U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5260 

Facsimile: (202) 418-5527 

www.cftc.gov

Division of 

Market Oversight

CFTC letter No. 07-06 

May 24, 2007 

No-Action 

Division of Market Oversight 

Michael M. Philipp, Esq. 

Winston & Strawn LLP 

35 W. Wacker Drive 

Chicago, IL 60601-9703 

 Re: Request for No-Action Relief from Sections 5 and 5a of the Commodity 

Exchange Act, as amended, and the Regulations promulgated thereunder relating 

to contract markets and derivatives transaction execution facilities 

Dear Mr. Philipp: 

 This is in response to your letter dated March 13, 2007 to the Division of Market 

Oversight (Division) of the Commodity Futures Trading Commission (CFTC or Commission).1

 

By this correspondence, you request, on behalf of the Dubai Mercantile Exchange Limited 

(DME or Exchange), a company established in the Dubai International Financial Centre (DIFC)2

located in the UAE, that the Division issue a no-action letter confirming that it will not 

recommend enforcement action to the Commission against DME or its members3 or guaranteed 

customers4 if DME does not seek designation as a contract market (DCM) or registration as a 

 

1

 Letter from Michael M. Philipp, Esq., Winston & Strawn LLP, to Richard Shilts, Director, Division of Market 

Oversight, Commodity Futures Trading Commission (March 13, 2007). 

2

 The DIFC is a Financial Free Zone, established in accordance with United Arab Emirates (UAE) Federal Law 

and by Dubai Law. 

3

 For the purposes of this letter and the relief provided herein, the term “member” shall include floor members, 

off-floor members and clearing members of the DME. Furthermore, references herein to members shall include the 

affiliates of such members, to the extent that such affiliates are granted direct access by members to DME Direct. 

An “affiliate” of a member means any person, as the term is defined in Section 1a(28) of the Act, that: (i) owns 

50% or more of a member (ii) is owned 50% or more by the member; or (iii) is owned 50% or more by a third 

person that also owns 50% or more of a member. DME represents that to the extent a member permits an affiliate to 

have direct access to DME Direct, such affiliate will be required to comply with all of DME’s Rules relating to 

trading on DME Direct and the DME member shall ultimately be responsible to DME for ensuring such compliance. 

4

 For the purposes of this letter and the relief provided herein, the term "guaranteed customer" means a nonmember of the DME who is permitted by a clearing member to have direct access to DME Direct in accordance with 

DME Rules and whose transactions on DME are financially guaranteed by the DME clearing member. You 

represent that guaranteed customers are subject to all relevant DME Rules and must agree, in writing, to be bound 

by DME Rules. Further, because retail customers are not permitted to trade on DME, no guaranteed customer may 

be a retail customer. 
Michael M. Philipp, Esq. 

Page 2 

derivatives transaction execution facility (DTEF) pursuant to Sections 5 and 5a, respectively, of 

the Commodity Exchange Act (CEA or Act) or comply with any other section of the Act or 

Commission regulations relating specifically to DCMs or DTEFs in connection with the 

installation and direct access5 use of the DME’s electronic trading and order matching system 

known as DME Direct6

 in the United States7 by members, seat lessees8 and guaranteed 

customers. (No-action request). 

 Specifically, DME wishes to make DME Direct available to: 

(1) DME members and guaranteed customers in the U.S. who wish to trade for their own 

accounts through direct access to DME Direct; 

(2) DME members and guaranteed customers who are registered with the Commission as futures 

commission merchants (FCMs) or who are exempt from such registration pursuant to 

Commission Regulation 30.10 (Rule 30.10 Firms)9

 and who wish to submit orders from or on 

behalf of U.S. customers10 for transmission through direct access to DME Direct; 

 

5

 For the purpose of this letter and the relief granted herein, the term "direct access" refers to the explicit grant of 

authority by the DME to a member or a guaranteed customer to enter orders directly into DME Direct. 

6 DME Direct is the brand name of the electronic trading system employed by DME for accessing DME products 

traded through the NYMEX ClearPort® Trading Services (CPT). 

7

 For purposes of this letter and the relief provided herein, the term “United States” shall include the U.S., its 

territories and possessions. 

8

 As defined in the DME Rulebook, a "seat lessee" is a person to whom a floor member has leased a seat. 

According to DME Rules, a seat lessee may trade either on the account of the floor member or on its own account 

held with a clearing member, but not on both, and may not accept or enter orders for a customer account. 

9

 Rule 30.10 permits a person affected by the requirements contained in Part 30 of the Commission's rules to 

petition the Commission for an exemption from such requirements. Appendix A to the Part 30 rules provides an 

interpretative statement that clarifies that a foreign regulator or self-regulatory organization (SRO) can petition the 

Commission under Rule 30.10 for an order to permit firms that are members of the SRO and subject to regulation by 

the foreign regulator to conduct business from locations outside of the United States for United States persons on 

non-United States boards of trade without registering under the Act, based upon the person's substituted compliance 

with a foreign regulatory structure found comparable to that administered by the Commission under the Act. 

Among the issues considered by the Commission in determining whether to grant Rule 30.10 relief to a foreign 

regulatory or self-regulatory authority are the authority's: (1) requirements relating to the registration, authorization, 

or other form of licensing, fitness review, or qualification of persons through whom customer orders are solicited 

and accepted; (2) minimum financial requirements for those persons that accept customer funds; (3) minimum sales 

practice standards, including risk disclosures, and the risk of transactions undertaken outside of the United States; 

(4) procedures for auditing compliance with the requirements of the regulatory program, including recordkeeping 

and reporting requirements; (5) standards for the protection of customer funds from misapplication; and (6) 

arrangements for the sharing of information with the United States. Interpretative Statement with Respect to the 

Commission's Exemptive Authority Under § 30.10 of its Rules, 17 C.F.R. Part 30, Appendix A (2006). 

10 For purposes of this letter and the relief provided herein, the term “United States customers” shall have the 

same meaning as the term “foreign futures or foreign options customers” as it is defined in Rule 30.1 (c). Because 

no retail customer (defined as any person who does not meet the definition of “client” and discussed below) will be 

permitted to trade directly or indirectly on DME, no U.S. customer may be a retail customer. DME Rules prohibit 
Michael M. Philipp, Esq. 

Page 3 

(3) DME members and guaranteed customers who are registered with the Commission as 

Commodity Pool Operators (CPO) or Commodity Trading Advisors (CTA), or who are exempt 

from such CPO or CTA registration pursuant to Commission Regulation 4.13 or 4.14, and who 

wish to submit orders on behalf of U.S. pools they operate or U.S. customer accounts for which 

they have discretionary authority, respectively, for transmission through direct access to DME 

Direct, provided that an FCM or a Rule 30.10 Firm acts as clearing firm with respect to all 

activity conducted by such CPOs and CTAs through the submission of orders on DME Direct; 

and/or 

(4) DME members or guaranteed customers who are registered with the Commission as FCMs or 

who are Rule 30.10 Firms and who wish to accept orders for U.S. customers transmitted via 

automated order routing systems (AORS)11 for submission to DME Direct. 

 As you know, the Commission, on October 27, 2006, issued a policy statement that 

affirmed the use of the no-action process to permit foreign boards of trade to provide direct 

access to their electronic trading systems from the U.S. (Policy Statement).12 The Division has 

reviewed DME’s No-action request and the materials submitted in support thereof in accordance 

with the Policy Statement and the June 2, 1999, Commission Order (June 2 Order) which first 

directed the Commission staff to consider requests from foreign exchanges for interim no-action 

relief to allow them to provide direct access to their trading systems from the U.S.13

 In connection with its No-action request, DME has forwarded the following information 

to the Division: 

• General information regarding DME (e.g., its location and organization); 

• DME Rules; 

• DME Ethics Guidelines; 

• Dubai Financial Services Authority (DFSA) Conduct of Business (COB) Rules; 

 members from opening an account for, or entering into an Exchange contract with, a retail customer. This 

prohibition applies to clearing members when holding accounts for both guaranteed customers as well as all other 

customers who have access to DME through a member. The prohibition on retail customers independently applies 

to guaranteed customers under DME Rules. 

11 For the purposes of this letter, the term "AORS" shall mean any system of computers, software or other devices 

that allows entry of orders through another party who has been granted direct access to DME Direct, (a DME 

member or guaranteed customer) for transmission to DME Direct, where without substantial human intervention, 

trade matching or execution takes place. 

12 Boards of Trade Located Outside of the United States and No-Action Relief from the Requirement to Become a 

Designated Contract Market or Derivatives Transaction Execution Facility, 71 Fed. Reg. 64443 (November 2, 

2006). 

13 Order of the CFTC Withdrawing Proposed Rules Regarding Access to Automated Boards of Trade, 64 Fed. 

Reg. 32829, 32830 (June 18, 1999). 
Michael M. Philipp, Esq. 

Page 4 

• DFSA Authorization (AUT) Rules; 

• DFSA General (GEN) Rules; 

• DFSA Recognition (REC) Rules; 

• DFSA Anti-Money Laundering (AML) Rules; 

• Regulatory Law (DIFC Law No. 1 of 2004), as amended (RL 2004); 

• Markets Law (DIFC Law No. 12 of 2004) (ML2004); 

• Clearing Services Agreement, DME – NYMEX, dated September 1, 2005 (CSA); 

• General Services Agreement, DME – NYMEX, dated September 1, 2005 (GSA); 

• Software Licensing and Maintenance Agreement, DME – NYMEX, dated September 1, 

2005 (SLMA); 

• DFSA Recognized Jurisdiction Notice (table of recognized [Tier One] jurisdictions), 

dated April 18, 2006; 

• Brochure, “Doing Business in the Dubai International Financial Centre” (DIFC); 

• Certification of authorized representative of DME as to the truth and completeness of the 

material facts set forth in the request for no-action relief; and 

• Undertaking of authorized representative of DME to notify Commission staff if, prior to 

the issuance of no-action relief requested in letter dated March 13, 2007, any material 

representation made in such request for no-action relief ceases to be true and complete. 

 Representations made by DME regarding the structure of DME, DME's activities in the 

U.S., DME's membership criteria, the electronic trading and order matching system known as 

DME Direct, the relevant regulatory regime in Dubai in the UAE, and the information-sharing 

arrangements applicable to DME and its regulator are summarized in Sections I - VI below. For 

purposes of its response to the No-action request, the Division has relied upon DME's 

representations and information provided by DME and has not conducted an independent review 

to confirm their accuracy.14

 

14 As stated below, the no-action relief provided herein is contingent upon the accuracy of the representations 

made by DME in support of its No-action request. Any materially different, changed, or omitted facts or 

circumstances may render the no-action relief void or cause the Division, in its discretion, to condition further, 

modify, suspend, terminate, or otherwise restrict the relief. 
Michael M. Philipp, Esq. 

Page 5 

I. GENERAL INFORMATION REGARDING DME 

DME is directly owned by DME Holdings Limited (DME Holdings), a joint venture 

between NYMEX Holdings, Inc. (NYMEX Holdings), and Tatweer, Inc. (Tatweer),15 that is 

incorporated in Bermuda.16 DME was incorporated in the DIFC, located in the UAE, on 

September 29, 2005 as a private limited company under the DIFC Companies Law (No. 2 of 

2004), as amended. Since its establishment, DME has operated in the DIFC. DME represents 

that it does not maintain a representative office in the U.S., nor does it provide investment 

advice, solicit orders or direct trading from the U.S. 

 DME has been licensed by the DFSA17 as an Authorized Market Institution (AMI) to 

operate an exchange within the DIFC pursuant to Article 45 of the RL 2004. Initially, DME has 

made the following contracts available for electronic trading on DME Direct: Oman Sour Crude 

futures contract, West Texas Intermediate (WTI) - Oman Financial Spread futures contract, and 

Brent - Oman Financial Spread futures contract.18 The DME also plans to list later in 2007 a 

Middle East-based jet fuel futures contract. 

Certain of the Exchange’s operations are outsourced to its affiliate, the New York 

Mercantile Exchange, Inc. (NYMEX),19 pursuant to a Software License and Maintenance 

Agreement (SLMA) and a General Services Agreement (GSA) executed between Tatweer, 

NYMEX Holdings and DME Holdings20 covering technology hosting, market surveillance and 

other services. In addition, the clearing department of NYMEX (NYMEX Clearing), a CFTCregulated DCO, provides clearance and settlement services to DME pursuant to a Clearing 

Services Agreement (CSA) executed between NYMEX and DME. 

 

15 Tatweer was incorporated in Dubai in October 2004 as part of the Dubai Holding Group. Dubai Holding Group 

plays a role in developing and managing major projects aimed at promoting and developing Dubai and the region as 

an international venue for commerce, finance and tourism. 

16 On November 20, 2006, the Sultanate of Oman’s Ministry of Finance (MOF) and the DME reached an 

agreement for MOF to acquire a [ ] percent equity stake in the DME. When the transaction is completed, the Oman 

Investment Fund will own approximately [ ] percent of DME Holdings while NYMEX Holdings and Tatweer will 

each own approximately [ ] percent. 

17 As discussed further below, the DFSA, created under DIFC Law No. 9 of 2004, is the regulator responsible for 

the authorization, licensing and registration of institutions and individuals who wish to conduct financial and 

ancillary services in or from the DIFC. The DFSA also supervises regulated participants and monitors their 

compliance with applicable laws, regulations and rules. 

18 The Oman Sour Crude futures contract is physically settled with one delivery point in Mina Al Fahal, Oman. 

The WTI - Oman Financial and the Brent - Oman Financial spread contracts are cash-settled contracts. 

19 NYMEX is wholly owned by its parent company, NYMEX Holdings. NYMEX has been designated by the 

Commission as a DCM and registered as a Derivatives Clearing Organization (DCO). 

20 The outsourcing arrangements also provide for NYMEX to assist DME in its trading floor operations, including 

technology and compliance assistance, on an on-going basis. 
Michael M. Philipp, Esq. 

Page 6 

DME is overseen by a Board of Directors (Board) which is comprised of eight directors 

including four independent directors21 and an equal number of representatives of NYMEX 

Holdings and Tatweer. The Board has overall responsibility for ensuring that DME complies 

with its obligations under the DFSA regulatory framework, including its obligations as a DFSA 

authorized body, and for approving strategic decisions. The Board has the power to appoint the 

members of several committees to assist in the governance of DME, including the disciplinary, 

appeal, compliance review, product advisory, governance and membership committees.22 The 

day-to-day management of the Exchange is the responsibility of the DME Chief Executive 

Officer (CEO) and the executive management team. The CEO is, in particular, responsible for 

helping to develop Exchange strategy and business plans and for implementing the Board’s 

strategy. He is assisted by a full-time staff, including a compliance department.23 In the event of 

an emergency, each DME Board member and the DME CEO and CCO have the right, under 

DME Rules, to order a suspension of trading for such period as in their judgment is necessary.24

 

21 The 50 percent independent directors requirement is an ongoing requisite of the AMI license. Under DFSA 

AMI Guidance, the DFSA will consider a director to be "independent" if the director is found, on the reasonable 

determination by the Governing Body (i.e., Board), to: (1) be independent in character and judgment; and (2) have 

no relationships or circumstances which are likely to affect or could appear to affect the director's judgment in a 

manner other than in the best interests of the AMI. The Guidance also identifies a number of factors that the 

Governing Body should consider in determining the independence of a director. 

22 The Board’s Corporate Governance Committee (Governance Committee) is charged with reviewing and 

assessing the DME’s corporate structure and standards for integrity and professionalism. The Governance 

Committee is also charged with reviewing the DME’s risk management process and to keep the Board apprised of 

such issues. DME has adopted Ethics Guidelines setting out fundamental ethical principles for all DME Members, 

directors, committee members, and employees with respect to DME business, including principles relating to 

conflicts of interest. 

23 DME has a staff of approximately 80 people. The Compliance Department is staffed with seven people, 

including the Chief Compliance Officer (CCO) and an administrative assistant. Reporting directly to the CCO are 

the Director of Membership Surveillance, the Manager of Market Surveillance, and the Senior Manager of Risk. 

Reporting to the Director of Membership Surveillance are a Membership Surveillance Analyst and a TraineeMembership Surveillance Analyst. As explained in more detail below, the Membership Surveillance function is 

responsible for the monitoring of business systems and controls at member firms, guaranteed customers, seat 

lessees, and applicants for membership. Reporting to the Manager of Market Surveillance will be a Market 

Surveillance Analyst, a NYMEX market surveillance analyst who will be seconded to the DME. The Market 

Surveillance function is responsible for monitoring, oversight and investigation of daily market activities and market 

irregularities. Finally, the Senior Manager of Risk is responsible for review and analysis of the financial regulation 

within the jurisdictions where the DME has trading terminals, a physical presence or a license. The Senior Manager 

of Risk is also responsible for management of the overseas regulator database, operational risk, resolution of audit 

points and resolution of customer complaints. 

24 Under DME Rules, an emergency includes, but is not limited to, the following circumstances: (1) where any 

manipulative activity or attempted manipulative activity is suspected; (2) any actual, attempted or threatened corner, 

squeeze, congestion or undue concentration of positions; (3) any circumstance or circumstances that may materially 

affect the performance of futures or options contracts traded on the Exchange; (4) any action taken by or against the 

UAE government, the Government of the Emirate of Dubai, the DIFC Authority, any foreign government, any local 

government, authority or agency, or by any other exchange, or trade association, whether foreign or domestic, which 

action may have a direct impact on trading on the Exchange; (5) any circumstances that may have a severe, adverse 

effect on the physical functions of the Exchange, including a physical emergency; (6) any other unusual, and 

unforeseeable adverse circumstance. 
Michael M. Philipp, Esq. 

Page 7 

II. MEMBERSHIP AND GUARANTEED CUSTOMERS

A. Members

Any individual, corporate body, partnership or unincorporated association may apply for 

membership of DME as long as the applicant meets the specific requirements set out in the DME 

Rules. DME has the following categories of membership: floor members, off-floor members, 

and clearing members. DME Rules require members to comply with all applicable rules and 

regulations, including DFSA requirements. 

Floor members have the right to access and to trade on DME Direct on the Exchange 

trading floor (Exchange Floor).25 Initially, DME will issue 50 seats, which confer on the floor 

members an equity interest in the Exchange, as well as lower Exchange fees and the right to 

occupy a seat on the Exchange Floor. A floor member’s trading privileges are exercised on the 

Exchange Floor by individuals who are employees or representatives of that floor member. An 

applicant for floor membership must, among other things, (1) be a body corporate, partnership or 

unincorporated association; (2) be established and carrying on its business in the DIFC; (3) be 

Authorized (discussed below) or otherwise permitted by the DFSA to conduct the activities 

which it intends to conduct while trading on the DME and must provide evidence to the DME of 

such regulatory status; or (4) have, in the opinion of the Board, good character, commercial 

standing and business experience. If the applicant intends to trade as principal or agent on the 

account of any customer or to trade as agent on account of any of its affiliates or of any other 

member, it must also comply with all applicable DFSA or other regulatory capital requirements 

and have net capital of not less than $1,000,000 or its equivalent in any other currency.26

 

25 Despite being a fully electronic exchange, DME will also allow traders to operate from trading hubs and 

individual trading stations on the Exchange Floor. The Exchange Floor is not an open-outcry pit trading facility and 

all orders will be executed through DME Direct. 

26 An applicant must also (1) provide such evidence as requested by the Exchange as to its legal status and 

organization and as to its ability to become a floor member without breaching applicable laws, regulations and rules; 

(2) provide the following in the prescribed form or in form agreed to by the Exchange: 

(i) a copy of a resolution, duly certified by the secretary or other authorized officer or partner of the applicant, 

designating agents for service of process in the DIFC concerning and limited to the Exchange-related activities 

and business of the applicant and/or employees of the applicant;(ii) a copy of a resolution, duly certified by the 

secretary or other authorized officer or partner of the applicant, or by the governing body of the applicant, 

authorizing the application for floor membership and the execution of the documents referred to above and all 

other documents relating to the applicants floor membership; and(iii) with respect to partnerships, a statement 

describing the business in which it is engaged and a certified copy of its current partnership agreement. The 

applicant shall also file certified copies of any and all documents filed with the DIFC authorizing the 

partnership to conduct business in the DIFC; 

(3) agree to be bound by the DME Rules; (4) designate an officer, employee or partner as the Exchange liaison, 

whom the Exchange may contact in order to obtain additional information or documentation in connection with any 

matter whatsoever provided in these Rules; (5) do or submit such other things or documents as the Board may 

stipulate from time to time; (6) if not also a clearing member, have entered into an agreement with at least one 

clearing member for the clearing of the applicant’s trading on the Exchange and provide the Exchange with a copy 
Michael M. Philipp, Esq. 

Page 8 

Off-floor memberships do not confer equity rights in the Exchange or provide seats on 

the Exchange Floor, but do provide for lower Exchange fees. Off-floor members have the right 

to access and to trade on DME Direct off the Exchange Floor – whether from inside or outside 

the DIFC. Initially, DME will offer 50 off-floor memberships for sale. An applicant for offfloor membership must satisfy the membership criteria set out for floor membership, except that 

the applicant need not be a body corporate, partnership or unincorporated association or be 

established and carrying on its business in the DIFC. An applicant for off-floor membership 

must satisfy the Exchange that it is Authorized, Recognized (discussed below) or otherwise 

permitted by the DFSA to engage in the activities it intends to conduct while trading on the 

Exchange and must provide the Exchange evidence of such regulatory status.

Clearing memberships are only available to NYMEX clearing members. Although all 

NYMEX clearing members are eligible to become DME clearing members, they will not 

automatically become DME clearing members and need to apply separately to DME for such 

membership. An applicant for clearing membership must satisfy the clearing member 

requirements of NYMEX Clearing, must satisfy the DME membership criteria established for 

off-floor memberships, and must also satisfy the Exchange that is authorized, recognized or 

otherwise permitted by the DFSA to engage in the activities it intends to conduct while trading 

on the Exchange and must provide the Exchange evidence of such regulatory status. 

B. Authorization and Recognition

The Financial Services Prohibition of the RL 2004 prohibits carrying on financial 

services in the DIFC unless those engaged in such activities are “Authorized” or “Recognized” 

by the DFSA. The Financial Services Prohibition is deemed to apply to, among others, the 

following financial activities when carried on in or from the DIFC: (1) dealing in investments as 

principal; (2) dealing in investments as agent; (3) arranging credit or deals in investments; (4) 

managing assets; (5) advising on financial products or credit; and (6) operating a collective 

investment fund. If a DME member (floor member, off-floor member or clearing member) is 

physically present in the DIFC, it is required to be authorized by the DFSA. If a DME member 

has no physical presence in the DIFC, such member must be Recognized by the DFSA.27 In 

addition to the DFSA authorization or recognition requirement, DME requires that floor 

members and off-floor members maintain an account with a clearing member, i.e., they must be 

guaranteed by a clearing member. 

 of each such agreement; (7) provide evidence of its experience and competence; and (8) provide satisfactory 

evidence to enable DME to comply with its obligations under the applicable AML Requirements. 

27 DFSA regulations include some exclusions to the authorization requirement. One such exclusion is that the 

DFSA does not require that a commercial trade user who intends to trade only for its own account be Authorized. 

Seat lessees, being physically present in the DIFC, must be Authorized to the extent that they trade for other than 

their own account. Their transactions, whether for their own account or the account of a floor member, must be 

financially guaranteed by a DME clearing member. Seat lessees are bound by the DME Rulebook. 
Michael M. Philipp, Esq. 

Page 9 

With respect to authorization, RL 2004 requires the DFSA to ensure that any firm 

applying for DFSA authorization satisfy, and continue to satisfy, the authorization conditions 

that pertain to all of the financial services for which it has or will have a license. Among the 

most important authorization requirements are those regarding the suitability of the applicant to 

carry on the financial service activities for which it has applied, i.e., an applicant for 

authorization must satisfy the DFSA that it is fit and proper to carry on those activities. In 

determining whether an applicant is fit and proper, the DFSA may take into account, among 

other things, an applicant’s: (1) integrity (including absence of convictions or civil liabilities); 

(2) honesty; (3) competence; and (4) financial soundness. The DFSA requires applicants to 

submit detailed financial and business information in conjunction with an application for 

authorization to ensure compliance with DFSA’s capital requirements. 

An applicant must submit a detailed personal information form for its employees engaged 

in a licensed function, including the Senior Executive Officer, Licensed Director, Licensed 

Partner, Finance Officer, Compliance Officer, Senior Manager, Money Laundering Reporting 

Officer, Licensed Representative and Responsible Officer. The form requires disclosure of, 

among other things, past experience, license or authorization refusals, convictions, disciplinary 

actions, investigations, and insolvencies.28 Firms must also seek DFSA approval for certain 

employees who perform certain key functions with respect to the firm’s financial services 

activities. The application process also requires the firm to inform the DFSA of any person or 

persons who have control of the firm (Controller).29 Authorized firms are required to have 

adequate arrangements in place to ensure that employees are suitable, adequately trained and 

properly supervised. 

The DFSA imposes financial resource requirements upon all Authorized Firms and all 

applicants for Authorization must demonstrate on-going compliance with the prescribed levels of 

capital to ensure that there is no significant risk that the member’s liabilities cannot be met as 

they fall due. The financial resources requirements are contained in various regulatory modules 

and depend on the type of institution, nature, size and complexity of its business (e.g., investment 

firms, banks, etc.). The primary module applicable to firms incorporated in the DIFC and 

Authorized by the DFSA in relation to physical commodities is the Prudential Investment, 

Insurance Intermediation and Banking Business Module, which includes complex rules 

governing the financial resources requirements applicable to various types of firms or 

institutions. The financial resources must be of the kinds and amounts specified in, and 

calculated in accordance with, the applicable DFSA Rule. 

 

28 No Authorized person may employ an individual to whom the DFSA has issued an order under RL 2004 

indicating that such person is not a fit and proper individual to perform functions relating to financial services 

activities carried on by that Authorized person or Authorized persons generally. 

29 Generally, a Controller is any person who holds 10 percent or more of the share capital of a firm, or is otherwise 

entitled to exercise or control the exercise of 10 percent or more of the voting rights at a general (shareholders) 

meeting of the firm. Once Authorized, a firm must notify the DFSA of, and in many cases seek the DFSA’s prior 

approval to, any change in the identity of its Controllers and the level of control held by them. 
Michael M. Philipp, Esq. 

Page 10 

With respect to recognition, recognized member status allows firms that are carrying out 

financial services activities in compliance with their home jurisdictions’ requirements to 

undertake such activities within the DIFC without becoming fully Authorized by the DFSA. 

This Recognized status allows the DFSA to have certain oversight and enforcement rights with 

respect to the Recognized member. In determining whether a financial services regulator is 

satisfactory to the DFSA, the DFSA undertakes a due diligence inquiry of the caliber of 

regulation and considers whether there are adequate arrangements in place for cooperation 

between the DFSA and the other regulator. Recognized member status is readily available to 

firms in Tier 1 jurisdictions30 including, among others, the U.S. and United Kingdom. 

Recognized member status is also available to firms in non-Tier 1 jurisdictions upon DFSA 

approval, on a firm by firm basis, following DFSA review of the financial regulation in the home 

jurisdiction, so long as the activities the firm will undertake in the DIFC are regulated in the 

firm’s home jurisdiction to a standard acceptable to the DFSA. Thus, many members who wish 

to trade on DME without having a physical presence in the DIFC will be regulated by a regulator 

in their home jurisdiction rather than by the DFSA. Notably, DFSA Recognized members must 

comply with their home jurisdiction regulators’ financial requirements. 

Upon receipt of a Recognized member application, the DFSA initially researches the 

applicant and confirms with the DME that the firm is genuinely interested in DME membership. 

Upon confirmation and satisfaction of the firm’s initial due diligence, the DFSA contacts the 

applicant’s home regulator and, to determine if the same activities fall within the scope of the 

applicant’s license in its home jurisdiction, identifies to the home regulator the activities the 

applicant wishes to undertake in the DIFC. In the case of Recognized member applicants located 

in the U.S., the DFSA contacts the NFA to obtain confirmation of: (1) the regulatory status of 

the firm, and (2) any past, present or known future disciplinary record of the firm. 

C. Guaranteed Customers

Pursuant to DME Rules, guaranteed customers are permitted to have direct access to 

DME Direct. Each guaranteed customer is required to maintain an account with a clearing 

member who financially guarantees the guaranteed customer’s transactions. Retail customers are 

not permitted to trade on DME, and accordingly, no guaranteed customer may be a retail 

customer or enter orders for retail customers for whom it is authorized to trade.31 DFSA requires 

 

30 Pursuant to the Collective Investment Law No. 1 of 2006, the DFSA has issued a Recognised Jurisdictions 

Notice that identifies, among other things, countries and territories that have been accorded Recognized status. The 

DFSA has advised the DME to use the Recognised Jurisdiction Notice as guidance in determining acceptable 

jurisdictions, also known as Tier 1 jurisdictions. 

31 Any person who does not meet the definition of client as set forth in DFSA COB Rules 3.2.2 is a retail 

customer. In general, a client is a person who has been determined by a member to be: 

(1) an individual who: (i) has at least $1 million in liquid assets and has provided the member written 

confirmation of this fact; (ii) has sufficient financial experience and understanding to participate in financial 

markets; and (iii) has consented in writing to being treated as a client; 

(2) an individual who: (i) is an employee of the member; and (ii) meets the conditions in (1)(ii) and (iii); 

(3) an entity which has had, or any of whose holding companies or subsidiaries has had, in the last two years, 

called up share capital or net assts of at least $5 million. In case of a limited liability partnership calculated 

without deducting loans owning to any of the partners; 
Michael M. Philipp, Esq. 

Page 11 

guaranteed customers physically present in the DIFC to be Authorized unless their activities in 

the DIFC fall within an exclusion. Guaranteed customers not present in the DIFC are not 

required to be either Authorized or Recognized. However, all guaranteed customers are subject 

to all relevant DME Rules and must agree, in writing, to be bound by DME Rules. In addition, 

DME Rules expressly applicable to guaranteed customers mandate that each guaranteed 

customer shall observe high standards of integrity, fair dealing and market conduct as reflected 

in the DFSA Rulebook and any guidance published by the DFSA. 

III. OVERVIEW OF THE DME TRADING SYSTEM

 At the outset, the Division notes that the description of DME Direct set forth herein is 

based upon representations made by DME or its representatives. The Division has not 

performed an independent assessment of the security or soundness of DME Direct in connection 

with this request. Nonetheless, it should also be noted that DME Direct is the brand name of the 

electronic trading system employed by DME for accessing DME products traded through the 

NYMEX ClearPort® Trading Services (CPT), which has previously been reviewed by the 

Commission staff. On January 16, 2003, the Division acknowledged the self-certified 

submission by NYMEX of proposed new and amended rules in support of the launch of CPT and 

the Division has not, to date, recommended any alteration in its trading procedures. In addition, 

Commission staff has previously described CPT in connection with the granting of direct access 

no-action relief to NYMEX Europe Limited.32

 A. Introduction

 DME Direct is a flexible internet-based electronic trading system developed, maintained 

and enhanced by NYMEX on the CPT platform in New York.33 Under the SLMA, NYMEX has 

provided DME with a license to use the CPT for the trading of DME products on DME Direct. 

NYMEX, through the NYMEX Customer Service Call Center (NCSCC), provides back-up 

services including, among other things, resolution of clearing and trading systems issues. The 

 (4) a trustee of a trust or pension fund which has had in the last two years assets of at least $5 million 

calculated by aggregating the value of cash and the investments forming part of the trust's or fund's assts, but 

before deducting liabilities; 

(5) a properly constituted government, government agency, central bank or other national monetary authority 

of any country or jurisdiction; 

(6) a public authority or state investment body; 

(7) a supranational organization whose members are either countries, central banks or national monetary 

authorities; 

(8) an Authorized Firm or Regulated Financial Institution; 

(9) an Authorized Market Institution, regulated exchange or regulated clearing house; 

(10) an entity which is a holding company or subsidiary of an entity listed in (8) or (9) with that entity's 

consent; 

(11) a body corporate whose shares are listed or admitted to trading on any regulated exchange of an IOSCO 

member country; or 

(12) a collective investment fund or special purpose vehicle. 

32 CFTC Staff Letter No. 05-24 (December 16, 2005). 

33 DME anticipates that it will, at some point, transfer the matching engine for DME Direct to the DIFC. 
Michael M. Philipp, Esq. 

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DME Direct trading week commences at 6:00 PM New York time each Sunday (2:00 AM 

Monday Dubai time) and ends at 5:15 PM New York time each Friday (1:15 AM Saturday Dubai 

time). DME Direct is closed daily for 45 minutes between 5:15 PM and 6:00 PM New York 

time. The Board has the discretion to adjust the trading hours to take into account religious 

holidays in the UAE. 

 DME Direct, supported by core components, sends and receives messages in FIX 

formats, stores order and trade data in database tables, matches orders and communicates market 

data to traders and vendors. The NYMEX Clearing 21 system (C21®) is used to clear DME 

trades. C21® performs the following functions: (1) calculating margin requirements; (2) 

producing DME large trader reports; (3) producing regulatory reports; (4) interfacing with 

clearing members; (5) managing cash transfers for margin calls; and (6) contract administration. 

C21® produces daily contract facts sheets that list key contract information including open 

interest, volume, and historical highs and lows. 

1. Trading Host and Connecting to DME Direct 

The systems supporting DME’s trading operations are hosted by servers located in the 

U.S. and operated and maintained by NYMEX. The systems hosted by NYMEX in New York 

include: (1) Trade Management System (TMS), used for capturing DME Trades; (2) Price 

Reporting System (PRS), used for the dissemination of price information from the market; (3) 

TXN, a computerized surveillance system; and (4) C21®. DME Direct has an “open 

architecture” through which software application programming interfaces enable market 

participants to connect DME Direct with their own proprietary system or a system provided by 

an ISV. Members and guaranteed customers may connect directly to DME Direct via a managed 

network solution or manage their own direct network connection access via the internet. There 

are two standard interfaces to DME Direct: NYMEX Order Routing FIX API, used to 

authenticate and configure orders and receive confirmations, and FIX Market Data API, the 

interface for real-time market prices. 

Every member, seat lessee and guaranteed customer with direct access to DME Direct 

must register at least one individual with the DME as an Authorized Terminal User (ATU).34 

The ATUs must be trained in the use of DME Direct and serve as contact persons for the 

Exchange in the event of any problems with DME Direct systems involving the member, seat 

lessee or guaranteed customer, or if the Exchange has any questions regarding business 

conducted through a particular DME Direct connection assigned to that member, seat lessee or 

guaranteed customer. DME Rules set out the requirements for each ATU and provide that ATUs 

are bound by DME and DFSA Rules. 

2. Order Entry and Audit Trail 

 

34 As defined in DME Rules, an ATU is a person whom the member, seat lessee or guaranteed customer has 

designated to serve as terminal operator or otherwise authorized to access the trading platform and whom the 

member, seat lessee or guaranteed customer has so notified to the Exchange.
Michael M. Philipp, Esq. 

Page 13 

 Under DME Rules, members, seat lessees and guaranteed customers must promptly make 

a record of the receipt of a customer order, including information as set out in Conduct of 

Business (COB) Rules. Immediately upon receipt, all customer orders must be entered into the 

DME Direct database and programs that accept, match and report execution of orders in DME 

(Matching System). 

 DME Direct supports the limit and stop limit order types with the following order 

duration qualifiers: Day (Single Session), GTC (Good Till Cancelled), and GTD (Good Till 

specified Date). The following core data is part of each DME order record: commodity; 

contract month; purchase or sale; account number (or certification that the order is for multiple 

accounts to be allocated later); quantity; limit price; the clearing member who holds the account 

for the relevant customer or the member, seat lessee or guaranteed customer if trading on its own 

account or for the account of affiliates or on an omnibus account basis; strike prices, put or call 

(for options); and times of order entry and order execution or cancellation. Each order entered 

on DME Direct must also contain a Customer Type Indicator (CTI), which is used for reporting 

and compliance analysis and distinguishes for whom and on what type of account the trades are 

being placed. 

 All relevant data entered into DME Direct are passed from DME Direct to the post-trade 

systems and retained by NYMEX in New York for a minimum of five years.35 All members are 

required to maintain, for at least six years, records relating to all orders and transactions to which 

they are a party or which they have executed, forwarded for execution, transferred or assigned, 

including details of the persons for whom the trade was executed, the parties to it, and the 

manner in which it was fulfilled, discharged, terminated or executed. Members are required to 

maintain all such records in permanent hard copy or permanent and readily-retrievable electronic 

form, unless they are required to keep them in another form by the rules and regulations of any 

regulatory body to which they are subject. 

3. Order Matching Algorithm 

The DME Direct matching algorithm utilizes price and time priority, i.e., all orders at the 

best price level will be filled according to time priority. Because the algorithm utilizes time 

priority, any order modifications results in the modified order moving to the bottom of the 

priority list for orders at the same price level. DME Direct also incorporates implied pricing 

functionality, which integrates bids and offers in spreads and their underlying contracts, to 

generate additional liquidity and provide the opportunity for price improvement. DME Rules 

provide that trades in DME Direct are formed at the time of matching in the matching system. 

4. Data Dissemination 

 

35 DME Direct allows orders entered to be modified and deleted. Some, but not all, data fields can be changed. 

Order quantity, price, time in force, the specified price for a stop limit order, and expiration date can be altered. The 

account, symbol, side, order type, and compliance ID data fields cannot be changed. The audit trail captures the 

times of all order modifications. 
Michael M. Philipp, Esq. 

Page 14 

NYMEX distributes DME market data to vendors that have signed the standard DME 

market data distribution agreement. DME products are uniquely identified by the ITC2 (InterExchange Technical Committee) exchange code “DM” and product symbols. Each price change 

is reported on a real-time basis to market data vendors. 

5. System Support 

As provided in the SLMA, the NCSCC is operated by NYMEX on behalf of DME. The 

NCSCC will be available 24 hours each day from Sunday 6:00 PM New York time (2:00 AM 

Monday Dubai time) until Friday 6:00 PM New York time (2:00 AM Saturday Dubai time) to 

assist traders with issues regarding electronic trading and clearing. The NCSCC generally has 

three to five staff members available at any time to field questions and communicate with market 

participants and provide market support services. 

NCSCC provides DME customer support and problem management to members and 

guaranteed customers designated by clearing members. In order to be designated and eligible for 

DME Direct support, a guaranteed customer must register with the DME. Upon receipt by the 

NCSCC of notice from the DME that the DME is satisfied that a guaranteed customer meets the 

criteria set out in DME Rules, NCSCC allocates passwords to allow the guaranteed customer 

access. 

The DME trade cancellation policy authorizes the NCSCC to mitigate market disrupting 

events caused by the improper or erroneous use of DME Direct, or by system defects, by 

adjusting trade prices or canceling (“busting”) trades. NCSCC may also adjust trade prices or 

cancel any trade if the NCSCC determines that failure to do so may have a material adverse 

effect on the integrity of the market. The decision of the NCSCC is final. 

6. System Reliability and Failure Recovery 

a. Duplication of Key Components 

NYMEX uses the Storage Library System from Digital Equipment Corporation for tape 

management and has a predetermined schedule for incremental and full back-ups. NYMEX 

maintains a back-up facility for all of its IT systems at NYMEX’s established disaster recovery 

(DR) facility, which is on a separate power, water, and telecommunication grid from NYMEX’s 

headquarters at the World Financial Center. The main facility and the back-up facility are linked 

with multiple redundant fiber optics lines, providing completely synchronized communication. 

NYMEX audits its back-up facilities on a quarterly basis. In adherence to the tape rotation 

policy, all previous weekday tapes are off-sited to a vaulting facility. Tape retention policy is 

seven years for all full backups and 60 days for all incremental backups. All backup tapes are 

retained at NYMEX’s main business address and at the DR facility. 

NCSCC also performs back-up functions. At the end of the trading day, trade volume 

summary screens and trade detail screens (Trade Book and Order Book) are accessed by a 

NCSCC staff member within DME Direct. The screen details are copied and pasted into a 

spreadsheet to create a daily repository on the LAN of trade activities for use the next trading 
Michael M. Philipp, Esq. 

Page 15 

day so as to address customer inquiries about alleged errant and/or missing trades. Access to the 

LAN directory is restricted to NCSCC staff and management. The LAN is backed up nightly. In 

essence, every trade record is copied and stored on a spreadsheet, by trade date, for eventual 

retrieval by the NCSCC staff should it be necessary to review the trade details. 

b. Failure Detection 

NYMEX measures and monitors the availability and performance of applications and 

host systems on a 24-hour basis. Diagnostic systems software notifies IT personnel through 

alerts as soon as a problem is detected. IT personnel process and correlate the diagnostic 

software data with other information to analyze the potential problem. The diagnostic system is 

installed in the Operations Room, where operators observe critical systems via dedicated 

monitors at all times. In addition, NYMEX uses job-scheduling software to create system 

application logs for monitoring actual batch submissions and processing, including: (1) jobs 

scheduled for execution; (2) actual job start and completion times; (3) any abnormal conditions 

during the execution; and (4) whether jobs were run to normal completion. 

NYMEX also has in place systems and procedures for maintaining business continuity in 

the event of system or network failure. If a serious systems event occurs at NYMEX’s primary 

New York site, the systems for DME Direct can be managed remotely to continue to provide 

support to DME. In the event that DME cannot be supported, a crisis management team will 

assess the situation and notify DME of the event. If the problem occurs intra-session and results 

in discontinuation (or the threat of discontinuation) of trading, the crisis management team will 

seek to halt markets, notify the DFSA, and monitor the event until it is resolved. 

c. Failure and Recovery 

NYMEX provides all reasonable assistance to DME in developing, maintaining and 

implementing an appropriate disaster recovery and business continuity plan to ensure that DME 

continues to meet the legal, regulatory and accounting requirements and standards applicable to 

it. NYMEX is required to maintain a business continuity plan for the equipment, systems and 

power supply, including backup arrangements for both processing and communications 

resources. 

B. Limitation of Liability

DME Rules generally provide (except where liability results from a person’s willful 

misconduct) that none of the Exchange, NYMEX, or their affiliates and any of their respective 

officers, directors, employees, agents, consultants, information providers, independent 

contractors or subcontractors, licensors, members and clearing members, shall be liable to any 

person for any losses, damages, costs or expenses (including but not limited to, lost profit, loss of 

use, and direct, special, indirect, incidental or consequential damages) arising from: (1) any 

failure or malfunction, including any liability to enter or cancel orders on DME Direct or delay 

being able to do so; (2) any failure or malfunction or fault in delivery, delay, omission, 

suspension, inaccuracy, interruption in connection with furnishing of the Exchange’s systems, 

data made available through those systems or DME services; or (3) any unauthorized access to 
Michael M. Philipp, Esq. 

Page 16 

the Exchange’s systems, service or facilities or use of DME Direct; or any person using DME 

Direct without training or if he or she fails to follow the instructions for use. The same 

limitations on the liability of DME and NYMEX apply if DME or NYMEX employees, 

including NCSCC employees, provide services on behalf of NYMEX or DME to members, seat 

lessees, guaranteed customers, and ATUs. In addition, DME makes no express or implied 

warranties and does not guarantee continuous, uninterrupted and secure access to DME Direct. 

C. Adherence to IOSCO Principles

You represent that, in providing DME Direct to its members, seat lessees and guaranteed 

customers, DME adheres to the Principles for the Oversight of Screen-Based Trading Systems 

for Derivative Products developed by the Technical Committee of the International Organization 

of Securities Commissions (IOSCO) (as adopted by the Commission on November 21, 1990).36 

You represent that DFSA is aware of DME’s commitment to the IOSCO principles. 

IV. CLEARING AND SETTLEMENT PROCESSES 

 All contracts executed on DME Direct are submitted for clearing to NYMEX Clearing 

pursuant to the CSA between NYMEX and DME. As noted earlier, NYMEX is registered with 

the CFTC as a DCM and as a DCO. In addition, NYMEX is a Recognized Body pursuant to 

DIFC regulatory law and the Recognition Module of the DFSA Rulebook to operate a Clearing 

House for a DFSA Authorized Market Institution and to offer electronic access to its exchange 

products within the DIFC.37 The CSA specifies clearing and settlement services and service 

levels and includes escalation procedures to enable DME staff to address any issues concerning 

the services on a timely basis. NYMEX Clearing clears all trades initiated on DME on 

essentially the same basis as it clears trades executed on NYMEX. 

 A. Trade Registration

 Each contract executed on DME is a contract between the two DME clearing members to 

whose accounts the matching positions have been allocated and, on acceptance for clearing by 

NYMEX Clearing, is replaced by two contracts with NYMEX Clearing: one between the buying 

clearing member and NYMEX Clearing as seller, and another between the selling clearing 

member and NYMEX Clearing as buyer. This structure both substantially reduces counterparty 

credit risk and entirely eliminates the need for traders to make individual credit determinations 

with respect to potential counterparties before entering into a trade. 

 

36 The Commission adopted the IOSCO Principles as a statement of regulatory policy for the oversight of screenbased trading systems for derivative products. Policy Statement Concerning the Oversight of Screen-Based Trading 

Systems, 55 Fed. Reg. 48670 (Nov. 21, 1990). 

37 NYMEX Clearing is under the jurisdiction of the NYMEX Board of Directors, which is advised by the Clearing 

House Committee. The Clearing House Committee is co-chaired by two members of the NYMEX Board of 

Directors and is comprised of twenty five clearing member firm representatives. The Clearing House Committee 

meets at least monthly, and periodically evaluates the adequacy of the NYMEX Clearing’s financial resources. 

NYMEX Clearing provides clearing services to both the NYMEX and COMEX trading divisions of NYMEX and to 

DME. 
Michael M. Philipp, Esq. 

Page 17 

 NYMEX Clearing does not have any direct contractual relationship with DME members 

other than those with which it already has a contractual relationship as NYMEX clearing 

members. Under the terms of a clearing member qualification, a clearing member must accept 

financial responsibility for all trades executed as a result of orders entered through the use of the 

DME Direct password protected system for which it is responsible. Accordingly, NYMEX 

Clearing is not liable for any obligations of a DME member who is not also a clearing member of 

NYMEX, or for any obligation of a clearing member to a DME member or customer, or for any 

obligation of a clearing member to another clearing member for whom the former is acting as 

broker. Furthermore, NYMEX Clearing is not be liable to customers of DME members to make 

or take deliveries or otherwise. 

 B. Clearing Process

 NYMEX Clearing conducts clearing through its C21® system, developed jointly with the 

Chicago Mercantile Exchange (CME) and introduced in 1999. This system is highly flexible and 

is expected to support any anticipated growth in volume or business expansion over the next five 

to ten years. The C21® system was upgraded in autumn 2001 to permit clearing member access 

via the internet, as well as to accommodate an enhanced product base, including the clearing of 

OTC contracts. It enables NYMEX to perform functions relating to banking, settlement, asset 

management, delivery management, position management and margins. C21® was upgraded at 

the beginning of 2006 and improved its functionality by moving into a Windows environment, 

making it more efficient and flexible. C21® covers contracts executed at all NYMEX trading 

venues, including the New York trade floor and electronic trading platforms, including DME 

Direct. 

 C. Settlement Prices

 Daily settlement prices for contracts traded on DME are determined by the DME 

pursuant to procedures set forth in its Rules that closely parallel NYMEX’s price settlement 

procedures, including the use of an average weighted price for contracts meeting certain liquidity 

thresholds.38 Under DME Rules, the Exchange must notify NYMEX Clearing of the daily 

settlement price determined by the Exchange and NYMEX Clearing uses the settlement price in 

the calculation of original and variation margin, unless NYMEX Clearing reasonably believes 

that it is clearly erroneous, in which case it notifies the Exchange with a view to agreeing on an 

appropriate daily settlement price or, in the absence of such agreement, it notifies the Exchange 

of the settlement price it will use. 

 D. Margin and Banking Arrangements

 NYMEX Clearing collects both original margin and variation margin with respect to 

clearing members on a daily basis. Original margin is collected at least once daily, at noon New 

York time, based on open positions as of 10:00 AM New York time. Variation margin is 

 

38 In practice, NYMEX determines the daily settlement prices on DME’s behalf. 
Michael M. Philipp, Esq. 

Page 18 

collected at least twice daily: at 10:00 AM New York time based on open positions as of 7:00 

PM New York time the previous day and the previous day’s settlement price and intra-day based 

on market prices as of 11:00 AM New York time. The original margin requirement is a function 

of a clearing member’s open positions and the margin rate. The margin rate is set by NYMEX 

Clearing using Standard Portfolio Analysis of Risk (SPAN), developed by the CME and used by 

commodity clearing houses worldwide. Variation margin is calculated as being the difference 

between the trade price and the settlement or market price used for the particular variation 

margin call. In accordance with the standards set out in the CSA, the Financial Surveillance & 

Risk Management Division of the NYMEX Compliance Department conducts, on a daily basis, a 

detailed review of each clearing member’s variation margin, earmarking stress thresholds and 

making inquiries if needed. NYMEX Clearing Rules allow clearing members to post original 

margin using cash, various securities (subject to a haircut) and certain money market mutual 

funds. All variation margin must be posted in cash. 

 NYMEX Clearing acts as a fiscal transfer agent, transferring money from the customer or 

proprietary settlement accounts of its clearing members who have experienced net losses in 

either of those account origins to the customer or proprietary settlement accounts of those 

members who have generated net gains in either account origin. As required by the CFTC, 

NYMEX Clearing segregates margin deposited by clearing members from their customer 

accounts from margin received from their house accounts.39 Pursuant to a Section 4d order 

issued by the Commission on May 23, 2007, NYMEX holds DME customer positions and 

NYMEX customer positions in the same customer segregated accounts. NYMEX Clearing 

verifies, on a daily basis, that the cash it maintains is sufficient to cover its obligations to clearing 

members in accordance with the CFTC’s segregation rules. 

 E. NYMEX Financial Resources

 NYMEX, is AA+ credit rated by Standard & Poor’s and, as of June 30, 2006, was 

holding performance bond (margin) totaling $20.7 billion, of which $15.7 billion was customer 

segregated funds and $5.0 billion was house funds. NYMEX maintains a Guaranty Fund which, 

as of July 1, 2006, had a minimum balance of $200 million.40 In addition, NYMEX maintains a 

$115 million default insurance policy with AA rated Radiance Asset Assurance, Inc., for losses 

in excess of $200 million and, if there is a shortfall in the Guaranty Fund, NYMEX has limited 

powers to assess its clearing members to replenish the fund. The maximum assessment 

permitted is the lesser of: (1) 40 percent of the clearing members’ regulatory capital; or (2) $30 

million. The maximum total assessment power as of June 30, 2006 was approximately $1 

billion. NYMEX is currently finalizing the terms of a $60 million short-term liquidity facility, 

the primary purpose of which is to provide immediate funding to meet daily settlement 

 

39 NYMEX Clearing requires clearing members to collect margin from their customers at set percentages in 

excess of the clearing members’ requirement. 

40 Each clearing member must contribute to the Guaranty Fund in an amount based on a hybrid formula of 

clearing member risk and volume, calculated quarterly, with a minimum clearing member contribution of $2 

million. Contributions can be made in cash, U.S. government securities, or shares of approved money-market 

mutual funds. 
Michael M. Philipp, Esq. 

Page 19 

requirements in the event of a clearing member default. Access to the facility will allow time for 

an orderly liquidation, if necessary, of the non-cash assets maintained in the Guaranty Fund. 

 Currently there are 40 clearing member firms which guarantee the performance to 

NYMEX Clearing of non-clearing members and customers. All NYMEX clearing members 

must own a minimum of two NYMEX memberships, must hold and maintain the related shares 

of common stock in NYMEX Holdings, and must have a minimum of $5 million in working 

capital (or adjusted net capital in the case of FCMs). The aggregate regulatory capital of the 

clearing members, which represents a potential financial resource to support NYMEX’s clearing 

operations, was $110.6 billion as of May 31, 2006.41

 In addition, NYMEX imposes capital-based position limits on each clearing member. 

The position limits are based upon the “modified capital” of a clearing member, which may be 

higher or lower than regulatory capital. A clearing member with a parent guaranty or letter of 

credit can have a modified capital level that is higher than regulatory capital, subject to a cap of 

$1 billion, which may be waived in circumstances where the clearing member is a subsidiary of a 

highly capitalized and highly rated financial institution. These capital-based position limits are 

applied as follows: “position risk” (i.e., the SPAN performance bond requirement for the net 

positions carried by the clearing member) is limited to 200 percent of a firm’s modified capital 

for the customer account; 100 percent for the house account; and 250 percent on a combined 

basis. If a clearing member exceeds these limits, it must deposit “super margin” on the excess, 

provided that a clearing member may not exceed 300 percent of modified capital for the 

customer account, 150 percent for the house account and 350 percent on a combined basis. 

 F. Default Arrangement

 The Exchange’s arrangements for dealing with a defaulting member are based on the 

DFSA Default Rules requirements and complement the NYMEX Clearing arrangements. Under 

the Default Rules, designed to protect the actions taken by market authorities to deal with the 

consequences of the default or insolvency of one or more market participants, an AMI must have 

rules that allow it to close-out open positions by discharging the appropriate rights and liabilities 

of transactions which a person granted access to its facilities cannot, or may not, be able to 

fulfill. Market authorities are not required to wait for formal insolvency proceedings to 

commence before making a declaration that a member is in default, so long as they believe, in 

good faith, that the member will be unable to meet future obligations under market contracts. All 

actions taken by AMIs in good faith under their respective default rules are protected and not 

open to challenge by liquidators or other insolvency officials. 

 

41 Clearing members are required to submit regulatory capital calculations and financial statements to NYMEX on 

a regular and timely basis. FCMs electronically file financial statements, including a balance sheet, income 

statement, change in ownership and segregated funds report, on a monthly basis. Non-FCM clearing members file 

similar information quarterly. NYMEX conducts a formal analysis of all filings. In addition, NYMEX conducts an 

audit, at least annually, of all clearing members for which it acts as the designated self-regulatory organization. If a 

clearing member’s financial condition weakens, or it takes on excess risk, NYMEX may require additional margin 

to be posted and/or restrict the member’s trading. 
Michael M. Philipp, Esq. 

Page 20 

 The NYMEX default rules, rather than DME default rules, apply to contracts to which 

NYMEX Clearing is a party. If, therefore, a clearing member were to default, NYMEX Clearing 

default rules would apply to the registered contracts, while DME Rules would apply to the backto-back contracts between the defaulting clearing member on the one hand and clients and/or 

non-clearing members for which the defaulting clearing member clears on the other hand. If a 

non-clearing member were to default, only DME Rules would apply as NYMEX would have no 

contractual nexus with such defaulting member. 

 Pursuant to NYMEX’s Rules, in the event of a clearing member default, the President of 

NYMEX, with the approval of NYMEX’s Board of Directors, may close out all or any part of 

the clearing member’s positions in the best interest of NYMEX and the defaulting clearing 

member. In addition, NYMEX Clearing may apply against the defaulting clearing member’s 

obligations the clearing member’s: (1) margin on deposit, (2) deposit in the NYMEX Guaranty 

Fund, and (3) any other assets of the defaulter under the control of NYMEX. NYMEX Clearing 

may apply these assets based on the type of default by the clearing member, as follows: (1) for 

defaults in the customer segregated account, NYMEX Clearing may use all assets of the 

defaulting clearing member; and (2) for defaults in the clearing member’s house account and or 

customer non-regulated accounts, NYMEX Clearing may use that portion of the assets held in 

the defaulter’s house and/or customer non-regulated accounts. If these assets are not sufficient, 

NYMEX Clearing Rules provide that NYMEX will utilize other substantial financial resources 

(discussed above), such as its Guaranty Fund and default insurance, to meet the obligations of 

the defaulting clearing member. In addition, NYMEX may obtain funds from any guarantee 

provided by a parent company of the defaulting clearing member (if applicable) and from a sale 

of the defaulted clearing member’s equity in NYMEX. 

V. OVERVIEW OF THE REGULATORY STRUCTURE IN THE DIFC

A. Introduction

The DIFC was created and vested under UAE federal law with the authority to create a 

legal and regulatory framework for all civil and commercial matters conducted within the DIFC. 

Responsibility for Financial Services42 legislation and broad policy lies with the DIFC 

President,43 with the assistance of the DFSA. As prescribed by RL 2004, the DFSA regulates all 

financial and ancillary activities undertaken in or from the DIFC. Under this mandate, the 

responsibility for authorizing persons to conduct investment business, and the regulation of those 

persons, rests with the DFSA. 

The DFSA fulfills its regulatory responsibilities within the framework established by the 

RL 2004 and DIFC regulations and orders. In addition, DFSA has promulgated a Rulebook 

 

42 The term "Financial Services" is defined by the DFSA and refers to specified activities carried on in relation to 

categories of investments as set out in the DFSA Rules. Financial services include dealing in, arranging deals in, 

advising on and certain other kinds of business in various types of securities, derivatives and other investment 

products. 

43 The President of the DIFC is His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Ruler of Dubai. 
Michael M. Philipp, Esq. 

Page 21 

governing activities in the DIFC. The Rulebook is composed of modules covering several 

subject areas, with each specifying its scope and to whom it applies. The modules include the 

General Module (GEN), Conduct of Business Module (COB), Authorization Module (AUT) and 

Enforcement Module (ENF). Although DFSA regulates all financial activities within the DIFC, 

some of the modules rules only apply to entities physically present in the DIFC (Authorized 

Firms), while others apply to all entities that undertake financial activities in the DIFC. For 

instance, the GEN Rules dealing with general provisions, financial services and information 

sharing requirements with the DFSA apply to Authorized and Recognized members and provide 

for the jurisdiction of the DFSA as defined by the financial services it regulates. Similarly, the 

ENF rules also apply to Recognized members to enable the DFSA to enforce its oversight over 

such members. Recognized members, however, are not subject to the COB because, as 

previously noted, Recognized members are located outside the DIFC and are expected to comply 

with the applicable conduct of business rules of their home jurisdiction regulator. 

 B. Investor Protection

 In addition to RL 2004, the ML 2004 contains statutory investor protection measures that 

prohibit any person in the DIFC, any person outside the DIFC whose conduct affects the DIFC 

markets, or users of the DIFC markets, from: (1) engaging in fraud and market manipulation; (2) 

making misleading or untrue statements; (3) engaging in misleading or deceptive conduct; (4) 

making misleading or deceptive statements; (5) making statements about future matters; (6) 

inducing persons to deal in investments by, among other things, making false statements or 

concealing material facts; (7) engaging in insider dealing;44 and (8) providing inside information. 

 The DFSA is required to enforce these investor protection measures and has incorporated 

these provisions within its Rulebook. Some of the DFSA Rules relating to investor protection 

are included in the COB and are only applicable to Authorized firms. However, the DFSA has 

broader enforcement powers under the ENF, which is applicable to both Recognized and 

Authorized firms and, therefore, the DFSA can act if it suspects any possible violations of ML 

2004. In addition, DME Rules mandate that, whether or not a member is an Authorized firm, 

each member shall observe high standards of integrity, fair dealing and market conduct as 

reflected in the DFSA Rulebook and any guidance published by the DFSA. 

 The DFSA does not have the authority to intervene in the DME market and direct the 

actions of DME market participants, but it does have the power to direct the DME to intervene.45 

 

44 While not termed insider trading ("insider dealing" in DIFC law and "undeclared information which might 

affect price" in UAE Federal law), this conduct is prohibited in both the DIFC and on other UAE exchanges. 

However, in broad terms, the prohibition only relates to securities and not commodities investments, and as such 

trading in DME products is excluded from the DFSA and UAE insider dealing rules. 

45 Article 9 of ML 2004 Law provides as follows: (1) Without limiting the application of the Regulatory Law, the 

DFSA may by written notice direct an AMI to do or not do specified things that the DFSA considers are necessary 

or desirable to comply with the Law or ensure the integrity of the financial services industry in the DIFC, including 

but not limited to directions: (a) requiring compliance with any duty, requirement, prohibition, obligation or 

responsibility applicable to an AMI; or (b) requiring an AMI to act in a specified manner in relation to transactions 

conducted on or through the facilities operated by an AMI, or in relation to a specified class of transactions. 
Michael M. Philipp, Esq. 

Page 22 

The DFSA monitors market activity to ensure compliance with the market conduct standards set 

out in ML 2004 and, if it identifies any potential market misconduct, it may direct the DME, as 

an AMI under the DFSA’s jurisdiction, to take appropriate measures. 

 C. Conduct of Business

 Under the RL 2004, the DFSA must establish conduct of business and other rules and 

monitor compliance with those rules. Accordingly, the DFSA has adopted detailed rules 

applicable to Authorized firms, including rules relating to: (1) the handling and recording of 

customer complaints; (2) the responsibility of a firm for its employees and agents; (3) 

solicitation, advertising and publishing, including detailed restrictions on cold-calling; (4) risk 

and product information disclosure; (5) contents of customer agreements, including provisions 

for discretionary accounts; (6) “know your customer” and suitability of investment products of 

customers; (7) disclosure of material interests; and (8) disclosure of charges and other 

remuneration. The DFSA has also established Principles for Business (Principles)46 which 

articulate standards for Authorized firms in areas such as integrity, skill, care and diligence, 

management, systems and controls, resources, market conduct, information and interests, 

conflicts of interest, suitability, customer assets and money and relationship with regulators. 

 D. Treatment of Customer Funds and Property

 All Authorized firms (including all Authorized members) who receive or hold money 

from or on behalf of clients in the course of providing financial services are required to comply 

with the DFSA’s Client Money Rules set forth in the COB. This requires client money to be 

protected in the event of the insolvency of the Authorized firm.47 Authorized firms must comply 

with the Client Money Rules if they hold and control money for: (1) a client who is an 

individual (other than an individual who has opted out of Client Money Rules by written 

consent); (2) any client in connection with discretionary investment management services; and 

(3) any other client to whom the Authorized firm has agreed to provide the protections conferred 

under DFSA Client Money Rules. Such clients are referred to as segregated clients. 

 COB Rules require Authorized firms to keep client money in a separate client account 

and not to mix the client money of segregated clients with the Authorized firm’s monies.48 

Detailed requirements relating to client money include the requirement to reconcile client 

accounts at least once every 25 days.49 An Authorized firm must: (1) reconcile the individual 

 

46 See note 51. 

47 Client money is defined as money which, in the course of carrying on investment business, a firm holds in 

respect of any investment agreement entered into, or to be entered into, with or for a client, or which a firm treats as 

client money in accordance with the Client Money Rules (e.g., money not immediately due and payable to the firm 

for its own account). 

48 A client account is defined as an account which: (1) is held with a third party agent; (2) is established to hold 

client assets; (3) is maintained in the name of; (i) if a domestic firm, the Authorized firm; or (ii) if a non-domestic 

firm, a nominee company controlled by the authorized firm; and (4) includes the words “Client Account” in its title. 

49 The reconciliation must include: (1) a full list of individual segregated client credit ledger balances, as recorded 

by the Authorized firm; (2) a full list of individual segregated client debit ledger balances, as recorded by the 

Authorized firm; (3) a full list of unpresented checks and outstanding deposit; (4) a full list of client account cash 
Michael M. Philipp, Esq. 

Page 23 

credit ledger balances, client account cash book balances, and the third party agent client account 

balances; (2) check that the balance in the client accounts as at the close of business on the 

previous day was at least equal to the aggregate balance of individual credit ledger balances as at 

the close of business on the previous day; and (3) ensure that all shortfalls, excess balances and 

unresolved differences, other than differences arising solely as a result of timing differences 

between the accounting systems of the third party agent and the Authorized firm, are investigated 

and, where applicable, corrective action taken as soon as possible.50 

 The treatment of non-cash collateral in the event of the insolvency of the Authorized firm 

depends on the terms on which it has been deposited with that firm (and on the terms that the 

Authorized firm has deposited it with others, such as a custodian or clearing house). COB Rules 

impose detailed custody requirements of customers’ investments, to include giving the member 

the responsibility for safekeeping documents of title and certificates and requiring the 

registration of investments in the customer’s name or in another appropriate manner to safeguard 

client investments. A number of disclosures must also be made to the customer in certain 

circumstances so that the customer understands the custody arrangements. These include: (1) the 

basis of any terms governing the manner in which the collateral will be held, including any rights 

which the firm may have to dispose of the collateral; (2) if applicable, that the collateral will not 

be registered in that client’s own name (from which it follows that there is no requirement that 

the collateral will be so registered); (3) if applicable, that the firm proposes to return to the client 

collateral other than the original collateral or original type of collateral; and (4) in the event of 

insolvency, any excess collateral will be sold and the resulting funds will be distributed in 

accordance with the DFSA Client Money Distributions Rules. 

 E. Market Integrity

 COB Rules prohibit Authorized members from trading accounts that are the subject of 

investment research until customers have had an opportunity to act upon such research. COB 

Rules also prohibit Authorized members from churning contracts. They also require strict 

recordkeeping of each transaction so that a full audit trail is established. In addition, ML 2004 

makes it an offense to make a misleading or untrue statement, or to refrain from disclosing a fact 

that is necessary to make the statement not misleading, which significantly affects, or would 

reasonably be expected to have a significant effect on, the market price or value of investments. 

 The power to initiate prosecutions for these offenses lies with the DFSA, which also has 

the power to obtain injunctions to prevent violations of RL 2004 provisions. The maximum fines 

for these offenses are potentially unlimited. ML 2004 provides for various market abuse 

offenses and allows the DFSA to impose unlimited fines on any regulated or unregulated firm or 

other person for certain types of behavior occurring with respect to various investments, 

 book balances; and (5) formal statements from third party agents showing account balances as at the date of 

reconciliation. 

50 An Authorized firm must perform the reconciliations within 10 days of the date to which the reconciliation 

relates. A member firm may agree with any client to opt out of the client money rules as long as there is written 

consent from that client. 
Michael M. Philipp, Esq. 

Page 24 

including: (1) fraud or market manipulation, (2) misleading or deceptive conduct, and (3) 

inducing a person to deal under false statements or promises or forecasts. 

 F. Other Customer Protections and Standards of Conduct

 In addition to the COB Rules, the DFSA has set out a number Principles that must be 

followed by Authorized firms.51 Firms must also comply with DFSA Rules of general 

application, such as those contained in the GEN and Anti-Money Laundering Module (AML). 

The COB and AML Rules include: (1) a requirement to identify your customer; (2) a best 

execution requirement; (3) a prohibition on churning; (4) rules on disclosure of material 

interests; (5) rules regulating customer order priority; (6) rules on aggregation and allocations; 

(7) rules designed to ensure suitability; (8) a requirement to maintain compliance procedures; 

and (9) rules requiring that confirmation of transactions and periodic statements be provided to 

customers.52

 The DFSA Rules comport with and complement UAE federal laws, in particular Federal 

Law No. 4 of 2002, which criminalizes money laundering in the UAE,53 and Federal Law No. 1 

of 2004 regarding anti-terrorism within the UAE. DFSA Rules specifically require firms to 

establish and verify the identity of any customer with or for whom the firm acts or proposes to 

act. In establishing and verifying a customer’s true identity, a firm must obtain sufficient and 

satisfactory evidence on a risk-based approach. The membership section of the DME Rulebook 

sets out specific requirements for members to comply with to ensure compliance with the DFSA 

 

51 These Principles are articulated as follows: Principle 1 — Integrity: An Authorized firm must observe high 

standards of integrity and fair dealing; Principle 2 — Due skill, care and diligence: In conducting its business 

activities an Authorized firm must act with due skill, care and diligence; Principle 3 — Management, systems and 

controls: An Authorized firm must ensure that its affairs are managed effectively and responsibly by its senior 

management. An Authorized firm must have adequate systems and controls to ensure, as far as is reasonably 

practical, that it complies with legislation applicable in the DIFC; Principle 4 — Resources: An Authorized firm 

must maintain and be able to demonstrate the existence of adequate resources to conduct and manage its affairs. 

These include adequate financial and system resources as well as adequate and competent human resources; 

Principle 5 — Market conduct: An Authorized firm must observe proper standards of conduct in financial markets; 

Principle 6 — Information and interests: An Authorized firm must pay due regard to the interests of its customers 

and communicate information to them in a way which is clear, fair and not misleading; Principle 7 — Conflicts of 

interest: An Authorized firm must take all reasonable steps to ensure that conflicts of interest between itself and its 

customers and between one customer and another are identified and then prevented or managed in such a way that 

the interests of a customer are not adversely affected; Principle 8 — Suitability: An Authorized firm must take 

reasonable care to ensure the suitability of its advice and discretionary decisions for customers who are entitled to 

rely upon its judgement; Principle 9 — Customer assets and money: Where an Authorized firm has control of or is 

otherwise responsible for assets or money belonging to a customer which it is required to safeguard, it must arrange 

proper protection for them in accordance with the responsibility it has accepted; Principle 10 — Relations with 

regulators: An Authorized firm must deal with regulators in an open and co-operative manner and keep the DFSA 

promptly informed of significant events or anything else relating to the Authorized firm of which the DFSA would 

reasonably expect to be notified. 

52 Authorized firms are also required to take reasonable steps to ensure that communication of information and 

marketing material is clear, fair and not misleading. The contents of documentation provided by an Authorized firm 

to a customer are also regulated under COB Rules. 

53 Article 3(1) of Federal Law No. 8 of 2004 explicitly provides that UAE Law No. 4 of 2002 applies to all 

activities within the DIFC. 
Michael M. Philipp, Esq. 

Page 25 

Rules, UAE Law and DME internal requirements relating to customer identity. Records of 

verification evidence must be maintained by the member, as required, for at least 6 years after 

termination of the relevant membership. 

 G. Regulation of DME as an AMI

DME is an AMI under the DFSA pursuant to RL 2004. RL 2004 established a principlebased framework for the licensing and supervision of AMIs and for taking regulatory action 

against those institutions. This framework is supplemented by supervisory powers and other 

requirements relating to AMIs specified in ML 2004. Based on RL 2004 and ML 2004, DFSA 

promulgated the AMI Module of the DFSA Rulebook regulating the activities of the AMIs. 

To be licensed as an AMI, and to maintain that status, an exchange must satisfy the 

DFSA, on an ongoing basis, that it meets the requirements set out in the DFSA’s AMI Module. 

The AMI Module requires an exchange to ensure that business conducted on its facilities is 

conducted in an orderly manner so as to afford proper protection to market participants. 

Furthermore, the exchange is required to have in place adequate systems and controls concerning 

the transmission of information, the assessment and management of risks to the performance of 

the exchange’s functions and the effecting and monitoring of transactions executed on or through 

the exchange. The exchange is also required to provide, or to make arrangements for a third 

party to provide, clearing and settlement of exchange transactions. 

An exchange is required to monitor compliance with and enforce its rules, which is 

generally achieved through disciplinary action against members for non-compliance.54 The 

exchange is also required to cooperate with other regulatory bodies, by the sharing of 

information or otherwise, to maintain high standards and prevent abuse. An exchange must 

ensure that satisfactory arrangements are in place for securing the timely discharge of the rights 

and liabilities of the parties to transactions conducted on or through its facilities. To that end, 

DME has chosen to outsource the provision of some of these services to NYMEX, a Recognized 

Body under the DFSA Rules. 

 RL 2004 makes AMIs accountable for their actions to the DFSA and gives the DFSA the

powers of direction over AMIs. The DFSA exercises this oversight in a number of ways, the 

central element of which is an ongoing assessment of whether an AMI’s rules, procedures and 

practices are adequate for the protection of investors and the maintenance of an orderly market. 

To this end, the DME is required by the RL 2004 to report the conduct of and the performance of 

the Exchange’s regulatory functions.55 The DME is also required, by the AMI Module, to 

 

54 Sanctions available to the DME pursuant to its Disciplinary Rules include censure, fines of no more than 

$1,000,000, and suspension of membership rights and privileges. 

55 As an AMI, DME is required to have effective arrangements for the investigation and resolution of complaints 

in connection with the performance, or failure to perform, any of its regulatory functions. Accordingly, DME Rules 

require the Exchange to investigate and resolve such complaints. Among other things, the Rules require objective 

consideration of the complaint, a timely response thereto, a fair and impartial investigation and preparation of a 

report. 
Michael M. Philipp, Esq. 

Page 26 

consult with and gain prior approval from the DFSA for any amendment to its business rules.56 

DME is also required to consult with the DFSA regarding the introduction of new products and 

trading mechanisms. 

The DFSA carries out risk assessments of the DME on at least an annual basis. This 

assessment helps to identify any regulatory risks that DFSA perceives may exist and to 

communicate those identified risks to DME. The DFSA expects DME to put into place a plan to 

ensure that the risks are acknowledged and either eliminated or mitigated to the satisfaction of 

the DME’s governing body and the DFSA. The DFSA has produced formal guidance setting out 

what it considers the AMI license requirements to mean in practice, including guidance on 

“proper markets” with respect to on-exchange business. 

 H. Regulation by DME

 1. Introduction 

Under the DME’s regulatory regime, all members and guaranteed customers, regardless 

of their presence in DIFC, DFSA status, or home jurisdiction, are governed by DME Rules. The 

construction of DME Rules or disputes arising thereunder is governed by DIFC law, with the 

exception of those Rules governing the terms of the contracts to be traded on the Exchange. 

Rules relating to contract terms are governed by the same law that governs the contract itself.57 

Issues relating to whether a contract exists are determined by DIFC law pursuant to DME Rules. 

NYMEX Rules, including default rules and margin requirements, which are governed by New 

York law, apply to NYMEX clearing members and to any default by a clearing member on DME 

contracts, once they have been accepted by NYMEX for clearing. 

Under DME Rules, any claim, dispute, grievance or controversy arising out of DME 

Rules, or out of or in connection with market contracts,58 falls under the exclusive jurisdiction of 

DIFC courts (whether applying English or DIFC law). However, DME has discretion to take 

proceedings in any competent jurisdiction. In addition, DME Rules create an exception to the 

above and provide that any federal or state court located in New York, New York shall have 

exclusive jurisdiction to settle any dispute, claim, grievance or controversy involving NYMEX 

arising out of, or in connection with DME Rules. 

 

56 In urgent cases, the DFSA may, on written application by the AMI, dispense with prior consultation 

requirements. 

57 Pursuant to DME Rules, English law governs the DME’s Oman Sour Crude futures contract, West Texas 

Intermediate versus Oman Financial Spread futures contract, and Brent versus Oman Financial Spread futures 

contract. Any obligations associated with delivery of the underlying commodity under the contract are also 

governed by English law. 

58 A market contract is defined as "a contract in the terms of an Exchange Contract entered into by a Member or 

Designated Non-Member which is either: (i) a contract made on the Exchange; (ii) a contract made on an exchange 

to whose undertaking the Exchange has succeeded whether by amalgamation, merger or otherwise; or (iii) a contract 

in the making which the Member or Designated Non-Member was subject to the Rules." 
Michael M. Philipp, Esq. 

Page 27 

 DME Rules provide for mandatory arbitration for disputes between members if the 

dispute arises out of transactions executed on the DME or relates to the business of such member 

on the Exchange. In disputes between members and customers that arise out of transactions 

subject to DME Rules, arbitration is mandatory upon the election of the customer. The location 

of any arbitration proceeding under DME Rules will be London, England, and any proceeding 

will be conducted subject to English law, specifically the Arbitration Act of 1996. 

 2. Trading on DME 

Modeled after NYMEX trading rules, notably NYMEX’s trade practice rules relating to 

trading standards, DME Trading Rules govern trading on the Exchange. DME contracts are 

competitively traded via DME Direct.59 Market participants may also negotiate exchange of 

futures for swaps (EFS) or exchange of futures for physicals (EFP) transactions in designated 

DME contracts off of the Exchange pursuant to DME Rules and post an EFS or EFP transaction 

to NYMEX through NYMEX ClearPort Clearing (CPC).

 3. Market Integrity and Investor Protection 

 DME has implemented a monitoring and surveillance program that includes floor 

surveillance, member monitoring, trade practice surveillance, market surveillance, and financial 

and risk management. This program covers the activities of members and all other participants 

who have direct access to DME Direct, including seat lessees, guaranteed customers and ATUs. 

On a day to day basis, DME’s CCO, supported by the Director of Membership Surveillance and 

the Manager of Market Surveillance, is responsible for ensuring the effectiveness of the 

monitoring and surveillance programs. The performance of financial surveillance of members is 

aided by NYMEX and, under the terms of the GSA, NYMEX also assists the DME in 

performing trade practice surveillance, market surveillance and financial surveillance. DME, 

however, maintains overall control of the monitoring and surveillance programs. 

 With respect to floor surveillance, the DME’s Member Surveillance Department (MSD) 

routinely observes traders engaged in electronic trading from hubs and individual trading stations 

on the Exchange Floor at random times during the trading day and when and if special market 

conditions exist. Among other things, floor surveillance is used to: (1) determine affiliations 

between members and users, (2) identify unusual trading patterns for particular members or other 

users, and (3) monitor members’ activities on the floor. DME compliance staff also has the 

ability to conduct audio surveillance and monitor the telephone conversations of floor members 

if the need arises. 

 Under DME Rules, members must afford the DME CCO access to documents, 

information, premises and personnel. MSD monitors members for compliance with DME Rules 

by reviewing documents and materials provided by members, visiting member premises and 

 

59 DME Rules provide that no ATU shall make any purchase or sale, or enter an order through the trading 

platform, to affect a trade that has been pre-arranged. DME Rules provide a limited exception for trades effected 

through pre-execution discussions. 
Michael M. Philipp, Esq. 

Page 28 

interviewing member personnel. The member monitoring program covers areas such as order 

handling, audit trails, client documentation of terms of business and customer agreements, 

business conduct, member’s own surveillance programs and back office processes. The MSD 

reviews member order handling procedures for consistency with DME Rules and such COB 

requirements as prevention of market misconduct. MSD also reviews member recordkeeping 

procedures to ensure the audit trail complies with DME Rules requiring an accurate and 

comprehensive audit trail of member activities in DME products. 

 The DME CCO is responsible for detection and investigation of potential abuses in 

trading on DME and for enforcement against such abuses. MSD, DME Market Surveillance 

Department (MktSD), NYMEX Trading Practice Division (NYMEX TPD) and NYMEX Market 

Surveillance Division (NYMEX MSD) provide support to the CCO. The MSD conducts 

electronic trade practice surveillance to protect and detect breaches of DME Rules and applicable 

law in the DIFC relating to market misconduct and anti-money laundering. NYMEX TPD, with 

the assistance of NYMEX MSD, conducts computerized trade practice monitoring and 

surveillance. NYMEX uses its computerized surveillance program, TXN, to detect possible 

trading violations and to assist in the investigation of trade practice abuses. TXN permits 

analysts to select default or customized parameters to create reports that focus on particular types 

of trading violations, members, or suspected patterns of violations. Specifically, TXN is used to 

detect practices such as trading ahead, pre-arranged trading, “unfair” fill prices, fraudulent 

trading activity on day trading accounts, and abusive cross trades. 

 MktSD conducts market surveillance for DME, including monitoring of futures and cash 

market prices, market news, volume and open interest and data on positions in each DME 

contract. For price monitoring, analysts monitor market developments, changes in futures and 

cash prices, and spread relationships in the DME market. MktSD uses third-party data providers 

such as the Bloomberg News Service, which provides real-time news, cash market prices and the 

ability to chart historical price relationships for the DME markets. Research concerning market 

participants is conducted on the Nexis computer database. Analysts also consult with a 

computerized record of historical Exchange prices, the data sheet, and review trade publications. 

MktSD also monitors volume and open interest, reviewing the previous day’s trading volume 

and open interest for DME contracts on a daily basis. Volume data for DME contracts is 

available online and can be sorted by contract and trade date. Open interest data can be obtained 

from Daily Open Interest Reports generated by NYMEX. Exception reports generated by the 

NYMEX Large Trade Reporting system enable the analysts to determine what percentage of 

open interest a reportable trader’s position represents. NYMEX’s Statistics Department provides 

historical data on price, volume, and open interest to MktSD analysts, who can also access intraday volume data through TMS and a daily “snap shot” of positions of any NYMEX clearing 

member. 

 NYMEX Clearing rules require clearing members, omnibus accounts and foreign brokers 

to provide NYMEX and the CFTC with close of business position data for all accounts which 

exceed reportable levels. These NYMEX Clearing rules apply to DME contracts and, thus, any 

DME member or other market participant whose positions exceed reportable levels reports to 

NYMEX required information on a daily basis. NYMEX in turn makes DME large trader 
Michael M. Philipp, Esq. 

Page 29 

reporting data available to the CFTC for financial surveillance purposes.60 To enhance detection 

of breaches of DME Rules, DME consults with NYMEX on a weekly basis to review all large 

trader exception reports. 

 DME will receive assistance with respect to financial surveillance and risk management 

from NYMEX, which has extensive surveillance and compliance operations and procedures to 

monitor and enforce compliance with the NYMEX Clearing rules and DME Rules pertaining to 

the trading, position sizes and financial condition of members. NYMEX Clearing has extended 

its daily, weekly, monthly and periodic surveillance operations to trades entered into on DME 

pursuant to the GSA. Under the GSA, NYMEX conducts ongoing financial surveillance and risk 

management and analysis of members to ensure they comply with DME and NYMEX financial 

rules. 

 4. Disciplinary Arrangements 

 DME monitors compliance with its Rules and settlement arrangements through a 

combination of its own resources and those of NYMEX. DME’s Disciplinary Rules provide that 

enforcement of such compliance is the responsibility of DME’s Compliance Department. 

NYMEX provides further support, particularly in relation to information sharing and 

investigative assistance. The CCO takes the lead on all investigations and disciplinary matters 

(other than certain summary action). 

 DME’s Disciplinary Rules are largely the same as those at NYMEX, but they have been 

adapted to comply with the requirements of the DFSA. Pursuant to its Rules, DME has 

procedures to deal effectively with complaints about the conduct of its members and guaranteed 

customers. Such complaints and any potential rule violations uncovered as a result of its 

surveillance regime are investigated promptly and rigorously by the Compliance Department. 

The investigative process itself is subject to careful review by the Disciplinary Committee, 

comprised of a chairman, four committee members (including one person who is not a director, 

officer or employee of any member or of any affiliate of any member), and an alternate (who 

must be a person who is not a director, officer or employee of any member or of any affiliate of 

any member). If the Compliance Department and Disciplinary Committee are satisfied that there 

is a reasonable basis to conclude that a rule violation has occurred, disciplinary action is taken. 

Potential rule violations may also be referred to other regulatory authorities for action as 

appropriate. 

 The Disciplinary Rules provide for a respondent’s case to be heard and decided fairly and 

impartially, within a reasonable time, and for a respondent to be penalized appropriately if found 

to have breached a Rule. Possible sanctions include censure, fines of not more than one million 

dollars, orders of restitution and suspension of, or expulsion from, membership or access to 

DME’s facilities (or some combination of these sanctions), and reflect the seriousness of the 

 

60 In connection with large position monitoring, NYMEX retains the data in a data bank known as the Large 

Trader Reporting system which generates various reports that both DME and NYMEX use, including the Customer 

Position Ranking Report and the Futures Open Exception Report. 
Michael M. Philipp, Esq. 

Page 30 

offense.61 In all disciplinary cases, DME’s decision may be appealed to an independent and 

impartial Appeal Committee composed of three members. The chairman and alternate must be 

lawyers by profession, with at least ten years practice, who have relevant experience and who are 

not a director, officer or employee of any member or any affiliate of any member. The 

procedures for hearing such appeals are designed to ensure that an appellant’s case is dealt with 

promptly and fairly. 

VI. INFORMATION-SHARING

The DFSA mandates that an AMI must be able and willing to co-operate with the DFSA 

or other appropriate regulatory authorities with regard to regulatory matters when required. In 

obtaining Authorization from the DFSA, DME has satisfied the DFSA of its ability and 

willingness to do so. DFSA guidance states that in assessing this cooperation, the DFSA may 

have regard to the extent to which the constitution and rules of the AMI enable it to obtain 

information from members and to disclose otherwise confidential information to the DFSA and 

other appropriate bodies and whether the AMI participates in appropriate international forums. 

You represent that DME has taken steps to enter into agreements to fulfill this information 

sharing obligation and has various Rules to facilitate such cooperation.62

As set forth more fully below, pursuant to the terms and conditions of the no-action relief 

provided herein, the Division will be entitled to receive certain specified information regarding 

DME, DME Direct and DME’s market participants directly from DME. Additional information 

relevant to DME and DME’s market participants will be available to the Commission and its 

staff under the terms of certain information-sharing arrangements to which both the CFTC and 

the DFSA are parties. The arrangements include, without limitation, the IOSCO Multilateral 

Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of 

Information (MMOU) dated October 16, 2003, the Protocol Concerning Mutual Assistance, 

Information Sharing and Cooperation signed by the CFTC and DFSA on December 1, 2005, and 

the Declaration on Cooperation and Supervision of International Futures Exchanges and 

Clearing Organizations, as amended March 1998 (commonly known as the Boca Declaration). 

By letter dated February 13, 2007, the DFSA confirmed that the information-sharing 

arrangements would extend to information requested by the Commission in connection with the 

activities conducted pursuant to any no-action relief granted by the Commission, or any Division 

 

61 DME also has the power to suspend members and to terminate access to its facilities on the occurrence of 

specified default events. 

62 You represent that DME is currently seeking to sign the companion memorandum of understanding to the Boca 

Declaration, the Exchange International Information Sharing Memorandum of Understanding and Agreement, 

which provides for the sharing of information between market authorities upon the occurrence of certain triggering 

events, and that NYMEX, on behalf of DME, has initiated steps with the Inter Market Surveillance Group (ISG) for 

the DME to become a member of the ISG. Pursuant to the GSA, NYMEX has agreed to share all information 

relevant to DME trades with DME. DME may pass on any information it deems appropriate to the regulatory 

authorities for the purposes of prevention or detection of financial crime. 
Michael M. Philipp, Esq. 

Page 31 

thereof, in connection with the placement in the U.S. of electronic facilities providing access to a 

DFSA-regulated market or products traded through a DFSA-regulated market.63

VII. CONCLUSION

 Consistent with the Commission's Policy Statement and the June 2 Order, the Division 

has reviewed and considered DME's No-action request and the information and documentation 

forwarded to the Division in support thereof. Among other things, the materials furnished by 

DME indicate that DME and its Authorized members and guaranteed customers present in the 

DIFC are subject to oversight in the DIFC by a regulatory regime that is based upon regulatory 

objectives that generally are equivalent to those in the U.S.; that the regulatory regime provides 

basic protections for customers trading on DME’s market and for the integrity of the market 

itself; that DME and its regulatory authority employ surveillance, compliance and enforcement 

mechanisms designed to ensure compliance with statutes and DME’s and DFSA’s rules and 

regulations; that DME adheres to the IOSCO Principles; and that adequate information-sharing 

arrangements applicable to the activities of DME are in place. The materials furnished by DME 

also indicate that its Recognized members are subject to oversight by a regulatory regime that is 

based upon regulatory objectives that generally are equivalent to those in the U.S. and that all 

members and guaranteed customers must comply with DME Rules and applicable DFSA Rules.64

 Based specifically upon these and other representations made by DME in support of its 

No-action request, the Division has determined that granting no-action relief to DME and its 

members and guaranteed customers would not be contrary to the public interest. Accordingly, 

subject to compliance with the terms and conditions stated herein, the Division will not 

recommend that the Commission institute enforcement action against DME or its members or 

guaranteed customers if DME does not seek designation as a DCM or registration as a DTEF 

pursuant to Sections 5 and 5a, respectively, of the Act or comply with any other section of the 

Act or Commission regulations relating specifically to DCMs or DTEFs if: (1) DME members 

and guaranteed customers in the U.S. trade for their own accounts through direct access to DME 

Direct; (2) DME members and guaranteed customers who are registered with the CFTC as FCMs 

or who are Rule 30.10 Firms submit orders from or on behalf of U.S. customers for transmission 

through direct access to DME Direct; (3) DME members and guaranteed customers who are 

registered with the CFTC as CPOs or CTAs, or who are exempt from such CPO or CTA 

registration pursuant to Commission Regulation 4.13 or 4.14, submit orders on behalf of U.S. 

pools they operate or U.S. customer accounts for which they have discretionary authority, 

respectively, for transmission through direct access to DME Direct, provided that an FCM or 

Rule 30.10 Firm acts as clearing firm with respect to all activity conducted by such CPOs and 

 

63 Letter from David Knott, Chief Executive, DFSA, to Reuben Jeffery III, Chairman, Commodity Futures 

Trading Commission (February 13, 2007). 

64 The Division notes that the foregoing is not intended to be an exhaustive list of the factors relevant to its 

decision to grant the no-action relief requested by DME nor of the factors that the Division might consider when 

analyzing no-action requests from other exchanges. No-action requests, by their nature, require case-by-case 

evaluation and the Division's conclusion regarding any particular no-action request will be based upon the facts and 

circumstances presented at the time of its review of that request. 
Michael M. Philipp, Esq. 

Page 32 

CTAs through the submission of orders on DME Direct; and/or (4) DME members and 

guaranteed customers who are registered with the CFTC as FCMs or who are Rule 30.10 Firms 

accept orders for U.S. customers transmitted via AORS for submission to DME Direct. 

 The Division's no-action position shall become effective immediately with respect to the 

following DME contracts: 

• Oman Sour Crude futures, 

• West Texas Intermediate (WTI) - Oman Financial Spread futures, and 

• Brent - Oman Financial Spread futures. 

 If additional futures and option contracts become available for trading through DME 

Direct, DME may make such futures and option contracts available for trading by direct access 

from the U.S. in accordance with the provisions of the Commission's Notice of Revision of 

Commission Policy Regarding the Listing of New Futures and Option Contracts by Foreign 

Boards of Trade that have Received Staff No-Action Relief to Provide Direct Access to their 

Automated Trading Systems from Locations in the United States.65

 The scope of the Division's no-action position is restricted to providing relief from the 

requirement that DME obtain DCM designation or DTEF registration pursuant to Sections 5 and 

5a, respectively, of the Act and regulatory requirements that flow specifically from the DCM 

designation and DTEF registration requirements if the above-referenced contracts are made 

available in the U.S. for trading through DME Direct in the manner set forth herein. The 

Division's no-action position does not extend to any other provision of the Act, any other 

Commission regulations or orders, or to any registered futures association rules and does not 

excuse DME or its members from compliance with any applicable requirements thereunder. Nor 

does the no-action position alter, restrict, or expand the coverage of existing Commission 

exemptions for particular products. 

 The Division specifically notes that its no-action position does not alter the general 

requirement that a firm operating pursuant to the no-action relief provided herein must be 

appropriately registered or exempt from such registration to engage in the offer or sale of a 

foreign futures contract or a foreign option transaction for or on behalf of a U.S. customer. For 

example, nothing in this letter is intended to alter current Commission rules that require that any 

foreign firm that clears trades on a fully-disclosed basis on behalf of U.S. persons (including 

where the U.S. person is a non-clearing member of a foreign board of trade trading solely for its 

own account) be a registered FCM or a Rule 30.10 Firm.66 However, if a foreign firm solely 

 

65 71 Fed. Reg. 19877 (April 18, 2006); corrected at 71 Fed. Reg. 21003 (April 24, 2006). The Notice of Revision 

does not apply to broad-based stock index futures and option contracts that are covered by Section 2(a)(1)(C) of the 

Act. Foreign boards of trade are required to seek and receive written supplemental no-action relief from 

Commission staff prior to offering or selling such contracts through U.S.-located trading systems. 

66 At this time, the Commission has not issued a Rule 30.10 order to DME permitting its members to conduct 

brokerage activities on behalf of U.S. persons without having to register as an FCM. However, DME members 

otherwise may qualify as a Rule 30.10 firm pursuant to other orders issued by the Commission pursuant to Rule 

30.10. See, e.g., 67 Fed. Reg. 30785 (May 8, 2002) (permitting firms authorized by Eurex Deutschland to solicit 
Michael M. Philipp, Esq. 

Page 33 

carries accounts on behalf of U.S. customers that are the foreign firm’s or any registered FCM’s 

proprietary accounts (as defined in Rule 1.3(y)) or the foreign firm is either a member of the 

relevant foreign board of trade or is a foreign affiliate of a registered FCM and its sole contact 

with a U.S. customer is that it carries the FCM's omnibus account, then the firm need not register 

under Rule 30.4 nor confirm relief under Rule 30.10. 

 Moreover, the Division's no-action position does not amend, revise, or negate the 

obligations of CPOs, CTAs, FCMs and Rule 30.10 Firms under the Act, Commission 

regulations, or Rule 30.10 orders. For example, Rule 30.10 Firms continue to be prohibited from 

maintaining a presence in the U.S. Thus, Rule 30.10 Firms cannot provide direct access to DME 

Direct in the U.S. (although they would be permitted to accept orders overseas from customers 

located in the U.S. that submit such orders by telephone or through an AORS located in the 

U.S.). FCMs or Rule 30.10 Firms who solicit or accept orders from U.S. customers for trading 

on DME Direct remain responsible for, among other things, complying with risk disclosure, the 

handling and allocating of customer orders, and the segregation of customer funds. 

 The Division's no-action position does not affect the Commission's ability to bring 

appropriate action for fraud or manipulation. The Division specifically notes that the use of 

AORSs to transmit orders to DME Direct shall be subject to all existing Commission rules and 

regulations and to any future rules or guidance issued by the Commission or the Division. 

Finally, this letter does not address issues that might arise under the Securities Act of 1933, the 

Securities Exchange Act of 1934, or any other applicable federal securities law or rule 

promulgated thereunder. 

 The Division's no-action position is subject to compliance with the following conditions: 

1. DME will, at all times, continue to satisfy the criteria for designation as an AMI under 

the applicable laws of the DIFC with respect to the transactions effected through DME Direct. 

2. The DIFC laws, systems, rules, and compliance mechanisms applicable to DME will 

continue to require DME to maintain fair and orderly markets; prohibit fraud, abuse, and market 

manipulation; and provide that such requirements are subject to the oversight of the DFSA. 

3. DME will continue to adhere to the IOSCO Principles for the Oversight of Screen-Based 

Trading Systems for Derivatives Products, as updated, revised, or otherwise amended to the 

extent consistent with U.S. and DIFC law. 

4. Members and guaranteed customers will only have direct access (i.e., not through an 

AORS) to DME Direct from the U.S. if a clearing member guarantees and assumes all financial 

responsibility for all activity conducted through the members’ or guaranteed customers’ direct 

access connection to DME Direct. DME will not provide, and will take reasonable steps to 

prevent third parties from providing, such access to DME Direct to persons other than DME 

 and accept orders from U.S. persons for otherwise permitted transactions on all non-U.S. exchanges where such 

members are authorized to conduct business on behalf of customers pursuant to German law). 
Michael M. Philipp, Esq. 

Page 34 

members and guaranteed customers that are guaranteed by a clearing member.67

5. All orders that are transmitted through DME Direct by a DME member or guaranteed 

customer that is operating pursuant to the no-action relief provided herein will be solely for the 

member’s or guaranteed customer’s own account unless (i) such member or guaranteed customer 

is registered with the CFTC as an FCM or is a Rule 30.10 Firm, or (ii) such member or 

guaranteed customer is registered with the CFTC as a CPO or CTA, or is exempt from such 

registration pursuant to Commission Regulation 4.13 or 4.14, provided that an FCM or Rule 

30.10 Firm acts as clearing firm with respect to all activity conducted by such CPO or CTA 

through the submission of orders on DME Direct. 

6. All orders for U.S. customers accepted through an AORS and transmitted by a member or 

guaranteed customer through DME Direct will be intermediated by a member that is either 

registered with the Commission as an FCM or is a Rule 30.10 Firm and all U.S. customers must 

qualify as Clients under DFSA COB Rule 3.2. 

7. Prior to operating pursuant to the no-action relief provided herein, DME will require each 

current and prospective member that is not registered with the Commission as an FCM, a CTA 

or a CPO to execute and file with DME a written representation, executed by a person with the 

authority to bind the member, stating that as long as the member operates pursuant to the noaction relief provided herein, the member agrees to and submits to the jurisdiction of the 

Commission with respect to activities conducted pursuant to the no-action relief. DME will 

maintain the foregoing representations as long as the relevant member is operating pursuant to 

the no-action relief and shall make such representation available to the Commission upon the 

request of a Commission representative. 

8. Prior to their operating pursuant to the no-action relief provided herein, DME will require 

each current and prospective member that is not registered with the CFTC as an FCM, a CTA or 

a CPO to execute and file with DME a valid and binding appointment of a U.S. agent for service 

of process in the U.S. pursuant to which the agent is authorized to accept delivery and service of 

“communications” issued by or on behalf of the Commission.68 DME will maintain the 

foregoing appointments as long as the relevant member is operating pursuant to the no-action 

relief and shall make such appointments available to the Commission upon the request of a 

Commission representative. 

9. Prior to their operating pursuant to the no-action relief provided herein, DME will require 

each current and prospective member that is not registered with the CFTC as an FCM, a CTA or 

a CPO to file with DME a written representation, executed by a person with the authority to bind 

the member, stating that as long as the member operates pursuant to the no-action relief provided 

 

67 Members include those persons identified in footnote 3 for the purposes of this no-action letter and the 

conditions imposed upon the relief provided herein. 

68 For purposes of these conditions, “communications” is defined to include any summons, complaint, order, 

subpoena, request for information, or notice or any other written or electronic documentation or correspondence 

issued by or on behalf of the Commission. 
Michael M. Philipp, Esq. 

Page 35 

herein, the member will provide, upon the request of the Commission, the U.S. Department of 

Justice and, if appropriate, the National Futures Association (NFA), prompt access to original 

books and records maintained at their United States offices as well as to the premises where 

DME Direct is installed or used in the U.S. DME will maintain the foregoing representations as 

long as the relevant member is operating pursuant to the no-action relief and shall make such 

representations available to the Commission upon the request of a Commission representative. 

10. Prior to operating pursuant to the no-action relief provided herein, DME will file with the 

Division, and maintain thereafter as long as DME, its members, or DME Direct operates 

pursuant to the no-action relief, a valid and binding appointment of a U.S. agent for service of 

process in the U.S., pursuant to which the agent is authorized to accept delivery or service of 

“communications”, as defined above, that are issued by or on behalf of the Commission. 

11. DME will maintain the following updated information and submit such information to the 

Division on at least a quarterly basis, and at any time promptly upon the request of a 

Commission representative, in the format reflected in the attachment to this letter: 

 a. For each contract available to be traded through DME Direct, (i) the total trade 

volume originating from electronic trading devices providing access to DME Direct in 

the U.S., (ii) the total trade volume for such products traded through DME Direct 

worldwide, and (iii) the total trade volume for such products traded on DME generally; 

and 

 b. A listing of the names, NFA ID numbers (if applicable), and main business 

addresses in the U.S. of all DME members that have access to DME Direct in the U.S. 

12. DME will request that the DFSA provide to the Division not later than July 1st of each 

year a letter or email confirming that DME retains its authorization in good standing as an AMI 

under the applicable laws of the DIFC or other exchange licensing methodology used in the 

UAE. 

13. DME will promptly provide the Division with written notice of the following: 

 a. Any material change in the information provided in its No-action request, 

including any information contained in the documents submitted in support thereof;69

 b. Any material change in DME’s Rules or the laws, rules, and regulations in the 

DIFC relevant to futures and options; 

 

69 The Division notes that “material” changes in the information provided to it in support of DME’s No-action 

request would include, without limitation, a modification of: DME's membership criteria; the location of DME's 

management, personnel or operations (particularly changes that may suggest an increased nexus between DME's 

activities and the U.S.); the basic structure, nature, or operation of DME Direct; or the regulatory or self-regulatory 

structure applicable to DME members. 
Michael M. Philipp, Esq. 

Page 36 

 c. Any matter known to DME or its representatives that, in DME's judgment, may 

affect the financial or operational viability of DME, including, but not limited to, any 

significant system failure or interruption; 

 d. Any default, insolvency, or bankruptcy of any DME member or guaranteed 

customer known to DME or its representatives that may have a material, adverse impact 

upon the condition of DME, the Clearing House, or upon any U.S. customer or firm; 

 e. Any known violation by DME or any DME member or guaranteed customer of 

the terms or conditions of the no-action relief provided herein; and 

 f. Any disciplinary action taken by DME against any DME member or guaranteed 

customer operating pursuant to the no-action relief provided herein that involves any 

market manipulation, fraud, deceit, conversion or that results in suspension or expulsion 

and that involves the use of DME Direct to submit orders to DME and either (1) the 

DME member or guaranteed customer against whom the disciplinary action is taken is 

located or based in the U.S. or (2) the disciplinary action results, in whole or in part, from 

conduct that: (i) involves the use of DME Direct; (ii) involves a U.S. customer or firm or 

registered FCM; or (iii) might have a material, adverse impact upon any U.S. customer or 

firm. 

14. A clearing member authorizing a guaranteed customer direct access to DME Direct must 

assist the DME in a timely manner in any investigation into potential violations of DME Rules, 

the Act, or the terms or conditions set forth in the no-action relief provided herein, including, but 

not limited to, requiring the guaranteed customer to provide documents and answer questions 

from the DME and/or to appear in connection with the investigation. 

15. A clearing member authorizing a guaranteed customer direct access to DME Direct will 

suspend or terminate the guaranteed customer’s direct access if DME determines that the actions 

of the guaranteed customer threaten the integrity or liquidity of any contract, violate any DME 

Rules, the Act, or the terms and conditions set forth in the no-action relief herein, or if the 

guaranteed customer fails to cooperate in an investigation. 

16. Information-sharing arrangements satisfactory to the CFTC will be in effect between the 

Commission and the DFSA. 

17. The Commission will be able to obtain sufficient information regarding DME and its 

members and guaranteed customers operating pursuant to the no-action relief provided herein. 

DME will provide directly to the Commission information necessary to evaluate the continued 

eligibility of DME or its members or guaranteed customers for the relief, to enforce compliance 

with the terms and conditions of the relief, or to enable the Commission to carry out its duties 

under the Act and Commission regulations and to provide adequate protection to the public or 

U.S. DCMs and DTEFs. 

18. DME will employ reasonable procedures, to be determined by DME, for monitoring and 
Michael M. Philipp, Esq. 

Page 37 

enforcing compliance with the terms and conditions of the no-action relief provided herein. 

 The no-action position taken herein is taken by the Division only and does not necessarily 

reflect the views of the Commission or any other unit or member of the Commission's staff. It is 

based upon the information and representations contained in DME's No-action request and the 

materials submitted in support thereof. Any materially different, changed, or omitted facts or 

circumstances may render this letter void. The Division specifically notes that it will examine 

the volume information submitted as a condition to the no-action relief provided herein as well 

as any changes in the nature or extent of DME's activities in the U.S. to ascertain whether DME's 

presence in the United States has increased to a level that might warrant reconsideration of the 

no-action relief. Finally, as with all no-action letters, the Division retains the authority to 

condition further, modify, suspend, terminate, or otherwise restrict the terms of the no-action 

relief provided herein, in its discretion. 

 If you have any questions regarding this correspondence, please contact Duane C. 

Andresen, Special Counsel, at dandresen@cftc.gov or by phone at (202) 418-5492. 

 Very truly yours, 

 Richard A. Shilts 

 Director 

cc: Gregory C. Prusik, Vice-President Compliance and Registration, NFA 

 Branch Chief, Audit and Financial Review Unit, Division of Clearing and Intermediary 

Oversight, Chicago Regional Office 

Attachment
Attachment 

Quarterly Trading Volume Report for Foreign Boards of Trade Granted NoAction Relief 

Product1

Volume 

From All 

Terminals2

Volume 

From U.S. 

Terminals3

Percentage 

From U.S. 

Terminals4

Total 

Volume5

Contract 1 

Contract 2 

Contract 3

Contract 4

Totals 

 

1 List each contract that is eligible to be traded through U.S.-based electronic trading terminals, including 

those contracts for which there was no trading volume during the reporting period.

2

 Include the total electronic trading volume worldwide for each contract that is eligible to be traded 

through U.S.-based trading terminals and, in the bottom row, enter the combined total volume worldwide 

for all such contracts. 

3

 Include the total electronic trading volume originating from electronic trading devices in the U.S. for 

each eligible contract and, in the bottom row, enter the combined total volume originating from the U.S. 

for all such contracts. 

4

 For each contract, and for all contracts combined, divide the numbers in the Volume From U.S. 

Terminals column by the numbers in the Volume From All Terminals column and enter the percentage 

from U.S. terminals. 

5

 Include the total electronic and non-electronic trading volume worldwide for each contract that is 

eligible to be traded through U.S.-based trading terminals, including any trading volume that is not 

generated by trading on the electronic trading system. Numbers should include, as applicable, volume 

originated by open outcry trading as well as volume generated through Basis Trading Facilities, Block 

Trading Facilities, Asset Allocation Facilities, Against Actuals Facilities, Guaranteed Cross Facilities, and 

other such facilities. In the bottom row, enter the combined total volume worldwide for all such 

contracts.