employed at a fairly high level and in a capacity 

that would bring relevant experience to an exchange's board of directors. However, a 

family member could be employed in any capacity at all. For example, the current broad 

definition would disqualify a parent from serving as a public director if his or her collegeage son, who does not live at home, works part-time on the night cleaning staff for a bank 

used by exchange members. 
Ms. Eileen Donovan 

April 25, 2007 

Page 3 of4 

In order to ensure that the definition of a public director is more workable and more 

meaningful, the CBOT urges the Conunission, at a minimum, to make several further 

modifications to Subsection (b)(2)(ii)(C). First, a knowledge requirement should be built 

into the definition. An individual should not be prohibited from serving as a public 

director if he does not have personal knowledge that his firm receives more than 

$100,000 in combined annual payments from a member or an officer or director of a 

member. Indeed, an employee of any major corporation is unlikely to be privy to the 

identities of all of its customers, and it is even more unlikely that a potential public 

director would know the identities of the customers of his family members' employers. 

In addition, such an individual and his family members (and the exchange itself) would 

not know the identities of all of the officers and directors of the members of the 

exchange, and would thus be unable to determine whether prohibited payinents come 

from such persons. Finally, a potential director, depending on the nature of his 

relationships with his family members, may not know whether such family members 

have any of the prohibited relationships. Therefore, at a minimum, an individual should 

not be barred from service as a public director unless he has personal knowledge that he 

or a family member has any of the disqualifying relationships identified in the Acceptable 

Practices. 1 · 

Secondly, payments received from a member, or an officer or director of a member of the 

contract market, should be more narrowly defined. It is understandable that the 

independence of a potential director may be questioned if he receives significant 

compensation for professional services from the exchange itself or from an affiliate of the 

exchange. However, with respect to compensation received from a member or its 

officers or directors, it should be further specified that the professional services must 

directly relate to the business of, or the business done on, the contract market or any 

affiliate of the contract market. Such a qualification would appropriately exclude 

compensation for personal accounting, banking, insurance, or educational services or 

general business services that are not specific to the business of the particular exchange. 

Finally, when the potential director is disqualified because he (or his family member) is 

simply employed by a firm that receives the prohibited payments, and he is not an officer, 

director or partner of the firm, there should be appropriate distinctions based on the 

nature of the employment. A potential public director should not be disqualified if his 

employment (or that of his family member) is unrelated to any professional services 

provided to the contract market or an affiliate of the contract market, or the business of, 

or the business done on, the contract market or its affiliate. 

1 The CBOT continues to believe, as stated in its September 7, 2006 comment letter, that an individual 

should not be prohibited from serving as a public director based on the employment or affiliation of an 

immediatefamily member with a member firm, unless the family member is an executive officer of the 

member firm. Moreover, the exclusion should not apply with respect to any family members who do not 

reside in the same household as the director. 
Ms. Eileen Donovan 

April25, 2007 

Page 4 of 4 

In sum, the CBOT appreciates the Commission's attempt to clarify the definition of a 

public director. However, the Exchange believes that the Commission's proposed 

amendments do not go far enough to ensure that exchanges will be able to obtain 

qualified board members that meet the Commission's definition of public directors and 

fulfill the percentage requirements mandated by the Commission. The CBOT looks 

forward to the Commission's serious consideration of the additional modifications that 

have been proposed by the Exchange and we would be happy to discuss any of these 

issues with the Commission. If you have any questions, please feel free to contact Anne 

Polaski, Assistant General Counsel, at (312) 435-3 757 or apolaski@cbot.com. 

Sincerely, 

Bernard W. Dan