Commodity Futures Trading Commission 

 Office of Public Affairs 

 Three Lafayette Centre 

 1155 21st Street, NW 

 Washington, DC 20581 

 www.cftc.gov

Proposed Rule on Governance Requirements for DCOs, DCMSs and SEFs, 

& Additional Requirements Regarding the Mitigation of Conflict of Interest 

The Commodity Futures Trading Commission (“Commission”) is proposing certain substantive requirements on 

the resolution of conflicts of interest, in order to further implement core principles applicable to derivatives clearing 

organizations (“DCOs”), designated contract markets (“DCMs”), and swap execution facilities (“SEFs”). For 

DCOs and DCMs, the Commission is also proposing regulations to implement core principles concerning 

governance fitness standards and the composition of governing bodies. For publicly-traded DCMs, the 

Commission is proposing regulations to implement the core principle on diversity of Boards of Directors.

Rulemaking Complements Conflicts of Interest Rulemaking Proposed October 1, 2010 

On October 1, 2010, the Commission proposed1 both (i) structural governance requirements and (ii) limits on 

voting equity and exercise of voting power to mitigate potential conflicts of interest pursuant to Section 726 of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and also the conflicts of 

interest core principles.2 This proposed rulemaking aims to more fully implement the Conflict of Interest Core 

Principles by addressing reporting, transparency in decision-making, and limitations on use or disclosure of nonpublic information, among other things. 

Dodd-Frank Act 

Sections 725(c), 735(b) and 733 of the Dodd-Frank Act establish new, or amend existing, Core Principles for 

DCOs, DCMs, and SEFs. 

The Conflict of Interest Core Principles empower the Commission to develop standards for determining whether 

DCOs, DCMs, and SEFs have rules to minimize and resolve conflicts of interest in decision-making. 

In addition, for DCMs and DCOs, the governance fitness core principles in Sections 725(c) and 735(b) of the 

Dodd-Frank Act empower the Commission to develop standards for determining whether the registered entity has 

appropriate fitness standards for directors, members, and others. 

The governing board composition core principle in Section 735(b) requires that each DCM have a process for 

considering the range of opinions of market participants. The governing board or committee composition core 

principle in Section 725(c) requires that each DCO ensure that the composition of the governing board or 

committee includes market participants. 

Finally, Section 735(b) provides that the Commission develop standards for implementing the core principle on 

diversity of boards for publicly-traded DCMs.

 

1 75 FR 63732 (Oct. 18, 2010) (“Conflicts of Interest NPRM”). 

Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

2 The conflicts of interest core principles are DCO Core Principle P, DCM Core Principle 16, and SEF Core Principle 12 (“Conflicts of 

Interest Core Principles”). 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

Summary of Proposed Requirements 

The Conflicts of Interest Core Principles require each entity to (i) establish and enforce rules to minimize conflicts 

of interest in its decision-making process and (ii) establish a process for resolving such conflicts. The Commission 

is proposing the following requirements, which complement those requirements proposed in the Conflicts of 

Interest NRPM. 

To further implement the Conflicts of Interest Core Principles, the Commission proposes the following regulations: 

• Each DCO must report to the Commission when its board rejects a recommendation from or supersedes an 

action of the Risk Management Committee. 

• Each DCM or SEF must report to the Commission when its board rejects a recommendation from or 

supersedes an action of the Regulatory Oversight Committee or the Membership or Participation 

Committee. 

• Each DCO, DCM, or SEF must: 

o implement a regulatory program to identify, on an ongoing basis, existing and potential conflicts of 

interest, as well as a method for making fair and non-biased decisions in the event of such a conflict; 

o prescribe limits on the use or disclosure of non-public information by owners, members of the 

board, members of any committee, officers or other employees; and 

o make certain information on governance arrangements available to the public and relevant 

authorities, including summaries of significant decisions.3

To implement DCM Core Principle 15 and DCO Core Principle O on governance fitness standards, the 

Commission is proposing that each DCO or DCM specify and enforce minimum fitness standards for its members, 

directors, members of any Disciplinary Panel or Disciplinary Committee, and certain affiliates. To implement the 

additional language in Core Principle O requiring each DCO to establish governance arrangements that are 

transparent to permit, among other things, the consideration of the views of owners and participants, the 

Commission proposes certain transparency requirements. 

To implement DCM Core Principle 17 on governing board composition, the Commission is proposing that each 

DCM design and institute a process for considering the range of opinions that market participants hold with respect 

to (i) the functioning of an existing market and (ii) new rules or rule amendments. 

To implement DCO Core Principle Q on governing board or committee composition, the Commission is 

proposing that each DCO have 10 percent customer representation on its board, in lieu of having such 

representation on the Risk Management Committee (or the Risk Management Subcommittee). Alternatively, the 

Commission is proposing that each DCO have 10 percent customer representation on the Risk Management 

Committee (or the Risk Management Subcommittee), in lieu of having such representation on its board. 

Preliminarily, the Commission is anticipating only adopting one requirement on customer representation. Given the 

two alternatives, the Commission does not anticipate making a final determination on the customer representation 

question until it finishes reviewing comments on this rulemaking. 

To implement DCM Core Principle 22 regarding diversity, the Commission is proposing that each publicly-traded 

DCM evaluate the breadth and cultural diversity of its Board of Directors. 

 

3 With respect to a DCM or SEF, significant decisions would relate to access, membership, and disciplinary procedures. With respect to a 

DCO, significant decisions would relate to open access, membership, and the determination of acceptability of products for clearing. The 

Commission does not intend the foregoing to require a DCM, SEF, or DCO to disclose any “non-public information” (as defined in this 

rulemaking in proposed §1.3(ggg)) including, without limitation, meeting minutes.