Friday, 

December 12, 2008 

Part III 

Commodity Futures 

Trading Commission 

17 CFR Parts 15, 16, 17, et al. 

Significant Price Discovery Contracts on 

Exempt Commercial Markets; Proposed 

Rule 


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1 Incorporated as Title XIII of the Food, 

Conservation and Energy Act of 2008, Pub. L. No. 

110–246, 122 Stat. 1624 (June 18, 2008). 

2 7 U.S.C. 1 et seq. 

3 7 U.S.C. 7. 

4To qualify as a DTEF, an exchange must 

implement certain restrictions on retail market 

participation and can only trade certain 

commodities (including excluded commodities and 

other commodities with very high levels of 

deliverable supply) and generally must exclude 

retail participants. CFTC Glossary (Glossary). 

5 7 U.S.C. 7a. 

6EBOTs may trade only ‘‘excluded commodities’’ 

(7 U.S.C. 1a(13); 17 CFR § 36.2(a)(2)(i)), and are 

open only to ‘‘eligible contract participants’’ 

(‘‘ECPs’’) (7 U.S.C. 1a(12)). 

7For example, section 2(g) created an exclusion 

from the CEA for individually negotiated swaps, 

based on non-agricultural commodities entered into 

between eligible contract participants, 7 U.S.C. 2(g). 

Similarly excluded are transactions between ECPs 

involving excluded commodities that are not 

executed on a trading facility. 7 U.S.C. 2(d)(1). 

8 7 U.S.C. 2(h)(3)–(5). 

9 7 U.S.C. 1a(11) (a subset of ECPs). 

10 7 U.S.C. 1a(10). For purposes of this proposed 

rulemaking, the terms electronic trading facility and 

ECM are used interchangeably. The term ‘‘trading 

facility’’ means a person or group of persons that 

constitutes, maintains, or provides a physical or 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 15, 16, 17, 18, 19, 21, 36, 

and 40 

Significant Price Discovery Contracts 

on Exempt Commercial Markets 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Proposed rules. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing rules to 

implement the CFTC Reauthorization 

Act of 2008 (‘‘Reauthorization Act’’).1 In 

pertinent part, the Reauthorization Act 

amends the Commodity Exchange Act to 

significantly expand the CFTC’s 

regulatory authority over exempt 

commercial markets (‘‘ECMs’’), which 

had heretofore operated largely outside 

the Commission’s regulatory reach, by 

creating a new regulatory category— 

ECMs with significant price discovery 

contracts (‘‘SPDCs’’)—and directing the 

Commission to adopt rules to 

implement this expanded authority. In 

addition to proposing regulations 

mandated by the Reauthorization Act, 

the Commission is also proposing to 

amend existing regulations applicable to 

registered entities in order to clarify that 

such regulations are now applicable to 

ECMs with SPDCs. 

DATES: Comments must be received by 

February 10, 2009. 

ADDRESSES: You may submit comments 

by any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. 

• Mail/Hand Deliver: David Stawick, 

Secretary of the Commission, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

• E-mail: secretary@cftc.gov. 

FOR FURTHER INFORMATION CONTACT: 

Susan Nathan, Senior Special Counsel, 

Division of Market Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. Telephone: (202) 418–5133. 

E-mail: snathan@cftc.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. The Commodity Futures Modernization 

Act of 2000 Established a New 

Regulatory Framework 

1. Multi-Tiered Regulation 

2. Exempt Commercial Markets 

3. Differences Between ECMs and DCMs 

B. The Changing ECM Landscape 

C. The CFTC’s Response to the Changing 

Energy Markets 

1. Empirical Study of Trades on ICE and 

NYMEX 

2. Commission Surveillance of Energy 

Markets 

3. The Commission’s ECM Hearing 

4. The Commission’s Findings and 

Legislative Recommendations 

D. The Reauthorization Legislation and the 

Statutory Scheme 

II. The Proposed Rules 

A. Part 36—Exempt Markets 

1. Required Information 

2. Identifying Significant Price Discovery 

Contracts 

(i) Criteria for SPDC Determination 

(ii) Notification Requirement for ECMs 

With a SPDC 

3. Procedures 

4. Substantive Compliance With the Core 

Principles 

5. Annual Commission Review 

B. Market, Transaction and Large Trader 

Reporting Rules 

C. Other Regulatory Provisions 

1. Part 40—Provisions Common to 

Registered Entities 

III. Related Matters 

A. Cost Benefit Analysis 

B. Regulatory Flexibility Act 

C. Paperwork Reduction Act 

List of Subjects: Proposed Rules 

I. Background 

A. The Commodity Futures 

Modernization Act of 2000 Established 

a New Regulatory Framework 

1. Multi-Tiered Regulation 

On December 21, 2000, Congress 

enacted the Commodity Futures 

Modernization Act (‘‘CFMA’’), which 

amended the Commodity Exchange Act 

(‘‘Act’’ or ‘‘CEA’’) 2 to replace the Act’s 

‘‘one-size-fits-all’’ supervisory 

framework for futures trading with a 

multi-tiered approach to regulatory 

oversight of derivatives markets. The 

CFMA applies different levels of 

regulatory oversight to markets based 

primarily on the nature of the 

underlying commodity being traded and 

the participants who are trading. In 

general, the more sophisticated the 

traders or commercial participants, or 

the less susceptible a commodity is to 

manipulation or other market or trading 

abuses, the less regulatory oversight is 

required under the CFMA. 

Accordingly, designated contract 

markets (‘‘DCMs’’), are subject to the 

highest level of regulatory oversight 

because they are open to all participants 

and may offer all types of commodities.3

Derivatives Transaction Execution 

Facilities (‘‘DTEFs’’) 4 are subject to less 

regulatory oversight than DCMs because 

participants must be sophisticated 

investors or must be hedging risk 

associated with their commercial 

activities. Additionally, the CFMA 

imposes limitations on the types of 

commodities that may be traded, and 

the manner in which they may be 

traded.5 Exempt Boards of Trade 

(‘‘EBOTs’’) are subject to virtually no 

regulatory oversight and are not 

registered with or designated by the 

Commission. EBOTs are exempt from 

most provisions of the CEA other than 

its antifraud and anti-manipulation 

prohibitions, but are subject to 

significant commodity and participant 

restrictions.6 In addition to creating 

these three new categories of trading 

facility, the CFMA created a broad array 

of exclusions and exemptions from 

regulation for certain swaps and other 

derivatives products traded either 

bilaterally or on electronic trading 

facilities.7 These exclusions and 

exemptions reflected a view, consistent 

with Congressional and Commission 

actions relating to the passage of the 

CFMA, that transactions between 

sophisticated counterparties do not 

necessarily require the protections that 

the CEA provides for transactions on 

DCMs and DTEFs. 

2. Exempt Commercial Markets 

The CFMA established an exemption 

for transactions in exempt commodities 

traded on electronic trading facilities, 

also known as exempt commercial 

markets (‘‘ECMs’’).8 To qualify as an 

ECM, a facility must limit its 

transactions to principal-to-principal 

transactions executed between ‘‘eligible 

commercial entities’’ (‘‘ECEs’’) 9 on an 

‘‘electronic trading facility.’’ 10 Contracts 


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electronic facility or system in which multiple 

participants have the ability to execute or trade 

agreements, contracts or transactions—(i) by 

accepting bids or offers made by other participants 

that are open to multiple participants in the facility 

or system; or (ii) through the interaction of multiple 

bids or multiple offers within a system with a predetermined non-discretionary automated trade 

matching and execution algorithm. 7 U.S.C. 1a(34). 

11 7 U.S.C. 1a(14). 

12Sections 2(h)(4)(B) and (C) of the Act, 7 U.S.C. 

2(h)(4)(B) and (C). 

13For example, an ECM must maintain for five 

years and make available for inspection records of 

its activities relating to its business as a trading 

facility. 7 U.S.C. 2(h)(5)(B)(ii). More specifically, 

Commission rule 36.3, 17 CFR 36.3, requires that 

an ECM identify to the Commission those 

transactions for which it intends to rely on the 

exemption in section 2(h)(3) of the CEA and which 

averaged five trades per day or more over the most 

recent calendar quarter. For all such transactions, 

the ECM must provide to the Commission weekly 

reports showing certain basic trading information, 

or provide the Commission with electronic access 

that would allow it to compile the same 

information. 17 CFR 36.3(b)(1)(ii). An ECM also 

must provide to the Commission, upon special call, 

any information relating to its business that the 

Commission determines is appropriate to enforce 

the antifraud and anti-manipulation provisions of 

the CEA, to evaluate a systemic market event, or to 

obtain information on behalf of another federal 

financial regulator. 7 U.S.C. 2(h)(5)(B)(iii); 17 CFR 

36.3(b)(3). An ECM must maintain a record of any 

allegations or complaints it receives concerning 

suspected fraud or manipulation and must provide 

the Commission with a copy of the record of each 

such complaint. 17 CFR 36.3(b)(1)(iii). Finally, an 

ECM is required to file an annual certification that 

it continues to operate in reliance on the exemption 

in section 2(h)(3) of the Act and that the 

information it previously provided to the 

Commission remains correct. 17 CFR 36.3(c)(4). 

14See sections 5(d)(1)–(18) of the Act, 7 U.S.C. 

7(d)(1)–(18). 

15The Commission conducts regular rule 

enforcement reviews of the self regulatory programs 

operated by DCMs for enforcing exchange rules, 

preventing market manipulations and customer and 

market abuses, and ensuring that trade related 

information is recorded and stored in a manner 

consistent with the Act. 

16 In 2004, the Commission amended its part 36 

rules to include the requirement that an ECM notify 

the Commission when it has reason to believe that 

one or more of the markets on which it is 

conducting agreements, contracts or transactions in 

reliance on section 2(h)(3) of the CEA has been met 

or if the market holds itself out to the public as 

performing a price discovery function for the cash 

market of a commodity. 17 CFR 36.3(c)(2)(i) and (ii). 

69 FR 43285 (July 20, 2004). 

17 Id. 

18See Commodity Futures Trading Commission, 

Report on the Oversight of Trading on Regulated 

Futures Exchanges and Exempt Commercial 

Markets (October 2007), http://www.cftc.gov/ 

stellent/groups/public/@newsroom/documents/file/ 

pr5403-07_ecmreport.pdf for a comprehensive 

report of the Commission’s findings following its 

September 2007 hearing (‘‘ECM Report’’). 

19 Intercontinental Exchange, or ICE, consists of 

four separate entities: ICE OTC, to which this 

document refers, is an ECM trading energy 

products. ICE Future Europe trades energy futures 

and is regulated by the Financial Services Authority 

of Great Britain; ICE Futures US focuses primarily 

on futures based on soft commodities (e.g., coffee, 

sugar, cocoa, cotton) and financial futures and is 

regulated by the CFTC; ICE Futures Canada trades 

Continued 

for all commodities except agricultural 

and excluded commodities (primarily 

financial commodities but also 

commodities such as weather) 

potentially are eligible to trade on an 

ECM. Examples of commodities traded 

on ECMs are energy products, metals, 

chemicals, air emission allowances, 

paper pulp, and barge freight rates.11

ECMs fall somewhere between DTEFs 

and EBOTs on the regulatory oversight 

spectrum. Like EBOTs, they are neither 

licensed nor registered with the CFTC 

and are subject to the Act’s antifraud 

and anti-manipulation provisions.12 In 

addition, and different from EBOTs, 

ECMs are subject to certain 

recordkeeping and reporting 

requirements under the CEA.13

3. Differences Between ECMs and DCMs 

ECMs are not subject to the level of 

transparency and Commission oversight 

associated with DCMs. DCMs must 

satisfy specified criteria to become 

designated, and then must demonstrate 

continuing compliance with 18 core 

principles set out in the Act.14 The Act 

provides flexibility with respect to how 

DCMs may choose to meet the core 

principles’ mandate that DCMs 

undertake significant supervisory 

responsibility with respect to trading on 

their markets. DCMs must, for example, 

establish rules and procedures for 

preventing market manipulation and 

must adopt necessary and appropriate 

position limit or accountability rules to 

address the potential for manipulation 

or congestion. DCMs also must establish 

compliance and surveillance programs, 

which the Commission evaluates 

through rule enforcement reviews,15

must monitor trading on their markets 

and must undertake other selfregulatory responsibilities mandated by 

the CEA. 

The CFMA did not impose these 

obligations on ECMs. While the 

Commission was given the authority to 

determine whether an ECM performs a 

significant price discovery function for 

transactions in an underlying cash 

market,16 such a determination did not 

trigger any self-regulatory 

responsibilities for the ECM or confer 

any additional oversight authority on 

the Commission. Rather, the presence of 

a contract performing a significant price 

discovery function required the ECM to 

publicly disseminate certain basic 

information, such as contract terms and 

conditions and daily trading volume, 

open interest, and opening and closing 

prices or price ranges.17

B. The Changing ECM Landscape 

Following enactment of the CFMA in 

December 2000, the first ECMs that 

notified the Commission of their intent 

to operate generally were simple trading 

platforms, resembling in many ways 

business-to-business facilities for large 

commercial firms. ECMs facilitate the 

execution of trades between commercial 

counterparties by offering an 

anonymous and efficient electronic 

matching system which many believed 

to be superior to the existing voice 

broker system, and to provide a 

competitive advantage over the bilateral 

OTC market, especially for energy 

products. Initially, most ECMs were 

small operations with low trading 

volumes that were small relative to 

DCMs. The first ECMs did not offer 

centralized clearing, but sought to 

address counterparty risk through the 

use of credit filters whereby traders 

could limit their potential 

counterparties to a list of traders whose 

credit they found satisfactory. 

Significantly, early ECM contracts were 

not linked to contracts listed on DCMs. 

Over time, however, ECMs began to 

offer ‘‘look-alike’’ contracts that were 

linked to the settlement prices of their 

exchange-traded counterparts, and these 

look-alike contracts in one case began to 

garner significant volumes. In recent 

years, several active ECMs began to offer 

the option of centralized clearing for 

their contracts—an option which 

became widely utilized by their 

customers to manage counterparty risk. 

This evolution, and particularly the 

linkage of ECM contract settlement 

prices to DCM futures contract 

settlement prices, began to raise 

questions about whether ECM trading 

activity could impact trading on DCMs 

and whether the CFTC had adequate 

authority to address that impact and 

protect markets from manipulation and 

abuse. Of special concern to CFTC staff 

was the existence of the ECM cashsettled ‘‘look-alike’’ contracts that could 

provide an incentive to manipulate the 

settlement price of an underlying DCM 

futures contract to benefit positions in 

the look-alike ECM contract. As 

discussed more fully below, the 

Commission subsequently considered 

and studied these concerns in a variety 

of ways, culminating, in September 

2007, in a public hearing examining 

trading on regulated exchanges and 

ECMs.18

C. The CFTC’s Response to the 

Changing Energy Markets 

1. Empirical Study of Trades on ICE 19

and NYMEX 

During the last several years, one ECM 

in particular—the Intercontinental 


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futures and options and is regulated by the 

Manitoba Securities Commission. 

20Henry Hub is a natural gas pipeline hub in 

Louisiana that serves as the delivery point for 

NYMEX natural gas futures contracts and often 

serves as a benchmark for wholesale natural gas 

prices across the U.S. Glossary. 

21See ECM Report at 11–12. Price discovery is the 

process of determining the price level for a 

commodity based on supply and demand 

conditions. Price discovery may occur in a futures 

market or cash market. Glossary. 

22The LTRS is the centerpiece of the 

Commission’s market surveillance system. Under 

the LTRS, clearing members, futures commission 

merchants and foreign brokers file daily reports 

with the CFTC showing futures and option 

positions in accounts they carry that are above 

reporting levels set by the Commission. The 

reporting level for the NYMEX natural gas futures 

market is 200 contracts. 

23Section 2(h)(5)(B)(iii) of the Act, 7 U.S.C. 

2(h)(5)(B)(iii), requires that an electronic trading 

facility relying on the exemption provided in 

section 2(h)(3) must, upon a special call by the 

Commission, provide such information related to its 

business as an electronic trading facility as the 

Commission may determine appropriate to enforce 

the antifraud provisions of the CEA, to evaluate a 

systemic market event, or to obtain information 

requested by a Federal financial regulatory 

authority in connection with its regulatory or 

supervisory responsibilities. 

24The special calls were issued primarily to assist 

the Commission in its surveillance of the NYMEX 

natural gas contract. They were not issued as part 

of an investigation of any particular market 

participant or trading activity on either ICE or 

NYMEX, nor were they issued to conduct regular 

market surveillance of ICE. The first special call, 

issued on September 28, 2006, requested daily 

clearing member position data for ICE’s natural gas 

swap contracts, broken out between house and 

aggregate customer positions, which is similar to 

information that the Commission receives from 

NYMEX pursuant to Commission rule 16.00. This 

information permits CFTC market surveillance staff 

to see all cleared positions at the clearing member 

level, but it is not possible to determine individual 

customer positions. To obtain daily individual 

trader positions, the Commission issued a second 

special call on December 1, 2006. While the data 

received is similar to large trader reporting for 

DCMs, the methodology for reporting is very 

different. Because ICE is a principal-to-principal 

market and therefore does not receive position 

reporting from firms, it was necessary for ICE to 

develop an algorithm to infer open positions from 

the sum of all trading by each individual trader. 

While this approach has provided valuable 

information, it is less accurate than traditional large 

trader reporting. The third special call, issued on 

September 5, 2007, required ICE to provide all 

cleared transaction data for its Henry Hub swap 

contracts and identify counterparties for the final 

two trading sessions prior to the expiration of 

prompt month Henry Hub natural gas products. 

This data is similar to transaction data that the 

Commission receives from NYMEX for all trading 

days and enables CFTC staff to monitor trading 

activity on ICE and obtain more complete coverage 

to counter possible manipulative schemes that 

could affect trading on ICE. 

25CFTC Release 5368–07, August 2, 2007 (CFTC 

Announces September Hearing to Examine Trading 

on Regulated Exchanges and Exempt Commercial 

Markets). 

26 supra n. 20. 

27 Id. at 15. 

Exchange (‘‘ICE’’)—has become a major 

trading venue for natural gas contracts 

in direct competition with the New 

York Mercantile Exchange (‘‘NYMEX’’) 

natural gas benchmark futures contract, 

in addition, Commission staff has found 

that the traders on ICE are virtually the 

same as the traders on NYMEX. All of 

the top 25 natural gas traders on 

NYMEX are also significant traders on 

ICE. For the Henry Hub natural gas 

market,20 market participants generally 

view ICE and NYMEX as essentially a 

single market, looking to both ICE and 

NYMEX when determining where to 

execute a trade at the best price. 

To assess these changes in the 

marketplace, the Commission’s Office of 

the Chief Economist (‘‘OCE’’) conducted 

an empirical study of the relationship 

between the natural gas contracts that 

trade on ICE and NYMEX. OCE 

collected transaction prices for ICE and 

NYMEX natural gas contracts from 

January 3, 2006 through December 31, 

2006 and evaluated trading for 12 

contract months when trading on each 

market was appropriately active. OCE 

examined the timing of price changes on 

ICE and NYMEX to draw inferences 

about where information arrives first. If 

price changes on one venue consistently 

‘‘led’’ those on the other venue, then 

OCE concluded that informed traders 

preferred trading at that ‘‘leading’’ 

venue and inferred that market to be 

‘‘discovering’’ prices.21 OCE found that 

ICE exhibited price leadership with 

respect to NYMEX on 20 percent of the 

contract-days, while NYMEX exhibited 

price leadership on 63 percent of the 

contract-days. OCE concluded that these 

results suggested that both ICE and 

NYMEX are significant price discovery 

venues for natural gas futures contracts. 

2. Commission Surveillance of the 

Energy Markets 

The Commission’s surveillance of 

natural gas energy markets traditionally 

has focused on the regulated futures 

markets traded on NYMEX. Prior to the 

Reauthorization Act, ECMs were not 

subject to the requirements of the 

Commission’s large trader reporting 

system (‘‘LTRS’’).22 In order to obtain 

analogous large trader information from 

ECMs, the Commission had to issue 

special calls.23 Based on the prominent 

role played by the ICE natural gas 

contract in the price discovery process 

and the possible impact on the NYMEX 

natural gas contract, the Commission 

determined to issue a series of special 

calls for information related to ICE’s 

cleared natural gas swap contracts that 

are cash-settled based on the settlement 

price of the NYMEX physical delivery 

natural gas contract.24

3. The Commission’s ECM Hearing 

Following the OCE study and the 

special calls issued to ICE, the 

Commission held a public hearing on 

September 18, 2007, to examine the 

oversight of DCMs and ECMs. Witnesses 

at the hearing included Commission 

staff, representatives of DCMs and 

ECMs, and representatives of a broad 

spectrum of market users and consumer 

groups. The hearing focused on a 

number of issues, including the tiered 

regulatory approach of the CFMA and 

whether it was adequate; the similarities 

and differences between ECMs and 

DCMs; the associated regulatory risks of 

each market category; the types of 

regulatory or legislative changes that 

may be appropriate to address identified 

risks; and the impact that regulatory or 

legislative changes might have on the 

U.S. futures industry and the global 

competitiveness of the U.S. financial 

industry. In announcing the hearing, 

CFTC Acting Chairman Lukken 

observed that: 

The evolution of these energy markets 

[ECMs] in recent years requires our agency to 

address whether the level of regulatory 

oversight is proper given the importance of 

energy prices to all Americans.* * * This 

oversight hearing will provide a better 

understanding of the inter-relationship of 

these trading venues so policymakers can 

make informed decisions to protect these 

vital markets.25

4. The Commission’s Findings and 

Legislative Recommendations 

Based on information developed 

through various studies, surveillance, 

special calls and its public hearing, the 

Commission published in October 2007 

a ‘‘Report on the Oversight of Trading 

on Regulated Futures Exchanges and 

Exempt Commercial Markets.’’ (‘‘ECM 

Report’’).26 The report was provided to 

the Commission’s Congressional 

oversight committees, which were then 

in the process of considering legislation 

to amend the CEA and reauthorize the 

Commission. 

The ECM Report noted that while 

some participants disagreed, most 

witnesses at the September 18 hearing 

generally supported the tiered 

regulatory structure of the CFMA, but 

expressed concern regarding the 

regulatory provisions governing ECMs 

and the regulatory disparity between 

DCMs and ECMs.27 Witnesses suggested 

that this disparity made markets more 

susceptible to manipulation and put 

regulated exchanges at a competitive 

disadvantage vis-a`-vis ECMs offering 

virtually identical products. Generally, 

most witnesses felt that some changes to 

the ECM provisions might be 

appropriate, provided those changes 


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28 Id. 

29Public Law No. 110–246, supra. n. 1 (‘‘Pub. L. 

110–246’’). The Reauthorization Act was 

incorporated into the Food, Conservation and 

Energy Act of 2008 as Title XIII of that legislation. 

Title XIII was not the subject of Congressional 

hearings and the legislative history is limited to The 

Joint Explanatory Statement of the Committee of 

Conference, H.R. Rep. No. 110–627, 110 Cong., 2d 

Sess. at 978–86 (2008) (Conference Committee 

Report). 

30 7 U.S.C. 2(h)(7). 

31Pub. L. 110–246 at sec. 12304. See also 

Conference Committee Report, at 985–86; 2008 

Farm Bill Commodity Futures Title: Strengthening 

Oversight of Futures Markets, House Committee on 

Agriculture (May 9, 2008) http:// 

agriculture.house.gov/inside/Legislation/110/FB/ 

Conf/Title_XIII_fs.pdf. 

32Conference Committee Report, at 985–86. 

33Congress has made clear that an ECM with a 

SPDC shall be considered as a registered entity for 

purposes of the CEA. Id. at 985. 

34Public Law 110–246 at sec. 13202. 

35 Id. at sec. 13204. Congress has directed that the 

Commission issue proposed rules implementing 

section 2(h)(7) of the CEA not later than 180 days 

after the date of enactment of the Reauthorization 

Act and that the Commission issue a final rule no 

later than 270 days after the date of enactment. The 

Reauthorization Act initially was enacted as H.R. 

2419 on May 22, 2008 but was repealed due to 

clerical error—and concurrently enacted—by H.R. 

2164, Public Law 110–264 on June 18, 2008. 

were prudently targeted and did not 

adversely affect the ability of ECMs to 

innovate and grow.28

Based on the hearing testimony and 

its own experience in administering the 

Act, the Commission at that time 

concluded that the tiered approach of 

the CFMA generally had operated 

effectively. ECMs had proven popular 

for new start-up markets and had 

provided competition for DCMs, 

spurring them toward innovations of 

their own. The Commission further 

found that, to the extent that trading 

volume on an ECM contract remained 

low and its prices were not significantly 

relied upon by other markets, the 

current level of regulation remained 

appropriate. However, when a futures 

contract traded on an ECM matured and 

began to serve a significant price 

discovery function for transactions in 

commodities in interstate commerce, 

the contract warranted increased 

oversight to deter and prevent price 

manipulation or other disruptions to 

market integrity, both on the ECM itself 

and in any related futures contracts 

trading on DCMs. Such increased 

oversight would also help to ensure fair 

competition among ECMs and DCMs 

trading similar products and competing 

for the same business. 

In light of these conclusions, the 

Commission’s ECM Report 

recommended that the CEA be amended 

to grant the Commission additional 

authority over ECM contracts serving a 

significant price discovery function, and 

that certain self-regulatory 

responsibilities be assigned to ECMs 

offering such contracts. Specifically, the 

Commission advocated that (1) An ECM 

contract that is determined to perform a 

significant price discovery function be 

subject to large trader reporting 

requirements comparable to those 

applicable to all DCM contracts; (2) an 

ECM should be required to adopt 

position limits or accountability levels, 

as appropriate, for a listed contract that 

serves a significant price discovery 

function similar to the limits on DCMs; 

(3) an ECM should be required to 

monitor trading of a listed contract that 

serves a significant price discovery 

function to detect and prevent 

manipulation, price distortion, and 

disruptions of the delivery or cashsettlement process; and (4) the 

Commission and the ECM should be 

provided with emergency authority to 

alter or supplement contract rules, 

liquidate open positions, and suspend 

or curtail trading in any listed contract 

that serves a significant price discovery 

function. These authorities would be 

essential tools for the Commission and 

the ECM to prevent manipulation and 

disruptions of the delivery or cashsettlement process. 

The Commission further 

recommended that the determination 

whether an ECM contract serves a 

significant price discovery function 

should focus on the following factors: 

(1) Material Liquidity—trading volume 

in the ECM contract must be significant 

enough to affect regulated markets or to 

become a pricing benchmark; and (2) 

Linkage/Material Price Reference—the 

relevant ECM contract must either 

influence other markets and 

transactions through this linkage or be 

materially referenced by others in 

interstate commerce on a frequent and 

recurring basis. 

D. The Reauthorization Legislation and 

the Statutory Scheme 

The CFTC Reauthorization Act of 

2008 29 adds a new section 2(h)(7) to the 

CEA to govern the treatment of 

‘‘significant price discovery contracts’’ 

(‘‘SPDCs’’) on ECMs.30 The legislation, 

based largely on the Commission’s 

recommendations for improving 

oversight of ECMs, provides for greater 

regulation of contracts traded on ECMs 

that fulfill a significant price discovery 

function and establishes criteria for the 

Commission to consider in determining 

whether an ECM contract qualifies as a 

SPDC. The Reauthorization Act directs 

the CFTC to extend its regulatory 

oversight to the trading of SPDCs; 

requires ECMs to adopt position and 

accountability limits for SPDCs; 

authorizes the Commission to require 

large traders to report their positions in 

SPDCs; and establishes core principles 

for ECMs with contracts that are 

determined to perform a significant 

price discovery function. Finally, the 

legislation directs the Commission to 

issue rules implementing the provisions 

of new section 2(h)(7) of the CEA and 

to include in such rules the conditions 

under which an ECM will have the 

responsibility to notify the Commission 

that an agreement, contract or 

transaction conducted in reliance on the 

exemption provided in section 2(h)(3) of 

the CEA may perform a price discovery 

function.31

The Reauthorization Act significantly 

broadens the CFTC’s regulatory 

authority over ECMs by creating, in 

section 2(h)(7) of the CEA, a new 

regulatory category—ECMs on which 

SPDCs are traded—and treating 

electronic trading facilities in that 

category as registered entities subject to 

all provisions of the CEA that are 

applicable to registered entities.32 The 

legislation confers on the CFTC the 

authority to designate an agreement, 

contract or transaction as a SPDC if the 

Commission determines, in its 

discretion, that the agreement, contract 

or transaction performs a significant 

price discovery function under criteria 

established by section 2(h)(7). When the 

Commission makes such a 

determination, the ECM on which the 

SPDC is traded must assume, with 

respect to that contract or contracts, all 

the responsibilities and obligations of a 

registered entity under the Act and 

Commission regulations, and must 

comply with nine core principles 

established by new section 2(h)(7)(C)— 

including the obligation to establish 

position limits and/or accountability 

standards for SPDCs.33 The 

Reauthorization Act separately amends 

section 4i of the CEA to authorize the 

Commission to require large trader 

reports for SPDCs listed on ECMs.34

Consistent with Congress’ directive, 

the Commission is issuing this proposed 

notice of rulemaking as an initial step to 

implementing the amended statutory 

scheme for ECMs with SPDCs.35 These 

regulations are applicable to exempt 

markets, but also implicate parts 16 

through 21 (market, transaction and 

large trader reporting rules), and 40 

(provisions common to contract 

markets, derivatives transaction 

execution facilities and derivatives 

clearing organizations). 


rwilkins on PROD1PC63 with PROPOSALS2
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36Enhanced obligations for ECMs with SPDCs 

apply only to the SPDCs and need not be applied 

to ECM contracts, agreements or transactions that 

are not SPDCs. 37Public Law 110–246 at sec. 13203(b)(3). 

38ECMs that have already filed a Notification of 

Operation under section 2(h)(3) of the Act should 

note that proposed rule 36.3(b) will not require 

them to provide any additional information to the 

Commission explaining how the facility meets the 

definition of trading facility or with information 

demonstrating that the facility requires all 

participants to be ECEs as long as the operations of 

the facility and the participants trading on the 

facility have not materially changed since the filing 

of the notification or the most recent ECM Annual 

Certification form. 

39See 17 CFR 36.3(b). 

40Once in compliance with the core principles 

and daily reporting and publication requirements 

applicable to ECMs with SPDCs, ECMs will not be 

required to comply with proposed rule 36.3(b)(2) 

except in regard to non-SPDC contracts that are 

traded or executed on the facility. 

41Section 2(h)(7)(B)(v) also authorizes the 

Commission to specify by rule other material factors 

relevant to a determination whether a contract is a 

SPDC. 

II. The Proposed Rules 

A. Part 36—Exempt Markets 

Part 36 of the Commission’s 

regulations contains the provisions that 

apply to exempt boards of trade and to 

exempt commercial markets, regardless 

of whether the markets are a significant 

source for price discovery. Rule 36.3 

imposes a number of requirements and 

restrictions on ECMs—electronic trading 

facilities relying on the exemption in 

section 2(h)(3) of the CEA—including 

notification of intent to rely on the 

exemption; initial and ongoing 

information submission requirements; 

prohibited representations; price 

discovery notification; and price 

dissemination requirements. The 

Commission proposes to amend rule 

36.3 to implement its broadened 

regulatory authority over ECMs with 

SPDCs under section 2(h)(7) of the CEA. 

1. Required Information 

The notification provision in rule 

36.3(a) is unchanged. The Commission 

proposes to amend rule 36.3(b) to 

separately specify the information 

submission requirements, both initially 

and on an ongoing basis, for: (1) All 

ECMs; (2) for ECMs with respect to 

agreements, contracts or transactions 

that have not been determined to 

perform a significant price discovery 

function; and (3) for ECMs with 

SPDCs.36 The proposed amendment to 

rule 36.3(b) additionally includes 

provisions related to subpoenas, special 

calls and the delegation of authority and 

provides that an electronic trading 

facility relying on the exemption in 

section 2(h)(3) of the Act shall not, with 

respect to agreements, contracts or 

transactions that are not SPDCs, 

represent to any person that it is 

registered with, designated, recognized, 

licensed or approved by the 

Commission. This prohibition has its 

origin in section 2(h)(5) of the CEA, 

which sets forth the requirements and 

obligations for ECMs. Although the 

Reauthorization Act did not amend the 

prohibition on representation in section 

2(h)(5)(7) of the Act, the legislation did 

amend the statutory definition of 

‘‘registered entity’’ to include, ‘‘with 

respect to a contract that the 

Commission determines is a significant 

price discovery contract, any electronic 

trading facility on which the contract is 

executed or traded.’’ 37 Accordingly, the 

Commission believes that when it has 

determined that a contract, agreement or 

transaction executed or traded on the 

trading facility is a SPDC, the trading 

facility may represent that it is a 

registered entity, provided that the 

representation clearly and prominently 

states that the ECM is a registered entity 

only with respect to its SPDCs. 

In general, the proposed information 

submission requirements for ECMs 

without SPDCs are drafted to be 

substantively similar to the information 

that all ECMs currently are required to 

provide.38 A significant change to the 

submission requirements for ECMs is 

the proposed requirement to file, 

initially and on a quarterly basis, 

information about the terms and 

conditions as well as related 

information for all contracts traded on 

the facility. Although the proposed rules 

set forth the terms, standards and 

conditions under which an ECM will be 

responsible to notify the Commission 

that it may have a SPDC, the 

Commission is mindful that it must 

independently be aware of ECM 

contracts that may develop into SPDCs. 

The Commission believes that requiring 

ECMs to identify all agreements, 

contracts and transactions and to 

provide basic trading information will 

enable it to fulfill that obligation. To 

that end, the Commission proposes to 

retain for non-SPDCs the requirement 

that ECMs submit to the Commission 

weekly reports (or alternatively provide 

electronic access that would allow the 

Commission to capture the same 

information) for contracts that average 

five trades per day or more.39 In 

addition, the Commission is proposing 

to add a quarterly reporting requirement 

for all non-SPDCs, to include their terms 

and conditions, average daily trading 

volume, and open interest. This 

quarterly reporting requirement also is 

being proposed to provide the 

Commission with information that will 

assist it in making prompt assessments 

whether ECM contracts may be SPDCs. 

ECMs should note that this provision 

will require them to fulfill the quarterly 

reporting requirement beginning with 

the end of the calendar quarter 

following the adoption of these final 

rules. Under proposed rule 36.3(b)(3), 

ECMs with SPDCs will be required to 

comply with the daily reporting and 

publication requirements of regulation 

16.01.40

2. Identifying Significant Price 

Discovery Contracts 

The Reauthorization Act directs the 

Commission to consider, as appropriate, 

four specific criteria when identifying 

whether an agreement, contract or 

transaction is a SPDC: Price linkage, 

arbitrage, material price reference, and 

material liquidity.41 The legislation 

further directs that in its rulemaking to 

implement the provisions of section 

2(h)(7) of the CEA, the Commission 

shall include the standards, as well as 

conditions under which an ECM will 

have the responsibility to notify the 

Commission that a contract traded on 

the facility may perform a significant 

price discovery function. Accordingly, 

proposed rule 36.3(c) addresses: (i) The 

criteria on which the Commission will 

rely in making a determination that an 

agreement, contract or transaction is a 

SPDC; (ii) the factors that will trigger the 

ECM’s obligation to notify the 

Commission that it may have a SPDC; 

(iii) the procedures the Commission will 

follow in reaching its determination 

whether a contract is a SPDC (and in 

determining that a contract is no longer 

a SPDC); and (iv) the procedures and 

standards by which an ECM with a 

SPDC must demonstrate compliance 

with the core principles. 

(i) Criteria for SPDC Determination. In 

enacting new section 2(h)(7) of the CEA, 

Congress specified four criteria that the 

Commission must consider in making a 

determination that an agreement, 

contract or transaction performs a 

significant price discovery function. 

Proposed rule 36.3(c)(1) enumerates the 

factors—price linkage, arbitrage, 

material price reference, and material 

liquidity. Because the legislation does 

not assign priority to any of the factors, 

and neither the statutory language nor 

the Conference Committee Report 

specifies the degree to which any of the 

factors must be present, section 

2(h)(7)(B) gives the Commission 

flexibility in applying the criteria to a 

particular contract and market. The 

Commission is also mindful that: 

[n]ot all the listed factors must be present 

to make a determination that a contract 


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42Conference Committee Report at 984–85. In 

addition to the four criteria established by Congress, 

section 2(h)(7) permits the Commission to consider 

such other material factors as it may specify by rule 

as relevant to a determination whether an 

agreement, contract or transaction serves a 

significant price discovery function. 7 U.S.C. 

2(h)(7)(B)(v). 

43Public Law 110–246 at sec. 13204. 44The Reauthorization Act amended the CEA to 

require that the Commission review all ECM 

contracts at least once a year to determine whether 

any contract is a SPDC. In addition to these formal 

reviews, it is expected that Commission staff might 

also become aware of the price discovery attributes 

of ECM contracts in the ordinary course of 

discussion or interaction with ECM personnel and 

various cash and futures market participants. 

45Those authorities include the emergency 

powers conferred by section 8a(9) of the Act, 7 

U.S.C. 12a(9), which permits the Commission to 

intervene when it has reason to believe an 

emergency exists and to take action necessary to 

maintain or restore orderly trading or liquidation of 

any futures contract. 46Should the Commission conclude, either 

formally or informally, that a contract which 

demonstrates some characteristics consistent with a 

SPDC nonetheless does not serve a significant price 

discovery function, the Commission may continue 

to monitor the contract pursuant to its special call 

authority under proposed rule 36.3(b)(1)(iv), and 

will advise the ECM as to what further reporting it 

may require with respect to the contract. 

performs a significant price discovery 

function. However, the Managers intend that 

the Commission should not make a 

determination that an agreement, contract or 

transaction performs a significant price 

discovery function on the basis of the price 

linkage factor unless the agreement, contract 

or transaction has sufficient volume to 

impact other regulated contracts or to become 

an independent price reference or benchmark 

that is regularly utilized by the public.42

Because the criteria mandated by 

Congress do not lend themselves to 

bright-line rules, the Commission 

proposes to explain, in Appendix A to 

the part 36 rules, how it expects to 

apply the criteria in making its 

determinations. This proposed guidance 

explains that the Commission will make 

SPDC determinations on a case-by-case 

basis, applying and weighing each factor 

as appropriate to the specific contract 

and circumstances under consideration; 

offers examples to illustrate which 

factor or combinations of factors the 

Commission would look to when 

evaluating whether a contract is 

performing a significant price discovery 

function; and describes the 

circumstances under which the 

presence of a factor or factors would be 

sufficient to warrant such a 

determination. 

By way of example, for contracts that 

are linked to other contracts or that may 

be arbitraged with other contracts, the 

Commission would determine that the 

contract is a SPDC if the price of the 

contract moves in such harmony with 

the other contract that the two markets 

essentially become interchangeable. 

This co-movement of prices would be 

an indication that liquidity in the 

contract has reached a level sufficient 

for the contract to perform a significant 

price discovery function. Accordingly, 

the proposed guidance establishes 

threshold liquidity and price 

relationship standards that will inform 

the Commission’s determination. A 

different approach is required when 

considering the price discovery 

potential of a contract that is serving as 

a material price reference. In these 

circumstances, the Commission would 

rely on either of two sources of evidence 

in making its determination. The 

Commission believes that a direct 

indicator that a contract is serving as a 

material price reference is observation 

that cash market participants are 

actively referencing the contract price 

when they enter into cash market 

transactions. Routine publication of an 

ECM’s contract price in widely 

distributed industry publications and 

newsletters also would indicate that 

industry participants attach some value 

to this information. 

(ii) Notification requirement for ECMs 

with a SPDC. The Reauthorization Act 

requires that as part of its rulemaking to 

implement new section 2(h)(7) of the 

CEA, the Commission include the 

standards, terms and conditions under 

which an ECM will have the 

responsibility to notify the Commission 

that an agreement, contract or 

transaction conducted in reliance on the 

exemption provided in section 2(h)(3) of 

the CEA may perform a significant price 

discovery function.43 Accordingly, in 

proposed rule 36.3(c)(2) the 

Commission has specified conditions, 

derived from the statutory criteria, 

which signal the ECM’s obligation to 

notify the Commission of a possible 

SPDC. An ECM will be obligated to 

notify the Commission of a potential 

SPDC when an agreement, contract or 

transaction is traded an average of 5 

trades per day or more over the most 

recent calendar quarter and also meets 

one of the other two reporting factors. 

The Commission is aware that this 

requirement may result in overreporting by ECMs, and wishes to 

emphasize that the presence of one 

factor alone will not necessarily result 

in a determination that a contract is a 

SPDC. This notice requirement, 

however, will serve to alert the 

Commission to the contracts that are 

most likely to be SPDCs. The 

Commission believes that the benefit of 

having the maximum available 

information with which to make its 

determinations outweighs the costs 

associated with possible over-reporting 

by ECMs. 

3. Procedures 

When the Commission learns of a 

potential SPDC—whether through its 

own information collection and 

surveillance activities,44 notification by 

an ECM pursuant to proposed rule 

36.3(c)(2), or unsolicited information 

from participants in the cash market 

underlying a contract—the 

Reauthorization Act directs the 

Commission to implement a process for 

determining whether ECM contracts are 

SPDCs. In proposed rule 36.3(c)(3) the 

Commission establishes procedures 

under which the Commission will make 

and announce its determination 

whether a particular contract performs a 

significant price discovery function and 

also sets forth the actions that must be 

taken by an ECM following such a 

determination. With respect to the 

former, proposed rule 36.3(c)(3) 

provides that when the Commission 

intends to undertake such a 

determination in response to notice by 

an ECM pursuant to rule 36.3(c)(2), or 

upon its own initiative, it will notice its 

intention in the Federal Register. The 

proposed rule also specifies that the 

Commission, as part of its 

consideration, will solicit written data, 

views and arguments from the ECM that 

lists the potential SPDC and from any 

other interested parties. Generally, such 

written submissions must be received 

within 30 calendar days of the date of 

publication in the Federal Register. 

After consideration of all relevant 

matters the Commission will issue an 

order explaining its determination. The 

issuance of an affirmative Commission 

order signals the effectiveness of the 

Commission’s authorities with respect 

to ECMs with SPDCs 45 and triggers the 

obligations, requirements—both 

procedural and substantive—and 

timetables prescribed in proposed rule 

36.3(c)(4) for the ECM.46

Under proposed rule 36.3(c)(4), an 

ECM with a SPDC must submit to the 

Commission a written demonstration 

that it complies with the nine core 

principles established in section 2(h)(7) 

of the CEA with respect to the SPDC. 

Although status as a registered entity 

attaches to an ECM as soon as the 

Commission issues its order 

determining that a particular ECM 

contract performs a significant price 

discovery function, the Commission has 

included in proposed rule 36.3(c)(4) a 

grace period for achieving compliance 

with the core principles. As proposed, 

the rule provides 90 calendar days for 

ECMs with a first-time determination of 

a SPDC to demonstrate compliance with 


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47Conference Committee Report at 986. 

48 DCM applicants make submissions prior to 

designation as a registered entity and prior to the 

listing of any contract, whereas the Commission 

must review the same information for ECMs after 

they are deemed registered entities and after the 

subject contract has established trading volume and 

open interest. 

49Conference Committee Report at 986. 

50 7 U.S.C. 7(d); Conference Committee Report at 

985. 

51 17 CFR 38, Appendices A and B to Part 38. 

52As is the case for DCMs and DTEFs, ECMs with 

SPDCs may comply with any core principle through 

delegation of any relevant function to any registered 

futures association or another registered entity, but 

the ECM remains responsible for carrying out the 

function. Section 5c(b) of the CEA, 7 U.S.C. 7a–2(b). 

A detailed discussion of registered entities’ 

responsibilities and obligations with respect to 

delegated functions, as well as a discussion of the 

distinctions between delegation of functions and 

outsourcing, or contracting out specified core 

principle duties is found in the Commission’s final 

rulemaking implementing provisions of the CFMA 

the core principles.47 For each 

subsequent SPDC, the ECM is given 15 

calendar days from the date of the 

Commission’s order to achieve 

compliance. The grace period is 

designed to ensure that the ECM has 

sufficient time to implement its new 

regulatory requirements and operations, 

while avoiding the market disruption 

that might occur by the sudden 

imposition of position limits and other 

trading rules. The Commission is aware 

that position limits that become 

effective at the end of the applicable 

grace period may negatively impact 

traders who in good faith acquired 

positions that are above that limit. 

Requiring immediate compliance would 

force such traders to liquidate positions 

in order to be at or below the limit. 

Accordingly, for the purpose of 

applying limits on speculative positions 

in newly-determined SPDCs, the 

Commission proposes to permit a grace 

period following the ECM’s 

implementation of position limits 

applicable to SPDCs for traders with 

cleared positions in such contracts to 

become compliant with applicable 

position limit rules. Traders who hold 

cleared positions on a net basis in the 

electronic trading facility’s SPDC must 

be at or below the specified position 

limit no later than 90 calendar days 

from the date on which the electronic 

trading facility implements a position 

limit, unless a hedge exemption is 

granted by the electronic trading 

facility. This grace period applies to 

both initial and subsequent SPDCs on 

an ECM, and the ECM should promptly 

notify traders when it has set position 

limits. This provision is outlined in the 

proposed Guidance to Core Principle IV. 

Rule 36.3(c)(4) requires that the 

ECM’s submission include specific 

information designed to permit the 

Commission to evaluate whether the 

ECM is indeed in compliance with the 

core principles. Although there are 

obvious differences between them, this 

procedure was modeled on the 

procedure required of applicants to 

become designated contract markets.48

As with other aspects of this 

rulemaking, the Commission is striving 

to make the procedures and 

requirements for ECMs with SPDCs as 

close as possible to those for DCMs, and 

in this regard will review the adequacy 

of submitted materials with the same 

rigor it applies to DCM applications. 

Submissions that are incomplete or do 

not adequately demonstrate compliance 

with each of the core principles may 

trigger Commission proceedings under 

section 5c(d) of the Act and may, 

pursuant to section 5e or 6 of the Act, 

result in the revocation of the ECM’s 

right to operate in reliance on the 

exemption set forth in section 2(h)(3) of 

the Act with respect to a SPDC. 

The Commission also proposes to 

establish a process for vacating a SPDC 

determination when the contract no 

longer meets the criteria specified in 

section 2(h)(7)(B). Under proposed 

regulation 36.3(c)(6), the Commission 

may, on its own initiative or at the 

request of an ECM with a SPDC, 

determine that a contract no longer 

performs a significant price discovery 

function and vacate its previous 

determination. Any subsequent 

determination that the contract once 

again is a SPDC will be subject to the 

procedures proposed in regulation 

36.3(c)(2). Proposed rule 36.3(c)(6) 

further provides for the automatic 

vacation of a significant price discovery 

contract determination when the SPDC 

has no open interest and no trading on 

the contract has occurred for a period of 

12 complete calendar months. The 

Commission is proposing this provision 

in order to reduce the administrative 

burden on staff and the compliance 

burden on an ECM where lack of 

activity eliminates any possibility that a 

contract performs a significant price 

discovery function for the underlying 

cash market. 

4. Substantive Compliance With the 

Core Principles: Guidance and 

Acceptable Practices 

Section 2(h)(7) of the CEA, as 

amended, requires that an electronic 

trading facility on which significant 

price discovery contracts are traded 

comply with nine core regulatory 

principles. Consistent with Congress’s 

intent that status as a registered entity 

attach to an ECM following the 

Commission’s determination that a 

particular ECM contract serves a 

significant price discovery function,49

these core principles have their origins 

in their DCM counterparts in section 5 

of the CEA and have been construed 

similarly.50 The Commission proposes 

to adopt Appendix B to the part 36 rules 

to provide general guidance and 

acceptable practices with respect to 

compliance with the ECM core 

principles; the acceptable practices for 

compliance with the ECM core 

principles will, where appropriate, 

mirror those for DCMs. The Commission 

intends in the acceptable practices to 

provide non-exclusive safe harbors for 

compliance with the core principles by 

ECMs with SPDCs. As is the case with 

the core principles established for other 

registered entities, the guidance offered 

for ECMs is neither mandatory nor the 

only means of compliance with the core 

principles. Consistent with its practice 

of evaluating a DCM’s compliance with 

the core principles during rule 

enforcement reviews, the Commission 

will conduct regular rule enforcement 

reviews of ECMs with SPDCs to evaluate 

compliance with the nine core 

regulatory principles. 

The Guidance to Core Principle I of 

section 2(h)(7)(C) of the Act requires the 

ECM to certify the terms and conditions 

of the SPDC within 90 calendar days of 

an ECM’s initial SPDC, or 15 calendar 

days if the ECM has previously traded 

a SPDC. The acceptable practice for this 

core principle provides that Guideline 

No. 1 in Appendix A to the 

Commission’s part 40 rules may be used 

as guidance to satisfy this provision. To 

ensure continued compliance with all 

elements of the Commission’s statutory 

and regulatory regimes for ECMs with 

SPDCs, the ECM is expected to monitor 

the SPDC and its trading activity on a 

continuous basis. 

Core Principle II requires ECMs to 

monitor trading in SPDCs to prevent 

market manipulation and participation 

abuses. Its guidance and acceptable 

practices were derived from DCM Core 

Principle 4 (Monitoring of Trading) and 

DCM Designation Criterion 2 

(Prevention of Market Manipulation).51

The proposed guidance and acceptable 

practices in Appendix B to part 36 make 

clear that ECMs with SPDCs must 

demonstrate the capacity to prevent 

market manipulation and have rules 

deterring trading and participation 

abuses. Under the proposed guidance, 

ECMs with SPDCs can demonstrate this 

capacity through either a dedicated 

regulatory department or by delegation 

of that function to an appropriate third 

party.52 In either case, the regulatory 


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Federal Register / Vol. 73, No. 240 / Friday, December 12, 2008 / Proposed Rules 75895 

relating to trading facilities (‘‘A New Regulatory 

Framework’’), 66 FR 42256, 42266 (August 10, 

2001). 

53 17 CFR 38, Appendix B to Part 38. 

54 17 CFR 38, Appendix B to Part 38. 

55 17 CFR 1.31. 

56 17 CFR 38, Appendix B to Part 38. 

57A unique SPDC is one that is not economically 

equivalent to another SPDC or to a contract traded 

on a DCM or DTEF. 

58The Commission notes that deliverable supply 

typically is less than total supply. In this regard, it 

is common for some portion of the supply to be 

unavailable for delivery for a variety of reasons. 

Deliverable supply is the amount of the underlying 

commodity that reasonably can be expected to be 

available to short traders and salable by long traders 

at its market value in normal cash market channels. 

59Many DCMs have non-spot individual month 

and all-months-combined position accountability 

rules for their futures contracts. Moreover, some 

DCMs establish non-spot individual month and allmonths-combined position limits in lieu of the 

position accountability levels. The Commission 

believes that the implementation of such 

accountability provisions or position limits is a 

good practice. Accordingly, the Commission 

proposes to adopt it as an acceptable practice for 

ECMs. 

department or third party should have 

an acceptable trade monitoring program, 

the authority to collect information and 

documents, and the ability to assess 

participants’ market activity and power. 

Core Principle III addresses the ability 

of an ECM with a SPDC to obtain 

information necessary to perform any of 

the functions enumerated in section 

2(h)(7)(C) of the CEA (the core 

principles), to provide that information 

to the Commission, and to have the 

capacity to carry out any required 

information sharing agreements. Core 

Principle III’s guidance and acceptable 

practices have as their source the 

guidance and acceptable practices of 

DCM Designation Criterion 8—Ability to 

Obtain Information.53 Proposed 

Appendix B to part 36 makes clear that 

ECMs with SPDCs must have the 

authority to collect information and 

documents on both a routine and nonroutine basis; maintain and properly 

store audit trail data; maintain records 

in a form and manner acceptable to the 

Commission; and have the capacity to 

carry out appropriate informationsharing agreements. In providing 

guidance on compliance with this 

requirement, the Commission also 

proposes to incorporate the guidance 

and acceptable practices provided for 

DCM Core Principles 10 (Trade 

Information) and 17 (Recordkeeping).54

The Commission believes that the 

acceptable practices outlined in Core 

Principle 10 should be made applicable 

to ECMs with SPDCs because the ability 

to record full data entry and trade 

details, as well as the safe storage of 

audit trail data, is a necessary 

component in assessing potential 

manipulation and conducting effective 

market surveillance. DCM Core 

Principle 17 requires that DCMs 

maintain required records in a form and 

manner acceptable to the Commission 

and establishes as guidance for 

acceptable recordkeeping the standards 

prescribed in Commission regulation 

1.31.55 To ensure that all information 

required by the Commission is 

maintained in a uniform manner, the 

Commission proposes in the acceptable 

practices for Core Principle III to adopt 

the acceptable practices for 

recordkeeping found in DCM Core 

Principle 17. 

Core Principle IV requires electronic 

trading facilities with significant price 

discovery contracts to establish position 

limit or accountability rules for traders 

in such significant price discovery 

contracts. Speculative position limits 

are necessary to reduce the potential for 

market manipulation. The acceptable 

practices for Core Principle IV were 

derived largely from Core Principle 5 for 

designated contract markets.56

DCMs can list for trading futures 

contracts on a wide range of 

commodities, including enumerated 

agricultural products, excluded 

commodities (e.g., financial products 

such as currencies), and exempt 

commodities (e.g., metals, crude oil, 

natural gas and electricity). Some of 

these commodities have limited 

deliverable supplies while others have 

deep and liquid cash markets. 

Depending on the variety of possible 

contracts listed for trading, a DCM may 

have a mix of position limit and 

accountability rules. Specifically, 

futures contracts based on commodities 

with limited deliverable supplies 

should have spot-month speculative 

position limits. In contrast, financial 

products having deep and liquid cash 

markets may be eligible for position 

accountability levels in lieu of position 

limits since the potential for market 

manipulation is minimal. 

Unlike DCMs, ECMs relying on the 

exemption in section 2(h)(3) of the CEA 

are permitted to offer for trading only 

contracts on exempt commodities. 

Because the deliverable supplies of 

exempt commodities typically are 

limited, the Commission believes that it 

will be necessary for SPDCs to have 

spot-month position limits. 

The acceptable practices for Core 

Principle IV make recommendations 

with respect to how ECMs should 

establish spot-month speculative 

position limits. For a unique SPDC,57

the spot-month speculative position 

limit should be set in the same manner 

outlined for contracts listed for trading 

on DCMs. In this regard, for a 

physically-delivered SPDC, the level of 

the spot-month limit should be based 

upon an analysis of the deliverable 

supply and the history of spot-month 

liquidations. The spot-month limit for a 

physical-delivery market is 

appropriately set at no more than 25 

percent of the estimated deliverable 

supply.58 Where a SPDC has a cash 

settlement provision, the spot-month 

speculative position limit should be set 

at a level that minimizes the potential 

for price manipulation or distortion in 

the SPDC itself; in related futures and 

option contracts traded on a DCM or 

DTEF; in other SPDCs; in other fungible 

agreements, contracts and transactions; 

and in the underlying commodity. 

The Commission notes that some 

SPDCs may not be unique. In other 

words, a SPDC may be economically 

equivalent to another SPDC or to a 

contract traded on a DCM or DTEF. 

Economic equivalence can arise due to 

substantial similarity among contracts’ 

terms and conditions (e.g., two 

physically-delivered contracts or two 

cash-settled contracts having the same 

specifications). A SPDC also can be 

economically equivalent to another 

SPDC or to a contract listed for trading 

on a DCM or DTEF if it is cash settled 

based on a daily settlement price or the 

final settlement price of the referenced 

contract. For economically-equivalent 

SPDCs, the electronic trading facility 

should establish the same spot-month 

speculative position limits as specified 

for the equivalent contract.59

ECMs should establish non-spot 

individual month position 

accountability levels and all-monthscombined position accountability levels 

for its SPDCs. Once a trader exceeds an 

established position accountability 

level, the ECM should initiate an 

investigation to determine whether the 

individual’s trading activity is justified 

and is not intended to manipulate the 

market. As part of its investigation, the 

ECM should inquire about the trader’s 

rationale for holding a net position in 

excess of the accountability levels. The 

ECM also can request that the trader not 

further increase contract positions. If a 

trader fails to comply with a request for 

information, provides information that 

does not sufficiently justify the position, 

or continues to increase contract 

positions after a request not to do so is 

issued by the ECM, then the 

accountability provisions should enable 

the ECM to order the trader to reduce 

the positions. 

If a SPDC is economically equivalent 

to another SPDC or to a contract traded 


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60Public Law 110–246 at sec. 13201. 61 17 CFR 38, Appendix B to Part 38. 

on a DCM or DTEF, then the ECM 

should set the non-spot individual 

month position accountability level and 

all-months-combined position 

accountability level at the same level as 

those specified for the economicallyequivalent contract. For a unique SPDC, 

the ECM should adopt non-spot 

individual month and all-monthscombined position accountability levels 

that are no greater than 10 percent of the 

average combined futures and deltaadjusted option month-end open 

interest for the most recent calendar 

year. 

Position accountability levels are not 

necessary for SPDCs that specify nonspot individual month position limits 

and all-months-combined position 

limits. If a SPDC is economically 

equivalent to another contract, then the 

non-spot individual month position 

limit and all-months-combined position 

limit should be set at the same levels 

specified for the equivalent or 

referenced contract. For unique SPDCs, 

the non-spot individual month and allmonths-combined position limits 

should be set in the same manner as for 

position accountability levels, i.e., 

levels that capture a material amount of 

large positions that could threaten the 

market. 

An ECM with a SPDC may require 

that all transactions in that contract be 

cleared only through a DCO. 

Alternatively, an ECM’s SPDC may not 

be subject to any clearing requirement, 

in which case the contract would trade 

on an uncleared basis. Lastly, an ECM 

may permit a given SPDC to trade on 

either a cleared or uncleared basis 

depending on the status of the 

counterparties involved. The 

amendments to the CEA give electronic 

trading facilities reasonable discretion 

to take into account the differences 

between cleared and uncleared 

transactions when complying with Core 

Principle IV.60 For the purpose of 

applying speculative limits to positions 

in SPDCs, the ECM should apply 

speculative position limits to cleared 

positions only. 

Uncleared transactions in SPDCs 

potentially play an important role in 

risk management strategies and price 

formation. As a result, the Commission 

believes that an ECM should monitor 

not only trading in cleared transactions 

but also trading with respect to 

uncleared transactions. However, the 

Commission is cognizant of the fact that 

uncleared trades conducted on the ECM 

may be offset by trades done off the 

facility. Such offsetting transactions 

consummated outside of an ECM 

typically are not reported to the facility. 

Thus, the ECM likely would find it 

difficult to net uncleared transactions 

and maintain records of traders’ 

uncleared positions in a given SPDC. In 

order to account for this situation, the 

Commission proposes for ECMs with 

SPDCs a new measure of trading activity 

called the volume accountability level. 

For this measure, the ECM should keep 

track of each trader’s uncleared 

transactions in a SPDC on a net basis 

that are conducted on the facility. (For 

the purpose of netting uncleared 

transactions, long and short uncleared 

transactions are only offset if they are 

conducted with the same counterparty.) 

A volume accountability level is similar 

to a position accountability level in that 

a trader may exceed the volume 

accountability level. However, if a 

trader’s net volume of uncleared trades 

exceeds the volume accountability level, 

the ECM should initiate an investigation 

to determine whether the trading 

activity is justified and is not intended 

to manipulate the market. As part of its 

investigation, the ECM should inquire 

about the trader’s rationale for holding 

a net volume of uncleared trades in 

excess of the volume accountability 

level. The ECM also can request that the 

trader not further increase the volume of 

uncleared trades. If a trader fails to 

comply with a request for information 

about the portfolio of uncleared trades, 

provides information that does not 

sufficiently justify the uncleared 

transactions conducted, or continues to 

increase the volume of uncleared trades 

after a request not to do so is issued by 

the ECM, then the volume 

accountability provisions should enable 

the ECM to require the trader to reduce 

the volume of uncleared trades. 

Consistent with the specific directive 

of Core Principle IV, the Commission 

expects ECMs to impose position limit 

and position accountability 

requirements on SPDCs as well as 

positions in agreements, contracts and 

transactions that are fungible and 

cleared together with any SPDC. This 

circumstance typically occurs where an 

ECM lists a particular contract on its 

multilateral trading platform and the 

resultant positions are cleared by a 

DCO. Separately, the ECM also provides 

a non-multilateral trading platform 

capability for the trading of the same 

contract and the resultant positions are 

cleared at the same clearing 

organization together with positions 

established on the multilateral platform. 

Given the fact that such arrangements 

allow market participants to put on 

positions on the multilateral platform 

and take them off away from the 

platform—as well as vice versa—the 

Commission believes that it is 

appropriate for position limit 

requirements to be applied to overall 

positions regardless of where they 

originated. 

With regard to compliance with a 

particular position limit or position 

accountability rule, ECMs should 

aggregate on a net basis cleared 

transactions, including those that are 

treated by a DCO (registered or 

unregistered) as fungible with the SPDC. 

Aggregate positions then will be 

compared with the applicable position 

limit and position accountability rules 

to determine compliance. Uncleared 

transactions also should be aggregated 

by trader on a net basis in order to 

determine whether such trader’s volume 

of uncleared trades exceeds the spotmonth volume accountability level. 

An ECM with SPDCs should use an 

automated means of detecting traders’ 

violations of speculative limit rules and 

exemptions. An automated system also 

should be used to determine whether a 

trader has exceeded applicable non-spot 

individual month accountability levels, 

all-months-combined accountability 

levels, and spot-month volume 

accountability levels. An electronic 

trading facility should establish a 

program for effective enforcement of 

position limits for SPDCs. Lastly, ECMs 

should use a large trader reporting 

system to monitor and enforce daily 

compliance with position limit rules. 

The Commission recognizes that some 

traders with relatively large positions 

may be adversely affected by newly 

imposed position limits when a SPDC 

initially comes into compliance with the 

core principles. To address this issue, 

the Commission proposes, for the 

purpose of applying limits on 

speculative positions in newlydetermined SPDCs, to permit a grace 

period following issuance of its order 

for traders with cleared positions in 

such contracts to become compliant 

with applicable position limit rules. 

Traders who hold cleared positions on 

a net basis in the ECMs SPDC must be 

at or below the specified position limit 

level no later than 90 calendar days 

from the date of the ECM’s 

implementation of position limit rules, 

unless a hedge exemption is granted by 

the ECM. 

Core Principle V requires the ECM to 

adopt rules to provide for the exercise 

of emergency authority. The proposed 

guidance contained in Appendix B to 

part 36 is substantially similar to the 

guidance for DCM Core Principle 6.61

However, the Commission added a 


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62 17 CFR 16.01. 

63 17 CFR 38, Appendix B to part 38. 

64 Id. 

65The Commission recognizes that, pursuant to 

the Reauthorization Act, compliance with the core 

regulatory principles is limited to ECMs with 

SPDCs. However, the Commission also recognizes 

that all ECMs, not just ECMs with SPDCs, may face 

potential conflicts of interest in their decisionmaking processes. Therefore, all ECMs may want to 

consider implementing appropriate measures to 

minimize conflicts of interests. 

66 7 U.S.C. 19. 

67 17 CFR 38, Appendix B to part 38, Guidance 

for Core Principle 18. 

68Conference Committee Report at 985. 

69 17 CFR parts 15 to 21. 

70See 69 FR 76392 (Dec. 21, 2004). 

71The Reauthorization Act amended section 

2(h)(4)(B) of the Act to subject SPDCs requiring 

large trader reporting to the provisions of section 

4c(b) of the Act. In addition, section 2(h)(4)(D) of 

the Act provides that transactions executed on 

ECMs shall be subject to ‘‘such rules, regulations, 

and orders as the Commission may issue to ensure 

timely compliance with any of the provisions of 

this Act applicable to a significant price discovery 

contract traded on or executed on any electronic 

trading facility * * *.’’ 7 U.S.C. 2(h)(4)(D). 

reference in the proposed guidance for 

Core Principle V to acknowledge that 

calls for additional margin apply only to 

contracts that are cleared through a 

clearinghouse, since not all contracts 

traded on electronic trading facilities are 

cleared. 

Core Principle VI requires that an 

ECM with a SPDC make public daily 

information on price, trading volume, 

and other trading data. The Commission 

believes this information should include 

settlement prices, price range, volume, 

open interest, and other related market 

information, and has proposed in the 

acceptable practices that compliance 

with Commission regulation 16.01,62

which the Commission proposes to 

make mandatory for ECMs with SPDCs, 

would constitute an acceptable practice 

under Core Principle VI. 

Core Principle VII requires the ECM to 

monitor and enforce compliance with 

the rules of its market. The proposed 

guidance and acceptable practices 

provided in Appendix B to part 36 are 

roughly parallel to the guidance and 

acceptable practices prescribed for DCM 

Core Principle 2.63 The Commission 

notes that ECMs on which SPDCs are 

traded are non-intermediated markets, 

and for this reason guidance relating to 

a DCM’s authority to examine the books 

and records of intermediaries has not 

been included in the proposed guidance 

for Core Principle VII. 

Core Principle VIII requires the 

electronic trading facility to establish 

and enforce rules to minimize conflicts 

of interest in its decision-making 

processes. The Commission notes that 

an ECM may face conflicts between its 

self-regulatory responsibilities and its 

commercial interests similar to those 

encountered by a DCM. For this reason 

the Commission proposes to insert 

certain general elements of the 

acceptable practices for DCM Core 

Principle 15 64—specifically, those 

descriptive elements that provide 

greater clarity and context to particular 

conflicts—into paragraph (a)(2) of the 

guidance section for ECM Core Principle 

VIII. 

The acceptable practices for DCM 

Core Principle 15 include four specific 

provisions that must be met to receive 

the benefit of the safe harbor. These 

provisions address: (1) Board 

Composition; (2) Definition of Public 

Director; (3) Regulatory Oversight 

Committee; and (4) Disciplinary Panels. 

Although the Commission did not 

propose any acceptable practices for 

Core Principle VIII, the Commission 

emphasizes that the four provisions in 

the acceptable practices for DCM Core 

Principle 15 are a clear articulation of 

acceptable methods for managing 

conflicts of interest in decision-making. 

Accordingly, the Commission 

encourages ECMs with SPDCs to consult 

the DCM Core Principle 15 acceptable 

practices for additional guidance as to 

the spirit of Core Principle VIII. 

The Commission recognizes that an 

electronic trading facility may become 

subject to compliance with Core 

Principle VIII by virtue of a single 

contract representing a small portion of 

the facility’s operations. Thus, the 

ECM’s conflicts may be contract-specific 

and not require the all-encompassing 

safe harbor offered for the benefit of 

DCMs in Core Principle 15.65 The 

Commission also recognizes that it may 

not be practicable for an ECM to 

implement the full panoply of the Core 

Principle 15 acceptable practices. The 

ECM must nonetheless ensure that 

appropriate measures are in place to 

guard against conflicts of interest in 

decision-making. An electronic trading 

facility should carefully consider its 

method of compliance, including 

whether additional measures may be 

required as the number or importance of 

its SPDCs increases. The Commission 

reserves the right to issue additional 

guidance or specific acceptable 

practices for Core Principle VIII as 

circumstances warrant. 

Core Principle IX requires ECMs with 

SPDCs to avoid adopting rules or taking 

actions that result in unreasonable 

restraints of trade or impose a material 

anticompetitive burden on trading. The 

Commission is required by section 15(b) 

of its statute to take into consideration 

the public interest to be protected by the 

antitrust laws and to take the least 

anticompetitive means of achieving the 

objectives, policies and purposes of the 

CEA.66 Consistent with the 

Commission’s approach to antitrust 

considerations with respect to DCMs,67

it is the Commission’s intent to be 

guided by section 15(b) of the Act in its 

consideration of any issues arising 

under this core principle. 

5. Annual Commission Review 

In accordance with section 2(h)(7) of 

the CEA, proposed regulation 36.3(d) 

provides that the Commission will 

review at least annually agreements, 

contracts and transactions traded on 

ECMs to determine whether they serve 

a significant price discovery function. 

The Commission proposes to limit these 

annual reviews to those contracts that 

have an average daily volume of five or 

more trades or that have been brought 

to the attention of the Commission, 

through the notification procedures of 

proposed regulation 36.3(c)(2) or 

otherwise, as possible SPDCs. The 

Commission believes this approach is 

consistent with Congress’ intent as 

reflected in the Conference Committee 

Report: 

The Managers do not intend that the 

Commission conduct an exhaustive annual 

examination of every contract traded on an 

electronic trading facility pursuant to the 

section 2(h)(3) exemption, but instead to 

concentrate on those contracts that are most 

likely to meet the criteria for performing a 

significant price discovery function.68

B. Market, Transaction and Large 

Trader Reporting Rules 

The Commission’s market and large 

trader reporting rules (‘‘reporting rules’’) 

are contained in parts 15 through 21 of 

the Commission’s regulations.69

Collectively, the reporting rules 

effectuate the Commission’s market and 

financial surveillance programs.70 The 

market surveillance programs analyze 

market data to detect and prevent 

market manipulation and disruptions 

and to enforce speculative position 

limits. The financial surveillance 

programs use market data to measure 

the financial risks that large contract 

positions may pose to Commission 

registrants and clearing organizations. 

The Commission’s reporting rules can 

be applied to SPDCs traded on ECMs 

pursuant to the authority of sections 4a, 

4c(b), 4g and 4i of the CEA.71 The 

amendments introduced to the CEA by 

the Reauthorization Act, both by 

defining ECMs with SPDCs as registered 

entities with respect to those contracts 

and by making certain provisions of the 


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72 7 U.S.C. 6a. 

73 7 U.S.C. 6c(b). 

74 7 U.S.C. 6g. 

75 7 U.S.C. 6i. 

76Currently, the public dissemination 

requirement of Commission regulation 16.01(e) 

applies only to DCMs. The proposed rules would 

uniformly apply the public dissemination 

requirement of Commission regulation 16.01(e) to 

actively traded DCM contracts and SPDCs executed 

on DTEFs and ECMs. 17 CFR 16.01(e). 

77The Commission’s Division of Market 

Oversight increasingly has been charged with 

administering the procedural requirements of the 

reporting rules. Accordingly, the Commission is 

proposing to shift any delegation of the 

Commission’s authority to determine the format of 

reports and the manner of reporting under parts 15 

through 21 of the Commission’s regulations from 

the Executive Director to the Director of the 

Division of Market Oversight. 

78 17 CFR 15.03(b). The proposed rules also seek 

to amend paragraphs (i)(1) and (i)(2) of Commission 

regulation 21.01 to ensure that any special call to 

an intermediary for information that classifies a 

trader as a commercial or noncommercial trader, 

and the positions of the trader as speculative, 

spread positions, or positions held to hedge 

commercial risks, can be made with respect to both 

commodity futures and commodity options 

contracts. 17 CFR 21.02(i). 

79For background on the adoption of the rule, see 

45 FR 30426 (May 8, 1980). 

80 In order to ensure that the Commission can 

expeditiously communicate with all foreign 

individuals and entities that may effect transactions 

in ECM SPDCs, the Commission is proposing to 

define the term foreign clearing member in 

proposed regulation 15.00(g), and to use that term 

along with the term foreign trader as defined in 

regulation 15.00(h), in proposed regulation 15.05(i). 

81 17 CFR 38.5(a). 

Act directly applicable to SPDCs, give 

the Commission the authority to 

establish a comprehensive transaction 

and position reporting system for 

SPDCs. Specifically, section 4a of the 

CEA permits the Commission to set, 

approve exchange-set, and enforce 

speculative position limits.72 Section 

4c(b) of the Act,73 which gives the 

Commission plenary authority to 

establish the rules pursuant to which 

the terms and conditions on which 

commodity options transactions may be 

conducted, provides the basis for the 

Commission’s authority to establish a 

large trader reporting system for 

transactions on ECMs that involve 

commodity options. Section 4g of the 

Act, as amended, imposes reporting and 

recordkeeping obligations on registered 

persons and requires them to file such 

reports as the Commission may require 

on proprietary and customer positions 

executed on any board of trade and in 

any SPDC traded or executed on an 

electronic trading facility.74 Finally, 

section 4i of the Act requires the filing 

of such reports as the Commission may 

require when positions made or 

obtained on DCMs, DTEFs or ECMs with 

respect to SPDCs equal or exceed 

Commission-set levels.75

In addition to proposing technical and 

conforming amendments to parts 15 

through 21 of its regulations, the 

Commission seeks, through the 

proposed regulations, to extend to 

SPDCs the reporting rules that currently 

apply to DCMs and DTEFs by defining 

clearing member and clearing 

organization and amending the 

definition of reporting market in 

Commission regulation 15.00 to apply to 

positions in, and the trading and 

clearing of, SPDCs executed on ECMs. 

Under the proposed rules, ECMs would 

provide clearing member reports for 

SPDCs to the Commission pursuant to 

Commission regulation 16.00. As with 

DCMs, proposed rule 16.01 would 

require ECMs to submit to the 

Commission and publicly disseminate 

option deltas and aggregated trading 

data on a daily basis.76 ECM clearing 

members that clear SPDCs, regardless of 

their registration status with the 

Commission or their status as domestic 

or foreign persons, would be required to 

file position reports with the 

Commission for large SPDC positions 

held in accounts carried by such brokers 

when customer positions exceed the 

contract reporting levels of Commission 

regulation 15.03(b). In addition, the 

proposed regulations would require 

clearing members to identify the owners 

of reportable SPDC positions on Form 

102 (Identification of Special 

Accounts).77

Under the proposed regulations, 

SPDC traders likewise would be subject 

to the special call provisions of part 18 

of the Commission’s regulations for 

reportable positions. Moreover, clearing 

members for SPDCs, SPDC traders, and 

ECMs listing SPDCs each would be 

subject to the special call provisions of 

part 21 of the Commission’s regulations, 

which establish the Commission’s 

ability to request information on 

persons that exercise trading control 

over commodity futures and options 

accounts along with additional accountrelated information for positions that 

may or may not be reportable under 

Commission regulation 15.03(b).78

In order to effectively communicate 

with foreign clearing members and 

foreign traders and to properly 

administer the proposed special call 

provisions of parts 17, 18 and 21 of the 

Commission’s regulations, the 

Commission is also proposing to amend 

the designation of agent provisions of 

Commission regulation 15.05. This rule 

relates to the appointment of an agent 

for service of process for foreign 

persons; it is self-effectuating and is 

designed to permit the Commission to 

communicate expeditiously with foreign 

individuals and entities that trade on 

domestic commodity exchanges.79

Similar to requirements that currently 

apply to DCMs and DTEFs, the 

proposed amendments to regulation 

15.05 would require ECMs that list 

SPDCs to act as the agent of foreign 

clearing members and foreign traders for 

the purpose of accepting service or 

delivery of any communication, 

including special calls, issued by the 

Commission to a foreign clearing 

member or foreign trader.80

The Commission is also proposing 

new regulation 16.02 to require all 

reporting markets—a definition that 

currently includes DCMs and DTEFs 

(unless the Commission determines 

otherwise) and, as proposed, will 

include ECMs listing SPDCs with 

respect to such contracts—to report on 

a daily basis trade data and related order 

information for each transaction that is 

executed on the market. Such reports 

would include time and sales data, 

reference files and such other 

information as the Commission or its 

designee may require and, upon request, 

would be accompanied by data that 

identifies or facilitates the identification 

of each trader for each transaction or 

order included in a submitted report. 

For some time, DCMs have consistently 

provided transaction level data to the 

Commission pursuant to rule 38.5(a), 

under which they must file trade data 

upon request by the Commission.81

Recent acquisitions of technology have 

enabled the Commission more 

effectively to integrate trade data and 

related order information into its trade 

practice, market and financial 

surveillance programs. Accordingly, the 

Commission proposes in new regulation 

16.02 to make the submission of trade 

data and related order information 

mandatory. 

In this regard, and specifically with 

respect to SPDCs, the Commission notes 

that the proposed amendments to part 

17 of the Commission’s regulations do 

not apply to SPDC transactions that are 

not cleared for the simple reason that no 

clearing members are involved in 

clearing such transactions. For purposes 

of enforcing SPDC position limits and 

monitoring large SPDC positions, the 

Commission would use proposed 

regulation 16.02 to access transaction 

information and trader identifications to 

enforce position limits and monitor 

large positions for market and financial 

surveillance purposes. 


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82Regulation 40.3 will not apply to ECMs with 

SPDCs because it addresses Commission approval 

of products. Regulation 40.4 applies solely to 

agricultural products, which cannot be traded on 

ECMs. 

C. Other Regulatory Provisions 

1. Part 40—Provisions Common to 

Registered Entities 

ECMs with SPDCs are integrated into 

the definition of ‘‘registered entity’’ in 

section 1a(29) of the CEA, as amended. 

Part 40 of the Commission’s regulations 

applies to registered entities, and 

therefore, ECMs with SPDCs. Proposed 

part 40 is being amended to specify 

which provisions would be, or would 

not be, applicable to all registered 

entities. In particular, rules 40.1, 40.2 

and 40.5–40.8 and Appendix D apply to 

ECMs with SPDCs. Although not all 

provisions of part 40 will be applicable 

to ECMs with SPDCs,82 interested 

parties are strongly encouraged to 

review all of part 40 because even those 

sections that are not being amended in 

this rulemaking may be de facto 

amended by virtue of the fact that the 

term ‘‘registered entity’’ now includes 

ECMs with SPDCs. 

III. Related Matters 

A. Cost Benefit Analysis 

Section 15(a) of the Act requires the 

Commission to consider the costs and 

benefits of its actions before issuing new 

regulations under the Act. Section 15(a) 

does not require the Commission to 

quantify the costs and benefits of new 

regulations or to determine whether the 

benefits of adopted regulations 

outweigh their costs. Rather, section 

15(a) requires the Commission to 

consider the cost and benefits of the 

subject regulations. Section 15(a) further 

specifies that the costs and benefits of 

the regulations shall be evaluated in 

light of five broad areas of market and 

public concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of the market for 

listed derivatives; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. The Commission may, 

in its discretion, give greater weight to 

any one of the five enumerated areas of 

concern and may, in its discretion, 

determine that, notwithstanding its 

costs, a particular regulation is 

necessary or appropriate to protect the 

public interest or to effectuate any of the 

provisions or to accomplish any of the 

purposes of the Act. 

The proposed regulations implement 

the Reauthorization Act by establishing 

an enhanced level of oversight of 

ECMs—including ECMs with SPDCs 

and ECM market participants—as 

mandated by Reauthorization Act. As a 

result, in certain cases, it may be more 

appropriate to attribute the compliance 

costs imposed by the proposed 

regulations to requirements that directly 

arise from the provisions of the 

Reauthorization Act. 

Under the proposed rules, all DCMs, 

DTEFs (unless the Commission 

determines otherwise) and ECMs with 

SPDCs would be required to provide 

daily transaction and related data 

reports to the Commission under 

proposed rule 16.02. The costs 

associated with the daily transaction 

and related data reporting requirements 

of proposed regulation 16.02, however, 

may be ameliorated by the fact that 

DCMs have been voluntarily providing 

transactional data to the Commission on 

a daily basis since the mid-1980s. The 

Commission estimates that DCMs would 

account for the substantial majority of 

the markets that would likely be 

required to file such reports pursuant to 

proposed rule 16.02. 

The proposed regulations would 

extend the market and position 

reporting requirements of parts 15 to 21 

of the Commission’s regulations to 

ECMs with SPDCs with respect to such 

contracts. The requirements of the 

proposed regulations are substantial, 

would involve the submission of daily 

reports, and would impose burdens on 

market participants that clear and trade 

SPDCs. More specifically, the proposed 

rules would require ECMs with SPDCs 

with respect to such contracts to 

provide clearing member reports for 

SPDCs to the Commission pursuant to 

Commission regulation 16.00. Proposed 

rule 16.01 would require ECMs to 

submit to the Commission and publicly 

disseminate option deltas and 

aggregated trading data on a daily basis. 

Pursuant to proposed rule 17.00 ECM 

clearing members that clear SPDCs 

would be required to file position 

reports with the Commission for large 

SPDC positions held in accounts carried 

by such brokers when customer 

positions exceed contract reporting 

levels and would be required to identify 

the owners of reportable SPDC positions 

on Form 102 under proposed rule 17.01. 

SPDC traders likewise would be subject 

to the special call provisions of part 18 

of the Commission’s regulations for 

reportable positions, and clearing 

members for SPDCs, SPDC traders, and 

ECMs listing SPDCs each would be 

subject to the special call provisions of 

part 21 of the Commission’s regulations. 

The costs associated with the 

requirements of the market and position 

reporting rules, should, however, be 

reduced in part by the substantial 

overlap between the persons that are 

currently subject to the reporting rules, 

and the persons that would be subject 

to the reporting rules pursuant to the 

Commission’s proposed regulations. For 

example, there is substantial overlap 

between traders of the natural gas 

contract on ICE OTC and traders of the 

same contract on NYMEX. With respect 

to clearing members of ICE OTC, for 

example, such persons are often clearing 

members or affiliates of clearing 

members of NYMEX. 

The benefits of extending the market 

and reporting rules to SPDCs are 

substantial. As an initial matter, it is 

important to note that a significant focus 

of the Reauthorization Act concerned 

amending the CEA with the specific 

intent of giving the Commission the 

authority to extend the market and 

position reporting rules to SPDC 

markets and market participants. To the 

extent that contracts listed on ECMs 

serve a significant price discovery 

function, the regulatory value of 

enhanced oversight, through the 

application of the market and position 

reporting rules to such contracts, is 

elevated. The Commission analyzes the 

information funneled to it by the 

requirements of the market and position 

reporting rules to conduct market and 

financial surveillance. Without such 

information, the ability of the 

Commission to discharge its regulatory 

responsibilities, including the 

responsibilities of preventing market 

manipulations and contract price 

distortions and ensuring the financial 

integrity of the listed derivatives 

marketplace, would be compromised. 

The bulk of the costs that would be 

imposed by the requirements of 

proposed regulation 36.3 relate to 

significant and increased submission of 

information requirements. For example, 

under proposed regulation 36.3(b)(1), all 

ECMs would be required to file certain 

basic information including contract 

terms and conditions with, and make 

certain demonstrations related to 

compliance with the terms of the 

section 2(h)(3) exemption to, the 

Commission. Proposed regulation 

36.3(b)(2) would require ECMs to 

submit transactional information on a 

weekly basis to the Commission for 

certain traded contracts that are not 

SPDCs and would not be subject to the 

terms of proposed rule 16.02. Proposed 

regulation 36.3(c)(4) would impose a 

substantial cost on ECMs with SPDCs in 

terms of providing information to the 

Commission. 

In enacting the Reauthorization Act, 

Congress directed the Commission to 

take an active role in determining 


rwilkins on PROD1PC63 with PROPOSALS2
75900 Federal Register / Vol. 73, No. 240 / Friday, December 12, 2008 / Proposed Rules 

83 47 FR 18618 (April 30, 1982). 

84 44 U.S.C. 3501–3520. 

85 7 U.S.C. 12(a)(1). 

86 5 U.S.C. 552 et seq. 

87 Id. 

88 Id. 

whether contracts listed by ECMs could 

qualify as SPDCs. Accordingly, the 

enhanced informational requirements 

that would be imposed on ECMs with 

respect to contracts that have not been 

identified as SPDCs have been proposed 

by the Commission in order to acquire 

the information that it requires to 

discharge this newly mandated 

responsibility. In addition, the 

substantial information submission and 

demonstration requirements that would 

be imposed on ECMs with SPDCs have 

been proposed because ECMs with 

SPDCs, by statute, acquire certain of the 

self-regulatory responsibilities of DCMs. 

The submission requirements associated 

with proposed regulation 36.3(c)(4) are 

tailored to enable the Commission to 

ensure that ECMs with SPDCs, as 

entities with the elevated status of a 

registered entity under the Act, are in 

compliance with the statutory terms of 

the core principles of section 2(h)(7)(C) 

of the Act. As with the market and 

position reporting rules, the primary 

benefit to the public of proposed 

regulation 36.3 is that its requirements 

give the Commission the ability to 

discharge its statutorily mandated 

responsibility for monitoring for the 

presence of SPDCs and extending its 

oversight to the trading of SPDCs. 

B. The Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA), 

5 U.S.C. 601 et seq., requires that 

agencies consider the impact of their 

regulations on small businesses. The 

requirements related to the proposed 

amendments fall mainly on registered 

entities, exchanges, futures commission 

merchants, clearing members, foreign 

brokers, and large traders. The 

Commission has previously determined 

that exchanges, futures commission 

merchants and large traders are not 

‘‘small entities’’ for the purposes of the 

RFA.83 Similarly, clearing members, 

foreign brokers and traders would be 

subject to the proposed regulations only 

if carrying or holding large positions. 

Accordingly, the Acting Chairman, on 

behalf of the Commission, hereby 

certifies, pursuant to 5 U.S.C. 605(b), 

that the actions proposed to be taken 

herein will not have a significant 

economic impact on a substantial 

number of small entities. 

C. Paperwork Reduction Act 

Certain provisions of proposed 

Commission regulation 36.3 would 

result in new collection of information 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(PRA).84 The Commission therefore is 

submitting this proposal to the Office of 

Management and Budget (OMB) for 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. The title for 

this collection of information is 

‘‘Regulation 36.3—Exempt Commercial 

Market Submission Requirements’’ 

(OMB control number 3038–NEW). If 

adopted, responses to this collection of 

information would be mandatory. The 

Commission will protect proprietary 

information according to the Freedom of 

Information Act and 17 CFR part 145, 

‘‘Commission Records and 

Information.’’ In addition, section 

8(a)(1) of the Act strictly prohibits the 

Commission, unless specifically 

authorized by the Act, from making 

public ‘‘data and information that 

would separately disclose the business 

transactions or market positions of any 

person and trade secrets or names of 

customers.’’ 85

The requirements of Commission 

regulation 36.3 are currently covered by 

OMB control number 3038–0054 which 

applies to both EBOTs and ECMs. As a 

result of the Reauthorization Act, 

EBOTs and ECMs have to comply with 

additional divergent regulatory 

requirements. Accordingly, the 

Commission is seeking a new and 

separate control number for ECMs 

operating in compliance with the 

requirements of regulation 36.3. Upon 

OMB’s approval and assignment of a 

separate control number specifically for 

the collection of information 

requirements of proposed regulation 

36.3, the Commission intends to submit 

the necessary documentation to OMB to 

enable it to apply OMB control number 

3038–0054 exclusively to EBOTs. 

In addition, the Commission is 

proposing amendments to parts 15 to 21 

of the Commission’s regulations, which 

amend two existing collections of 

information titled ‘‘Large Trader 

Reports’’ (OMB control number 3038– 

0009) and ‘‘Futures Volume, Open 

Interest, Price, Deliveries, and 

Exchanges of Futures’’ (OMB control 

number 3038–0012). Responses to this 

collections of information would be 

mandatory. Where appropriate, the 

Commission will protect proprietary 

information pursuant to the Freedom of 

Information Act 86 and 17 CFR part 145, 

‘‘Commission Records and 

Information.’’ In addition, section 

8(a)(1) of the Act prohibits the 

Commission, unless specifically 

authorized by the Act, from making 

public ‘‘data and information that 

would separately disclose the business 

transactions or market positions of any 

person and trade secrets or names of 

customers.’’ 87

Finally, proposed regulation 16.02 

would result in a new collection of 

information requirement within the 

meaning of the PRA. The Commission is 

therefore submitting the proposal for 

regulation 16.02 to OMB for review. The 

title for the collection of information 

requirement is ‘‘Regulation 16.02—Daily 

Trade and Supporting Data Reports’’ 

(OMB control number 3038–NEW). If 

adopted, this collection would be 

mandatory. The Commission will 

protect proprietary information 

according to the Freedom of Information 

Act and 17 CFR part 145, ‘‘Commission 

Records and Information.’’ In addition, 

section 8(a)(1) of the Act strictly 

prohibits the Commission, unless 

specifically authorized by the Act, from 

making public ‘‘data and information 

that would separately disclose the 

business transactions or market 

positions of any person and trade 

secrets or names of customers.’’ 88

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid 

control number. OMB has not yet 

assigned control numbers to the new 

collections for proposed regulations 

36.3 and 16.02. The approved collection 

of information requirements associated 

with parts 15 to 21, which would be 

revised by the proposed rules and rule 

amendments, display control numbers 

3038–0009 and 3038–0012. 

1. Proposed Regulation 36.3 

A. Regulation 36.3(a) 

Regulation 36.3(a) requires that ECMs 

notify the Commission of the intent to 

operate as an ECM in reliance of section 

2(h)(3) of the Act and further provide 

the information and certifications 

required by section 2(h)(5)(A) of the Act. 

Section 2(h)(5)(A) of the Act requires an 

ECM to provide the name and address 

of the person who is authorized on 

behalf of the ECM to receive 

communications from the Commission, 

the commodity categories that the ECM 

intends to offer, and certifications that 

certain owners and principals of the 

ECM are not bad actors, that the facility 

will comply with the requirements of 

the ECM exemption, and that the facility 

will update its filings under section 

2(h)(5)(A) to account for material 

changes in the information submitted to 

the Commission. 


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The substantive requirements of 

regulation 36.3(a) repeat the 

requirements that are imposed by the 

Act as a condition of operating pursuant 

to the ECM exemption. The reporting or 

recordkeeping burden associated with 

Commission regulation 36.3(a) involves 

the compilation and submission of the 

required information to the 

Commission. Commission staff 

estimates that each ECM would expend 

approximately 4 hours of professional 

time annually to maintain, verify, and 

update the notification and required 

certifications. Commission staff 

estimates that 20 ECMs will be subject 

to the requirement resulting in an 

aggregate burden of 80 hours annually. 

B. Regulation 36.3(b)(1) 

Under proposed regulation 36.3(b)(1), 

each ECM would be required to provide 

contract descriptions and terms and 

conditions, the market’s trading 

conventions, and the market’s trading 

protocols to the Commission. Each ECM 

would be required to describe how it 

meets the statutory definition of a 

trading facility and demonstrate that it 

requires each participant to comply 

with all applicable laws; complies with 

the initial statutory requirements for the 

ECM exemption under section 2(h)(3) of 

the Act; and directs a program to 

monitor market participants for 

compliance with the transactional 

requirements of the ECM exemption. 

Proposed regulation 36.3(b)(1) would 

further require that each ECM provide, 

upon the Commission’s request, 

information that the Commission would 

deem helpful to its determination as to 

whether a particular contract is a SPDC. 

Lastly, each ECM would be required to 

annually indicate on Form 205 whether 

it continues to operate under the ECM 

exemption and certify the accuracy of 

the information contained in its 

Notification of Operation submitted 

pursuant to section 2(h)(5)(A) of the Act 

and regulation 36.3(a). 

Based on the number of contract 

submissions made by DCMs, the 

Commission estimates that ECMs 

collectively would list for trading 250 

commodity futures and options 

contracts annually. Commission staff 

estimates that compliance with the 

above requirements and the 

transmission of descriptions and terms 

and conditions for such products would 

take approximately 2 hours of 

professional time to prepare per contract 

resulting in a collective burden of 500 

hours annually for all ECMs. 

C. Regulation 36.3(b)(2) 

Proposed regulation 36.3(b)(2) would 

require that ECMs, with respect to 

contracts that are not SPDCs, identify 

contracts which average 5 or more 

trades per day over a calendar quarter, 

and for such contracts, compile daily 

transaction-based reports that include 

the date of execution, the time of 

execution, the price of execution, the 

quantity executed, the total daily 

trading volume, the total open interest, 

option type, option strike prices for each 

qualifying contract, and such other 

information as may be requested by the 

Commission. Proposed regulation 

36.3(b)(2) would require the submission 

of the reports on a weekly basis. Such 

data is generated by ECMs in the normal 

course of operation. The Commission 

staff estimates that ECMs would submit 

weekly reports for a total of 40 contracts 

annually (2,080 reports). Commission 

staff estimates that ECMs would expend 

approximately 20 minutes of 

professional time to compile and 

transmit each weekly report to the 

Commission resulting in an annual 

burden of approximately 693 hours. 

Proposed regulation 36.3(b)(2) would 

give an ECM the flexibility to choose to 

submit weekly transaction-based reports 

or, in the alternative, give the 

Commission electronic access to its 

trading facility to enable the 

Commission to create the weekly 

reports. Should an ECM select this 

option, Commission staff believes that 

such access would not result in any 

estimable burden on an ECM. 

Proposed regulation 36.3(b)(2) also 

would require that ECMs, with respect 

to contracts that are not SPDCs, to 

identify contracts which average 1 or 

more trades per day over a calendar 

quarter, and for such contracts, to 

provide to the Commission on a 

quarterly basis, the terms and 

conditions of such contracts, the average 

daily trading volume, and the most 

recent level of open interest. As with 

weekly reports, such data is generated 

by ECMs in the normal course of 

operation. The Commission staff 

estimates that ECMs would submit 

quarterly reports for a total of 90 

contracts annually (360 total reports). 

Commission staff estimates that ECMs 

would expend approximately 20 

minutes of professional time to compile 

and transmit each quarterly report 

resulting in an annual burden of 120 

hours. 

Furthermore, proposed regulation 

36.3(b)(2) would require ECMs to 

maintain an inventory of all fraud or 

manipulation based complaints and 

submit a copy of such complaints to the 

Commission within 3 or 30 days, 

depending on the specific facts of the 

complaints. ECMs should record and 

retain an inventory of complaints in the 

normal course of operation. Commission 

staff is unable to estimate the hourly 

burden associated with the routine 

transmittal of such reports to the 

Commission. However, Commission 

staff would presume that such 

transmittal requirements should not 

result in any materially measurable 

burden on ECMs. 

Lastly, proposed regulation 36.3(b)(2) 

addresses the Commission’s authority to 

require the submission of data upon 

special call under section 2(h)(5)(B)(iii) 

of the Act. Pursuant to that section of 

the Act, the Commission has the 

authority to issue special calls in order 

to enforce certain provisions of the Act 

including the anti-fraud and antimanipulation provisions. In addition, 

the Commission is authorized to issue 

special calls to ECMs to facilitate its 

determination as to whether certain 

contracts are SPDCs, to evaluate a 

systemic market event, or to obtain 

information requested by another 

Federal financial regulator. Commission 

staff estimates that a total of 15 special 

calls would be issued to ECMs annually 

under section 2(h)(5)(B)(iii) of the Act. 

Each ECM that has been issued a special 

call would expend approximately 5 

hours of professional time to respond to 

the call resulting in a burden of 75 

hours annually. 

D. Proposed Regulation 36.3(c)(2) 

Proposed regulation 36.3(c)(2) 

establishes for ECMs certain 

requirements for notifying the 

Commission of possible SPDCs that may 

be listed by the ECM. Specifically, an 

ECM’s obligation to notify the 

Commission would apply to contracts 

that average 5 trades or more per day 

over the most recent calendar quarter, 

and may be triggered by either the 

ECM’s sale of contract price data or by 

a contract’s daily settlement price being 

within 2.5 percent of the 

contemporaneously determined closing, 

settlement or daily price of another 

contract 95 percent or more of the days 

in the most recent quarter. Such 

notifications would be accompanied by 

supporting details. Commission staff 

estimates that cost of monitoring for the 

triggering conditions is nominal. 

Commission staff estimates that 

collectively 10 contracts would be the 

subject of the notification requirement 

annually. Each ECM with a qualifying 

contract would expend approximately 1 

hour of professional time to compile 

and transmit such data to the 

Commission at an aggregate annual 

burden of 10 hours. 


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E. Proposed Regulation 36.6(c)(4) 

An ECM with a SPDC, with respect to 

such a contract, has substantial 

regulatory responsibilities including the 

obligation to comply with the core 

principles of section 2(h)(7)(C) of the 

Act and to certify the compliance of 

SPDC contract terms and conditions and 

exchange rules with the core principles, 

other applicable provisions of the Act, 

and Commission regulations 

thereunder. To enable the Commission 

to evaluate an ECM’s compliance with 

the statutory and regulatory provisions 

applicable to SPDCs and ECMs listing 

SPDCs, Commission regulation 

36.3(c)(4) would require ECMs with 

SPDCs to submit a substantial amount of 

information and documentation to the 

Commission including the market’s 

rules, a description of financial 

standards for members or participants, a 

description of the market’s trading 

algorithm, legal status documents, and a 

description of the governance structure 

of the market. As proposed, such 

information collectively would be filed 

only once upon the market’s listing of 

a SPDC. However, subsequent exchange 

rule changes, as with initial SPDC 

contract terms and conditions and 

amendments thereto, would be required 

to be certified on an ongoing basis. 

Commission staff estimates that up to 

three new ECMs could list at least one 

SPDC during the next five years. 

Commission staff estimates that each 

new ECM listing its initial SPDC would 

expend approximately 200 hours of 

professional time providing the 

information and documentation 

required under regulation 36.3(c)(4) for 

an aggregate burden of 600 hours. 

Assuming that such trading facilities 

will operate for ten years, the aggregated 

annualized cost, in terms of burden 

hours, would be 60 hours. Additionally, 

Commission staff estimates that the 

Commission would receive 

approximately 50 certified filings per 

SPDC. For each SPDC related certified 

filing, an ECM would expend, in 

accordance with the procedural and 

submission requirements of 

Commission regulation 40.6, 

approximately 30 minutes resulting in 

an aggregate annual burden of 75 hours. 

F. Proposed Regulation 36.3(c)(6) 

Proposed regulation 36.3(c)(6) 

requires an ECM listing a SPDC, upon 

the Commission’s request, to file a 

written demonstration that the ECM is 

in compliance with the core principles 

of section 2(h)(7)(C) of the Act. 

Commission staff estimates that such 

demonstrations of compliance could 

require up to 20 hours of response time. 

Commission staff anticipates issuing 2 

requests annually resulting in an 

aggregate burden of 40 hours. 

2. Proposed Regulation 16.02 

Under proposed regulation 16.02, 

reporting markets, a term which as 

proposed would include ECMs with 

SPDCs with respect to SPDCs, in 

addition to DCMs and DTEFs (unless 

determined otherwise by the 

Commission), would be required to 

provide trade and supporting data 

reports to the Commission on a daily 

basis. Such reports would include 

transaction-level trade data and related 

order information for each transaction 

executed on the reporting market and 

would be accompanied by data that 

identifies traders for each transaction 

when reporting markets maintain such 

data. 

Since the mid-1980s, all DCMs have 

voluntarily provided the Commission 

with transaction level data on a daily 

basis. Proposed regulation 16.02 seeks 

to formalize and codify the submission 

process. Commission staff estimates that 

each reporting market would expend 18 

hours for onsite visits to the 

Commission, discussions with staff to 

introduce the order flow process, and 

meetings with staff for follow-up 

discussions. The proposed rules would 

require that reporting markets expend 

approximately 2325 hours in additional 

start-up costs to establish the required 

information technology infrastructure. 

Commission staff estimates that it 

would receive daily trade and 

supporting data reports from up to15 

reporting markets annually. Accordingly 

the start-up burden in terms of hours 

would in the aggregate be 35,145 hours. 

Annualized over a useful life of ten 

years, the aggregated annual burden 

hours would be 3,514. 

It is also estimated that start-up and 

continuing costs may involve product 

and service purchases. Commission staff 

estimates that reporting markets could 

expend up to $5,000 annually per 

market on product and service 

purchases to comply with proposed 

regulation 16.02. This would result in 

an aggregated cost of $75,000 per annum 

(15 reporting markets × $5,000). This 

estimate, however, is speculative 

because reporting markets must possess 

the ability to audit and track 

transactions in the ordinary course of 

operations independently of proposed 

regulation 16.02. 

In addition to the start-up burden, 

proposed regulation 16.02, if adopted, 

would impose certain ongoing costs. 

Commission staff estimates that each 

reporting market would expend 30 

minutes for each daily trade and 

supporting data report transmitted to 

the Commission resulting in an 

aggregate burden of 1,875 hours 

annually (assuming that such reports are 

provided for each of 250 trading days). 

3. Market and Large Trader Reporting 

Rules 

In order to implement the CEA as 

amended by the Reauthorization Act, 

the Commission through this 

rulemaking proposes to extend the 

market and large trader reporting 

requirements that currently apply to 

DCMs and DTEFs to ECMs with SPDCs 

with respect to such contracts. 

A. Futures Volume, Open Interest, Price, 

Deliveries, and Exchanges of Futures 

(OMB control number 3038–0012) 

Twelve exchanges currently submit 

aggregated market data to the 

Commission and are required to 

publicly disseminate for each of 

approximately 250 trading days per year 

under Commission regulation 16.01. 

The information includes aggregate 

figures on a per contract basis on total 

gross open contracts, open futures 

contracts against which delivery notices 

have been stopped, volume generated 

from the exchange of futures, delta 

factors as well as certain pricing data. 

Should the proposed amendments be 

adopted, it is estimated that up to 15 

reporting markets, including ECMs with 

SPDCs with respect to such contracts, 

could be required to submit this data to 

the Commission on a continuing basis. 

Commission staff estimates that such 

markets would expend approximately 

30 minutes per day to generate the 

required data files, transmit that file to 

Commission offices, and publish the 

required information. This would 

results in an annual burden of 

approximately 1,875 hours. 

B. Large Trader Reports (OMB Control 

Number 3038–0009) 

1. Clearing Member Reports 

Twelve designated contract markets 

provide clearing member reports 

pursuant to Commission regulation 

16.00 once on each of an estimated 250 

trading days per year. Should the 

proposed rules be adopted, it is 

estimated that up to 15 reporting 

markets, including ECMs with SPDCs 

with respect to such contracts, would be 

providing this data to the Commission 

on a continuing basis. The exchanges 

and ECMs would be required to submit 

confidential information to the 

Commission on the aggregate positions 

and trading activity of each clearing 

member. 

Reporting markets, on a daily basis, 

are required under regulation 16.00 to 


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report each clearing member’s open long 

and short positions, purchases and 

sales, exchanges of futures, and futures 

delivery notices. The data is reported 

separately by proprietary and customer 

accounts by futures month and, for 

options, by puts and calls by expiration 

date and strike price. The Commission 

obtains clearing member reports from 

the reporting markets or the clearing 

organizations of each reporting market. 

Reporting markets and the clearing 

organizations routinely compile, 

analyze and provide such data to each 

clearing member. Since the data is 

routinely provided to clearing members, 

the reporting burden for this set of data 

is estimated at 20 minutes for each 

reporting market per day. Assuming that 

a total of 15 entities would provide this 

data on a daily basis to the Commission, 

the total aggregate burden hours for 

reporting would be 1,250 hours 

(assuming that there are 250 trading 

days annually). 

2. Reporting Firms 

Under Commission regulation 17.00, 

routine reports are filed only for 

accounts with commodity futures and 

option positions that exceed levels set 

by the Commission in regulation 

15.03(b). As proposed, regulation 17.00 

would extend the routine reporting 

requirements of regulation 17.00 to 

clearing members on ECMs with SPDCs 

with respect to SPDCs. Should proposed 

regulation 17.00 be adopted, it is 

estimated that up to an additional 30 

respondents would be required to file 

reports at any one time under regulation 

17.00 increasing the total number of 

respondents to 250. The reporting 

burden consists of staff of reporting 

firms initializing their information 

technology systems for new contracts 

and new accounts. On average it is 

expected that about 15 minutes per day 

is expended by these reporting firm 

staff. Over 250 trading days annually, 

the aggregate burden would be 15,625 

hours. 

3. Forms 102 

Each account reported to the 

Commission by an FCM, clearing 

member, or foreign broker must also be 

identified on a Form 102 pursuant to 

regulation 17.01. By amending the 

definition of reporting market, clearing 

member, and clearing organization, the 

notice of proposed rulemaking would 

extend the requirements of regulation 

17.01 to clearing members of ECMs with 

SPDCs with respect to such contracts. 

Forms 102 provide information that 

allows the Commission to combine 

different accounts held or controlled by 

the same trader and to identify 

commercial firms using the markets for 

hedging. Should the notice of proposed 

rulemaking be adopted, the total 

number of Forms 102 filed with the 

Commission is estimated to increase by 

500 to 4,500 per year. Respondents 

would expend 12 minutes completing 

each form for a total aggregate burden of 

900 hours annually. 

4. Reports From Traders 

Traders provide identifying 

information using Forms 40 under 

Commission regulation 18.04 and 

position data upon special call under 

Commission regulations 18.00 and 

18.05. The notice of proposed 

rulemaking would extend the 

requirements of those regulations to 

traders of SPDCs. Should the proposed 

amendments be adopted, the total 

estimated number of traders filing the 

Form 40 under regulation 18.04 would 

increase by 100 to 2,500 per year with 

each response requiring approximately 

20 minutes, resulting in an aggregate 

annual burden of 833 hours. 

The Commission has maintained the 

authority to make special calls on 

traders under part 18 of the 

Commission’s regulations when the 

information obtained routinely under 

part 17 of the Commission’s regulations 

is incomplete for its market and 

financial surveillance purposes. 

Information obtained on call under 

Commission regulations 18.00 and 18.05 

is provided in the manner stipulated per 

instruction contained in the special call. 

Should the proposed regulations be 

adopted, the Commission estimates that 

12 special calls would be issued to each 

of 45 traders under Commission 

regulations 18.00 and 18.05 and that 

each response to a call would require 

approximately 5 hours, for an estimated 

aggregate annual burden of 2,700 hours. 

5. Part 21 of the Commission 

Regulations 

Under part 21 of the Commission’s 

regulations, the Commission may issue 

special calls for additional cash and 

futures data concerning traders from 

FCMs, introducing broker, clearing 

members, foreign brokers, and traders. 

In addition, under part 21 of the 

Commission’s regulations (17 CFR part 

21), the Commission may request 

identifying information regarding 

persons who exercise trading control 

over accounts. Position information 

collected pursuant to special call under 

part 21 of the Commission’s regulations 

may be used to audit large trader reports 

and is used to investigate potential 

market abuses. Although similar to the 

standardized information routinely 

collected under part 17 of the 

Commission’s regulations for reportable 

accounts, such data is submitted in 

response to customized requests for 

information and may regard accounts 

and positions that are not reportable. In 

contrast to special calls for identifying 

data made under Commission regulation 

18.04, special calls made under any 

provision of part 21 of the Commission’s 

regulations generally occur only when a 

particular market shows a potential for 

disruption or when there is an 

investigation of possible violations of 

the Act or the regulations thereunder. 

The notice of proposed rulemaking 

would apply the terms of part 21 to 

ECMs with SPDCs with respect to such 

contracts, clearing members clearing 

SPDCs, and SPDC traders. Should the 

proposed regulations be adopted, the 

Commission estimates that the 

Commission will continue to make less 

than 10 special calls under all of the 

provisions of part 21 of the 

Commission’s regulations and that each 

response to a call will require 

approximately 1 hour, resulting in an 

aggregate reporting burden of 10 hours 

annually. 

4. Information Collection Comments 

The Commission invites the public 

and other Federal agencies to comment 

on any aspect of the reporting and 

recordkeeping burdens discussed above. 

Pursuant to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicits comments in order 

to: (i) Evaluate whether the proposed 

collections of information are necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have 

practical utility; (ii) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed 

collections of information; (iii) 

determine whether there are ways to 

enhance the quality, utility, and clarity 

of the information to be collected; and 

(iv) minimize the burden of the 

collections of information on those who 

are to respond, including through the 

use of automated collection techniques 

or other forms of information 

technology. 

You may submit your comments 

directly to the Office of Information and 

Regulatory Affairs, by fax at (202) 395– 

6566 or by e-mail at OIRAsubmissions@omb.eop.gov. Please 

provide the Commission with a copy of 

your comments so that we can 

summarize all written comments and 

address them in the final rule preamble. 

Refer to the Addresses section of this 

notice of proposed rulemaking for 

comment submission instructions to the 

Commission. You may obtain a copy of 

the supporting statements for the 


rwilkins on PROD1PC63 with PROPOSALS2
75904 Federal Register / Vol. 73, No. 240 / Friday, December 12, 2008 / Proposed Rules 

collections of information discussed 

above by visiting RegInfo.gov. OMB is 

required to make a decision concerning 

the collections of information between 

30 and 60 days after publication of this 

Release. Consequently, a comment to 

OMB is most assured of being fully 

effective if received by OMB (and the 

Commission) within 30 days after 

publication of this notice of proposed 

rulemaking. 

List of Subjects 

17 CFR Part 15 

Brokers, Commodity futures, 

Reporting and recordkeeping 

requirements. 

17 CFR Part 16 

Commodity futures, Reporting and 

recordkeeping requirements. 

17 CFR Part 17 

Brokers, Commodity futures, 

Reporting and recordkeeping 

requirements. 

17 CFR Part 18 

Commodity futures, Reporting and 

recordkeeping requirements. 

17 CFR Part 19 

Commodity futures, Cottons, Grains, 

Reporting and recordkeeping 

requirements. 

17 CFR Part 21 

Brokers, Commodity futures, 

Reporting and recordkeeping 

requirements. 

17 CFR Part 36 

Commodity futures, Commodity 

Futures Trading Commission. 

17 CFR Part 40 

Commodity futures, Contract markets, 

Designation application, Reporting and 

recordkeeping requirements. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission proposes to amend 

17 CFR parts 15, 16, 17, 18, 19, 21, 36 

and 40 as follows: 

PART 15—REPORTS—GENERAL 

PROVISIONS 

1. The authority citation for part 15 is 

revised to read as follows: 

Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 

6k, 6m, 6n, 7, 7a, 9, 12a, 19, and 21, as 

amended by Title XIII of the Food, 

Conservation and Energy Act of 2008, Pub. L. 

No. 110–246, 122 Stat. 1624 (June 18, 2008). 

2. Revise § 15.00 to read as follows: 

§ 15.00 Definitions of terms used in parts 

15 to 21 of this chapter. 

As used in parts 15 to 21 of this 

chapter: 

(a) Cash or Spot, when used in 

connection with any commodity, means 

the actual commodity as distinguished 

from a futures or option contract in such 

commodity. 

(b) Clearing member means any 

person who is a member of, or enjoys 

the privilege of clearing trades in his 

own name through, the clearing 

organization of a designated contract 

market, registered derivatives 

transaction execution facility, or 

registered entity under section 1a(29) of 

the Act. 

(c) Clearing organization means the 

person or organization which acts as a 

medium for clearing transactions in 

commodities for future delivery or 

commodity option transactions, or for 

effecting settlements of contracts for 

future delivery or commodity option 

transactions, for and between members 

of any designated contract market, 

registered derivatives transaction 

execution facility or registered entity 

under section 1a(29) of the Act. 

(d) Compatible data processing media 

means data processing media approved 

by the Commission or its designee. 

(e) Customer means ‘‘customer’’ (as 

defined in § 1.3(k) of this chapter) and 

‘‘option customer’’ (as defined in 

§ 1.3(jj) of this chapter). 

(f) Customer trading program means 

any system of trading offered, 

sponsored, promoted, managed or in 

any other way supported by, or 

affiliated with, a futures commission 

merchant, an introducing broker, a 

commodity trading advisor, a 

commodity pool operator, or other 

trader, or any of its officers, partners or 

employees, and which by agreement, 

recommendations, advice or otherwise, 

directly or indirectly controls trading 

done and positions held by any other 

person. The term includes, but is not 

limited to, arrangements where a 

program participant enters into an 

expressed or implied agreement not 

obtained from other customers and 

makes a minimum deposit in excess of 

that required of other customers for the 

purpose of receiving specific advice or 

recommendations which are not made 

available to other customers. The term 

includes any program which is of the 

character of, or is commonly known to 

the trade as, a managed account, guided 

account, discretionary account, 

commodity pool or partnership account. 

(g) Discretionary account means a 

commodity futures or commodity 

option trading account for which buying 

or selling orders can be placed or 

originated, or for which transactions can 

be effected, under a general 

authorization and without the specific 

consent of the customer, whether the 

general authorization for such orders or 

transactions is pursuant to a written 

agreement, power of attorney, or 

otherwise. 

(h) Exclusively self-cleared contract 

means a cleared contract for which no 

persons, other than a reporting market 

and its clearing organization, are 

permitted to accept any money, 

securities, or property (or extend credit 

in lieu thereof) to margin, guarantee, or 

secure any trade. 

(i) Foreign clearing member means a 

‘‘clearing member’’ (as defined by 

paragraph (b) of this section) who 

resides or is domiciled outside of the 

United States, its territories or 

possessions. 

(j) Foreign trader means any trader (as 

defined in paragraph (o) of this section) 

who resides or is domiciled outside of 

the United States, its territories or 

possessions. 

(k) Guided account program means 

any customer trading program which 

limits trading to the purchase or sale of 

a particular contract for future delivery 

of a commodity or a particular 

commodity option that is advised or 

recommended to the participant in the 

program. 

(l) Managed account program means 

a customer trading program which 

includes two or more discretionary 

accounts traded pursuant to a common 

plan, advice or recommendations. 

(m) Open contracts means ‘‘open 

contracts’’ (as defined in § 1.3(t) of this 

chapter) and commodity option 

positions held by any person on or 

subject to the rules of a board of trade 

which have not expired, been exercised, 

or offset. 

(n) Reportable position means: 

(1) For reports specified in parts 17, 

18 and § 19.00(a)(2) and (a)(3) of this 

chapter any open contract position that 

at the close of the market on any 

business day equals or exceeds the 

quantity specified in § 15.03 of this part 

in either: 

(i) Any one future of any commodity 

on any one reporting market, excluding 

future contracts against which notices of 

delivery have been stopped by a trader 

or issued by the clearing organization of 

a reporting market; or 

(ii) Long or short put or call options 

that exercise into the same future of any 

commodity, or long or short put or call 

options for options on physicals that 

have identical expirations and exercise 

into the same physical, on any one 

reporting market. 


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(2) For the purposes of reports 

specified in § 19.00(a)(1) of this chapter, 

any combined futures and futuresequivalent option open contract 

position as defined in part 150 of this 

chapter in any one month or in all 

months combined, either net long or net 

short in any commodity on any one 

reporting market, excluding futures 

positions against which notices of 

delivery have been stopped by a trader 

or issued by the clearing organization of 

a reporting market, which at the close of 

the market on the last business day of 

the week exceeds the net quantity limit 

in spot, single or in all-months fixed in 

§ 150.2 of this chapter for the particular 

commodity and reporting market. 

(o) Reporting market means a 

designated contract market, registered 

entity under section 1a(29)(E) of the Act, 

and unless determined otherwise by the 

Commission with respect to the facility 

or a specific contract listed by the 

facility, a registered derivatives 

transaction execution facility. 

(p) Special account means any 

commodity futures or option account in 

which there is a reportable position. 

(q) Trader means a person who, for 

his own account or for an account 

which he controls, makes transactions 

in commodity futures or options, or has 

such transactions made. 

3. In § 15.01, revise paragraph (a) to 

read as follows: 

§ 15.01 Persons required to report. 

* * * * * 

(a) Reporting markets—as specified in 

parts 16, 17, and 21 of this chapter. 

* * * * * 

4. In § 15.05, revise the heading and 

paragraph (a); and add paragraph (i) to 

read as follows: 

§ 15.05 Designation of agent for foreign 

persons. 

(a) For purposes of this section, the 

term ‘‘futures contract’’ means any 

contract for the purchase or sale of any 

commodity for future delivery, or a 

contract identified under § 36.3(b)(i) of 

this chapter as traded in reliance on the 

exemption in section 2(h)(3) of the Act, 

traded or executed on or subject to the 

rules of any designated contract market 

or registered derivatives transaction 

execution facility, or for the purposes of 

paragraph (i) of this section, a reporting 

market; the term ‘‘option contract’’ 

means any contract for the purchase or 

sale of a commodity option, or as 

applicable, any other instrument subject 

to the Act pursuant to section 5a(g) of 

the Act, traded or executed on or subject 

to the rules of any designated contract 

market or registered derivatives 

transaction execution facility, or for the 

purposes of paragraph (i) of this section, 

a reporting market; the term ‘‘customer’’ 

means any person for whose benefit a 

foreign broker makes or causes to be 

made any futures contract or option 

contract; and the term 

‘‘communication’’ means any summons, 

complaint, order, subpoena, special call, 

request for information, or notice, as 

well as any other written document or 

correspondence. 

* * * * * 

(i) Any reporting market that is a 

registered entity under section 1a(29)(E) 

of the Act that permits a foreign clearing 

member or foreign trader to clear or 

effect contracts, agreements or 

transactions on the trading facility or its 

clearing organization, shall be deemed 

to be the agent of the foreign clearing 

member or foreign trader with respect to 

any such contracts, agreements or 

transactions cleared or executed by the 

foreign clearing member or the foreign 

trader. Service or delivery of any 

communication issued by or on behalf 

of the Commission to the reporting 

market shall constitute valid and 

effective service upon the foreign 

clearing member or foreign trader. The 

reporting market which has been served 

with, or to which there has been 

delivered, a communication issued by 

or on behalf of the Commission to a 

foreign clearing member or foreign 

trader shall transmit the communication 

promptly and in a manner which is 

reasonable under the circumstances, or 

in a manner specified by the 

Commission in the communication, to 

the foreign clearing member or foreign 

trader. 

(1) It shall be unlawful for any such 

reporting market to permit a foreign 

clearing member or a foreign trader to 

clear or effect contracts, agreements or 

transactions on the facility or its 

clearing organization unless the 

reporting market prior thereto informs 

the foreign clearing member or foreign 

trader of the requirements of this 

section. 

(2) The requirements of paragraphs (i) 

introductory text and (i)(1) of this 

section shall not apply to any contracts, 

transactions or agreements if the foreign 

clearing member or foreign trader has 

duly executed and maintains in effect a 

written agency agreement in compliance 

with this paragraph with a person 

domiciled in the United States and has 

provided a copy of the agreement to the 

reporting market prior to effecting or 

clearing any contract, agreement or 

transaction on the trading facility or its 

clearing organization. This agreement 

must authorize the person domiciled in 

the United States to serve as the agent 

of the foreign clearing member or 

foreign trader for the purposes of 

accepting delivery and service of all 

communications issued by or on behalf 

of the Commission to the foreign 

clearing member or the foreign trader 

and must provide an address in the 

United States where the agent will 

accept delivery and service of 

communications from the Commission. 

This agreement must be filed with the 

Commission by the reporting market 

prior to permitting the foreign clearing 

member or the foreign trader to clear or 

effect any transactions in futures or 

option contracts. Unless otherwise 

specified by the Commission, the 

agreements required to be filed with the 

Commission shall be filed with the 

Secretary of the Commission at Three 

Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

(3) A foreign clearing member or a 

foreign trader shall notify the 

Commission immediately if the written 

agency agreement is terminated, 

revoked, or is otherwise no longer in 

effect. If the reporting market knows or 

should know that the agreement has 

expired, been terminated, or is no longer 

in effect, the reporting market shall 

notify the Secretary of the Commission 

immediately. If the written agency 

agreement expires, terminates, or is not 

in effect, the reporting market, the 

foreign clearing member and the foreign 

trader shall be subject to the provisions 

of paragraphs (i) introductory text and 

(i)(1) of this section. 

5. Add § 15.06 to read as follows: 

§ 15.06 Delegations. 

(a) The Commission hereby delegates, 

until the Commission orders otherwise, 

the authority to approve data processing 

media, as referenced in § 15.00(d), for 

data submissions to the Director of the 

Division of Market Oversight, to be 

exercised by such Director or by such 

other employee or employees of such 

Director as designated from time to time 

by the Director. The Director may 

submit to the Commission for its 

consideration any matter which has 

been delegated in this paragraph. 

Nothing in this paragraph prohibits the 

Commission, at its election, from 

exercising the authority delegated in 

this paragraph. 

(b) [Reserved] 

PART 16—REPORTS BY REPORTING 

MARKETS 

6. The authority citation for part 16 is 

revised to read as follows: 

Authority: 7 U.S.C. 2, 6a, 6c, 6g, 6i, 7, 7a 

and 12a, as amended by Title XIII of the 

Food, Conservation and Energy Act of 2008, 


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Pub. L. No. 110–246, 122 Stat. 1624 (June 18, 

2008), unless otherwise noted. 

7. In § 16.01, revise paragraphs (e)(1) 

and (e)(2) to read as follows: 

§ 16.01 Trading volume, open contracts, 

prices, and critical dates. 

* * * * * 

(e) Publication of recorded 

information. (1) Reporting markets shall 

make the information in paragraph (a) of 

this section readily available to the 

news media and the general public 

without charge, in a format that readily 

enables the consideration of such data, 

no later than the business day following 

the day to which the information 

pertains. The information in paragraphs 

(a)(4) through (a)(6) of this section shall 

be made readily available in a format 

that presents the information together. 

(2) Reporting markets shall make the 

information in paragraphs (b)(1) and 

(b)(2) of this section readily available to 

the news media and the general public, 

and the information in paragraph (b)(3) 

of this section readily available to the 

general public, in a format that readily 

enables the consideration of such data, 

no later than the business day following 

the day to which the information 

pertains. 

* * * * * 

8. Section 16.02 is added to read as 

follows: 

§ 16.02 Daily trade and supporting data 

reports. 

Reporting markets shall provide trade 

and supporting data reports to the 

Commission on a daily basis. Such 

reports shall include transaction-level 

trade data and related order information 

for each transaction that is executed on 

the reporting market. Reports shall also 

include time and sales data, reference 

files and other information as the 

Commission or its designee may require. 

All reports must be submitted at the 

time, and in the manner and format, and 

with the specific content specified by 

the Commission or its designee. Upon 

request, such information shall be 

accompanied by data that identifies or 

facilitates the identification of each 

trader for each transaction or order 

included in a submitted trade and 

supporting data report if the reporting 

market maintains such data. 

9. In § 16.07, revise the heading and 

introductory text; and add paragraph (c) 

to read as follows: 

§ 16.07 Delegation of authority to the 

Director of the Division of Market Oversight. 

The Commission hereby delegates, 

until the Commission orders otherwise, 

the authority set forth in paragraphs (a), 

(b) and (c) of this section to the Director 

of the Division of Market Oversight, to 

be exercised by such Director or by such 

other employee or employees of such 

Director as may be designated from time 

to time by the Director. The Director of 

the Division of Market Oversight may 

submit to the Commission for its 

consideration any matter which has 

been delegated in this paragraph. 

Nothing in this paragraph prohibits the 

Commission, at its election, from 

exercising the authority delegated in 

this paragraph. 

* * * * * 

(c) Pursuant to § 16.02, the authority 

to determine the specific content of any 

daily trade and supporting data report, 

request that such reports be 

accompanied by data that identifies or 

facilitates the identification of each 

trader for each transaction or order 

included in a submitted trade and 

supporting data report, and the time for 

the submission of and the manner and 

format of such reports. 

PART 17—REPORTS BY REPORTING 

MARKETS, FUTURES COMMISSION 

MERCHANTS, CLEARING MEMBERS, 

AND FOREIGN BROKERS 

10. The authority citation for part 17 

is revised to read as follows: 

Authority: 7 U.S.C. 2, 6a, 6c, 6d, 6f, 6g, 6i, 

7, 7a and 12a, as amended by Title XIII of the 

Food, Conservation and Energy Act of 2008, 

Pub. L. No. 110–246, 122 Stat. 1624 (June 18, 

2008), unless otherwise noted. 

11. Revise the heading of part 17 as 

set forth above. 

12. In § 17.00, revise paragraph (a) 

introductory text and paragraphs (a)(1), 

(b)(1), and (f); and add and reserve 

paragraph (c) to read as follows: 

§ 17.00 Information to be furnished by 

futures commission merchants, clearing 

members and foreign brokers. 

(a) Special accounts—reportable 

futures and options positions, delivery 

notices, and exchanges of futures. (1) 

Each futures commission merchant, 

clearing member and foreign broker 

shall submit a report to the Commission 

for each business day with respect to all 

special accounts carried by the futures 

commission merchant, clearing member 

or foreign broker, except for accounts 

carried on the books of another futures 

commission merchant or clearing 

member on a fully-disclosed basis. 

Except as otherwise authorized by the 

Commission or its designee, such report 

shall be made in accordance with the 

format and coding provisions set forth 

in paragraph (g) of this section. The 

report shall show each futures position 

traded in reliance on the exemption in 

section 2(h)(3) of the Act, separately for 

each reporting market and for each 

future position traded in reliance on the 

exemption in section 2(h)(3) of the Act, 

and each put and call options position 

separately for each reporting market, 

expiration and strike price in each 

special account as of the close of market 

on the day covered by the report and, 

in addition, the quantity of exchanges of 

futures for commodities or for 

derivatives positions and the number of 

delivery notices issued for each such 

account by the clearing organization of 

a reporting market and the number 

stopped by the account. The report shall 

also show all positions in all contract 

months and option expirations of that 

same commodity on the same reporting 

market for which the special account is 

reportable. 

* * * * * 

(b) * * * 

(1) Accounts of eligible entities— 

Accounts of eligible entities as defined 

in § 150.1 of this chapter that are traded 

by an independent account controller 

shall, together with other accounts 

traded by the independent account 

controller or in which the independent 

controller has a financial interest, be 

considered a single account. 

* * * * * 

(c) [Reserved] 

* * * * * 

(f) Omnibus accounts. If the total open 

long positions or the total open short 

positions for any future of a commodity 

carried in an omnibus account is a 

reportable position, the omnibus 

account is in Special Account status and 

shall be reported by the futures 

commission merchant or foreign broker 

carrying the account in accordance with 

paragraph (a) of this section. 

* * * * * 

13. In § 17.03, revise the heading, the 

introductory text, and paragraphs (a) 

and (b) to read as follows: 

§ 17.03 Delegation of authority to the 

Director of the Division of Market Oversight. 

The Commission hereby delegates, 

until the Commission orders otherwise, 

the authority set forth in the paragraphs 

below to the Director of the Division of 

Market Oversight to be exercised by 

such Director or by such other employee 

or employees of such Director as 

designated from time to time by the 

Director. The Director of the Division of 

Market Oversight may submit to the 

Commission for its consideration any 

matter which has been delegated in this 

paragraph. Nothing in this paragraph 

prohibits the Commission, at its 

election, from exercising the authority 

delegated in this paragraph. 


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(a) Pursuant to § 17.00(a) and (h), the 

authority to determine whether futures 

commission merchants, clearing 

members and foreign brokers can report 

the information required under 

paragraphs (a) and (h) of § 17.00 on 

series ’01 forms or using some other 

format upon a determination that such 

person is unable to report the 

information using the format, coding 

structure or electronic data transmission 

procedures otherwise required. 

(b) Pursuant to § 17.02, the authority 

to instruct or approve the time at which 

the information required under §§ 17.00 

and 17.01 must be submitted by futures 

commission merchants, clearing 

members and foreign brokers provided 

that such persons are unable to meet the 

requirements set forth in §§ 17.01(g) and 

17.02. 

* * * * * 

14. In § 17.04, revise the heading, 

paragraph (a), and paragraph (b)(1)(ii) to 

read as follows: 

§ 17.04 Reporting omnibus accounts to 

reporting firms. 

(a) Any futures commission merchant, 

clearing member or foreign broker who 

establishes an omnibus account with 

another futures commission merchant, 

clearing member or foreign broker shall 

report to that futures commission 

merchant, clearing member or foreign 

broker the total open long positions and 

the total open short positions in each 

future of a commodity and, for 

commodity options transactions, the 

total open long put options, the total 

open short put options, the total open 

long call options, and the total open 

short call options for each commodity 

options expiration date and each strike 

price in such account at the close of 

trading each day. The information 

required by this section shall be 

reported in sufficient time to enable the 

futures commission merchant, clearing 

member or foreign broker with whom 

the omnibus account is established to 

comply with the regulations of this part 

and the reporting requirements 

established by the reporting markets. 

(b) * * * 

(1) * * * 

(ii) The account is an omnibus 

account of another futures commission 

merchant, clearing member or foreign 

broker; or 

* * * * * 

PART 18—REPORTS BY TRADERS 

15. The authority citation for part 18 

continues to read as follows: 

Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 

6i, 6k, 6m, 6n, 12a and 19, as amended by 

Title XIII of the Food, Conservation and 

Energy Act of 2008, Pub. L. No. 110–246, 122 

Stat. 1624 (June 18, 2008); 5 U.S.C. 552 and 

552(b), unless otherwise noted. 

16. Revise § 18.01 to read as follows: 

§ 18.01 Interest in or control of several 

accounts. 

If any trader holds, has a financial 

interest in or controls positions in more 

than one account, whether carried with 

the same or with different futures 

commission merchants or foreign 

brokers, all such positions and accounts 

shall be considered as a single account 

for the purpose of determining whether 

such trader has a reportable position 

and, unless instructed otherwise in the 

special call to report under § 18.00 for 

the purpose of reporting. 

17. In § 18.04, revise paragraphs (a)(7) 

and (b)(3)(i) to read as follows: 

§ 18.04 Statement of reporting trader. 

* * * * * 

(a) * * * 

(7) The names and locations of all 

futures commission merchants, clearing 

members, introducing brokers, and 

foreign brokers through whom accounts 

owned or controlled by the reporting 

trader are carried or introduced at the 

time of filing a Form 40, if such 

accounts are carried through more than 

one futures commission merchant, 

clearing member or foreign broker or 

carried through more than one office of 

the same futures commission merchant, 

clearing member or foreign broker, or 

introduced by more than one 

introducing broker clearing accounts 

through the same futures commission 

merchant, and the name of the reporting 

trader’s account executive at each firm 

or office of the firm. 

(b) * * * 

(3) * * * 

(i) Commercial activity associated 

with use of the option or futures market 

(such as and including production, 

merchandising or processing of a cash 

commodity, asset or liability risk 

management by depository institutions, 

or security portfolio risk management). 

* * * * * 

18. In § 18.05, revise paragraphs (a)(2), 

(a)(3), and (a)(4) to read as follows: 

§ 18.05 Maintenance of books and records. 

(a) * * * 

(2) Over the counter or pursuant to 

sections 2(d), 2(g) or 2(h)(1)–(2) of the 

Act or part 35 of this chapter; 

(3) On exempt commercial markets 

operating pursuant to sections 2(h)(3)– 

(5) of the Act; 

(4) On exempt boards of trade 

operating pursuant to section 5d of the 

Act; and 

* * * * * 

PART 19—REPORTS BY PERSONS 

HOLDING BONA FIDE HEDGE 

POSITIONS PURSUANT TO § 1.3(z) OF 

THIS CHAPTER AND BY MERCHANTS 

AND DEALERS IN COTTON 

19. The authority citation for part 19 

continues to read as follows: 

Authority: 7 U.S.C. 6g(a), 6i, and 12a(5), as 

amended by Title XIII of the Food, 

Conservation and Energy Act of 2008, Pub. L. 

No. 110–246, 122 Stat. 1624 (June 18, 2008), 

unless otherwise noted. 

20. In § 19.00, revise paragraph (a) to 

read as follows: 

§ 19.00 General provisions. 

(a) Who must file series ’04 reports. 

The following persons are required to 

file series ’04 reports: 

(1) All persons holding or controlling 

futures and option positions that are 

reportable pursuant to § 15.00(n)(2) of 

this chapter and any part of which 

constitute bona fide hedging positions 

as defined in § 1.3(z) of this chapter; 

(2) Merchants and dealers of cotton 

holding or controlling positions for 

futures delivery in cotton that are 

reportable pursuant to § 15.00(n)(1)(i) of 

this chapter, or 

(3) All persons holding or controlling 

positions for future delivery that are 

reportable pursuant to § 15.00(n)(1) of 

this chapter who have received a special 

call for series ’04 reports from the 

Commission or its designee. Filings in 

response to a special call shall be made 

within one business day of receipt of the 

special call unless otherwise specified 

in the call. For the purposes of this 

paragraph, the Commission hereby 

delegates to the Director of the Division 

of Market Oversight, or to such other 

person designated by the Director, 

authority to issue calls for series ’04 

reports. 

* * * * * 

21. In § 19.01, revise paragraph (b) 

introductory text and paragraph (b)(1) to 

read as follows: 

§ 19.01 Reports on stocks and fixed price 

purchases and sales pertaining to futures 

positions in wheat, corn, oats, soybeans, 

soybean oil, soybean meal or cotton. 

* * * * * 

(b) Time and place of filing reports— 

Except for reports filed in response to 

special calls made under § 19.00(a)(3), 

each report shall be made monthly, as 

of the close of business on the last 

Friday of the month, and filed at the 

appropriate Commission office specified 

in paragraph (b)(1) or (2) of this section 

not later than the second business day 

following the date of the report in the 

case of the 304 report and not later than 

the third business day following the 


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date of the report in the case of the 204 

report. Reports may be transmitted by 

facsimile or, alternatively, information 

on the form may be reported to the 

appropriate Commission office by 

telephone and the report mailed to the 

same office, not later than midnight of 

its due date. 

(1) CFTC Form 204 reports with 

respect to transactions in wheat, corn, 

oats, soybeans, soybean meal and 

soybean oil should be sent to the 

Commission’s office in Chicago, IL, 

unless otherwise specifically authorized 

by the Commission or its designee. 

* * * * * 

PART 21—SPECIAL CALLS 

22. The authority citation for part 21 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 

6g, 6i, 6k, 6m, 6n, 7, 7a, 12a, 19 and 21, as 

amended by Title XIII of the Food, 

Conservation and Energy Act of 2008, Pub. L. 

No. 110–246, 122 Stat. 1624 (June 18, 2008); 

5 U.S.C. 552 and 552(b), unless otherwise 

noted. 

23. Revise § 21.01 to read as follows: 

§ 21.01 Special calls for information on 

controlled accounts from futures 

commission merchants, clearing members 

and introducing brokers. 

Upon call by the Commission, each 

futures commission merchant, clearing 

member and introducing broker shall 

file with the Commission the names and 

addresses of all persons who, by power 

of attorney or otherwise, exercise 

trading control over any customer’s 

account in commodity futures or 

commodity options on any reporting 

market. 

24. In § 21.02, revise the heading, 

introductory text, and paragraphs (f) and 

(i) to read as follows: 

§ 21.02 Special calls for information on 

open contracts in accounts carried or 

introduced by futures commission 

merchants, clearing members, members of 

reporting markets, introducing brokers, and 

foreign brokers. 

Upon special call by the Commission 

for information relating to futures or 

option positions held or introduced on 

the dates specified in the call, each 

futures commission merchant, clearing 

member, member of a reporting market, 

introducing broker, or foreign broker, 

and, in addition, for option information, 

each reporting market, shall furnish to 

the Commission the following 

information concerning accounts of 

traders owning or controlling such 

futures or option positions, except for 

accounts carried on a fully disclosed 

basis by another futures commission 

merchant or clearing member, as may be 

specified in the call: 

* * * * * 

(f) The number of open futures or 

option positions introduced or carried 

in each account, as specified in the call; 

* * * * * 

(i) As applicable, the following 

identifying information: 

(1) Whether a trader who holds 

commodity futures or option positions 

is classified as a commercial or as a 

noncommercial trader for each 

commodity futures or option contract; 

(2) Whether the open commodity 

futures or option contracts are classified 

as speculative, spreading (straddling), or 

hedging; and 

(3) Whether any of the accounts in 

question are omnibus accounts and, if 

so, whether the originator of the 

omnibus account is another futures 

commission merchant, clearing member 

or foreign broker. 

* * * * * 

25. Amend § 21.03 as follows: 

A. Revise the heading and paragraphs 

(a), (b), (c) and (d); 

B. Revise paragraph (e) introductory 

text and paragraphs (e)(1) introductory 

text , (e)(1)(iv) and (e)(1)(v); and 

C. Revise paragraphs (f), (g) and (h) to 

read as follows: 

§ 21.03 Selected special calls-duties of 

foreign brokers, domestic and foreign 

traders, futures commission merchants, 

clearing members, introducing brokers, and 

reporting markets. 

(a) For purposes of this section, the 

term ‘‘accounts of a futures commission 

merchant, clearing member or foreign 

broker’’ means all open contracts and 

transactions in futures and options on 

the records of the futures commission 

merchant, clearing member or foreign 

broker; the term ‘‘beneficial interest’’ 

means having or sharing in any rights, 

obligations or financial interest in any 

futures or options account; the term 

‘‘customer’’ means any futures 

commission merchant, clearing member, 

introducing broker, foreign broker, or 

trader for whom a futures commission 

merchant, clearing member or reporting 

market that is a registered entity under 

section 1a(29)(E) of the Act makes or 

causes to be made a futures or options 

contract. Paragraphs (e), (g) and (h) of 

this section shall not apply to any 

futures commission merchant, clearing 

member or customer whose books and 

records are open at all times to 

inspection in the United States by any 

representative of the Commission. 

(b) It shall be unlawful for a futures 

commission merchant to open a futures 

or options account or to effect 

transactions in futures or options 

contracts for an existing account, or for 

an introducing broker to introduce such 

an account, for any customer for whom 

the futures commission merchant or 

introducing broker is required to 

provide the explanation provided for in 

§ 15.05(c) of this chapter, or for a 

reporting market that is a registered 

entity under section 1a(29)(E) of the Act, 

to cause to open an account in a 

contract traded in reliance on the 

exemption in section 2(h)(3) of the Act 

or to cause to be effected transactions in 

a contract traded in reliance on the 

exemption in section 2(h)(3) of the Act 

for an existing account for any person 

that is a foreign clearing member or 

foreign trader, until the futures 

commission merchant, introducing 

broker, clearing member, or reporting 

market has explained fully to the 

customer, in any manner that such 

persons deem appropriate, the 

provisions of this section. 

(c) Upon a determination by the 

Commission that information 

concerning accounts may be relevant 

information in enabling the Commission 

to determine whether the threat of a 

market manipulation, corner, squeeze, 

or other market disorder exists on any 

reporting market, the Commission may 

issue a call for information from a 

futures commission merchant, clearing 

member, introducing broker or customer 

pursuant to the provisions of this 

section. 

(d) In the event the call is issued to 

a foreign broker, foreign clearing 

member or foreign trader, its agent, 

designated pursuant to § 15.05 of this 

chapter, shall, if directed, promptly 

transmit calls made by the Commission 

pursuant to this section by electronic 

mail or a similarly expeditious means of 

communication. 

(e) The futures commission merchant, 

clearing member, introducing broker, or 

customer to whom the special call is 

issued must provide to the Commission 

the information specified below for the 

commodity, reporting market and 

delivery months or option expiration 

dates named in the call. Such 

information shall be filed at the place 

and within the time specified by the 

Commission. 

(1) For each account of a futures 

commission merchant, clearing member, 

introducing broker, or foreign broker, 

including those accounts in the name of 

the futures commission merchant, 

clearing member or foreign broker, on 

the dates specified in the call issued 

pursuant to this section, such persons 

shall provide the Commission with the 

following information: 

* * * * * 


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(iv) Whether the account is carried for 

and in the name of another futures 

commission merchant, clearing member, 

introducing broker, or foreign broker; 

and 

(v) For the accounts which are not 

carried for and in the name of another 

futures commission merchant, clearing 

member, introducing broker, or foreign 

broker, the name and address of any 

other person who controls the trading of 

the account, and the name and address 

of any person who has a ten percent or 

more beneficial interest in the account. 

* * * * * 

(f) If the Commission has reason to 

believe that any person has not 

responded as required to a call made 

pursuant to this section, the 

Commission in writing may inform the 

reporting market specified in the call 

and that reporting market shall prohibit 

the execution of, and no futures 

commission merchant, clearing member, 

introducing broker, or foreign broker 

shall effect a transaction in connection 

with trades on the reporting market and 

in the months or expiration dates 

specified in the call for or on behalf of 

the futures commission merchant or 

customer named in the call, unless such 

trades offset existing open contracts of 

such futures commission merchant or 

customer. 

(g) Any person named in a special call 

that believes he or she is or may be 

adversely affected or aggrieved by action 

taken by the Commission under 

paragraph (f) of this section shall have 

the opportunity for a prompt hearing 

after the Commission acts. That person 

may immediately present in writing to 

the Commission for its consideration 

any comments or arguments concerning 

the Commission’s action and may 

present for Commission consideration 

any documentary or other evidence that 

person deems appropriate. Upon 

request, the Commission may, in its 

discretion, determine that an oral 

hearing be conducted to permit the 

further presentation of information and 

views concerning any matters by any or 

all such persons. The oral hearing may 

be held before the Commission or any 

person designated by the Commission, 

which person shall cause all evidence to 

be reduced to writing and forthwith 

transmit the same and a recommended 

decision to the Commission. The 

Commission’s directive under paragraph 

(f) of this section shall remain in effect 

unless and until modified or withdrawn 

by the Commission. 

(h) If, during the course of or after the 

Commission acts pursuant to paragraph 

(f) of this section, the Commission 

determines that it is appropriate to 

undertake a proceeding pursuant to 

section 6(c) of the Act, the Commission 

shall issue a complaint in accordance 

with the requirements of section 6(c), 

and, upon further determination by the 

Commission that the conditions 

described in paragraph (c) of this 

section still exist, a hearing pursuant to 

section 6(c) of the Act shall commence 

no later than five business days after 

service of the complaint. In the event 

the person served with the complaint 

under section 6(c) of the Act has, prior 

to the commencement of the hearing 

under section 6(c) of the Act, sought a 

hearing pursuant to paragraph (g) of this 

section and the Commission has 

determined to accord him such a 

hearing, the two hearings shall be 

conducted simultaneously. Nothing in 

this section shall preclude the 

Commission from taking other 

appropriate action under the Act or the 

Commission’s regulations thereunder, 

including action under section 6(c) of 

the Act, regardless of whether the 

conditions described in paragraph (c) of 

this section still exist, and no ruling 

issued in the course of a hearing 

pursuant to paragraph (g) or this section 

shall constitute an estoppel against the 

Commission in any other action. 

26. Revise § 21.04 to read as follows: 

§ 21.04 Delegation of authority to the 

Director of the Division of Market Oversight. 

The Commission hereby delegates, 

until the Commission orders otherwise, 

the special call authority set forth in 

§§ 21.01 and 21.02 the Director of the 

Division of Market Oversight to be 

exercised by such Director or by such 

other employee or employees of such 

Director as designated from time to time 

by the Director. The Director of the 

Division of Market Oversight may 

submit to the Commission for its 

consideration any matter which has 

been delegated in this paragraph. 

Nothing in this section shall be deemed 

to prohibit the Commission, at its 

election, from exercising the authority 

delegated in this section to the Director. 

PART 36—EXEMPT MARKETS 

27. The authority citation for part 36 

is revised to read as follows: 

Authority: 7 U.S.C. 2, 2(h)(7), 6, 6c and 

12a, as amended by Title XIII of the Food, 

Conservation and Energy Act of 2008, Pub. L. 

No. 110–246, 122 Stat. 1624 (June 18, 2008). 

28–30. Section 36.3 is amended by 

revising paragraphs (b) and (c), and 

adding paragraph (d), to read as follows: 

§ 36.3 Exempt commercial markets. 

* * * * * 

(b) Required information. 

(1) All electronic trading facilities. A 

facility operating in reliance on the 

exemption in section 2(h)(3) of the Act, 

initially and on an on-going basis, must: 

(i) Provide the Commission with the 

terms and conditions, as defined in part 

40.1(i) of this chapter and product 

descriptions for each agreement, 

contract or transaction listed by the 

facility in reliance on the exemption set 

forth in section 2(h)(3) of the Act, as 

well as trading conventions, 

mechanisms and practices; 

(ii) Provide the Commission with 

information explaining how the facility 

meets the definition of ‘‘trading facility’’ 

contained in section 1a(33) of the Act 

and provide the Commission with 

access to the electronic trading facility’s 

trading protocols, in a format specified 

by the Commission; 

(iii) Demonstrate to the Commission 

that the facility requires, and will 

require, with respect to all current and 

future agreements, contracts and 

transactions, that each participant 

agrees to comply with all applicable 

laws; that the authorized participants 

are ‘‘eligible commercial entities’’ as 

defined in section 1a(11) of the Act; that 

all agreements, contracts and 

transactions are and will be entered into 

solely on a principal-to-principal basis; 

and that the facility has in place a 

program to routinely monitor 

participants’ compliance with these 

requirements; 

(iv) At the request of the Commission, 

provide any other information that the 

Commission, in its discretion, deems 

relevant to its determination whether an 

agreement, contract, or transaction 

performs a significant price discovery 

function; and 

(v) File with the Commission 

annually, no later than the end of each 

calendar year, a completed copy of 

CFTC Form 205—Exempt Commercial 

Market Annual Certification. The 

information submitted in Form 205 

shall include: 

(A) A statement indicating whether 

the electronic trading facility continues 

to operate under the exemption; and 

(B) A certification that affirms the 

accuracy of and/or updates the 

information contained in the previous 

Notification of Operation as an Exempt 

Commercial Market. 

(2) Electronic trading facilities trading 

or executing agreements, contracts or 

transactions other than significant price 

discovery contracts. In addition to the 

requirements of paragraph (b)(1) of this 

section, a facility operating in reliance 

on the exemption in section 2(h)(3) of 

the Act, with respect to agreements, 

contracts or transactions that have not 

been determined to perform significant 


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price discovery function, initially and 

on an on-going basis, must: 

(i) Identify to the Commission those 

agreements, contracts and transactions 

conducted on the electronic trading 

facility with respect to which it intends, 

in good faith, to rely on the exemption 

in section 2(h)(3) of the Act, and which 

averaged five trades per day or more 

over the most recent calendar quarter; 

and, with respect to such agreements, 

contracts and transactions, either: 

(A) Submit to the Commission, in a 

form and manner acceptable to the 

Commission, a report for each business 

day, showing for each such agreement, 

contract or transaction executed the 

following information: 

(1) The underlying commodity, the 

delivery or price-basing location 

specified in the agreement, contract or 

transaction maturity date, whether it is 

a financially settled or physically 

delivered instrument, and the date of 

execution, time of execution, price, and 

quantity; 

(2) Total daily volume and, if cleared, 

open interest; 

(3) For an option instrument, in 

addition to the foregoing information, 

the type of option (i.e., call or put) and 

strike prices; and 

(4) Such other information as the 

Commission may determine. 

Each such report shall be 

electronically transmitted weekly, 

within such time period as is acceptable 

to the Commission after the end of the 

week to which the data applies; or 

(B) (1) Provide to the Commission, in 

a form and manner acceptable to the 

Commission, electronic access to those 

transactions conducted on the electronic 

trading facility in reliance on the 

exemption in section 2(h)(3) of the Act, 

and meeting the average five trades per 

day or more threshold test of this 

section, which would allow the 

Commission to compile the information 

described in paragraph (b)(2)(i)(A) of 

this section and create a permanent 

record thereof; 

(2) Maintain a record of allegations or 

complaints received by the electronic 

trading facility concerning instances of 

suspected fraud or manipulation in 

trading activity conducted in reliance 

on the exemption set forth in section 

2(h)(3) of the Act. The record shall 

contain the name of the complainant, if 

provided, date of the complaint, market 

instrument, substance of the allegations, 

and name of the person at the electronic 

trading facility who received the 

complaint; 

(3) Provide to the Commission, in the 

form and manner prescribed by the 

Commission, a copy of the record of 

each complaint received pursuant to 

paragraph (b)(2)(ii) of this section that 

alleges, or relates to, facts that would 

constitute a violation of the Act or 

Commission regulations. Such copy 

shall be provided to the Commission no 

later than 30 calendar days after the 

complaint is received. Provided, 

however, that in the case of a complaint 

alleging, or relating to, facts that would 

constitute an ongoing fraud or market 

manipulation under the Act or 

Commission regulations, such copy 

shall be provided to the Commission 

within three business days after the 

complaint is received; and 

(4) Provide to the Commission on a 

quarterly basis, within 15 calendar days 

of the close of each quarter, a list of each 

agreement, contract or transaction 

executed on the electronic trading 

facility in reliance on the exemption set 

forth in section 2(h)(3) of the Act and 

indicate for each such agreement, 

contract or transaction the contract 

terms and conditions, the contract’s 

average daily trading volume, and the 

most recent open interest figures. 

(3) Electronic trading facilities trading 

or executing significant price discovery 

contracts. In addition to the 

requirements of paragraph (b)(1) of this 

section, if the Commission determines 

that a facility operating in reliance on 

the exemption in section 2(h)(3) of the 

Act trades or executes an agreement, 

contract or transaction that performs a 

significant price discovery function, the 

facility must, with respect to any 

significant price discovery contract, 

publish and provide to the Commission 

the information required by § 16.01 of 

this chapter. 

(4) Delegation of authority. The 

Commission hereby delegates, until the 

Commission orders otherwise, the 

authority to determine the form and 

manner of submitting the required 

information under paragraphs (b)(1) 

through (3) of this section, to the 

Director of the Division of Market 

Oversight and such members of the 

Commission’s staff as the Director may 

designate. The Director may submit to 

the Commission for its consideration 

any matter that has been delegated by 

this paragraph. Nothing in this 

paragraph prohibits the Commission, at 

its election, from exercising the 

authority delegated in this paragraph. 

(5) Special calls. 

(i) All information required upon 

special call of the Commission under 

section 2(h)(5)(B)(iii) of the Act shall be 

transmitted at the time and to the office 

of the Commission as may be specified 

in the call. 

(ii) The Commission hereby delegates, 

until the Commission orders otherwise, 

the authority to make special calls as set 

forth in section 2(h)(5)(B)(iii) of the Act 

to the Directors of the Division of 

Market Oversight, the Division of 

Clearing and Intermediary Oversight, 

and the Division of Enforcement to be 

exercised by each such Director or by 

such other employee or employees as 

the Director may designate. The 

Directors may submit to the 

Commission for its consideration any 

matter that has been delegated in this 

paragraph. Nothing in this paragraph 

prohibits the Commission, at its 

election, from exercising the authority 

delegated in this paragraph. 

(6) Subpoenas to foreign persons. A 

foreign person whose access to an 

electronic trading facility is limited or 

denied at the direction of the 

Commission based on the Commission’s 

belief that the foreign person has failed 

timely to comply with a subpoena as 

provided under section 2(h)(5)(C)(ii) of 

the Act shall have an opportunity for a 

prompt hearing under the procedures 

provided in § 21.03(b) and (h) of this 

chapter. 

(7) Prohibited representation. An 

electronic trading facility relying upon 

the exemption in section 2(h)(3) of the 

Act, with respect to agreements, 

contracts or transactions that are not 

significant price discovery contracts, 

shall not represent to any person that it 

is registered with, designated, 

recognized, licensed or approved by the 

Commission. 

(c) Significant price discovery 

contracts. 

(1) Criteria for significant price 

discovery determination. The 

Commission may determine, in its 

discretion, that an electronic trading 

facility operating a market in reliance on 

the exemption in section 2(h)(3) of the 

Act performs a significant price 

discovery function for transactions in 

the cash market for a commodity 

underlying any agreement, contract or 

transaction executed or traded on the 

facility. In making such a determination, 

the Commission shall consider, as 

appropriate: 

(i) Price linkage. The extent to which 

the agreement, contract or transaction 

uses or otherwise relies on a daily or 

final settlement price, or other major 

price parameter, of a contract or 

contracts listed for trading on or subject 

to the rules of a designated contract 

market or a derivatives transaction 

execution facility to value a position, 

transfer or convert a position, cash or 

financially settle a position, or close out 

a position; 

(ii) Arbitrage. The extent to which the 

price for the agreement, contract or 

transaction is sufficiently related to the 

price of a contract or contracts listed for 


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trading on or subject to the rules of a 

designated contract market or 

derivatives transaction execution 

facility, or a significant price discovery 

contract or contracts trading on or 

subject to the rules of an electronic 

trading facility, so as to permit market 

participants to effectively arbitrage 

between the markets by simultaneously 

maintaining positions or executing 

trades in the contracts on a frequent and 

recurring basis; 

(iii) Material price reference. The 

extent to which, on a frequent and 

recurring basis, bids, offers, or 

transactions in a commodity are directly 

based on, or are determined by 

referencing, the prices generated by 

agreements, contracts or transactions 

being traded or executed on the 

electronic trading facility; 

(iv) Material liquidity. The extent to 

which the volume of agreements, 

contracts or transactions in the 

commodity being traded on the 

electronic trading facility is sufficient to 

have a material effect on other 

agreements, contracts or transactions 

listed for trading on or subject to the 

rules of a designated contract market, a 

derivatives transaction execution 

facility, or an electronic trading facility 

operating in reliance on the exemption 

in section 2(h)(3) of the Act; 

(v) Other material factors [Reserved]. 

(2) Notification of possible significant 

price discovery contract conditions. An 

electronic trading facility operating in 

reliance on section 2(h)(3) of the Act 

shall promptly notify the Commission, 

and such notification shall be 

accompanied by supporting information 

or data concerning any contract that: 

(i) Averaged five trades per day or 

more over the most recent calendar 

quarter; and 

(ii) (A) For which the exchange sells 

its price information regarding the 

contract to market participants or 

industry publications; or 

(B) Whose daily closing or settlement 

prices on 95 percent or more of the days 

in the most recent quarter were within 

2.5 percent of the contemporaneously 

determined closing, settlement or other 

daily price of another agreement, 

contract or transaction. 

(3) Procedure for significant price 

discovery determination. Before making 

a final price discovery determination 

under this paragraph, the Commission 

shall publish notice in the Federal 

Register that it intends to undertake a 

determination with respect to whether a 

particular agreement, contract or 

transaction performs a significant price 

discovery function and to receive 

written data, views and arguments 

relevant to its determination from the 

electronic trading facility and other 

interested persons. Any such written 

data, views and arguments shall be filed 

with the Secretary of the Commission, 

in the form and manner specified by the 

Commission, within 30 calendar days of 

publication of notice in the Federal 

Register or within such other time 

specified by the Commission. After 

consideration of all relevant 

information, the Commission shall issue 

an order explaining its determination 

whether the agreement, contract or 

transaction executed or traded by the 

electronic trading facility performs a 

significant price discovery function 

under the criteria specified in 

paragraphs (c)(1)(i) through (v) of this 

section. 

(4) Compliance with Core Principles. 

Following the issuance of an order by 

the Commission that the electronic 

trading facility executes or trades an 

agreement, contract or transaction that 

performs a significant price discovery 

function, the electronic trading facility 

must demonstrate, with respect to that 

agreement, contract or transaction, 

compliance with the Core Principles 

under section 2(h)(7)(C) of the Act and 

the applicable provisions of this part. If 

the Commission’s order represents the 

first time it has determined that the 

electronic trading facility’s agreement, 

contract or transaction performs a 

significant price discovery function, the 

facility must submit a written 

demonstration of compliance with the 

Core Principles within 90 calendar days 

of the date of the Commission’s order. 

For subsequent determinations by the 

Commission that the electronic trading 

facility has an additional agreement, 

contract or transaction that performs a 

significant price discovery function, the 

facility must submit a written 

demonstration of compliance with the 

Core Principles within 15 calendar days 

of the date of the Commission’s order. 

Attention is directed to Appendix B of 

this part for guidance on and acceptable 

practices for complying with the Core 

Principles. Submissions demonstrating 

how the electronic trading facility 

complies with the Core Principles with 

respect to its significant price discovery 

contract must be filed with the Secretary 

of the Commission at its Washington, 

DC headquarters. Submissions must 

include the following: 

(i) A written certification that the 

significant price discovery contract(s) 

complies with the Act and regulations 

thereunder; 

(ii) A copy of the electronic trading 

facility’s rules (as defined in § 40.1 of 

this chapter) and any technical manuals, 

other guides or instructions for users of, 

or participants in, the market, including 

minimum financial standards for 

members or market participants. 

Subsequent rule changes must be 

certified by the electronic trading 

facility pursuant to section 5c(c) of the 

Act and § 40.6 of this chapter. The 

electronic trading facility also may 

request Commission approval of any 

rule changes pursuant to section 5c(c) of 

the Act and § 40.5 of this chapter; 

(iii) A description of the trading 

system, algorithm, security and access 

limitation procedures with a timeline 

for an order from input through 

settlement, and a copy of any system 

test procedures, tests conducted, test 

results and contingency or disaster 

recovery plans; 

(iv) A copy of any documents 

pertaining to or describing the 

electronic trading system’s legal status 

and governance structure, including 

governance fitness information; 

(v) An executed or executable copy of 

any agreements or contracts entered into 

or to be entered into by the electronic 

trading facility, including partnership or 

limited liability company, third-party 

regulatory service, or member or user 

agreements, that enable or empower the 

electronic trading facility to comply 

with a Core Principle; 

(vi) A copy of any manual or other 

document describing, with specificity, 

the manner in which the trading facility 

will conduct trade practice, market and 

financial surveillance; 

(vii) To the extent that any of the 

items in paragraphs (c)(4)(ii) through 

(vi) of this section raise issues that are 

novel, or for which compliance with a 

core principle is not self-evident, an 

explanation of how that item satisfies 

the applicable core principle or 

principles. The electronic trading 

facility must identify with particularity 

information in the submission that will 

be subject to a request for confidential 

treatment pursuant to § 145.09 of this 

chapter. The electronic trading facility 

must follow the procedures specified in 

§ 40.8 of this chapter with respect to any 

information in its submission for which 

confidential treatment is requested. 

(5) Determination of compliance with 

core principles. The Commission shall 

take into consideration differences 

between cleared and uncleared 

significant price discovery contracts 

when reviewing the implementation of 

the Core Principles by an electronic 

trading facility. The electronic facility 

also has reasonable discretion in 

accounting for differences between 

cleared and uncleared significant price 

discovery contracts when establishing 

the manner in which it complies with 

the Core Principles. 


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(6) Information relating to compliance 

with core principles. Upon request by 

the Commission, an electronic trading 

facility trading a significant price 

discovery contract shall file with the 

Commission a written demonstration, 

containing such supporting data, 

information and documents, in the form 

and manner and within such time as the 

Commission may specify, that the 

electronic trading facility is in 

compliance with one or more core 

principles as specified in the request, or 

that is otherwise requested by the 

Commission to enable the Commission 

to satisfy its obligations under the Act. 

(7) Enforceability. An agreement, 

contract or transaction entered into on 

or pursuant to the rules of an electronic 

trading facility trading or executing a 

significant price discovery contract shall 

not be void, voidable, subject to 

rescission or otherwise invalidated or 

rendered unenforceable as a result of: 

(i) A violation by the electronic 

trading facility of the provisions of 

section 2(h) of the Act or this part; or 

(ii) Any Commission proceeding to 

alter or supplement a rule, term or 

condition under section 8a(7) of the Act, 

to declare an emergency under section 

8a(9) of the Act, or any other proceeding 

the effect of which is to alter, 

supplement or require an electronic 

trading facility to adopt a specific term 

or condition, trading rule or procedure, 

or to take or refrain from taking a 

specific action. 

(8) Procedures for vacating a 

determination of a significant price 

discovery function. 

(i) By the electronic trading facility. 

An electronic trading facility that 

executes or trades an agreement, 

contract or transaction that the 

Commission has determined performs a 

significant price discovery function 

under paragraph (c)(3) of this section 

may petition the Commission to vacate 

that determination. The petition shall 

demonstrate that the agreement, 

contract or transaction no longer 

performs a significant price discovery 

function under the criteria specified in 

paragraph (c)(1) of this section, and has 

not done so for at least the prior 12 

months. An electronic trading facility 

shall not petition for a vacation of a 

significant price discovery 

determination more frequently than 

once every 12 months. 

(ii) By the Commission. The 

Commission may, on its own initiative, 

begin vacation proceedings if it believes 

that an agreement, contract or 

transaction has not performed a 

significant price discovery function for 

at least the prior 12 months. 

(iii) Procedure. Before making a final 

determination whether an agreement, 

contract or transaction has ceased to 

perform a significant price discovery 

function, the Commission shall publish 

notice in the Federal Register that it 

intends to undertake such a 

determination and to receive written 

data, views and arguments relevant to 

its determination from the electronic 

trading facility and other interested 

persons. Written submissions shall be 

filed with the Secretary of the 

Commission in the form and manner 

specified by the Commission, within 30 

calendar days of publication of notice in 

the Federal Register or within such 

other time specified by the Commission. 

After consideration of all relevant 

information, the Commission shall issue 

an order explaining its determination 

whether the agreement, contract or 

transaction has ceased to perform a 

significant price discovery function and, 

if so, vacating its prior order. If such an 

order issues, and the Commission 

subsequently determines, on its own 

initiative or after notification by the 

electronic trading facility, that the 

agreement, contract or transaction that 

was subject to the vacation order again 

performs a significant price discovery 

function, the electronic trading facility 

must comply with the Core Principles 

within 15 calendar days of the date of 

the Commission’s order. 

(iv) Automatic vacation of significant 

price discovery determination. 

Regardless of whether a proceeding to 

vacate has been initiated, any significant 

price discovery contract that has no 

open interest and in which no trading 

has occurred for a period of 12 complete 

and consecutive calendar months shall, 

without further proceedings, no longer 

be considered to be a significant price 

discovery contract. 

(d) Commission review. The 

Commission shall, at least annually, 

evaluate as appropriate agreements, 

contracts or transactions conducted on 

an electronic trading facility in reliance 

on the exemption provided in section 

2(h)(3) of the Act to determine whether 

they serve a significant price discovery 

function as described in paragraph (c)(1) 

of this section 31. Part 36 is amended by 

adding a new Appendix A to read as 

follows: 

Appendix A to Part 36—Guidance on 

Significant Price Discovery Contracts 

1. Section 2(h)(7) of the CEA specifies four 

factors that the Commission must consider, 

as appropriate, in making a determination 

that a contract is performing a significant 

price discovery function. The four factors 

prescribed by the statute are: Price Linkage; 

Arbitrage; Material Price Reference; and 

Material Liquidity. 

2. Not all listed factors must be present to 

support a determination that a contract 

performs a significant price discovery 

function. Moreover, the statutory language 

neither prioritizes the factors nor specifies 

the degree to which a significant price 

discovery contract must conform to the 

various factors. Congress has indicated that it 

intends that the Commission should not 

make a determination that an agreement, 

contract or transaction performs a significant 

price discovery function on the basis of the 

Price Linkage factor unless the agreement, 

contract or transaction also has sufficient 

volume to impact other regulated contracts or 

to become an independent price reference or 

benchmark that is regularly utilized by the 

public. The Commission believes that the 

Arbitrage and Material Price Reference 

factors can be considered separately from 

each other. That is, the Commission could 

make a determination that a contract serves 

a significant price discovery function based 

on the presence of one of these factors and 

the absence of the other. The presence of any 

of these factors, however, would not 

necessarily be sufficient to establish the 

contract as a significant price discovery 

contract. The fourth factor, Liquidity, would 

be considered in conjunction with the 

arbitrage and linkage factors as a significant 

amount of liquidity presumably would be 

necessary for a contract to perform a 

significant price discovery function in 

conjunction with these factors. 

3. These factors do not lend themselves to 

a mechanical checklist or formulaic analysis. 

Accordingly, this guidance is intended to 

illustrate which factors, or combinations of 

factors, the Commission will look to when 

determining that a contract is performing a 

significant price discovery function, and 

under what circumstances the presence of a 

particular factor or factors would be 

sufficient to support such a determination. 

(A) MATERIAL LIQUIDITY—The extent to 

which the volume of agreements, contracts or 

transactions in the commodity being traded 

on the electronic trading facility is sufficient 

to have a material effect on other agreements, 

contracts or transactions listed for trading on 

or subject to the rules of a designated 

contract market, a derivatives transaction 

execution facility, or an electronic trading 

facility operating in reliance on the 

exemption in section 2(h)(3) of the Act. 

(1) Liquidity is a broad concept that 

captures the ability to transact immediately 

with little or no price concession. 

Traditionally, objective measures of trading 

such as volume or open interest have been 

used as measures of liquidity. So, for 

example, a market in which trades occur 

multiple times per minute at prices that 

differ by only fractions of a cent normally 

would be considered highly liquid, since 

presumably a trader could quickly execute a 

trade at a price that was approximately the 

same as the price for other recently executed 

trades. Other factors also will affect the 

characterization of liquidity, such as whether 

a large trade—e.g., 100 contracts versus 1 

contract—could be executed without a 

significant price concession. For example, 


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having to wait a day to sell 1000 bushels of 

corn may be considered an illiquid market 

while waiting a day to sell a home may be 

considered quite liquid. Thus, quantifying 

the levels of immediacy and price concession 

that would define material liquidity may 

differ from one market or commodity to 

another. 

(2) The Commission believes that material 

liquidity alternatively can be identified by 

the impact liquidity exhibits through 

observed prices. In markets where material 

liquidity exists, a more or less continuous 

stream of prices can be observed and the 

prices should be similar. For example, if the 

trading of a contract occurs on average five 

times a day, there will be on average five 

observed prices for the contract per day. If 

the market is liquid in terms of traders 

having to make little in the way of price 

concessions to execute these trades, the 

prices of this contract should be similar to 

those observed for similar or related contracts 

traded in liquid markets elsewhere. Thus, in 

making determinations that contracts have 

material liquidity, the Commission will look 

to transaction prices, both in terms of how 

often prices are observed and the extent to 

which observed prices tend to correlate with 

other contemporaneous prices. 

(3) The Commission anticipates that 

material liquidity will frequently be a 

consideration in evaluating whether a 

contract is a significant price discovery 

contract; however, there may be 

circumstances in which other factors so 

dominate the conclusion that a contract is 

serving a significant price discovery function 

that a finding of material liquidity in the 

contract would not be necessary. 

Circumstances in which this might arise are 

discussed with respect to the assessment of 

other factors below. 

(4) Finally, material liquidity itself would 

not be sufficient to make a determination that 

a contract is a significant price discovery 

contract, but combined with other factors it 

can serve as a guidepost indicating which 

contracts are functioning as significant price 

discovery contracts. As further discussed 

below, material liquidity, as reflected 

through the prices of linked or arbitraged 

contracts, will be a primary consideration in 

determining whether such contracts are 

significant price discovery contracts. 

(B) PRICE LINKAGE—The extent to which 

the agreement, contract or transaction uses 

or otherwise relies on a daily or final 

settlement price, or other major price 

parameter, of a contract or contracts listed 

for trading on or subject to the rules of a 

designated contract market or a derivatives 

transaction execution facility to value a 

position, transfer or convert a position, cash 

or financially settle a position, or close out 

a position. 

(1) A price-linked contract is a contract 

that relies on a contract traded on another 

trading facility to settle, value or otherwise 

offset the price-linked contract. The link may 

involve a one-to-one linkage, in that the 

value of the linked contract is based on a 

single contract’s price, or it may involve 

multiple contracts. An example of a multiple 

contract linkage might be where the 

settlement price is calculated as an index of 

prices obtained from a basket of contracts 

traded on other exchanges. 

(2) For a linked contract, the mere fact that 

a contract is linked to another contract will 

not be sufficient to support a determination 

that a contract performs a significant price 

discovery function. To assess whether such 

a determination is warranted, the 

Commission will examine the relationship 

between transaction prices of the linked 

contract and the prices of the referenced 

contract(s). The Commission believes that 

where material liquidity exists, prices for the 

linked contract would be observed to be 

substantially the same as or move 

substantially in conjunction with the prices 

of the referenced contract(s). Where such 

price characteristics are observed on an 

ongoing basis, the Commission would expect 

to determine that the linked contract is a 

significant price discovery contract. 

(3) As an example, where the Commission 

has observed price linkage, it will next 

consider whether transactions were occurring 

on a daily basis for the linked contract in 

material volumes. (Conversely, where 

volume has increased noticeably in a 

particular contract, the Commission would 

look for linkage) The ultimate level of 

volume that would be considered material for 

purposes of deeming a contract a significant 

price discovery contract will likely differ 

from one contract to another depending on 

the characteristics of the underlying 

commodity and the overall size of the 

physical market in which it is traded. At a 

minimum, however, the Commission will 

consider a linked contract which has volume 

equal to 5% of the volume of trading in the 

contract to which it is linked to have 

sufficient volume potentially to be deemed a 

significant price discovery contract. In 

combination with this volume level, the 

Commission will also examine the 

relationship between prices of the linked 

contract and the contract to which it is linked 

to determine whether a contract is serving a 

significant price discovery function. As a 

threshold, the Commission will consider a 

2.5 percent price range for 95 percent of 

contemporaneously determined closing, 

settlement, or other daily prices over the 

most recent quarter to be sufficiently close 

for a linked contract potentially to be deemed 

a significant price discovery contract. For 

example, if, over the most recent quarter, it 

was found that 95 percent of the closing, 

settlement, or other daily prices of the 

contract, which have been calculated using 

transaction prices, were within 2.5 percent of 

the contemporaneously determined closing, 

settlement, or other daily prices of a contract 

to which it was linked, the Commission 

potentially would consider the contract to 

perform a significant price discovery 

function. 

(4) If, in the example above, the 

Commission determines that material volume 

existed, it will examine the relationship 

between the prices of the linked contracts 

and the referenced contracts. If it finds that 

the transaction prices of the linked contract 

were consistently within a small percentage 

of the referenced contract or index of 

contracts that was being referenced, the 

Commission will be likely to find the linked 

contract to be a significant price discovery 

contract. As a threshold, the Commission 

will consider a 2.5 percent price range for 95 

per cent of closing or settlement prices over 

the most recent quarter to be sufficiently 

close for a linked contract to potentially be 

deemed a significant price discovery 

contract. For example, if, over the most 

recent quarter, it was found that on 95 

percent or more of the days the closing or 

settlement price of the contract, which has 

been calculated using transaction prices, was 

within 2.5 percent of the closing or 

settlement price of a contract to which it was 

linked, the Commission potentially will 

consider the contract to perform a significant 

price discovery function. 

(C) ARBITRAGE CONTRACTS—The extent 

to which the price for the agreement, contract 

or transaction is sufficiently related to the 

price of a contract or contracts listed for 

trading on or subject to the rules of a 

designated contract market or derivatives 

transaction execution facility, or a significant 

price discovery contract or contracts trading 

on or subject to the rules of an electronic 

trading facility, so as to permit market 

participants to effectively arbitrage between 

the markets by simultaneously maintaining 

positions or executing trades in the contracts 

on a frequent and recurring basis. 

(1) Arbitrage contracts are those contracts 

that can be combined with other contracts to 

exploit expected economic relationships in 

anticipation of a profit. In assessing whether 

a contract can be incorporated into an 

arbitrage strategy, the Commission will weigh 

the terms and conditions of a contract in 

comparison to contracts that potentially 

could be used in an arbitrage strategy; will 

consult with industry or other sources 

regarding a contract’s viability in an arbitrage 

strategy; and will rely on direct observation 

confirming the use of a contract in arbitrage 

strategies. 

(2) As with linked contracts, the mere fact 

that a contract could be employed in an 

arbitrage strategy will not be sufficient to 

make a determination that a contract is a 

significant price discovery contract. In 

addition, the level of liquidity will be 

considered. To assess whether designation as 

a significant price discovery contract is 

warranted, the Commission will examine the 

relationship between transaction prices of an 

arbitrage contract and the prices of the 

contract(s) to which it is related. The 

Commission believes that where material 

liquidity exists, prices for the arbitrage 

contract would be observed to move 

substantially in conjunction with the prices 

of the related contract(s) to which it is 

economically linked. Where such price 

characteristics are observed on an ongoing 

basis, it is likely that the linked contract 

performs a significant price discovery 

function. 

(3) The Commission will apply the same 

threshold liquidity and price relationship 

standards for arbitrage contracts as it does for 

linked contracts. That is, the Commission 

will view the average of 5 trades per day or 

more threshold as the level of activity that 

would potentially meet the material volume 

criterion. With respect to prices, the 

Commission will consider an arbitrage 


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contract potentially to be a significant price 

discovery contract if, over the most recent 

quarter, greater than 95 percent of the closing 

or settlement prices of the contract, which 

have been calculated using transaction 

prices, fall within 2.5 percent of the closing 

or settlement price of the contract or 

contracts to which it could be arbitraged. 

(D) MATERIAL PRICE REFERENCE—The 

extent to which, on a frequent and recurring 

basis, bids, offers or transactions in a 

commodity are directly based on, or are 

determined by referencing, the prices 

generated by agreements, contracts or 

transactions being traded or executed on the 

electronic trading facility. 

(1) The Commission will rely on one of two 

sources of evidence—direct or indirect—to 

determine that the price of a contract was 

being used as a material price reference and, 

therefore, serving a significant price 

discovery function. The primary source of 

direct evidence is that cash market bids, 

offers or transactions are directly based on, 

or quoted at a differential to, the prices 

generated on the market on a frequent and 

recurring basis. The Commission expects that 

normally only contracts with material 

liquidity will be referenced by the cash 

market; however, the Commission notes that 

it may be possible for a contract to have very 

low liquidity and yet still be used as a price 

reference. In such cases, the simple fact that 

participants in the underlying cash market 

broadly have elected to use the contract price 

as a price reference would be a strong 

indicator that the contract is a significant 

price discovery contract. 

(2) In evaluating a contract’s price 

discovery role as a directly referenced price 

source, the Commission will perform an 

analysis to determine whether cash market 

participants are quoting bid or offer prices or 

entering into transactions at prices that are 

set either explicitly or implicitly at a 

differential to prices established for the 

contract. Cash market prices are set explicitly 

at a differential to the section 2(h)(3) contract 

when, for instance, they are quoted in dollars 

and cents above or below the reference 

contract’s price. Cash market prices are set 

implicitly at a differential to a section 2(h)(3) 

contract when, for instance, they are arrived 

at after adding to, or subtracting from the 

section 2(h)(3) contract, but then quoted or 

reported at a flat price. The Commission will 

also consider whether cash market entities 

are quoting cash prices based on a section 

2(h)(3) contract on a frequent and recurring 

basis. 

(3) The second source of evidence is that 

the price of the contract is being routinely 

disseminated in widely distributed industry 

publications—or offered by the ECM itself for 

some form of remuneration—and consulted 

on a frequent and recurring basis by industry 

participants in pricing cash market 

transactions. As with contract prices that are 

directly incorporated into cash market prices, 

the Commission assumes that industry 

publications choose to publish prices 

because of the value they transfer to industry 

participants for the purpose of formulating 

prices in the cash market. 

(4) In applying this criterion, consideration 

will be given to whether prices established 

by a section 2(h)(3) contract are reported in 

a widely distributed industry publication. In 

making this determination, the Commission 

will consider the reputation of the 

publication within the industry, how 

frequently it is published, and whether the 

information contained in the publication is 

routinely consulted by industry participants 

in pricing cash market transactions. 

(5) Under a Material Price Reference 

analysis, the Commission expects that 

material liquidity in the contract likely will 

be the primary motivation for a publisher to 

publish particular prices. In other words, the 

fact that the price of a contract is being used 

as a reference by industry participants 

suggests, prima facie, that the contract 

performs a significant price discovery 

function. But the Commission recognizes that 

trading levels could nonetheless be low for 

the contract while still serving a significant 

price discovery function and that evidence of 

routine publication and consultation by 

industry participants may be sufficient to 

establish the contract as a significant price 

discovery contract. On the other hand, while 

cash market participants may regularly refer 

to published prices of a particular contract 

when establishing cash market prices, it may 

be the case that the contract itself is a niche 

market for a specialized grade of the 

commodity or for delivery at a minor 

geographic location. In such cases, the 

Commission will look to such measures as 

trading volume, open interest, and the 

significance of the underlying cash market to 

make a determination that a contract is 

functioning as a significant price discovery 

contract. If an examination of trading in the 

contract were to reveal that true price 

discovery was occurring in other more 

broadly defined contracts and that this 

contract was itself simply reflective of those 

broader contracts, it is less likely the 

Commission will deem the contract a 

significant price discovery contract. 

(6) Because price referencing normally 

occurs out of the view of the electronic 

trading facility, the Commission may have 

difficulty ascertaining the extent to which 

cash market participants actually reference or 

consult a contract’s price when transacting. 

The Commission expects, however, that as a 

contract begins to be relied upon to set a 

reference price, market participants will be 

increasingly willing to purchase price 

information. To the extent, then, that an 

electronic trading facility begins to sell its 

price information regarding a contract to 

market participants or industry publications, 

the contract will meet a threshold standard 

to indicate that the contract potentially is a 

significant price discovery contract. 

32. Part 36 is amended by adding a 

new Appendix B to read as follows: 

Appendix B to Part 36—Guidance On, 

and Acceptable Practices in, 

Compliance With Core Principles 

1. This Appendix provides guidance on 

complying with the core principles under 

section 2(h)(7)(C) of the Act and this part, 

both initially and on an ongoing basis. The 

guidance is provided in paragraph (a) 

following each core principle and can be 

used to demonstrate to the Commission core 

principle compliance under § 36.3(c)(4). The 

guidance for each core principle is 

illustrative only of the types of matters an 

electronic trading facility may address, as 

applicable, and is not intended to be used as 

a mandatory checklist. Addressing the issues 

and questions set forth in this guidance will 

help the Commission in its consideration of 

whether the electronic trading facility is in 

compliance with the core principles. A 

submission pursuant to § 36.3(c)(4) should 

include an explanation or other form of 

documentation demonstrating that the 

electronic trading facility complies with the 

core principles. 

2. Acceptable practices meeting selected 

requirements of the core principles are set 

forth in paragraph (b) following each core 

principle. Electronic trading facilities on 

which significant price discovery contracts 

are traded or executed that follow the 

specific practices outlined under paragraph 

(b) for any core principle in this appendix 

will meet the selected requirements of the 

applicable core principle. Paragraph (b) is for 

illustrative purposes only, and does not state 

the exclusive means for satisfying a core 

principle. 

CORE PRINCIPLE I OF SECTION 

2(h)(7)(C)—CONTRACTS NOT READILY 

SUSCEPTIBLE TO MANIPULATION. The 

electronic trading facility shall list only 

significant price discovery contracts that are 

not readily susceptible to manipulation. 

(a) Guidance. Upon determination by the 

Commission that a contract listed for trading 

on an electronic trading facility is a 

significant price discovery contract, the 

electronic trading facility must self-certify 

the terms and conditions of the significant 

price discovery contract under § 36.3(c)(4) 

within 90 calendar days of the date of the 

Commission’s order, if the contract is the 

electronic trading facility’s first significant 

price discovery contract; or 15 days from the 

date of the Commission’s order if the contract 

is not the electronic trading facility’s first 

significant price discovery contract. Once the 

Commission determines that a contract 

performs a significant price discovery 

function, subsequent rule changes must be 

self-certified to the Commission by the 

electronic trading facility pursuant to § 40.6 

of this chapter. 

(b) Acceptable practices. Guideline No. 1, 

17 CFR part 40, Appendix A may be used as 

guidance in meeting this core principle for 

significant price discovery contracts. 

CORE PRINCIPLE II OF SECTION 

2(h)(7)(C)—MONITORING OF TRADING. 

The electronic trading facility shall monitor 

trading in significant price discovery 

contracts to prevent market manipulation, 

price distortion, and disruptions of the 

delivery of cash-settlement process through 

market surveillance, compliance and 

disciplinary practices and procedures, 

including methods for conducting real-time 

monitoring of trading and comprehensive 

and accurate trade reconstructions. 

(a) Guidance. An electronic trading facility 

on which significant price discovery 

contracts are traded or executed should, with 

respect to those contracts, demonstrate a 

capacity to prevent market manipulation and 


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have trading and participation rules to detect 

and deter abuses. The facility should seek to 

prevent market manipulation and other 

trading abuses through a dedicated regulatory 

department or by delegation of that function 

to an appropriate third party. An electronic 

trading facility also should have the authority 

to intervene as necessary to maintain an 

orderly market. 

(b) Acceptable practices. 

(1) An acceptable trade monitoring 

program. An acceptable trade monitoring 

program should facilitate, on both a routine 

and non-routine basis, arrangements and 

resources to detect and deter abuses through 

direct surveillance of each significant price 

discovery contract. Direct surveillance of 

each significant price discovery contract will 

generally involve the collection of various 

market data, including information on 

participants’ market activity. Those data 

should be evaluated on an ongoing basis in 

order to make an appropriate regulatory 

response to potential market disruptions or 

abusive practices. For contracts with a 

substantial number of participants, an 

effective surveillance program should 

employ a much more comprehensive large 

trader reporting system. 

(2) Authority to collect information and 

documents. The electronic trading facility 

should have the authority to collect 

information and documents in order to 

reconstruct trading for appropriate market 

analysis. Appropriate market analysis should 

enable the electronic trading facility to assess 

whether each significant price discovery 

contract is responding to the forces of supply 

and demand. Appropriate data usually 

include various fundamental data about the 

underlying commodity, its supply, its 

demand, and its movement through market 

channels. Especially important are data 

related to the size and ownership of 

deliverable supplies—the existing supply 

and the future or potential supply—and to 

the pricing of the deliverable commodity 

relative to the futures price and relative to 

similar, but non-deliverable, kinds of the 

commodity. For cash-settled contracts, it is 

more appropriate to pay attention to the 

availability and pricing of the commodity 

making up the index to which the contract 

will be settled, as well as monitoring the 

continued suitability of the methodology for 

deriving the index. 

(3) Ability to assess participants’ market 

activity and power. To assess participants’ 

activity and potential power in a market, 

electronic trading facilities, with respect to 

significant price discovery contracts, at a 

minimum should have routine access to the 

positions and trading of its participants and, 

if applicable, should provide for such access 

through its agreements with its third-party 

provider of clearing services. 

CORE PRINCIPLE III OF SECTION 

2(h)(7)(C)—ABILITY TO OBTAIN 

INFORMATION. The electronic trading 

facility shall establish and enforce rules that 

allow the electronic trading facility to obtain 

any necessary information to perform any of 

the functions described in this subparagraph, 

provide the information to the Commission 

upon request, and have the capacity to carry 

out such international information-sharing 

agreements as the Commission may require. 

(a) Guidance. An electronic trading facility 

on which significant price discovery 

contracts are traded or executed should, with 

respect to those contracts, have the ability 

and authority to collect information and 

documents on both a routine and non-routine 

basis, including the examination of books 

and records kept by participants. This 

includes having arrangements and resources 

for recording full data entry and trade details 

and safely storing audit trail data. An 

electronic trading facility should have 

systems sufficient to enable it to use the 

information for purposes of assisting in the 

prevention of participant and market abuses 

through reconstruction of trading and 

providing evidence of any violations of the 

electronic trading facility’s rules. 

(b) Acceptable practices. 

(1) The goal of an audit trail is to detect 

and deter market abuse. An effective contract 

audit trail should capture and retain 

sufficient trade-related information to permit 

electronic trading facility staff to detect 

trading abuses and to reconstruct all 

transactions within a reasonable period of 

time. An audit trail should include 

specialized electronic surveillance programs 

that identify potentially abusive trades and 

trade patterns. An acceptable audit trail must 

be able to track an order from time of entry 

into the trading system through its fill. The 

electronic trading facility must create and 

maintain an electronic transaction history 

database that contains information with 

respect to transactions executed on each 

significant price discovery contract. 

(2) An acceptable audit trail should 

include the following: original source 

documents, transaction history, electronic 

analysis capability, and safe storage 

capability. An acceptable audit trail system 

would satisfy the following practices. 

(i) Original source documents. Original 

source documents include unalterable, 

sequentially identified records on which 

trade execution information is originally 

recorded. For each order (whether filled, 

unfilled or cancelled, each of which should 

be retained or electronically captured), such 

records reflect the terms of the order, an 

account identifier that relates back to the 

account(s) owner(s), and the time of order 

entry. 

(ii) Transaction history. A transaction 

history consists of an electronic history of 

each transaction, including: 

(A) All the data that are input into the 

trade entry or matching system for the 

transaction to match and clear; 

(B) Timing and sequencing data adequate 

to reconstruct trading; and 

(C) The identification of each account to 

which fills are allocated. 

(iii) Electronic analysis capability. An 

electronic analysis capability that permits 

sorting and presenting data included in the 

transaction history so as to reconstruct 

trading and to identify possible trading 

violations with respect to market abuse. 

(iv) Safe storage capability. Safe storage 

capability provides for a method of storing 

the data included in the transaction history 

in a manner that protects the data from 

unauthorized alteration, as well as from 

accidental erasure or other loss. Data should 

be retained in the form and manner specified 

by the Commission or, where no acceptable 

manner of retention is specified, in 

accordance with the recordkeeping standards 

of Commission regulation 1.31. 

(3) Arrangements and resources for the 

disclosure of the obtained information and 

documents to the Commission upon request. 

To satisfy section 2(h)(7)(C)(III)(bb), the 

electronic trading facility should maintain 

records of all information and documents 

related to each significant price discovery 

contract in a form and manner acceptable to 

the Commission. Where no acceptable 

manner of maintenance is specified, records 

should be maintained in accordance with the 

recordkeeping standards of Commission 

regulation 1.31. 

(4) The capacity to carry out appropriate 

information-sharing agreements as the 

Commission may require. Appropriate 

information-sharing agreements could be 

established with other markets or the 

Commission can act in conjunction with the 

electronic trading facility to carry out such 

information sharing. 

CORE PRINCIPLE IV OF SECTION 

2(h)(7)(C)—POSITION LIMITATIONS OR 

ACCOUNTABILITY. The electronic trading 

facility shall adopt, where necessary and 

appropriate, position limitations or position 

accountability for speculators in significant 

price discovery contracts, taking into account 

positions in other agreements, contracts and 

transactions that are treated by a derivatives 

clearing organization, whether registered or 

not registered, as fungible with such 

significant price discovery contracts to 

reduce the potential threat of market 

manipulation or congestion, especially 

during trading in the delivery month. 

(a) Guidance. [Reserved] 

(b) Acceptable practices. 

(1) Introduction. In order to diminish 

potential problems arising from excessively 

large speculative positions, and to facilitate 

orderly liquidation of expiring contracts, an 

electronic trading facility relying on the 

exemption in section 2(h)(3) should adopt 

rules that set position limits or accountability 

levels on traders’ cleared positions in 

significant price discovery contracts. These 

position limit rules specifically may exempt 

bona fide hedging; permit other exemptions; 

or set limits differently by market, delivery 

month or time period. For the purpose of 

evaluating a significant price discovery 

contract’s speculative-limit program for 

cleared positions, the Commission will 

consider the specified position limits or 

accountability levels, aggregation policies, 

types of exemptions allowed, methods for 

monitoring compliance with the specified 

limits or levels, and procedures for dealing 

with violations. 

(2) Accounting for cleared and uncleared 

trades. 

(i) Speculative-limit levels typically should 

be set in terms of a trader’s combined 

position involving cleared trades in a 

significant price discovery contract, plus 

positions in agreements, contracts and 

transactions that are treated by a derivatives 

clearing organization, whether registered or 

not registered, as fungible with such 

significant price discovery contract. (This 


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circumstance typically exists where an 

exempt commercial market lists a particular 

contract for trading but also allows for 

positions in that contract to be cleared 

together with positions established through 

bilateral or off-exchange transactions, such as 

block trades, in the same contract. 

Essentially, both the on-facility and offfacility transactions are considered fungible 

with each other.) In this connection, the 

electronic trading facility should make 

arrangements to ensure that it is able to 

ascertain accurate position data for the 

market. 

(ii) For significant price discovery 

contracts that may be traded on either a 

cleared or an uncleared basis, the electronic 

trading facility should apply position limits 

to cleared transactions in the contract. For 

those transactions in the contract that are not 

cleared, the electronic trading facility should 

establish accountability procedures for 

monitoring traders’ overall positions and take 

that information into account when 

ascertaining whether an individual trader’s 

overall position poses a threat to the market. 

(3) Limitations on spot-month positions. 

Spot-month limits should be adopted for 

significant price discovery contracts to 

minimize the susceptibility of the market to 

manipulation or price distortions, including 

squeezes and corners or other abusive trading 

practices. 

(i) Contracts economically equivalent to an 

existing contract. An electronic trading 

facility that lists a significant price discovery 

contract that is economically-equivalent to 

another significant price discovery contract 

or to a contract traded on a designated 

contract market or derivatives transaction 

execution facility should set the spot-month 

limit for its significant price discovery 

contract at the same level as that specified for 

the economically-equivalent contract. 

(ii) Contracts that are not economically 

equivalent to an existing contract. There may 

not be an economically-equivalent significant 

price discovery contract or economically 

equivalent contract traded on a designated 

contract market or derivatives transaction 

execution facility. In this case, the spotmonth speculative position limit should be 

established in the following manner. The 

spot-month limit for a physical delivery 

market should be based upon an analysis of 

deliverable supplies and the history of spotmonth liquidations. The spot-month limit for 

a physical-delivery market is appropriately 

set at no more than 25 percent of the 

estimated deliverable supply. In the case 

where a significant price discovery contract 

has a cash settlement provision, the spotmonth limit should be set at a level that 

minimizes the potential for price 

manipulation or distortion in the significant 

price discovery contract itself; in related 

futures and options contracts traded on a 

designated contract market or derivatives 

transaction execution facility; in other 

significant price discovery contracts; in other 

fungible agreements, contracts and 

transactions; and in the underlying 

commodity. 

(4) Position accountability for non-spotmonth positions. The electronic trading 

facility should establish for its significant 

price discovery contracts non-spot individual 

month position accountability levels and allmonths-combined position accountability 

levels. An electronic trading facility may 

establish non-spot individual month position 

limits and all-months-combined position 

limits for its significant price discovery 

contracts in lieu of position accountability 

levels. 

(i) Definition. Position accountability 

provisions provide a means for an exchange 

to monitor traders’ positions that may 

threaten orderly trading. An acceptable 

accountability provision sets target 

accountability threshold levels that may be 

exceeded, but once a trader breaches such 

accountability levels, the electronic trading 

facility should initiate an investigation to 

determine whether the individual’s trading 

activity is justified and is not intended to 

manipulate the market. As part of its 

investigation, the electronic trading facility 

should inquire about the trader’s rationale for 

holding a position in excess of the 

accountability levels. An acceptable 

accountability provision should provide the 

electronic trading facility with the authority 

to order the trader not to further increase 

positions. If a trader fails to comply with a 

request for information about positions held, 

provides information that does not 

sufficiently justify the position, or continues 

to increase contract positions after a request 

not to do so is issued by the facility, then the 

accountability provision should enable the 

electronic trading facility to require the 

trader to reduce positions. 

(ii) Contracts economically equivalent to 

an existing contract. When an electronic 

trading facility lists a significant price 

discovery contract that is economically 

equivalent to another significant price 

discovery contract or to a contract traded on 

a designated contract market or derivatives 

transaction execution facility, the electronic 

trading facility should set the non-spot 

individual month position accountability 

level and all-months-combined position 

accountability level for its significant price 

discovery contract at the same levels, or 

lower, as those specified for the 

economically-equivalent contract. 

(iii) Contracts that are not economically 

equivalent to an existing contract. For 

significant price discovery contracts that are 

not economically equivalent to an existing 

contract, the trading facility shall adopt nonspot individual month and all-monthscombined position accountability levels that 

are no greater than 10 percent of the average 

combined futures and delta-adjusted option 

month-end open interest for the most recent 

calendar year. For electronic trading facilities 

that choose to adopt non-spot individual 

month and all-months-combined position 

limits in lieu of position accountability levels 

for their significant price discovery contracts, 

the limits should be set in the same manner 

as the accountability levels. 

(iv) Contracts economically equivalent to 

an existing contract with position limits. If a 

significant price discovery contract is 

economically equivalent to another 

significant price discovery contract or to a 

contract traded on a designated contract 

market or derivatives transaction execution 

facility that has adopted non-spot or allmonths-combined position limits, the 

electronic trading facility should set non-spot 

month position limits and all-monthscombined position limits for its significant 

price discovery contract at the same (or 

lower) levels as those specified for the 

economically-equivalent contract. 

(5) Provisions for uncleared contracts. If an 

electronic trading facility offers a significant 

price discovery contract that is exclusively 

uncleared, or one that may be either cleared 

by a derivatives clearing organization or 

uncleared at the discretion of the trader, the 

trading facility should establish for the 

uncleared trades a spot-month volume 

accountability level equal to the spot-month 

speculative position limit. In this regard, the 

electronic trading facility should keep track 

of each trader’s uncleared transactions in a 

significant price discovery contract on a net 

basis. (For the purpose of netting uncleared 

transactions, long and short uncleared 

transactions are only offset if they are 

conducted with the same counterparty.) If a 

particular trader’s net volume of uncleared 

transactions exceeds the specified spotmonth volume accountability level, the 

electronic trading facility should conduct an 

investigation to determine whether the 

trader’s trading activity is warranted and is 

not intended to manipulate the market. 

(6) Account aggregation. An electronic 

trading facility should have aggregation rules 

for significant price discovery contracts that 

apply to accounts under common control, 

those with common ownership, i.e., where 

there is a ten percent or greater financial 

interest, and those traded according to an 

express or implied agreement. Such 

aggregation rules should apply to cleared 

transactions with respect to applicable 

speculative position limits, as well as to 

uncleared transactions with respect to 

applicable spot-month volume accountability 

levels. An electronic trading facility will be 

permitted to set more stringent aggregation 

policies. An electronic trading facility may 

grant exemptions to its price discovery 

contracts’ position limits for bona fide 

hedging (as defined in § 1.3(z) of this chapter) 

and may grant exemptions for reduced risk 

positions, such as spreads, straddles and 

arbitrage positions. 

(7) Implementation deadlines. An 

electronic trading facility with a significant 

price discovery contract is required to 

comply with Core Principle IV as set forth in 

section 2(h)(7)C) of the Act within 90 

calendar days of the date of the 

Commission’s order determining that the 

contract performs a significant price 

discovery function if such contract is the 

electronic trading facility’s first significant 

price discovery contract, or within 15 days of 

the date of the Commission’s order if such 

contract is not the electronic trading facility’s 

first significant price discovery contract. For 

the purpose of applying limits on speculative 

positions in newly-determined significant 

price discovery contracts, the Commission 

will permit a grace period following issuance 

of its order for traders with cleared positions 

in such contracts to become compliant with 

applicable position limit rules. Traders who 

hold cleared positions on a net basis in the 


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electronic trading facility’s significant price 

discovery contract must be at or below the 

specified position limit level no later than 90 

calendar days from the date of the electronic 

trading facility’s implementation of position 

limit rules, unless a hedge exemption is 

granted by the electronic trading facility. 

This grace period applies to both initial and 

subsequent price discovery contracts. 

Electronic trading facilities should notify 

traders of this requirement promptly upon 

implementation of such rules. 

(8) Enforcement provisions. The electronic 

trading facility should have appropriate 

procedures in place to monitor its position 

limit and accountability provisions and to 

address violations. 

(i) An electronic trading facility with 

significant price discovery contracts should 

use an automated means of detecting traders’ 

violations of speculative limits or 

exemptions, particularly if the significant 

price discovery contracts have large numbers 

of traders. An electronic trading facility 

should monitor the continuing 

appropriateness of approved exemptions by 

periodically reviewing each trader’s basis for 

exemption or requiring a reapplication. An 

automated system also should be used to 

determine whether a trader has exceeded 

applicable non-spot individual month 

position accountability levels, all-monthscombined position accountability levels, and 

spot-month volume accountability levels. 

(ii) An electronic trading facility should 

establish a program for effective enforcement 

of position limits for significant price 

discovery contracts. Electronic trading 

facilities should use a large trader reporting 

system to monitor and enforce daily 

compliance with position limit rules. The 

Commission notes that an electronic trading 

facility may allow traders to periodically 

apply to the electronic trading facility for an 

exemption and, if appropriate, be granted a 

position level higher than the applicable 

speculative limit. The electronic trading 

facility should establish a program to monitor 

approved exemptions from the limits. The 

position levels granted under such hedge 

exemptions generally should be based upon 

the trader’s commercial activity in related 

markets including, but not limited to, 

positions held in related futures and options 

contracts listed for trading on designated 

contract markets, fungible agreements, 

contracts and transactions, as determined by 

either a registered or unregistered derivatives 

clearing organization. Electronic trading 

facilities may allow a brief grace period 

where a qualifying trader may exceed 

speculative limits or an existing exemption 

level pending the submission and approval of 

appropriate justification. An electronic 

trading facility should consider whether it 

wants to restrict exemptions during the last 

several days of trading in a delivery month. 

Acceptable procedures for obtaining and 

granting exemptions include a requirement 

that the electronic trading facility approve a 

specific maximum higher level. 

(iii) An acceptable speculative limit 

program should have specific policies for 

taking regulatory action once a violation of a 

position limit or exemption is detected. The 

electronic trading facility policies should 

consider appropriate actions. 

(9) Violation of Commission rules. A 

violation of position limits for significant 

price discovery contracts that have been selfcertified by an electronic trading facility also 

a violation of section 4a(e) of the Act. 

CORE PRINCIPLE V OF SECTION 

2(h)(7)(C)—EMERGENCY AUTHORITY—The 

electronic trading facility shall adopt rules to 

provide for the exercise of emergency 

authority, in consultation or cooperation with 

the Commission, where necessary and 

appropriate, including the authority to 

liquidate open positions in significant price 

discovery contracts and to suspend or curtail 

trading in a significant price discovery 

contract. 

(a) Guidance. An electronic trading facility 

on which significant price discovery 

contracts are traded should have clear 

procedures and guidelines for decisionmaking regarding emergency intervention in 

the market, including procedures and 

guidelines to avoid conflicts of interest while 

carrying out such decision-making. An 

electronic trading facility on which 

significant price discovery contracts are 

executed or traded should also have the 

authority to intervene as necessary to 

maintain markets with fair and orderly 

trading as well as procedures for carrying out 

the intervention. Procedures and guidelines 

should include notifying the Commission of 

the exercise of the electronic trading facility’s 

regulatory emergency authority, explaining 

how conflicts of interest are minimized, and 

documenting the electronic trading facility’s 

decision-making process and the reasons for 

using its emergency action authority. 

Information on steps taken under such 

procedures should be included in a 

submission of a certified rule and any related 

submissions for rule approval pursuant to 

part 40 of this chapter, when carried out 

pursuant to an electronic trading facility’s 

emergency authority. To address perceived 

market threats, the electronic trading facility 

on which significant price discovery 

contracts are executed or traded should, 

among other things, be able to impose 

position limits in the delivery month, impose 

or modify price limits, modify circuit 

breakers, call for additional margin either 

from market participants or clearing members 

(for contracts that are cleared through a 

clearinghouse), order the liquidation or 

transfer of open positions, order the fixing of 

a settlement price, order a reduction in 

positions, extend or shorten the expiration 

date or the trading hours, suspend or curtail 

trading on the electronic trading facility, 

order the transfer of contracts and the margin 

for such contracts from one market 

participant to another, or alter the delivery 

terms or conditions or, if applicable, should 

provide for such actions through its 

agreements with its third-party provider of 

clearing services. 

(b) Acceptable practices. [Reserved] 

CORE PRINCIPLE VI OF SECTION 

2(h)(7)(C)—DAILY PUBLICATION OF 

TRADING INFORMATION. The electronic 

trading facility shall make public daily 

information on price, trading volume, and 

other trading data to the extent appropriate 

for significant price discovery contracts. 

(a) Guidance. An electronic trading facility, 

with respect to significant price discovery 

contracts, should provide to the public 

information regarding settlement prices, 

price range, volume, open interest, and other 

related market information for all applicable 

contracts as determined by the Commission 

on a fair, equitable and timely basis. 

Provision of information for any applicable 

contract can be through such means as 

provision of the information to a financial 

information service or by timely placement of 

the information on the electronic trading 

facility’s public Web site. 

(b) Acceptable practices. Compliance with 

§ 16.01 of this chapter, which is mandatory, 

is an acceptable practice and satisfies the 

requirements of under Core Principle VI. 

CORE PRINCIPLE VII OF SECTION 

2(h)(7)(C)—COMPLIANCE WITH RULES. The 

electronic trading facility shall monitor and 

enforce compliance with the rules of the 

electronic trading facility, including the 

terms and conditions of any contracts to be 

traded and any limitations on access to the 

electronic trading facility. 

(a) Guidance. 

(1) An electronic trading facility on which 

significant price discovery contracts are 

executed or traded should have appropriate 

arrangements and resources for effective 

trade practice surveillance programs, with 

the authority to collect information and 

documents on both a routine and non-routine 

basis, including the examination of books 

and records kept by its market participants. 

The arrangements and resources should 

facilitate the direct supervision of the market 

and the analysis of data collected. Trade 

practice surveillance programs may be 

carried out by the electronic trading facility 

itself or through delegation or contracting-out 

to a third party. If the electronic trading 

facility on which significant price discovery 

contracts are executed or traded delegates or 

contracts-out the trade practice surveillance 

responsibility to a third party, such third 

party should have the capacity and authority 

to carry out such programs, and the 

electronic trading facility should retain 

appropriate supervisory authority over the 

third party. 

(2) An electronic trading facility on which 

significant price discovery contracts are 

executed or traded should have 

arrangements, resources and authority for 

effective rule enforcement. The Commission 

believes that this should include the 

authority and ability to discipline and limit 

or suspend the activities of a market 

participant as well as the authority and 

ability to terminate the activities of a market 

participant pursuant to clear and fair 

standards. The electronic trading facility can 

satisfy this criterion for market participants 

by expelling or denying such person’s future 

access upon a determination that such a 

person has violated the electronic trading 

facility’s rules. 

(b) Acceptable practices. An acceptable 

trade practice surveillance program generally 

would include: 

(1) Maintenance of data reflecting the 

details of each transaction executed on the 

electronic trading facility; 

(2) Electronic analysis of this data 

routinely to detect potential trading 

violations; 


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(3) Appropriate and thorough investigative 

analysis of these and other potential trading 

violations brought to the electronic trading 

facility’s attention; and 

(4) Prompt and effective disciplinary action 

for any violation that is found to have been 

committed. The Commission believes that 

the latter element should include the 

authority and ability to discipline and limit 

or suspend the activities of a market 

participant pursuant to clear and fair 

standards that are available to market 

participants. See, e.g., 17 CFR part 8. 

CORE PRINCIPLE VIII OF SECTION 

2(h)(7)(C)—CONFLICTS OF INTEREST. The 

electronic trading facility on which 

significant price discovery contracts are 

executed or traded shall establish and 

enforce rules to minimize conflicts of interest 

in the decision-making process of the 

electronic trading facility and establish a 

process for resolving such conflicts of 

interest. 

(a) Guidance. 

(1) The means to address conflicts of 

interest in the decision-making of an 

electronic trading facility on which 

significant price discovery contracts are 

executed or traded should include methods 

to ascertain the presence of conflicts of 

interest and to make decisions in the event 

of such a conflict. In addition, the 

Commission believes that the electronic 

trading facility on which significant price 

discovery contracts are executed or traded 

should provide for appropriate limitations on 

the use or disclosure of material non-public 

information gained through the performance 

of official duties by board members, 

committee members and electronic trading 

facility employees or gained through an 

ownership interest in the electronic trading 

facility or its parent organization(s). 

(2) All electronic trading facilities on 

which significant price discovery contracts 

are traded bear special responsibility to 

regulate effectively, impartially, and with 

due consideration of the public interest, as 

provided in section 3 of the Act. Under Core 

Principle VIII, they are also required to 

minimize conflicts of interest in their 

decision-making processes. To comply with 

this core principle, electronic trading 

facilities on which significant price discovery 

contracts are traded should be particularly 

vigilant for such conflicts between and 

among any of their self-regulatory 

responsibilities, their commercial interests, 

and the several interests of their 

management, members, owners, market 

participants, other industry participants and 

other constituencies. 

(b) Acceptable practices. [Reserved] 

CORE PRINCIPLE IX OF SECTION 

2(h)(7)(C)—ANTITRUST CONSIDERATIONS. 

Unless necessary or appropriate to achieve 

the purposes of this Act, the electronic 

trading facility, with respect to any 

significant price discovery contracts, shall 

endeavor to avoid adopting any rules or 

taking any actions that result in any 

unreasonable restraints of trade or imposing 

any material anticompetitive burden on 

trading on the electronic trading facility. 

(a) Guidance. An electronic trading facility, 

with respect to a significant price discovery 

contract, may at any time request that the 

Commission consider under the provisions of 

section 15(b) of the Act any of the electronic 

trading facility’s rules, which may be trading 

protocols or policies, operational rules, or 

terms or conditions of any significant price 

discovery contract. The Commission intends 

to apply section 15(b) of the Act to its 

consideration of issues under this core 

principle in a manner consistent with that 

previously applied to contract markets. 

(b) Acceptable practices. [Reserved] 

PART 40—PROVISIONS COMMON TO 

REGISTERED ENTITIES 

33. The authority citation for part 40 

is revised to read as follows: 

Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 

8 and 12a, as amended by Title XIII of the 

Food, Conservation and Energy Act of 2008, 

Pub. L. No. 110–246, 122 Stat. 1624 (June 18, 

2008). 

34. Revise the heading of part 40 as 

set forth above. 

35. Amend § 40.1 as follows: 

A. Remove the term ‘‘registered 

entity’’ and add in its place the term 

‘‘contract market, derivatives 

transaction execution facility or 

derivatives clearing organization’’ in 

paragraphs (b)(2), (b)(3), and (f)(2); and 

B. Remove the term ‘‘contract market, 

derivatives transaction execution 

facility or derivatives clearing 

organization’’ and add in its place the 

term ‘‘registered entity’’ in paragraph 

(h). 

36. Amend § 40.2 as follows: 

A. Remove the term ‘‘registered 

entity’’ and add in its place ‘‘contract 

market, derivatives transaction 

execution facility on which significant 

price discovery contracts are traded or 

executed’’ in paragraph (a); 

B. Remove the term ‘‘registered 

entity’’ and add in its place ‘‘contract 

market, derivatives transaction 

execution facility or derivatives clearing 

organization’’ in paragraphs (a)(1) and 

(a)(3)(iv); and 

C. Revise paragraph (b) to read as 

follows: 

§ 40.2 Listing and accepting products for 

trading or clearing by certification. 

* * * * * 

(b) A registered entity shall provide, 

if requested by Commission staff, 

additional evidence, information or data 

relating to whether any contract meets, 

initially or on a continuing basis, any of 

the requirements of the Act or 

Commission regulations or policies 

thereunder which may be beneficial to 

the Commission in conducting a due 

diligence assessment of the product and 

the entity’s compliance with these 

requirements. 

* * * * * 

37. In § 40.3, remove the term 

‘‘registered entity’’ and add in its place 

the term ‘‘designated contract market or 

registered derivatives transaction 

execution facility’’ in paragraphs (a)(1), 

(c)(1), (c)(2), and (e)(2). 

38. In § 40.4, remove the term 

‘‘registered entity’’ and add in its place 

the term ‘‘designated contract market’’ 

in paragraph (b)(9)(ii). 

39. In § 40.6, revise paragraphs (a)(2), 

(c)(3)(ii)(G), and (c)(3)(ii)(H) to read as 

follows: 

§ 40.6 Self-certification of rules. 

(a) * * * 

(2) The registered entity has filed its 

submission electronically in a format 

specified by the Secretary of the 

Commission with the Secretary of the 

Commission at submissions@cftc.gov, 

the relevant branch chief at the regional 

office having local jurisdiction over the 

registered entity, and, for filings 

submitted by a designated contract 

market, registered derivatives 

transaction execution facility, or 

electronic trading facility on which 

significant price discovery contracts are 

traded or executed, the Division of 

Market Oversight at 

DMOSubmissions@cftc.gov, and the 

Commission has received the 

submission at its headquarters by the 

open of business on the business day 

preceding implementation of the rule; 

provided, however, rules or rule 

amendments implemented under 

procedures of the governing board to 

respond to an emergency as defined in 

§ 40.1, shall, if practicable, be filed with 

the Commission prior to the 

implementation or, if not practicable, be 

filed with the Commission at the earliest 

possible time after implementation, but 

in no event more than twenty-four hours 

after implementation; and 

* * * * * 

(c) * * * 

(3) * * * 

(ii) * * * 

(G) Option contract terms. For 

registered entities that are in 

compliance with the daily reporting 

requirements of § 16.01 of this chapter, 

changes to option contract rules relating 

to the strike price listing procedures, 

strike price intervals, and the listing of 

strike prices on a discretionary basis. 

(H) Trading months. For registered 

entities that are in compliance with the 

daily reporting requirements of § 16.01 

of this chapter, the initial listing of 

trading months which are within the 

currently established cycle of trading 

months. 

40. In § 40.7, remove the term 

‘‘designated contract market, registered 

derivatives transaction execution 


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facility or registered derivatives clearing 

organization’’ and add in its place the 

term ‘‘registered entity’’ in paragraph (b) 

introductory text. 

41. In § 40.8, revise paragraph (a), 

redesignate paragraph (b) as paragraph 

(c), and add new paragraph (b) to read 

as follows: 

§ 40.8 Availability of public information. 

(a) The following sections of all 

applications to become a designated 

contract market, derivatives execution 

transaction facility or designated 

clearing organization will be public: 

transmittal letter, proposed rules, the 

applicant’s regulatory compliance chart, 

documents establishing the applicant’s 

legal status, documents setting forth the 

applicant’s governance structure, and 

any other part of the application not 

covered by a request for confidential 

treatment. 

(b) The following submissions 

required by § 36.3(c)(4) by an electronic 

trading facility on which significant 

price discovery contracts are traded or 

executed will be public: rulebook, the 

facility’s regulatory compliance chart, 

documents establishing the facility’s 

legal status, documents setting forth the 

facility’s governance structure, and any 

other parts of the submissions not 

covered by a request for confidential 

treatment. 

* * * * * 

42. Revise Appendix D to part 40 to 

read as follows: 

Appendix D to Part 40—Submission 

Cover Sheet and Instructions 

A properly completed submission cover 

sheet must accompany all rule submissions 

submitted electronically by a registered 

entity to the Secretary of the Commodity 

Futures Trading Commission, at 

submissions@cftc.gov in a format specified by 

the Secretary of the Commission. Each 

submission should include the following: 

1. Identifier Code (optional)—If applicable, 

the exchange or clearing organization 

Identifier Code at the top of the cover sheet. 

Such codes are commonly generated by the 

exchanges or clearing organizations to 

provide an identifier that is unique to each 

filing (e.g., NYMEX Submission 03–116). 

2. Date—The date of the filing. 

3. Organization—The name of the 

organization filing the submission (e.g., 

CBOT). 

4. Filing as a—Check the appropriate box 

for a designated contract market (DCM), 

derivatives clearing organization (DCO), 

derivatives transaction execution facility 

(DTEF), or electronic trading facility with a 

significant price discovery contract (ECM– 

SPDC). 

5. Type of Filing—Indicate whether the 

filing is a rule amendment or new product 

and the applicable category under that 

heading. 

6. Rule Numbers—For rule filings only, 

identify rule number(s) being adopted or 

modified in the case of rule amendment 

filings. 

7. Description—For rule or rule 

amendment filings only, enter a brief 

description of the new rule or rule 

amendment. This narrative should describe 

the substance of the submission with enough 

specificity to characterize all essential 

aspects of the filing. 

8. Other Requirements—Comply with all 

filing requirements for the underlying 

proposed rule or rule amendment. The filing 

of the submission cover sheet does not 

obviate the responsibility to comply with any 

applicable filing requirement (e.g., rules 

submitted for Commission approval under 

§ 40.5 must be accompanied by an 

explanation of the purpose and effect of the 

proposed rule along with a description of any 

substantive opposing views). 

A sample of the required submission cover 

sheet follows. 

BILLING CODE 6351–01–P 


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rwilkins on PROD1PC63 with PROPOSALS2EP12DE08.001</GPH>
Federal Register / Vol. 73, No. 240 / Friday, December 12, 2008 / Proposed Rules 75921 

Issued in Washington, DC, on December 2, 

2008, by the Commission. 

David Stawick, 

Secretary of the Commission. 

[FR Doc. E8–28867 Filed 12–11–08; 8:45 am] 

BILLING CODE 6351–01–C 


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