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RED = CHANGES MADE BY TEAM 31 

BLUE = TEXT COPIED FROM DODD-FRANK ACT 

PART 1- GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT 

§ 1.3 Definitions. 

(a) Board of Trade. This term means any an organized exchange or other trading 

facility.association, whether incorporated or unincorporated, of persons who shall be engaged in 

the business of buying or selling any commodity or receiving the same for sale on consignment.

(b) Business day. This term means any day other than a Sunday or holiday. In all notices required 

by the act Act or by the rules and regulations in this chapter to be given in terms of business days 

the rule for computing time shall be to exclude the day on which notice is given and include the 

day on which shall take place the act of which notice is given. 

(c) Clearing member. This term 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 or registered derivatives transaction execution facility. 

(d) Clearing organization. This term 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 or registered derivatives transaction 

execution facility. 

(e) Commodity. This term means and includes wheat, cotton, rice, corn, oats, barley, rye, 

flaxseed, grain sorghums, millfeeds, butter, eggs, Irish potatoes, wool, wool tops, fats and oils 

(including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), 

cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, livestock, livestock products, and 

frozen concentrated orange juice, and all other goods and articles, except onions (as provided by 

the first section of Pub. L. 85-839) and motion picture box office receipts (or any index, 

measure, value or data related to such receipts), and all services, rights and interests (except 

motion picture box office receipts, or any index, measure, value or data related to such receipts) 

in which contracts for future delivery are presently or in the future dealt in. 
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(f) Commodity Exchange Act; the Act. These terms mean the Commodity Exchange Act, as 

amended, 7 U.S.C. 1 et seq. 

(g) Institutional customer. This term has the same meaning as “eligible contract participant” as 

defined in section 1a(12 18) of the Act. 

(h) Contract market; Designated contract market. Thisese terms means a board of trade 

designated by the Commission as a contract market under the Commodity Exchange Act or in 

accordance with the provisions of part 33 38 of this chapter. 

(i) Contract of sale. This term includes sales, purchases, agreements of sale or purchase and 

agreements to sell or purchase. 

(j) Controlled account. An account shall be deemed to be controlled by a person if such person 

by power of attorney or otherwise actually directs trading for such account. 

(k) Customer; commodity customer. These terms have the same meaning and refer to a 

customer trading in any commodity named in the definition of commodity herein This term 

means any person who uses a futures commission merchant, introducing broker, commodity 

trading advisor, or commodity pool operator as an agent in connection with trading in any 

commodity interest; Provided, however, an owner or holder of a proprietary account as defined 

in paragraph (y) of this section shall not be deemed to be a customer within the meaning of 

section 4d of the Act, the regulations that implement sections 4d and 4f of the Act and §1.35, and 

such an owner or holder of such a proprietary account shall otherwise be deemed to be a 

customer within the meaning of the Act and §§1.37 and 1.46 and all other sections of these rules, 

regulations, and orders which do not implement sections 4d and 4f of the Act. 

(l) Delivery month. This term means the month of delivery specified in a contract of sale of any 

commodity for future delivery. 

(m) [Reserved] 
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(n) Floor broker. This term means any person: 

(1) Who, in or surrounding any pit, ring, post or other place provided by a contract market for the 

meeting of persons similarly engaged, shall purchase or sell for any other person- (i) any 

commodity for future delivery, security futures product, or swap; or (ii) any commodity option 

authorized under section 4c of the Act; or 

(2) Who is registered with the Commission as a floor broker. 

on or subject to the rules of any contract market and shall include any person required to register 

as a floor broker under the Act by virtue of part 33 of this chapter.

(o) Future delivery. This term does not include any sale of a cash commodity for deferred 

shipment or delivery. 

(p) Futures commission merchant. This term means: 

(1) Individuals Any individual, association, partnership, corporation, or trust (i) who is engaged 

in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery; 

a security futures product; a swap; any agreement, contract, or transaction described in section 

2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; a commodity option authorized under section 4c 

of the Act; a leverage transaction authorized under section 19 of the Act; or acting as a 

counterparty in any agreement, contract or transaction described in section 2(c)(2)(C)(i) or 

section 2(c)(2)(D)(i) of the Act and 

(ii) who, in connection with any of these activities accepts any money, securities, or property (or 

extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or 

may result therefrom; on or subject to the rules of any contract market and that, in or in 

connection with such solicitation or acceptance of orders, accepts any money, securities, or 

property (or extends credit in lieu thereof) to margin, guarantee or secure any trades or contracts 

that result or may result therefrom; and 

(2) Shall include Any person that is required to registered with the Commission as a futures 

commission merchant. under the Act by virtue of part 32 or part 33 of this chapter

(q) Member of a contract market. This term means:

(i) Anand includes individuals, associations, partnerships, corporations, andor trusts – (A)

owning or holding membership in, or admitted to membership representation on, a contract

marketregistered entity; or (ii) having or given members' trading privileges thereon a registered 

entity.
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(2) A participant in an alternative trading system that is designated as a contract market pursuant 

to section 5f of the Act is deemed a member of the contract market for purposes of transactions 

in security futures products through the contract market.

(r) Net equity. (1) For futures and commodity option positions, Tthis term means the credit 

balance which would be obtained by combining the commodity margin balance of any person 

with the net profit or loss, if any, accruing on the open trades futures ,oror contracts or

commodity option, or swap positions transactions of such person. 

(2) For swap positions other than commodity option positions, this term means the credit balance 

which would be obtained by combining the margin balance of any person with the net profit or 

loss, if any, accruing on the open swap positions of such person. 

(s) Net deficit. (1) For futures and commodity option positions, tThis term means the debit 

balance which would be obtained by combining the commodity margin balance of any person 

with the net profit or loss, if any, accruing on the open trades futures or contracts or commodity 

option , or swap transactionspositions of such person. 

(2) For swap positions other than commodity option positions, this term means the debit balance 

which would be obtained by combining the margin balance of any person with the net profit or 

loss, if any, accruing on the open swap positions of such person. 

 

(t) Open contracts positions. This term means: 

(1) contracts of purchase or sale of any commodity made by or for any person on or subject 

to the rules of a board of trade for future delivery during a specified month or delivery 

period which that have not neither been fulfilled by delivery nor been offset by other 

contracts of purchase or sale or purchase in the same commodity and delivery month;

(2) commodity option transactions that have not expired, been exercised, or offset; and

(3) swaps that have neither expired nor been terminated. 

(u) Person. This term includes individuals, associations, partnerships, corporations, and trusts. 
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(v) [Reserved] 

(w) Secretary of Agriculture. This term means the Secretary of Agriculture or any person to 

whom authority has heretofore lawfully been delegated or to whom authority may hereafter 

lawfully be delegated to act in his stead. 

(x) Floor trader. This term means any person: 

(1) Who, in or surrounding any pit, ring, post or other place provided by a contract market for the 

meeting of persons similarly engaged, purchases, or sells solely for such person’s own account- 

(i) any commodity for future delivery, security futures product, or swap; or (ii) any commodity 

option authorized under section 4c of the Act; or 

(2) Who is registered with the Commission as a floor trader. 

on or subject to the rules of any contract market and shall include any person required to register 

as a floor trader under the Act by virtue of part 33 of this chapter or by rule or regulation of the 

Commission pertaining to the operation of an electronic trading system.

(y) Proprietary account. This term means a commodity futures, or commodity option, or swap

trading account carried on the books and records of an individual, a partnership, corporation or 

other type of association (1) for one of the following persons, or (2) of which ten percent or more 

is owned by one of the following persons, or an aggregate of ten percent or more of which is 

owned by more than one of the following persons: 

 (i) Such individual himself, or such partnership, corporation or association itself; 

 (ii) In the case of a partnership, a general partner in such partnership; 

 (iii) In the case of a limited partnership, a limited or special partner in such partnership whose 

duties include: 

 (A) The management of the partnership business or any part thereof, 

 (B) The handling of the trades of customers or customer funds of customers or option 

customers of such partnership, 

 (C) The keeping of records pertaining to the trades of customers or customer funds of 

customers or option customers of such partnership, or 

 (D) The signing or co-signing of checks or drafts on behalf of such partnership; 

 (iv) In the case of a corporation or association, an officer, director or owner of ten percent or 

more of the capital stock, of such organization; 

 (v) An employee of such individual, partnership, corporation or association whose duties 

include: 

 (A) The management of the business of such individual, partnership, corporation or 

association or any part thereof, 

 (B) The handling of the trades of customers or customer funds of customers or option 

customers of such individual, partnership, corporation or association, 
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 (C) The keeping of records pertaining to the trades of customers or customer funds of 

customers or option customers of such individual, partnership, corporation or association, or 

 (D) The signing or co-signing of checks or drafts on behalf of such individual, partnership, 

corporation or association; 

 (vi) A spouse or minor dependent living in the same household of any of the foregoing 

persons; 

 (vii) A business affiliate that directly or indirectly controls such individual, partnership, 

corporation or association; or.

 (viii) A business affiliate that, directly or indirectly is controlled by or is under common 

control with, such individual, partnership, corporation or association. Provided, however, That an 

account owned by any shareholder or member of a cooperative association of producers, within 

the meaning of sections 5(5) and 6a of the Act, which association is registered as a futures 

commission merchant and carries such account on its records, shall be deemed to be an account 

of a customer or option customer and not a proprietary account of such association, unless the 

shareholder or member is an officer, director or manager of the association. 

(z) Bona fide hedging transactions and positions —(1) General definition. Bona fide hedging 

transactions and positions shall mean transactions or positions in a contract for future delivery on 

any contract market, or in a commodity option, where such transactions or positions normally 

represent a substitute for transactions to be made or positions to be taken at a later time in a 

physical marketing channel, and where they are economically appropriate to the reduction of 

risks in the conduct and management of a commercial enterprise, and where they arise from: 

(i) The potential change in the value of assets which a person owns, produces, manufactures, 

processes, or merchandises or anticipates owning, producing, manufacturing, processing, or 

merchandising, 

(ii) The potential change in the value of liabilities which a person owns or anticipates incurring, 

or 

(iii) The potential change in the value of services which a person provides, purchases, or 

anticipates providing or purchasing. 

Notwithstanding the foregoing, no transactions or positions shall be classified as bona fide 

hedging unless their purpose is to offset price risks incidental to commercial cash or spot 

operations and such positions are established and liquidated in an orderly manner in accordance 

with sound commercial practices and, for transactions or positions on contract markets subject to 

trading and position limits in effect pursuant to section 4a of the Act, unless the provisions of 

paragraphs (z) (2) and (3) of this section and §§1.47 and 1.48 of the regulations have been 

satisfied. 

(2) Enumerated hedging transactions. The definitions of bona fide hedging transactions and 

positions in paragraph (z)(1) of this section includes, but is not limited to, the following specific 

transactions and positions: 
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(i) Sales of any commodity for future delivery on a contract market which do not exceed in 

quantity: 

(A) Ownership or fixed-price purchase of the same cash commodity by the same person; and 

(B) Twelve months' unsold anticipated production of the same commodity by the same person 

provided that no such position is maintained in any future during the five last trading days of that 

future. 

(ii) Purchases of any commodity for future delivery on a contract market which do not exceed in 

quantity. 

(A) The fixed-price sale of the same cash commodity by the same person. 

(B) The quantity equivalent of fixed-price sales of the cash products and by-products of such 

commodity by the same person; and 

(C) Twelve months' unfilled anticipated requirements of the same cash commodity for 

processing, manufacturing, or feeding by the same person, provided that such transactions and 

positions in the five last trading days of any one future do not exceed the person's unfilled 

anticipated requirements of the same cash commodity for that month and for the next succeeding 

month. 

(iii) Offsetting sales and purchases for future delivery on a contract market which do not exceed 

in quantity that amount of the same cash commodity which has been bought and sold by the 

same person at unfixed prices basis different delivery months of the contract market, provided 

that no such position is maintained in any future during the five last trading days of that future. 

(iv) Sales and purchases for future delivery described in paragraphs (z)(2)(i), (ii), and (iii) of this 

section may also be offset other than by the same quantity of the same cash commodity, provided 

that the fluctuations in value of the position for future delivery are substantially related to the 

fluctuations in value of the actual or anticipated cash position, and provided that the positions in 

any one future shall not be maintained during the five last trading days of that future. 

(3) Non-enumerated cases. Upon specific request made in accordance with §1.47 of the 

regulations, the Commission may recognize transactions and positions other than those 

enumerated in paragraph (z)(2) of this section as bona fide hedging in such amount and under 

such terms and conditions as it may specify in accordance with the provisions of §1.47. Such 

transactions and positions may include, but are not limited to, purchases or sales for future 

delivery on any contract market by an agent who does not own or who has not contracted to sell 

or purchase the offsetting cash commodity at a fixed price, provided That the person is 

responsible for the merchandising of the cash position which is being offset. 

(aa) Associated person. This term means any natural person who is associated in any of the 

following capacities with: 
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 (1) A futures commission merchant as a partner, officer, or employee (or any natural person 

occupying a similar status or performing similar functions), in any capacity which involves 

 (i) the solicitation or acceptance of customers' or option customers' orders (other than in a 

clerical capacity) or 

 (ii) the supervision of any person or persons so engaged; 

 (2) An introducing broker as a partner, officer, employee, or agent (or any natural person 

occupying a similar status or performing similar functions), in any capacity which involves 

 (i) the solicitation or acceptance of customers' or option customers' orders (other than in a 

clerical capacity) or 

 (ii) the supervision of any person or persons so engaged; 

 (3) A commodity pool operator as a partner, officer, employee, consultant, or agent (or any 

natural person occupying a similar status or performing similar functions), in any capacity which 

involves (i) the solicitation of funds, securities, or property for a participation in a commodity 

pool or (ii) the supervision of any person or persons so engaged; or 

 (4) A commodity trading advisor as a partner, officer, employee, consultant, or agent (or any 

natural person occupying a similar status or performing similar functions), in any capacity which 

involves: (i) The solicitation of a client's or prospective client's discretionary account, or (ii) the 

supervision of any person or persons so engaged; and 

 (5) A leverage transaction merchant as a partner, officer, employee, consultant, or agent (or 

any natural person occupying a similar status or performing similar functions), in any capacity 

which involves: (i) The solicitation or acceptance of leverage customers' orders (other than 

in a clerical capacity) for leverage transactions as defined in Sec.§ 31.4(x) of this chapter, or (ii) 

the supervision of any person or persons so engaged. 

 (bb)(1) Commodity trading advisor. This term means any person who, for compensation or 

profit, engages in the business of advising others, either directly or through publications, writings 

or electronic media, as to the value of or the advisability of trading in any contract of sale of a 

commodity for future delivery made or to be made on or subject to the rules of a contract market 

or derivatives transaction execution facility, security futures product, or swap; any agreement, 

contract or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any 

commodity option authorized under section 4c of the Act;, or any leverage transaction authorized 

under section 19 of the Act; any person registered with the Commission as a commodity trading 

advisor;, or any person, who, for compensation or profit, and as part of a regular business, issues 

or promulgates analyses or reports concerning any of the foregoing. The ; but such term does not 

include (i) Any bank or trust company or any person acting as an employee thereof, (ii) any news 

reporter, news columnist, or news editor of the print or electronic media, or any lawyer, 

accountant, or teacher, (iii) any floor broker or futures commission merchant, (iv) the publisher 

or producer of any print or electronic data of general and regular dissemination, including its 

employees, (v) the named fiduciary, or trustee, of any defined benefit plan which is subject to the 

provisions of the Employee Retirement Income Security Act of 1974, or any fiduciary whose 

sole business is to advise that plan, (vi) any contract market or derivatives transaction execution 

facility, and (vii) such other persons not within the intent of this definition as the Commission 

may specify by rule, regulation or order: Provided, That the furnishing of such services by the 

foregoing persons is solely incidental to the conduct of their business or profession: Provided 
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further, That the Commission, by rule or regulation, may include within this definition, any 

person advising as to the value of commodities or issuing reports or analyses concerning 

commodities, if the Commission determines that such rule or regulation will effectuate the 

purposes of this provision. 

 (2) Client. This term, as it relates to a commodity trading advisor, means any person (i) to 

whom a commodity trading advisor provides advice, for compensation or profit, either directly 

or through publications, writings, or electronic media, as to the value of, or the advisability of 

trading in, any contract of sale of a commodity for future delivery made or to be made on or 

subject to the rules of a contract market or derivatives transaction execution facility, security 

futures product or swap; any agreement, contract or transaction described in section 2(c)(2)(C)(i) 

or section 2(c)(2)(D)(i) of the Act; any commodity option authorized under section 4c of the 

Act, ; or any leverage transaction authorized under section 19 of the Act; or (ii) to whom, for 

compensation or profit, and as part of a regular business, the commodity trading advisor issues or 

promulgates analyses or reports concerning any of the activities referred to in paragraph 

(bb)(2)(i) of this section. The term ``”client”'' includes, without limitation, any subscriber of a 

commodity trading advisor. 

(cc) Commodity pool operator. This term means any person engaged in a business which is of 

the nature of an a commodity pool, investment trust, syndicate, or similar form of enterprise, and 

who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or 

property, either directly or through capital contributions, the sale of stock or other forms of 

securities, or otherwise, for the purpose of trading in any commodity interests, including any 

commodity for future delivery, security futures product , or swap; any agreement contract or 

transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; or any 

commodity option authorized on or subject to the rules of any contract market under section 4c 

of the Act;, any leverage transaction authorized under section 19 of the Act; or any person who is 

registered with the Commission as a commodity pool operator, but does not include such persons 

not within the intent of this definition as the Commission may specify by rule or regulation or by 

order. 

(dd) Commission. This term means the Commodity Futures Trading Commission. 

(ee) Self-regulatory organization. This term means a contract market (as defined in §1.3(h)), a 

swap execution facility (as defined in §1.3( )), a derivatives clearing organization (as defined in 

section 1a(15) of the Act), or a registered futures association under section 17 of the Act. 

(ff) Designated self-regulatory organization. This term means: 
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 (1) Self-regulatory organization of which a futures commission merchant, an introducing 

broker, or a leverage transaction merchant, a retail foreign exchange dealer, a swap dealer, or a 

major swap participant is a member; or 

 (2) If a futures commission merchant or an introducing brokerCommission registrant other 

than a leverage transaction merchant is a member of more than one self-regulatory organization 

and such futures commission merchant or introducing brokerregistrant is the subject of an 

approved plan under Sec.§ 1.52 of this part, then a self-regulatory organization delegated the 

responsibility by such a plan for monitoring and auditing such futures commission merchant or 

introducing brokerregistrant for compliance with the minimum financial and related reporting 

requirements of the self-regulatory organizations of which the futures commission merchant or 

introducing brokerregistrant is a member, and for receiving the financial reports necessitated by 

such minimum financial and related reporting requirements from such registrantfutures 

commission merchant or introducing broker; or 

 (3) If a leverage transaction merchant is a member of more than one self-regulatory 

organization and such leverage transaction merchant is the subject of an approved plan under 

Sec.§ 31.28 of this chapter, then a self-regulatory organization delegated the responsibility by 

such a plan for monitoring and auditing such leverage transaction merchant for compliance with 

the minimum financial, cover, segregation and sales practice, and related reporting requirements 

of the self-regulatory organizations of which the leverage transaction merchant is a member, 

and for receiving the reports necessitated by such minimum financial, cover, segregation and 

sales practice, and related reporting requirements from such leverage transaction merchant. 

 (gg) Customer funds. This term means all money, securities, and property received by a futures 

commission merchant or by a clearing organization from, for, or on behalf of, customers or 

option customers: 

 (1) In the case of commodity customers, to To margin, guarantee, or secure contracts for 

future delivery or swaps on or subject to the rules of a contract market, swap execution facility, 

or derivatives clearing organization, as the case may be, and all money accruing to such 

customers as the result of such contracts; and 

 (2) In the case of option customers, in In connection with a commodity option transaction on 

or subject to the rules of a contract market, swap execution facility, or derivatives clearing 

organization, as the case may be: 

 (i) To be used as a premium for the purchase of an commodity option transaction for an option

customer; 

 (ii) As a premium payable to a option customer; 

 (iii) To guarantee or secure performance of an commodity option by an customer; or 

 (iv) Representing accruals (including, for purchasers of an commodity option for which the 

full premium has been paid, the market value of such commodity option) to a optioncustomer. 

 (3) Notwithstanding paragraphs (1) and (2) of this section, the term customer funds shall 

exclude money, securities or property held to margin, guarantee or secure security futures 

products held in a securities account, and all money accruing as the result of such security 

futures products. 
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(hh) Commodity option transaction; commodity option. These terms each mean any transaction 

or agreement in interstate commerce which is or is held out to be of the character of, or is 

commonly known to the trade as, an “option,” “privilege,” “indemnity,” “bid,” “offer,” “call,” 

“put.” “advance guaranty,” or “decline guaranty,” and which is subject to regulation under the 

Act and these regulations. 

(ii) Premium. This term means the amount agreed upon between the purchaser and seller, or their 

agents, for the purchase or sale of a commodity option on or subject to the rules of a contract 

market..

 

(jj) [Reserved] Option customer. This term means any person who directly or indirectly, 

purchases or grants (sells), or otherwise acquires or disposes of any interest in a commodity 

option for value, but does not include:

(1) For purposes of §§1.16, 1.17, 1.20–1.30, 1.32, 1.36, 33.3 and 33.7 of this chapter, the owner 

or holder of a proprietary account; and

(2) Option customers whose option transactions are conducted in accordance with the 

requirements of part 32 of this chapter.

(kk) Strike price. This term means the price, per unit, at which a person may purchase or sell the 

commodity, swap, or contract of sale of a commodity for future delivery or the physicalthat

which is the subject of a commodity option: Provided, That for purposes of Sec.§1.17, the term 

``strike price'' means the total price at which a person may purchase or sell the commodity, 

swap, or contract of sale of a commodity for future delivery or the that physical which is the 

subject of a commodity option (i.e.,price per unit times the number of units). 

(ll) Physical. This term means any good, article, service, right or interest upon which a 

commodity option may be traded in accordance with the Act and these regulations. 

(mm) Introducing broker. This term means: 

(1) Any person who, for compensation or profit, whether direct or indirect, (i) is engaged in 

soliciting or in accepting orders (other than in a clerical capacity) for the purchase or sale of any 

commodity for future delivery on or subject to the rules of any contract market, security futures 

product, or swap; any agreement, contract or transaction described in section 2(c)(2)(C)(i) or 
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section 2(c)(2)(D)(i) of the Act; any commodity option transaction authorized under section 4c; 

or any leverage transaction authorized under section 19; or who is registered with the 

Commission as an introducing broker; and (ii) who does not accept any money, securities, or 

property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contracts 

that result or may result therefrom.; and

(2) Includes any person required to register as an introducing broker by virtue of part 33 of this 

chapter: Provided, That tThe term “introducing broker” shall not include: 

(i) Any futures commission merchant, floor broker, or associated person, or associated person of 

a swap dealer or major swap participant acting in its capacity as such, regardless of whether that 

futures commission merchant, floor broker, or associated person is registered or exempt from 

registration in such capacity; 

(ii) Any commodity trading advisor, which, acting in its capacity as a commodity trading 

advisor, is not compensated on a per-trade basis or which solely manages discretionary accounts 

pursuant to a power of attorney, regardless of whether that commodity trading advisor is 

registered or exempt from registration in such capacity; and 

(iii) Any commodity pool operator which, acting in its capacity as a commodity pool operator, 

solely operates commodity pools, regardless of whether that commodity pool operator is 

registered or exempt from registration in such capacity. 

(nn) Guarantee agreement. This term means an agreement of guaranty guarantee in the form set 

forth in part B or C of Form 1–FR, executed by a registered futures commission merchant or 

retail foreign exchange dealer, as appropriate, and by an introducing broker or applicant for 

registration as an introducing broker on behalf of an introducing broker or applicant for 

registration as an introducing broker in satisfaction of the alternative adjusted net capital 

requirement set forth in §1.17(a)(1)(iii). 

(oo) Leverage transaction merchant. Means This term means and includes any individual, 

association, partnership, corporation, trust or other person that is engaged in the business of 

offering to enter into, entering into or confirming the execution of leverage contracts, or 

soliciting or accepting orders for leverage contracts, and who accepts leverage customer funds 

(or extends credit in lieu thereof) in connection therewith. 

(pp) Leverage customer funds. Means This term means all money, securities and property 

received, directly or indirectly by a leverage transaction merchant from, for, or on behalf of 

leverage customers to margin, guarantee or secure leverage contracts and all money, securities 

and property accruing to such customers as the result of such contracts, or the customers' 
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leverage equity. In the case of a long leverage transaction, profit or loss accruing to a leverage 

customer is the difference between the leverage transaction merchant's current bid price for the 

leverage contract and the ask price of the leverage contract when entered into. In the case of a 

short leverage transaction, profit or loss accruing to a leverage customer is the difference 

between the bid price of the leverage contract when entered into and the leverage transaction 

merchant's current ask price for the leverage contract. 

(qq) Leverage contract. Shall have the same meaning as that set forth in §31.4(w) of this chapter. 

(rr) Foreign futures or foreign options secured amount. This term means all money, securities 

and property held by or held for or on behalf of a futures commission merchant from, for, or on 

behalf of foreign futures or foreign options customers as defined in §30.1 of this chapter: 

(1) In the case of foreign futures customers, money, securities and property required by a futures 

commission merchant to margin, guarantee, or secure open foreign futures contracts plus or 

minus any unrealized gain or loss on such contracts; and 

(2) In the case of foreign options customers in connection with open foreign options transactions,

money, securities and property representing premiums paid or received, plus any other funds 

required to guarantee or secure open transactions plus or minus any unrealized gain or loss on 

such transactions. 

(ss) Foreign board of trade. This term means any board of trade, exchange or market located 

outside the United States, its territories or possessions, whether incorporated or unincorporated, 

where foreign futures, or foreign options, or foreign swaps transactions are entered into. 

(tt) Electronic signature. This term means an electronic sound, symbol, or process attached to or 

logically associated with a record and executed or adopted by a person with the intent to sign the 

record. 

(uu) [Reserved] Opt-out customer. This term means a customer that is an eligible contract 

participant, as defined in section 1a(12) of the Act, and that, in accordance with §1.68, has 

elected not to have funds that are being carried for purposes of trading on or through the facilities 

of a registered derivatives transaction execution facility, separately accounted for and segregated 

by the futures commission merchant pursuant to section 4d of the Act and §§1.20–1.30, 1.32 and 

1.36. A customer is an opt-out customer solely with respect to agreements, contracts or 
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transactions, and the money, securities or property received by a futures commission merchant to 

margin, guarantee or secure such agreements, contracts or transactions, made on or subject to the 

rules of any derivatives transaction execution facility that has adopted rules permitting a 

customer to elect to be an opt-out customer and with respect to which the customer has made 

such an election. For all other purposes under the Act and the rules thereunder, except where 

otherwise provided, an opt-out customer shall be a customer as defined in §1.3(k).

(vv) Futures account. This term means an account that is maintained in accordance with the 

segregation requirements of section 4d(a) of the Commodity Exchange Act and the rules 

thereunder. 

(ww) Securities account. This term means an account that is maintained in accordance with the 

requirements of section 15(c)(3) of the Securities Exchange Act of 1934 and Rule 15c3–3 

thereunder. 

(xx) Foreign broker. This term means any person located outside the United States, its territories 

or possessions who is engaged in soliciting or in accepting orders only from persons located 

outside the United States, its territories or possessions for the purchase or sale of any commodity 

interest transaction on or subject to the rules of any designated contract market or swap 

execution facilityderivatives transaction execution facility and that, in or in connection with such 

solicitation or acceptance of orders, accepts any money, securities or property (or extends credit 

in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result 

therefrom. 

(yy) Commodity interest. This term means: 

(1) Any contract for the purchase or sale of a commodity for future delivery; 

(2) Any contract, agreement or transaction subject to Commission regulation under section 4c or 

19 of the Act; and

(3) Any contract, agreement or transaction subject to Commission jurisdiction under section 

2(c)(2) of the Act.; and

(4) Any swap as defined in the Act, the Commission’s regulations, a Commission order or 

interpretation, or a joint interpretation or order issued by the Commission and the Securities and 

Exchange Commission.
15 

(zz) Associated person of a swap dealer or major swap participant. This term means any 

person who is associated with a swap dealer or major swap participant as a partner, officer, 

employee, or agent (or any person occupying a similar status or performing similar functions), in 

any capacity that involves the solicitation or acceptance of swaps, or the supervision of any 

person or persons so engaged. Provided, however, That the term does not include any person 

associated with a swap dealer or major swap participant the functions of which are solely clerical 

or ministerial. 

(aaa) Confirmation. When used in reference to a futures commission merchant, introducing 

broker, or commodity trading advisor, this term means documentation (electronic or otherwise) 

that memorializes specified terms of a transaction executed on behalf of a customer. When used 

in reference to a swap dealer or major swap participant, this term means documentation 

(electronic or otherwise) that memorializes specified terms of a transaction executed opposite a 

counterparty.

(bbb) Electronic trading facility. This term means a trading facility that—

(1) operates by means of an electronic or telecommunications network; and

(2) maintains an automated audit trail of bids, offers, and the matching of orders or the execution 

of transactions on the facility.

(ccc) Order. This term means an instruction or authorization provided by a customer to a 

futures commission merchant, introducing broker, or commodity trading advisor regarding 

trading in a commodity interest on behalf of the customer.

(ddd) Organized exchange. This term means a trading facility that—

 (1) Permits trading—

 (i) by or on behalf of a person that is not an eligible contract participant; or

 (ii) by persons other than on a principal-to-principal basis; or

 (2) Has adopted (directly or through another nongovernmental entity) rules that—

 (i) govern the conduct of participants, other than rules that govern the

 submission of orders or execution of transactions on the trading facility; and

 (ii) include disciplinary sanctions other than the exclusion of participants from

 trading.

(eee) Prudential regulator. This term has the meaning given to the term in section1a(39) of the 

Commodity Exchange Act and includes the Board of Governors of the Federal Reserve System, 

the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the 

Farm Credit Administration, and the Federal Housing Finance Agency, as applicable to the swap 
16 

dealer or major swap participant. The term also includes the Federal Deposit Insurance

Corporation, with respect to any financial company as defined in section 201 of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act or any insured depository institution under the 

Federal Deposit Insurance Act, and with respect to each affiliate of any such company or 

institution.

(fff) Registered entity. This term means:

(1) a board of trade designated as a contract market under section 5 of the Act; 

(2) a derivatives clearing organization registered under section 5b of the Act; 

(3) a board of trade designated as a contract market under section 5f of the Act; 

(4) a swap execution facility registered under section 5h of the Act;

(5) a swap data repository registered under section 21 of the Act; and

(6) 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.

(ggg) Registrant. This term means a: commodity pool operator; commodity trading advisor; 

futures commission merchant; introducing broker; leverage transaction merchant; floor broker; 

floor trader; major swap participant; retail foreign exchange dealer; or swap dealer that is subject 

to these regulations; or an associated person of any of the foregoing other than an associated 

person of a swap dealer or major swap participant.

(hhh) Retail forex customer. This term means a person, other than an eligible contract 

participant as defined in section 1a(18) of the Act, acting on its own behalf and trading in any 

account, agreement, contract or transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the 

Act.

(iii) Swap account. This term means an account that is maintained in accordance with the 

segregation requirements of section 4d(f) of the Act and the rules thereunder.

(jjj) Swap data repository. This term means any person that collects and maintains information 

or records with respect to transactions or positions in, or the terms and conditions of, swaps 

entered into by third parties for the purpose of providing a centralized recordkeeping facility for 

swaps.
17 

(kkk) Swap execution facility. This term means a trading system or platform in which multiple 

participants have the ability to execute or trade swaps by accepting bids and offers made by 

multiple participants in the facility or system, through any means of interstate commerce, 

including any trading facility, that—(1) facilitates the execution of swaps between persons; and 

(2) is not a designated contract market.

(lll) Trading facility. This term has the meaning set forth in section 1a(51) of the Act.

 

§ 1.4 Electronic Signatures, Acknowledgments and Verifications.

For purposes of complying with any provision in the Commodity Exchange Act or the rules or 

regulations in this Chapter I that requires a swap transaction to be acknowledged by a swap 

dealer or major swap participant or a document to be signed or verified by (a) a customer of a 

futures commission merchant or introducing broker, (b) a retail forex customer of a retail foreign 

exchange dealer or futures commission merchant, (c) a pool participant or a client of a 

commodity trading advisor or (d) a counterparty of a swap dealer or major swap participant, an 

electronic signature executed by the customer, retail forex customer, participant or, client, 

counterparty, swap dealer, or major swap participant will be sufficient, if the futures commission 

merchant, retail foreign exchange dealer, introducing broker, commodity pool operator or,

commodity trading advisor, swap dealer or major swap participant elects generally to accept 

electronic signatures, acknowledgments or verifications or another Commission rule permits the 

use of electronic signatures for the purposes listed above; Provided, however, That the electronic 

signature must comply with applicable Federal laws and other Commission rules; And, Provided 

further, That the futures commission merchant, retail foreign exchange dealer, introducing 

broker, commodity pool operator or, commodity trading advisor, swap dealer or major swap 

participant must adopt and utilizeuse reasonable safeguards regarding the use of electronic 

signatures, including at a minimum safeguards employed to prevent alteration of the electronic 

record with which the electronic signature is associated, after such record has been electronically 

signed. 

§ 1.17 Minimum financial requirements for futures commission merchants and 

introducing brokers.

(a)(1)(i) ***** 

(ii) [Reserved.] Each person registered as a futures commission merchant engaged in soliciting or 

accepting orders and customer funds related thereto for the purchase or sale of any commodity 

for future delivery or any commodity option on or subject to the rules of a registered derivatives 

transaction execution facility from any customer who does not qualify as an “institutional 

customer” as defined in §1.3(g) must:(A) Be a clearing member of a derivatives clearing 
18 

organization and maintain net capital in the amount of the greater of $20,000,000 or the amounts 

otherwise specified in paragraph (a)(1)(i) of this section; or

(B) Receive orders on behalf of the customer from a commodity trading advisor acting in 

accordance with §4.32 of this chapter.

***** 

§ 1.20 Customer funds to be segregated and separately accounted for. 

 (a) All customer funds shall be separately accounted for and segregated as belonging to 

commodity or option customers. Such customer funds when deposited with any bank, trust 

company, clearing organization or another futures commission merchant shall be deposited under 

an account name which clearly identifies them as such and shows that they are segregated as 

required by the Act and this part. Each registrant shall obtain and retain in its files for the period 

provided in §1.31 a written acknowledgment from such bank, trust company, clearing 

organization, or futures commission merchant, that it was informed that the customer funds 

deposited therein are those of commodity or option customers and are being held in accordance 

with the provisions of the Act and this part: Provided, however, that an acknowledgment need 

not be obtained from a clearing organization that has adopted and submitted to the Commission 

rules that provide for the segregation as customer funds, in accordance with all relevant 

provisions of the Act and the rules and orders promulgated thereunder, of all funds held on 

behalf of customers. Under no circumstances shall any portion of customer funds be obligated to 

a clearing organization, any member of a contract market, a futures commission merchant, or any 

depository except to purchase, margin, guarantee, secure, transfer, adjust or settle trades, 

contracts or commodity option transactions of commodity or option customers. No person, 

including any clearing organization or any depository, that has received customer funds for 

deposit in a segregated account, as provided in this section, may hold, dispose of, or use any such 

funds as belonging to any person other than the option or commodity customers of the futures 

commission merchant which deposited such funds. 

(b) All customer funds received by a clearing organization from a member of the clearing 

organization to purchase, margin, guarantee, secure or settle the trades, contracts or commodity 

options of the clearing member's commodity or option customers and all money accruing to such 

commodity or option customers as the result of trades, contracts or commodity options so carried 

shall be separately accounted for and segregated as belonging to such commodity or option 

customers, and a clearing organization shall not hold, use or dispose of such customer funds 

except as belonging to such commodity or option customers. Such customer funds when 

deposited in a bank or trust company shall be deposited under an account name which clearly 

shows that they are the customer funds of the commodity or option customers of clearing 

members, segregated as required by the Act and these regulations. The clearing organization 

shall obtain and retain in its files for the period provided by §1.31 an acknowledgment from such 

bank or trust company that it was informed that the customer funds deposited therein are those of 
19 

commodity or option customers of its clearing members and are being held in accordance with 

the provisions of the Act and these regulations. 

(c) Each futures commission merchant shall treat and deal with the customer funds of a 

commodity customer or of an option customer as belonging to such commodity or option 

customer. All customer funds shall be separately accounted for, and shall not be commingled 

with the money, securities or property of a futures commission merchant or of any other person, 

or be used to secure or guarantee the trades, contracts or commodity options, or to secure or 

extend the credit, of any person other than the one for whom the same are held: Provided, 

however, That customer funds treated as belonging to the commodity or option customers of a 

futures commission merchant may for convenience be commingled and deposited in the same 

account or accounts with any bank or trust company, with another person registered as a futures 

commission merchant, or with a clearing organization, and that such share thereof as in the 

normal course of business is necessary to purchase, margin, guarantee, secure, transfer, adjust, or 

settle the trades, contracts or commodity options of such commodity or option customers or 

resulting market positions, with the clearing organization or with any other person registered as a 

futures commission merchant, may be withdrawn and applied to such purposes, including the 

payment of premiums to option grantors, commissions, brokerage, interest, taxes, storage and 

other fees and charges, lawfully accruing in connection with such trades, contracts or commodity 

options: Provided, further, That customer funds may be invested in instruments described in 

§1.25. 

§ 1.21 Care of money and equities accruing to customers. 

All money received directly or indirectly by, and all money and equities accruing to, a futures 

commission merchant from any clearing organization or from any clearing member or from any 

member of a contract market incident to or resulting from any trade, contract or commodity 

option made by or through such futures commission merchant on behalf of any commodity or 

option customer shall be considered as accruing to such commodity or option customer within 

the meaning of the Act and these regulations. Such money and equities shall be treated and dealt 

with as belonging to such commodity or option customer in accordance with the provisions of 

the Act and these regulations. Money and equities accruing in connection with commodity or 

option customers' open trades, contracts, or commodity options need not be separately credited to 

individual accounts but may be treated and dealt with as belonging undivided to all commodity 

or option customers having open trades, contracts, or commodity option positions which if 

closed would result in a credit to such commodity or option customers. 

§ 1.22 Use of customer funds restricted. 

No futures commission merchant shall use, or permit the use of, the customer funds of one 

commodity and/or option customer to purchase, margin, or settle the trades, contracts, or 

commodity options of, or to secure or extend the credit of, any person other than such customer 
20 

or option customer. Customer funds shall not be used to carry trades or positions of the same 

commodity and/or option customer other than in commodities or commodity options traded 

throught the facilities of a contract market. 

§ 1.23 Interest of futures commission merchant in segregated funds; additions and 

withdrawals. 

The provision in section 4d(a)(2) of the Act and the provision in §1.20(c), which prohibit the 

commingling of customer funds with the funds of a futures commission merchant, shall not be 

construed to prevent a futures commission merchant from having a residual financial interest in 

the customer funds, segregated as required by the Act and the rules in this part and set apart for 

the benefit of commodity or option customers; nor shall such provisions be construed to prevent 

a futures commission merchant from adding to such segregated customer funds such amount or 

amounts of money, from its own funds or unencumbered securities from its own inventory, of 

the type set forth in §1.25, as it may deem necessary to ensure any and all commodity or option 

customers' accounts from becoming undersegregated at any time. The books and records of a 

futures commission merchant shall at all times accurately reflect its interest in the segregated 

funds. A futures commission merchant may draw upon such segregated funds to its own order, to 

the extent of its actual interest therein, including the withdrawal of securities held in segregated 

safekeeping accounts held by a bank, trust company, contract market, clearing organization or 

other futures commission merchant. Such withdrawal shall not result in the funds of one 

commodity and/or option customer being used to purchase, margin or carry the trades, contracts 

or commodity options, or extend the credit of any other commodity customer, option customer or 

other person. 

§ 1.24 Segregated funds; exclusions therefrom. 

Money held in a segregated account by a futures commission merchant shall not include: (a) 

Money invested in obligations or stocks of any clearing organization or in memberships in or 

obligations of any contract market; or (b) money held by any clearing organization which it may 

use for any purpose other than to purchase, margin, guarantee, secure, transfer, adjust, or settle 

the contracts, trades, or commodity options of the commodity or option customers of such 

futures commission merchant. 

§ 1.26 Deposit of instruments purchased with customer funds. 

 (a) Each futures commission merchant who invests customer funds in instruments described in 

§1.25 shall separately account for such instruments and segregate such instruments as belonging 

to such commodity or option customers. Such instruments, when deposited with a bank, trust 

company, clearing organization or another futures commission merchant, shall be deposited 
21 

under an account name which clearly shows that they belong to commodity or option customers 

and are segregated as required by the Act and this part. Each futures commission merchant upon 

opening such an account shall obtain and retain in its files an acknowledgment from such bank, 

trust company, clearing organization or other futures commission merchant that it was informed 

that the instruments belong to commodity or option customers and are being held in accordance 

with the provisions of the Act and this part. Provided, however, that an acknowledgment need 

not be obtained from a clearing organization that has adopted and submitted to the Commission 

rules that provide for the segregation as customer funds, in accordance with all relevant 

provisions of the Act and the rules and orders promulgated thereunder, of all funds held on 

behalf of customers and all instruments purchased with customer funds. Such acknowledgment 

shall be retained in accordance with §1.31. Such bank, trust company, clearing organization or 

other futures commission merchant shall allow inspection of such obligations at any reasonable 

time by representatives of the Commission. 

(b) Each clearing organization which invests money belonging or accruing to commodity or 

option customers of its clearing members in instruments described in §1.25 shall separately 

account for such instruments and segregate such instruments as belonging to such commodity or 

option customers. Such instruments, when deposited with a bank or trust company, shall be 

deposited under an account name which will clearly show that they belong to commodity or 

option customers and are segregated as required by the Act and this part. Each clearing 

organization upon opening such an account shall obtain and retain in its files a written 

acknowledgment from such bank or trust company that it was informed that the instruments 

belong to commodity or option customers of clearing members and are being held in accordance 

with the provisions of the Act and this part. Such acknowledgment shall be retained in 

accordance with §1.31. Such bank or trust company shall allow inspection of such instruments at 

any reasonable time by representatives of the Commission. 

§ 1.27 Record of investments. 

 (a) Each futures commission merchant which invests customer funds, and each derivatives 

clearing organization which invests customer funds of its clearing members' customers or option 

customers, shall keep a record showing the following: 

***** 

§ 1.30 Loans by futures commission merchants; treatment of proceeds. 

Nothing in these regulations shall prevent a futures commission merchant from lending its own 

funds to commodity or option customers on securities and property pledged by such commodity 

or option customers, or from repledging or selling such securities and property pursuant to 

specific written agreement with such commodity or option customers. The proceeds of such 

loans used to purchase, margin, guarantee, or secure the trades, contracts, or commodity options 
22 

of commodity or option customers shall be treated and dealt with by a futures commission 

merchant as belonging to such commodity or option customers, in accordance with and subject 

to the provisions of section 4d(a)(2) of the Act and these regulations. 

§ 1.31 Books and records; keeping and inspection. 

(a)(1) All books and records required to be kept by the Act or by these regulations shall be kept 

in their original form (for paper records) or native file format (for electronic records) for a period 

of five years from the date thereof and shall be readily accessible during the first 2 years of the 5-

year period; Provided, however, That records of any swap or related cash or forward transaction 

shall be kept until the termination, maturity, expiration, transfer, assignment, or novation date of 

the transaction and for a period of five years after such date. All such books and records shall be 

open to inspection by any representative of the Commission, or the United States Department of 

Justice, any applicable prudential regulator as that term is defined in section 1a(39) of the Act, 

or, in connection with those security-based swap agreements described in section 1a(47)(A)(v) of 

the Act, the United States Securities and Exchange Commission. For purposes of this section, 

native file format means an electronic file that exists in the format in which it was originally 

created.

(2) Persons required to keep books and records by the Act or by these regulations shall produce 

such records in a form specified by any representative of the Commission. A copy of any book 

or record required to be kept by the Act or by these regulations shall be providedSuch production 

shall be made, at the expense of the person required to keep the book or record, to a Commission 

representative upon the representative's request. Instead of furnishing a copy, such person may 

provide the original book or record for reproduction, which the representative may temporarily 

remove from such person's premises for this purpose. All copies or originals shall be provided 

promptly. Upon request, the Commission representative shall issue a receipt provided by such 

person for any copy or original book or record received. At the request of the Commission 

representative, such person shall, upon the return thereof, issue a receipt for any copy or original 

book or record returned by the representative. 

(b) Except as provided in paragraph (d) of this section, books and records required to be kept by 

the Act or by these regulations may be stored immediate reproductions on either “micrographic 

media” (as defined in paragraph (b)(1)(i) of this section) or “electronic storage media” (as 

defined in paragraph (b)(1)(ii) of this section) may be kept in that form for the required time 

period under the conditions set forth in this paragraph (b); Provided, however, For electronic 

records, such storage media must preserve the native file format of the electronic records as 

required by paragraph (a)(1) of this section.

(1) For purposes of this section: 

(i) The term “micrographic media” means microfilm or microfiche or any similar medium. 

(ii) The term “electronic storage media” means any digital storage medium or system that: 
23 

(A) Preserves the records exclusively in a non-rewritable, non-erasable format; 

(B) Verifies automatically the quality and accuracy of the storage media recording process; 

(C) Serializes the original and, if applicable, duplicate units of storage media and creates a timedate record for the required period of retention for the information placed on such electronic 

storage media; and 

(D) Permits the immediate downloading of indexes and records preserved on the electronic 

storage media onto paper, microfilm, microfiche or other medium acceptable under this 

paragraph upon the request of representatives of the Commission,or the Department of Justice, 

any applicable prudential regulator as that term is defined in section 1a(39) of the Act, or the 

Securities and Exchange Commission with respect to those security-based swap agreements

described in section 1a(47)(A)(5) of the Act. 

(2) Persons who use either micrographic media or electronic storage media to maintain records in 

accordance with this section must: 

(i) Have available at all times, for examination by representatives of the Commission, or the 

Department of Justice, any applicable prudential regulator as that term is defined in section 

1a(39) of the Act, or the Securities and Exchange Commission with respect to those securitybased swap agreements described in section 1a(47)(A)(5) of the Act, facilities for immediate, 

easily readable projection or production of micrographic media or electronic storage media 

images; 

(ii) Be ready at all times to provide, and immediately provide at the expense of the person 

required to keep such records, any easily readable hard-copy image that representatives of the 

Commission, or the Department of Justice, any applicable prudential regulator as that term is 

defined in section 1a(39) of the Act, or the Securities and Exchange Commission with respect to 

those security-based swap agreements described in section 1a(47)(A)(5) of the Act, may request; 

(iii) Keep only Commission-required records on the individual medium employed (e.g., a disk or 

sheets of microfiche); 

(iv) Store a duplicate of the record, in any medium acceptable under this regulation, at a location 

separate from the original for the period of time required for maintenance of the original; and 

(v) Organize and maintain an accurate index of all information maintained on both the original 

and duplicate storage media such that: 

(A) The location of any particular record stored on the media may be immediately ascertained; 

(B) The index is available at all times for immediate examination by representatives of the 

Commission, or the Department of Justice, any applicable prudential regulator as that term is 

defined in section 1a(39) of the Act, or the Securities and Exchange Commission with respect to 

those security-based swap agreements described in section 1a(47)(A)(5) of the Act; 
24 

(C) A duplicate of the index is stored at a location separate from the original index; and 

(D) Both the original index and the duplicate index are preserved for the time period required for 

the records included in the index. 

(3) In addition to the foregoing conditions, persons using electronic storage media must: 

(i) Be ready at all times to provide, and immediately provide at the expense of the person 

required to keep such records, copies of such records on such approved machinereadablecompatible data processing media as defined in §15.00(1d) of this chapter which any 

representative of the Commission, or the Department of Justice, any applicable prudential 

regulator as that term is defined in section 1a(39) of the Act, or the Securities and Exchange 

Commission with respect to those security-based swap agreements described in section

1a(47)(A)(5) of the Act, may request. Records must use a format and coding structure specified 

in the request. 

(ii) Develop and maintain written operational procedures and controls (an “audit system”) 

designed to provide accountability over both the initial entry of required records to the electronic 

storage media and the entry of each change made to any original or duplicate record maintained 

on the electronic storage media such that: 

(A) The results of such audit system are available at all times for immediate examination by 

representatives of the Commission, or the Department of Justice, any applicable prudential 

regulator as that term is defined in section 1a(39) of the Act, or the Securities and Exchange 

Commission with respect to those security-based swap agreements described in section

1a(47)(A)(5) of the Act; 

(B) The results of such audit system are preserved for the time period required for the records 

maintained on the electronic storage media; and 

(C) The written operational procedures and controls are available at all times for immediate 

examination by representatives of the Commission, or the Department of Justice, any applicable 

prudential regulator as that term is defined in section 1a(39) of the Act, or the Securities and 

Exchange Commission with respect to those security-based swap agreements described in 

section 1a(47)(A)(5) of the Act. 

(iii) Either 

(A) Maintain, keep current, and make available at all times for immediate examination by 

representatives of the Commission, or the Department of Justice, any applicable prudential 

regulator as that term is defined in section 1a(39) of the Act, or the Securities and Exchange 

Commission with respect to those security-based swap agreements described in section

1a(47)(A)(5) of the Act, all information necessary to access records and indexes maintained on 

the electronic storage media; or 
25 

(B) Place in escrow and keep current a copy of the physical and logical format of the electronic 

storage media, the file format of all different information types maintained on the electronic 

storage media and the source code, documentation, and information necessary to access the 

records and indexes maintained on the electronic storage media. 

(4) In addition to the foregoing conditions, any person who uses only electronic storage media to 

preserve some or all of its required records (“Electronic Recordkeeper”) shall, prior to the 

media's use, enter into an arrangement with at least one third party technical consultant 

(“Technical Consultant”) who has the technical and financial capability to perform the 

undertakings described in this paragraph (b)(4). The arrangement shall provide that the Technical 

Consultant will have access to, and the ability to download, information from the Electronic 

Recordkeeper's electronic storage media to any medium acceptable under this regulation. 

(i) The Technical Consultant must file with the Commission an undertaking in a form acceptable 

to the Commission, signed by the Technical Consultant or a person duly authorized by the 

Technical Consultant. An acceptable undertaking must include the following provision with 

respect to the Electronic Recordkeeper: 

With respect to any books and records maintained or preserved on behalf of the Electronic 

Recordkeeper, the undersigned hereby undertakes to furnish promptly to any representative of 

the United States Commodity Futures Trading Commission, or the United States Department of 

Justice, any applicable prudential regulator as that term is defined in section 1a(39) of the Act, or 

the United States Securities and Exchange Commission with respect to those security-based 

swap agreements described in section 1a(47)(A)(5) of the Act (the “Representative”), upon 

reasonable request, such information as is deemed necessary by the Representative to download 

information kept on the Electronic Recordkeeper's electronic storage media to any medium 

acceptable under 17 CFR 1.31. The undersigned also undertakes to take reasonable steps to 

provide access to information contained on the Electronic Recordkeeper's electronic storage 

media, including, as appropriate, arrangements for the downloading of any record required to be 

maintained under the Commodity Exchange Act or the rules, regulations, or orders of the United 

States Commodity Futures Trading Commission, in a format acceptable to the Representative. In 

the event the Electronic Recordkeeper fails to download a record into a readable format and after 

reasonable notice to the Electronic Recordkeeper, upon being provided with the appropriate 

electronic storage medium, the undersigned will undertake to do so, at no charge to the United 

States, as the Representative may request. 

(ii) [Reserved] 

(c) Persons employing an electronic storage system shall provide a representation to the 

Commission prior to the initial use of the system. The representation shall be made by the person 

required to maintain the records, the storage system vendor, or another third party with 

appropriate expertise and shall state that the selected electronic storage system meets the 

requirements set forth in paragraph (b)(1)(ii) of this section. Persons employing an electronic 

storage system using media other than optical disk or CD-ROM technology shall so state. The 

representation shall be accompanied by the type of oath or affirmation described in §1.10(d)(4). 
26 

(d) Trading cards, documents on which trade information is originally recorded in writing, 

written orders required to be kept pursuant to §1.35(a), (a–1)(1), (a–1)(2) and (d), and paper 

copies of electronically filed certified Forms 1–FR and FOCUS Reports with the original 

manually signed certification must be retained in hard-copy for the required time period. 

§ 1.32 Segregated account; daily computation and record. 

 (a) Each futures commission merchant must compute as of the close of each business day, on a 

currency-by-currency basis: 

(1) The total amount of customer funds on deposit in segregated accounts on behalf of 

commodity and option customers; 

(2) the amount of such customer funds required by the Act and these regulations to be on deposit 

in segregated accounts on behalf of such commodity and option customers; and 

(3) the amount of the futures commission merchant's residual interest in such customer funds. 

(b) In computing the amount of funds required to be in segregated accounts, a futures 

commission merchant may offset any net deficit in a particular customer's account against the 

current market value of readily marketable securities, less applicable percentage deductions ( i.e., 

“securities haircuts”) as set forth in Rule 15c3–1(c)(2)(vi) of the Securities and Exchange 

Commission (17 CFR 241.15c3–1(c)(2)(vi)), held for the same customer's account. The futures 

commission merchant must maintain a security interest in the securities, including a written 

authorization to liquidate the securities at the futures commission merchant's discretion, and must 

segregate the securities in a safekeeping account with a bank, trust company, clearing 

organization of a contract market, or another futures commission merchant. For purposes of this 

section, a security will be considered readily marketable if it is traded on a “ready market” as 

defined in Rule 15c3–1(c)(11)(i) of the Securities and Exchange Commission (17 CFR 

240.15c3–1(c)(11)(i)). 

(c) The daily computations required by this section must be completed by the futures 

commission merchant prior to noon on the next business day and must be kept, together with all 

supporting data, in accordance with the requirements of §1.31. 

§ 1.33 Monthly and confirmation statements. 

(a) Monthly statements. Each futures commission merchant must promptly furnish in writing to 

each commodity customer and to each option customer, and to each foreign futures and foreign 

options customer, as of the close of the last business day of each month or as of any regular 

monthly date selected, except for accounts in which there are neither open positions at the end of 
27 

the statement period nor any changes to the account balance since the prior statement period, but 

in any event not less frequently than once every three months, a statement which clearly shows: 

(1) For each commodity futures customer and foreign futures customer position— 

(i) The open contracts position with prices at which acquired; 

(ii) The net unrealized profits or losses in all open contracts positions marked to the market; and

(iii) Any customer funds carried with the futures commission merchant; and 

(iv) A detailed accounting of all financial charges and credits to such customer accounts during 

the monthly reporting period, including all customer funds and funds on deposit with respect to 

foreign futures transactions in accordance with §30.7 of this chapter received from or disbursed 

to such customer and realized profits and losses; and 

(2) For each commodity option customer position and foreign options customerposition— 

(i) All commodity options and foreign options purchased, sold, exercised, or expired during the 

monthly reporting period, identified by underlying futures contract or underlying physical, strike 

price, transaction date, and expiration date; 

(ii) The open commodity option and foreign option positions carried for such customer as of the 

end of the monthly reporting period, identified by underlying futures contract or underlying 

physical, strike price, transaction date, and expiration date; 

(iii) All open commodity option and foreign option positions marked to the market and the 

amount each position is in the money, if any; 

(iv) Any customer funds carried in such customer's account(s); and 

(v) A detailed accounting of all financial charges and credits to such customer's account(s) 

during the monthly reporting period, including all customer funds and funds on deposit with 

respect to foreign options transactions in accordance with §30.7 of this chapter received from or 

disbursed to such customer, premiums charged and received, and realized profits and losses.

(3) For each swap position--- 

(i) All swaps caused to be executed by itthe futures commission merchant for the customer;

(ii) The net unrealized profits or losses in all swaps marked to the market; 

(iii) Any customer funds carried with the futures commission merchant; and
28 

(iv) A detailed accounting of all financial charges and credits to such customer accounts during 

the monthly reporting period, including all customer funds received from or disbursed to such 

customer and realized profits and losses. 

(b) Confirmation statement. Each futures commission merchant must, not later than the next 

business day after any commodity futuresinterest or commodity option transaction, including any 

foreign futures or foreign options transactions, furnish to each commodity customer, : 

(1) a written confirmation of each commodity futures transaction caused to be executed by it for 

the customer. 

(2) a written confirmation of each swap caused to be executed by it for the customer, containing 

at least the following information:

(i) The unique swap identifier, as required by §45.4(a) of this chapter, for each swap and date 

each swap was executed;

(ii) The product name of each swap;

(iii) The price at which the swap was executed;

(iv) The date of maturity for each swap; and

(v) If cleared, the derivatives clearing organization through which it is cleared.

(3) To each option customer, a written confirmation of each commodity option transaction, 

containing at least the following information: 

(i) The option customer's account identification number; 

(ii) A separate listing of the actual amount of the premium, as well as each mark-up thereon, if 

applicable, and all other commissions, costs, fees and other charges incurred in connection with 

the commodity option transaction; 

(iii) The strike price; 

(iv) The underlying futures contract or underlying physical; 

(v) The final exercise date of the commodity option purchased or sold; and 

(vi) The date the commodity option transaction was executed. 

(43) To each option customer, uUpon the expiration or exercise of any commodity option, a 

written confirmation statement thereof, which statement shall include the date of such 

occurrence, a description of the option involved, and, in the case of exercise, the details of the 
29 

futures or physical position which resulted therefrom including, if applicable, the final trading 

date of the contract for future delivery underlying the option. 

(54) Notwithstanding the provisions of paragraphs (b)(1) through (b)(43) of this section, a 

commodity futures interest or commodity option transaction that is caused to be executed for a 

commodity pool need be confirmed only to the operator of the commodity pool. 

(c) Exemptions. The requirements of paragraphs (a)(1)(i), (a)(1)(ii), and (b)(1) of this section 

shall not apply to the following: 

(1) Any account carried for a person who is a member of any contract market; 

(2) Any omnibus account carried for another futures commission merchant; and 

(3) Any account containing only bona fide hedge positions, except that confirmations must be 

furnished to accounts containing only bona fide hedge positions. 

(d) Controlled accounts. With respect to any account controlled by any person other than the 

commodity customer , or option customer for whom such account is carried, each futures 

commission merchant shall: 

(1) Promptly furnish in writing to such other person the information required by paragraphs (a) 

and (b) of this section; 

(2) [Reserved] 

(3) Promptly furnish in writing to such other person a copy of the statement required by §1.46: 

Provided, however, That the provisions of this paragraph (d) shall not apply to an account 

controlled by the spouse, parent or child of the customer for whom such account is carried. 

(e) Recordkeeping. Each futures commission merchant shall retain, in accordance with §1.31, a 

copy of each monthly statement and confirmation required by this section. 

(f) Introduced accounts. Each statement provided pursuant to the provisions of this section must, 

if applicable, show that the account for which the futures commission merchant is providing the 

statement was introduced by an introducing broker and the names of the futures commission 

merchant and introducing broker. 

(g) Electronic transmission of statements. (1) The statements required by this section, and by 

§1.46, may be furnished to any customer by means of electronic media if the customer so 

consents, Provided, however, that a futures commission merchant must, prior to the transmission 

of any statement by means of electronic media, disclose the electronic medium or source through 

which statements will be delivered, the duration, whether indefinite or not, of the period during 

which consent will be effective, any charges for such service, the information that will be 

delivered by such means, and that consent to electronic delivery may be revoked at any time. 
30 

(2) In the case of a customer who does not qualify as an “institutional customer” as defined in 

§1.3(g), a futures commission merchant must obtain the customer's signed consent 

acknowledging disclosure of the information set forth in paragraph (g)(1) of this section prior to 

the transmission of any statement by means of electronic media. 

(3) Any statement required to be furnished to a person other than a customer in accordance with 

paragraph (d) of this section may be furnished by electronic media. 

(4) A futures commission merchant who furnishes statements to any customer by means of 

electronic media must retain a daily confirmation statement for such customer as of the end of 

the trading session, reflecting all transactions made during that session for the customer, in 

accordance with §1.31. 

§ 1.34 Monthly record, “point balance” 

(a) With respect to commodity futures transactions, Eeach futures commission merchant shall 

prepare, and retain in accordance with the requirements of §1.31, a statement commonly known 

as a “point balance,” which accrues or brings to the official closing price, or settlement price 

fixed by the clearing organization, all open contracts positions of customers as of the last 

business day of each month or of any regular monthly date selected: Provided, however, That a 

futures commission merchant who carries part or all of customers' open contracts positions with 

other futures commission merchants on an “instruct basis” will be deemed to have met the 

requirements of this section as to open contracts positions so carried if a monthly statement is 

prepared which shows that the prices and amounts of such contracts positions long and short in 

the customers' accounts are in balance with those in the carrying futures commission merchants' 

accounts, and such statements are retained in accordance with the requirements of §1.31. 

(b) With respect to commodity option transactions, Eeach futures commission merchant shall 

prepare, and retain in accordance with the requirements of §1.31, a listing in which all open 

commodity option positions carried for option customerscustomers are marked to the market. 

Such listing shall be prepared as of the last business day of each month, or as of any regular 

monthly date selected, and shall be by put or by call, by underlying contract for future delivery 

(by delivery month) or underlying physical (by option expiration date), and by strike price. 

§ 1.35 Records of commodity interest and cash commodity, futures, and option

transactions. 

(a) Futures commission merchants, retail foreign exchange dealers, introducing brokers, and 

members of designated contract markets or swap execution facilities. Each futures commission 

merchant, retail foreign exchange dealer, introducing broker, and member of a designated 

contract market or swap execution facility shall keep full, complete, and systematic records, 

together which includewith all pertinent data and memoranda, of all transactions relating to its 

business of dealing in commodity futures, retail forex exchange transactions, commodity options, 

commodity interests and cash commodities. Each futures commission merchant, retail foreign 
31 

exchange dealer, introducing broker, and member of a designated contract market or swap 

execution facility shall retain the required records, data, and memoranda in accordance with the 

requirements of §1.31, and produce them for inspection and furnish true and correct information 

and reports as to the contents or the meaning thereof, when and as requested by an authorized 

representative of the Commission or the United States Department of Justice. Included among 

such records shall be all orders (filled, unfilled, or canceled), trading cards, signature cards, street 

books, journals, ledgers, canceled checks, copies of confirmations, copies of statements of 

purchase and sale, and all other records, data and memoranda, which have been prepared in the 

course of its business of dealing in commodity futures, retail forex transactions, commodity 

options, commodity interests and cash commodities, and all oral and written communications 

provided or received concerning quotes, solicitations, bids, offers, instructions, trading, and 

prices, that lead to the execution of transactions in a commodity interest or cash commodity, 

whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, 

electronic mail, mobile device or other digital or electronic media. Each transaction record shall 

be maintained as a separate electronic file identifiable by transaction and counterparty. Among 

such records each member of a designated contract market or swap execution facility must retain 

and produce for inspection are all documents on which trade information is originally recorded, 

whether or not such documents must be prepared pursuant to the rules or regulations of either the 

Commission, or the designated contract market or the swap execution facility. For purposes of 

this section, such documents are referred to as “original source documents.” 

(a–1) Futures commission merchants, retail foreign exchange dealers, introducing brokers, and 

members of designated contract markets and swap execution facilities: Recording of customers' 

and option customers' orders. (1) Each futures commission merchant, each retail foreign 

exchange dealer, each introducing broker, and each member of a designated contract market or 

swap execution facility receiving a customer's or option customer's order that cannot 

immediately be entered into a trade matching engine shall immediately upon receipt thereof 

prepare a written record of the order including the account identification, except as provided in 

paragraph (a–1)(5) of this section, and order number, and shall record thereon, by timestamp or 

other timing device, the date and time, to the nearest minute, the order is received, and in 

addition, for commodity option customers' orders, the time, to the nearest minute, the order is 

transmitted for execution. 

(2)(i) Each member of a designated contract market who on the floor of such designated contract 

market receives a customer's or option customer's order which is not in the form of a written 

record including the account identification, order number, and the date and time, to the nearest 

minute, the order was transmitted or received on the floor of such designated contract market, 

shall immediately upon receipt thereof prepare a written record of the order in nonerasable ink, 

including the account identification, except as provided in paragraph (a–1)(5) of this section or 

appendix C to this part, and order number and shall record thereon, by timestamp or other timing 

device, the date and time, to the nearest minute, the order is received. 

(ii) Except as provided in paragraph (a–1)(3) of this section: 

(A) Each member of a designated contract market member who on the floor of such designated 

contract market receives an order from another member present on the floor which is not in the 
32 

form of a written record shall, immediately upon receipt of such order, prepare a written record 

of the order or obtain from the member who placed the order a written record of the order, in 

non-erasable ink including the account identification and order number and shall record thereon, 

by time-stamp or other timing device, the date and time, to the nearest minute, the order is 

received; or 

(B) When a member of a designated contract market member present on the floor places an 

order, which is not in the form of a written record, for his own account or an account over which 

he has control, with another member of such designated contract market for execution: 

( 1 ) The member placing such order immediately upon placement of the order shall record the 

order and time of placement to the nearest minute on a sequentially-numbered trading card 

maintained in accordance with the requirements of paragraph (d) of this section; 

( 2 ) The member receiving and executing such order immediately upon execution of the order 

shall record the time of execution to the nearest minute on a trading card or other record 

maintained pursuant to the requirements of paragraph (d) of this section; and 

( 3 ) The member receiving and executing the order shall return such trading card or other record 

to the member placing the order. The member placing the order then must submit together both 

of the trading cards or other records documenting such trade to designated contract market 

personnel or the clearing member, in accordance with contract market rules adopted pursuant to 

paragraph (j)(1) of this section. 

(iii) Each contract market may adopt rules, which must be submitted to the Commission 

pursuant to section 5a(a)(12)(A) of the Act and Commission Regulation 1.41, that provide 

alternative requirements to those contained in paragraph (a–1)(2)(ii) of this section. Such rules 

shall, at a minimum, require that the contemporaneous written records:

(A) Contain the terms of the order;

(B) Include reliable timing data for the initiation and execution of the order which would permit 

complete and effective reconstruction of the order placement and execution; and

(C) Be submitted to contract market personnel or clearing members in accordance with contract 

market rules adopted pursuant to paragraph (j)(1) of this section.

(3)(i) The requirements of paragraph (a–1)(2)(ii) of this section will not apply if a designated 

contract market maintains in effect rules which have been submitted to the Commission pursuant 

to section 5a(a)(12)(A) of the Act and Commission Regulation 1.41, which provide for an 

exemption where: 

(A) A member of a designated contract market member places with another member of such 

designated contract market an order that is part of a spread transaction; 

(B) The member placing the order personally executes one or more legs of the spread; and 
33 

(C) The member receiving and executing such order immediately upon execution of the order 

records the time of execution to the nearest minute on his trading card or other record maintained 

in accordance with the requirements of paragraph (d) of this section.

(ii) Each contract market shall, as part of its trade practice surveillance program, conduct 

surveillance for compliance with the recordkeeping and other requirements under paragraphs (a–

1) (2) and (3) of this section, and for trading abuses related to the execution of orders for 

members present on the floor of the contract market.

(4) Each member of a designated contract market reporting the execution from the floor of the 

designated contract market of a customer's or option customer's order or the order of another 

member of the designated contract market received in accordance with paragraphs (a–1)(2)(i) or 

(a–1)(2)(ii)(A) of this section, shall record on a written record of the order, including the account 

identification, except as provided in paragraph (a–1)(5) of this section, and order number, by 

time-stamp or other timing device, the date and time to the nearest minute such report of 

execution is made. Each member of a designated contract market shall submit the written records 

of customer orders or orders from other designated contract market members to designated

contract market personnel or to the clearing member responsible for the collection of orders 

prepared pursuant to this paragraph as required by contract market rules adopted in accordance 

with paragraph (j)(1) of this section. The execution price and other information reported on the 

order tickets must be written in nonerasable ink. 

(5) Post-execution allocation of bunched orders. Specific customer account identifiers for 

accounts included in bunched orders to be executed on designated contract markets or swap 

execution facilities need not be recorded at time of order placement or upon report of execution 

if the requirements of paragraphs (a–1)(5)(i)–(iv v) of this section are met. Specific customer 

account identifiers for accounts included in bunched orders involving swaps need not be 

included in confirmations or acknowledgments provided by swap dealers or major swap 

participants pursuant to §23.501(a) if the requirements of paragraphs (a-1)(5)(i)-(v) of this 

section are met.

(i) Eligible account managers for orders executed on designated contract markets or swap 

execution facilities. The person placing and directing the allocation of an order eligible for postexecution allocation must have been granted written investment discretion with regard to 

participating customer accounts. The following persons shall qualify as eligible account 

managers for trades executed on designated contract markets or swap execution facilities: 

(A) A commodity trading advisor registered with the Commission pursuant to the Act or 

excluded or exempt from registration under the Act or the Commission's rules, except for entities 

exempt under §4.14(a)(3) or §4.14(a)(6) of this chapter; 

(B) An investment adviser registered with the Securities and Exchange Commission pursuant to 

the Investment Advisers Act of 1940 or with a state pursuant to applicable state law or excluded 

or exempt from registration under such Act or applicable state law or rule; 
34 

(C) A bank, insurance company, trust company, or savings and loan association subject to 

federal or state regulation; or

(D) A foreign adviser that exercises discretionary trading authority solely over the accounts of 

non-U.S. persons, as defined in §4.7(a)(1)(iv) of this chapter;

(E) A futures commission merchant registered with the Commission pursuant to the Act; or

(F) An introducing broker registered with the Commission pursuant to the Act.

(ii) Eligible account managers for orders executed bilaterally. The person placing and directing 

the allocation of an order eligible for post-execution allocation must have been granted written 

investment discretion with regard to participating customer accounts. The following persons 

shall qualify as eligible account managers for trades executed bilaterally:

(A)A commodity trading advisor registered with the Commission pursuant to the Act or 

excluded or exempt from registration under the Act or the Commission's rules, except for 

entities exempt under §4.14(a)(3) of this chapter;

(B) A futures commission merchant registered with the Commission pursuant to the Act; or

(C) An introducing broker registered with the Commission pursuant to the Act.

(iii) Information. Eligible account managers shall make the following information available to 

customers upon request: 

(A) The general nature of the allocation methodology the account manager will use; 

(B) Whether accounts in which the account manager may have any interest may be included with 

customer accounts in bunched orders eligible for post-execution allocation; and 

(C) Summary or composite data sufficient for that customer to compare its results with those of 

other comparable customers and, if applicable and consistent with §155.3(a)(1) and §155.4(a)(1), 

any account in which the account manager has an interest. 

(iiiiv) Allocation. Orders eligible for post-execution allocation must be allocated by an eligible 

account manager in accordance with the following: 

(A) Allocations must be made as soon as practicable after the entire transaction is executed, but 

in any event no later than the following times: For cleared trades, account managers must 

provide allocation information to futures commission merchants no later than a time sufficiently 

before the end of the day the order is executed to ensure that clearing records identify the 

ultimate customer for each trade. For uncleared trades, account managers must provide 

allocation information to the counterparty no later than the end of the calendar day that the swap 

was executed.
35 

(B) Allocations must be fair and equitable. No account or group of accounts may receive 

consistently favorable or unfavorable treatment. 

(C) The allocation methodology must be sufficiently objective and specific to permit 

independent verification of the fairness of the allocations using that methodology by appropriate 

regulatory and self-regulatory authorities and by outside auditors. 

(ivv) Records. (A) Eligible account managers shall keep and must make available upon request 

of any representative of the Commission, the United States Department of Justice, or other 

appropriate regulatory agency, the information specified in paragraph (a–1)(5)(iii) of this section. 

(B) Eligible account managers shall keep and must make available upon request of any 

representative of the Commission, the United States Department of Justice, or other appropriate 

regulatory agency, records sufficient to demonstrate that all allocations meet the standards of 

paragraph (a–1)(5)(iiiiv) of this section and to permit the reconstruction of the handling of the 

order from the time of placement by the account manager to the allocation to individual 

accounts. 

(C) Futures commission merchants, introducing brokers, or commodity trading advisors that 

execute orders or that carry accounts eligible for post-execution allocation, and members of 

designated contract markets or swap execution facilities that execute such orders, must maintain 

records that, as applicable, identify each order subject to post-execution allocation and the 

accounts to which contracts executed for such order are allocated. 

(D) In addition to any other remedies that may be available under the Act or otherwise, if the 

Commission has reason to believe that an account manager has failed to provide information 

requested pursuant to paragraph (a–1)(5)(ivv)(A) or (a–1)(5)(ivv)(B) of this section, the 

Commission may inform in writing any designated contract market, or derivatives transaction 

execution facility swap execution facility, swap dealer, or major swap participant, and that 

designated contract market, or derivatives transaction execution facility swap execution facility, 

swap dealer, or major swap participant shall prohibit the account manager from submitting 

orders for execution except for liquidation of open positions and no futures commission 

merchants shall accept orders for execution on any designated contract market, or derivatives 

transaction execution facilityswap execution facility, or bilaterally from the account manager 

except for liquidation of open positions. 

(E) Any account manager that believes he or she is or may be adversely affected or aggrieved by 

action taken by the Commission under paragraph (a–1)(5)(ivv)(D) of this section shall have the 

opportunity for a prompt hearing in accordance with the provisions of §21.03(g) of this chapter. 

(a–2)(1) Futures commission merchants, introducing brokers, and members of designated

contract markets and swap execution facilities. Upon request of the designated contract market

or swap execution facility, the Commission, or the United States Department of Justice, each 

futures commission merchant, introducing broker, and member of a designated contract market

or swap execution facility shall request from its customers and, upon receipt thereof, provide to 

the requesting body documentation of cash transactions underlying exchanges of futures or 
36 

swaps for cash commodities or exchanges of futures or swaps in connection with cash 

commodity transactions. 

(2) Customers. Each customer of a futures commission merchant, introducing broker, or member 

of a designated contract market or swap execution facility shall create, retain, and produce upon 

request of the designated contract market or swap execution facility, the Commission, or the 

United States Department of Justice documentation of cash transactions underlying exchanges of 

futures or swaps for cash commodities or exchanges of futures or swaps in connection with cash 

commodity transactions. 

(3) Contract markets. Every contract market shall adopt rules which require its members to 

provide documentation of cash transactions underlying exchanges of futures for cash 

commodities or exchanges of futures in connection with cash commodity transactions upon 

request of the contract market.

(34) Documentation. For the purposes of this paragraph, documentation means those documents 

customarily generated in accordance with cash market practices which demonstrate the existence 

and nature of the underlying cash transactions, including, but not limited to, contracts, 

confirmation statements, telex printouts, invoices, and warehouse receipts or other documents of 

title. 

(b) Futures commission merchants, retail foreign exchange dealers, introducing brokers, and 

clearing members of derivatives clearing organizations clearing trades executed on designated 

contract markets and swap execution facilities. Each futures commission merchant, each retail 

foreign exchange dealer, and each clearing member of a derivatives clearing organization 

clearing trades executed on a designated contract market or swap execution facility and, for 

purposes of paragraph (b)(3) of this section, each introducing broker, shall, as a minimum 

requirement, prepare regularly and promptly, and keep systematically and in permanent form, the 

following: 

(1) A financial ledger record which will show separately for each customer or option customer

all charges against and credits to such customer's or option customer's account, including but not 

limited to customer funds deposited, withdrawn, or transferred, and charges or credits resulting 

from losses or gains on closed transactions; 

(2) A record of transactions which will show separately for each account (including proprietary 

accounts): 

(i) All commodity futures transactions executed for such account, including the date, price, 

quantity, market, commodity and future; and

(ii) All retail forex transactions executed for such account, including the date, price, quantity, and 

currency; and

(iii) All commodity option transactions executed for such account, including the date, whether 

the transaction involved a put or call, expiration date, quantity, underlying contract for future 
37 

delivery or underlying physical, strike price, and details of the purchase price of the option, 

including premium, mark-up, commission and fees; and 

(iv) All swaps transactions executed for such account, including the date, price, quantity, market, 

commodity, and swap, and, if cleared, the derivatives clearing organization; and

(3) A record or journal which will separately show for each business day complete details of: 

(i) All commodity futures transactions executed on that day, including the date, price, quantity, 

market, commodity, future and the person for whom such transaction was made; 

(ii) All retail forex transactions executed on that day for such account, including the date, price, 

quantity, currency and the person for whom such transaction was made; 

(iii) All commodity option transactions executed on that day, including the date, whether the 

transaction involved a put or call, the expiration date, quantity, underlying contract for future 

delivery, or underlying physical, strike price, details of the purchase price of the option, 

including premium, mark-up, commission and fees and the person for whom the transaction was 

made; and

(iv) All swaps transactions executed on that day, including the date, price, quantity, market, 

commodity, swap, and the person for whom such transaction was made, and, if cleared, the 

derivatives clearing organization; and

(vii) In the case of an introducing broker, the record or journal required by this paragraph (b)(3) 

shall also include the futures commission merchant or retail foreign exchange dealer carrying the 

account for which each commodity futures, retail forex, and commodity option, and swap

transaction was executed on that day. Provided, however, that where reproductions on microfilm, 

microfiche or optical disk are substituted for hard copy in accordance with the provisions of 

§1.31(b) of this part, the requirements of paragraphs (b)(1) and (b)(2) of this section will be 

considered met if the person required to keep such records is ready at all times to provide, and 

immediately provides in the same city as that in which such person's commodity futures, retail 

forex, or commodity option, or swap books and records are maintained, at the expense of such 

person, reproduced copies which show the records as specified in paragraphs (b)(1) and (b)(2) of 

this section, on request of any representatives of the Commission or the U.S. Department of 

Justice. 

(c) Clearing mMembers of derivatives clearing organizations clearing trades executed on

designated contract markets and swap execution facilities. In the daily record or journal required 

to be kept under paragraph (b)(3) of this section, each clearing member of a derivatives clearing 

organization clearing trades executed on a designated contract market or swap execution facility

shall also show the floor broker or floor trader executing each transaction, the opposite floor 

broker or floor trader, and the opposite clearing member with whom it was made. 

(d) Members of designated contract markets. (1) Each member of a designated contract market 

who, in the place provided by the designated contract market for the meeting of persons similarly 
38 

engaged, executes purchases or sales of any commodity for future delivery or commodity option 

or swap on or subject to the rules of such designated contract market, shall prepare regularly and 

promptly a trading card or other record showing such purchases and sales. Such trading card or 

record shall show the member's name, the name of the clearing member, transaction date, time

(as specified in rules of the contract market which comply with the requirements of this section), 

quantity, and, as applicable, underlying commodity, contract for future delivery, swap or 

physical, price or premium, delivery month or expiration date, whether the transaction involved a 

put or a call and strike price. Such trading card or other record shall also clearly identify the 

opposite floor broker or floor trader with whom the transaction was executed, and the opposite 

clearing member (if, in accordance with the rules or practice of the contract market, such 

opposite clearing member is made known to the member). 

(2) Each member of a designated contract market recording purchases and sales on trading cards 

must record such purchases and sales in exact chronological order of execution on sequential 

lines of the trading card without skipping lines between trades; Provided, however,; That if lines 

remain after the last execution recorded on a trading card, the remaining lines must be marked 

through. 

(3) Each member of a designated contract market must identify on his or her trading cards in the 

manner prescribed by the rules of the contract market the purchases and sales executed during 

the opening and closing periods designated by the designated contract market pursuant to 

paragraph (j)(7) of this section. 

(4) Trading cards prepared by a member of a designated contract market pursuant to contract 

market rules must contain: 

(i) Pre-printed member identification or other unique identifying information which would 

permit the trading cards of one member to be distinguished from those of all other members; 

(ii) Pre-printed sequence numbers to permit the intra-day sequencing of the cards; and 

(iii) Unique and pre-printed identifying information which would distinguish each of the trading 

cards prepared by the member from other such trading cards for no less than a one-week period. 

(5) Trading cards prepared by a member of a designated contract market and submitted collected

pursuant to paragraph (d)(7)(i)(j)(1) of this section must be timestamped promptly to the nearest 

minute upon collection by either the designated contract market or the relevant clearing member. 

(6) Each member of a designated contract market shall be accountable for all trading cards 

prepared pursuant to contract market rules in exact numerical sequence, whether or not such 

trading cards are relied on as original source documents. 

(7) Trading records prepared by a member of a designated contract market pursuant to contract 

market rules must: 
39 

(i) Be submitted to designated contract market personnel or the clearing member within 15 

minutes of designated intervals not to exceed 30 minutes, commencing with the beginning of 

each trading session. The time period for submission of trading records after the close of trading 

in each market shall not exceed 15 minutes from the close. Such documents should nevertheless 

be submitted as often as is practicable to the designated contract market or relevant clearing 

memberin accordance with contract market rules adopted pursuant to paragraph (j)(1) of this 

section; and 

(ii) Be completed in non-erasable ink. A member may correct any errors by crossing out 

erroneous information without obliterating or otherwise making illegible any of the originally 

recorded information. With regard to trading cards only, a member may correct erroneous 

information by rewriting the trading card; pProvided, however, that the member must submit a 

ply of the trading card, or in the absence of plies the original trading card, that is subsequently 

rewritten in accordance with contract market rules which set forth the required collection 

schedule for trading cards and provided further that the member is accountable for any trading 

card that subsequently is rewritten pursuant to paragraph (d)(6) of this section. 

(8) Each member of a designated contract market must use a new trading card at the beginning of 

each designated 30-minute interval required by paragraph (j)(1) of this section (or such lesser 

interval as may be determined appropriate by the applicable contract market) or as may be 

required pursuant hereto. 

(e) Clearing mMembers of derivatives clearing organizations clearing trades executed on

designated cContract markets and swap execution facilities. Each clearing member of a

derivatives clearing organization clearing trades executed on a designated contract market or 

swap execution facility shall maintain or cause to be maintained by its clearing organization a 

single record which shall show for each futures or option or swap trade: the transaction date, 

time (as described in paragraph (g) of this section), quantity, and, as applicable, underlying 

commodity, contract for future delivery, swap or physical, price or premium, delivery month or 

expiration date, whether the transaction involved a put or a call, strike price, floor broker or floor 

trader buying, clearing member buying, floor broker or floor trader selling, clearing member 

selling, and symbols indicating the buying and selling customer or option customer types. The 

customer and option customer type indicators shall show, with respect to each person executing 

the trade, whether such person: 

(1) Was trading for his or her own account, or an account for which he or she has discretion; 

(2) Was trading for his or her clearing member's house account; 

(3) Was trading for another member present on the exchange floor, or an account controlled by 

such other member; or 

(4) Was trading for any other type of customer or option customer. The record required by this 

paragraph (e) shall also show, by appropriate and uniform symbols, any transaction which is 

made non-competitively in accordance with the provisions of subpart J of part 38 of this chapter,

written rules of the contract market which have been submitted to and approved by the 
40 

Commission in accordance with the provisions of §1.38, and trades cleared on dates other than 

the date of execution. Except as otherwise approved by the Commission for good cause shown, 

the record required by this paragraph (e) shall be maintained in a format and coding structure 

approved by the Commission (i) in hard copy or on microfilm as specified in §1.31 and (ii) for 

60 days in computer-readable form on compatible magnetic tapes or discs. 

(f) Each contract market shall provide for the identification of floor brokers, floor traders, and 

clearing members, in the records required to be kept under paragraphs (c), (d), and (e) of this 

section, by the use of a distinctive, nonvariable designation for each such floor broker, floor 

trader, and clearing member.

(g) Time of trade execution. For purposes of paragraph (e) of this section: (1) The actual time of 

the execution of each side of a transaction must be obtained, or (2) if a contract market identifies 

and records the time of a transaction, a single actual time of execution for both sides of the 

transaction may be obtained. Actual times of execution shall be stated in increments of no more 

than one minute in length. If a contract market submits rules to the Commission, in accordance 

with the provisions of section 5a(a)(12)(A) of the Act and §1.41, defining and separately 

identifying opening and closing time periods, the contract market may, for purposes of paragraph 

(e) of this section, use those time periods for trades occurring during the opening and closing 

periods. Contract market rules in effect prior to the effective date of this paragraph (g) upon 

which a contract market intends to rely in complying herewith must be submitted for this 

purpose to the Commission in accordance with the provisions of section 5a(a)(12)(A) of the Act 

and §1.41.

(h) Contract market price change register. Each contract market shall establish and maintain a 

record of all changes in the price of futures or option transactions executed on the floor of the 

contract market. This record shall include the time of all changes in price to the nearest ten 

seconds.

(i) Contract markets. A contract market, in order to demonstrate that it is exercising due 

diligence in maintaining the continuing affirmative action program required by the Act and 

§1.51, shall, at a minimum:

(1) Demonstrate effective use in its continuing affirmative action program of the information 

required to be obtained by paragraph (e) of this section to reconstruct rapidly and accurately 

transactions executed on or subject to the rules of such contract market; and

(2) Submit to the Commission such reports as the Commission or the Director of the Division of 

Trading and Markets, or such persons under the supervision of the Director as may be specified 

from time to time, may require concerning the accuracy of all information recorded under 

paragraph (e) of this section and the use of such information in the contract market's affirmative 

action program.

(j) Contract markets. Each contract market must maintain in effect rules which require that:
41 

(1) Trading records prepared by a member of the contract market pursuant to paragraphs (a–1) 

and (d) of this section be submitted to contract market personnel or the clearing member within 

15 minutes of designated intervals not to exceed 30 minutes, commencing with the beginning of 

each trading session. The time period permitted for the submission of trading records after the 

close of trading in each market shall not exceed 15 minutes from the close. Such documents 

should nevertheless be collected as often as is practicable by the contract market or relevant 

clearing member. Such contract market rules need not, however, require that those original 

source documents which cannot be relied upon by the contract market or clearing member for 

clearing purposes be submitted pursuant to this paragraph. Each contract market shall submit a 

written report to the Commission no later than nine months after the effective date of this 

paragraph describing with particularity the contract market's system(s) in place to comply with 

this paragraph and the level of compliance achieved to date.

(2) Trading cards collected pursuant to this paragraph must be timestamped promptly to the 

nearest minute upon collection by either the contract market or relevant clearing member.

(3) A member of the contract market must use a new trading card at the beginning of each 

designated 30-minute interval required by paragraph (j)(1) of this section.

(4) A member of the contract market must record trades in the manner prescribed by paragraph 

(d)(2) of this section.

(5) Trading cards prepared by a member of the contract market must contain the identifying 

information prescribed by paragraph (d)(4) of this section.

(6) A member of the contract market must be accountable for all trading cards prepared pursuant 

to contract market rules in exact numerical sequence, whether or not such trading cards are relied 

on as original source documents.

(7) A member of the contract market must identify on his trading cards trades executed during 

opening and closing periods either by drawing a line on the trading card to separate those trades 

from others recorded thereon or by some other method. Each contract market must designate as 

opening and closing periods for this purpose those periods upon which the opening and closing 

trading ranges are based for each of its markets.

(8) A member of the contract market must complete trades in non-erasable ink in the manner 

prescribed by paragraph (d)(7)(ii) of this section.

(k) Collection of trading cards in intervals not to exceed 15 minutes. The Commission, in its 

discretion, may publish a schedule in the Federal Register no earlier than 11 months after 

paragraph (j)(1) of this section becomes effective, indicating when the records required to be 

submitted pursuant to that paragraph must be submitted to contract market personnel or the 

clearing member within 15 minutes of designated intervals not to exceed 15 minutes, 

commencing with the beginning of each trading session.
42 

(l) A contract market which can demonstrate that it currently has available hand-held terminals 

or such other automated means for the recordation of trades which can eliminate the opportunity 

for improper alteration or fabrication of trading records, may petition the Commission for an 

exemption from Regulations 1.35(a–1) (2) and (4), (d), (j) or (k), as appropriate.

§ 1.36 Record of securities and property received from customers and option customers. 

(a) Each futures commission merchant and each retail foreign exchange dealer shall maintain, as 

provided in §1.31, a record of all securities and property received from customers or, retail forex 

customers or option customers in lieu of money to margin, purchase, guarantee, or secure the 

commodity, retail forex or commodity option transactionscommodity interests of such customers

or , retail forex customers or option customers. Such record shall show separately for each 

customer, or retail forex customer or option customer: A description of the securities or property 

received; the name and address of such customer, or retail forex customer or option customer; 

the dates when the securities or property were received; the identity of the depositories or other 

places where such securities or property are segregated or held; the dates of deposits and 

withdrawals from such depositories; and the dates of return of such securities or property to such 

customer, or retail forex customer or option customer, or other disposition thereof, together with 

the facts and circumstances of such other disposition. In the event any futures commission 

merchant deposits with the a clearing organization of a contract market, directly or with a bank 

or trust company acting as custodian for such clearing organization, securities and/or property 

which belong to a particular customer or option customer, such futures commission merchant 

shall obtain written acknowledgment from such clearing organization that it was informed that 

such securities or property belong to customers or option customers of the futures commission 

merchant making the deposit. Such acknowledgment shall be retained as provided in §1.31. 

(b) Each clearing organization of a contract market which receives from members securities or 

property belonging to particular customers or option customers of such members in lieu of 

money to margin, purchase, guarantee, or secure the commodity or commodity option 

transactions commodity interests of such customers or option customers, or receives notice that 

any such securities or property have been received by a bank or trust company acting as 

custodian for such clearing organization, shall maintain, as provided in §1.31, a record which 

will show separately for each member, the dates when such securities or property were received, 

the identity of the depositories or other places where such securities or property are segregated, 

the dates such securities or property were returned to the member, or otherwise disposed of, 

together with the facts and circumstances of such other disposition including the authorization 

therefor.

§ 1.37 Customer's or option customer's name, address, and occupation recorded; record 

of guarantor or controller of account. 
43 

(a)(1) Each futures commission merchant, retail foreign exchange dealer, introducing broker, and 

member of a contract market shall keep a record in permanent form which shall show for each 

commodity futures, retail forex, or option or swapcommodity interest account carried or 

introduced by it the true name and address of the person for whom such account is carried or 

introduced and the principal occupation or business of such person as well as the name of any 

other person guaranteeing such account or exercising any trading control with respect to such 

account. For each such commodity option account, the records kept by such futures commission 

merchant, introducing broker, and member of a contract market must also show the name of the 

person who has solicited and is responsible for each option customer's account or assign account 

numbers in such a manner to identify that person. 

(2) Each futures commission merchant who receives a customer's election not to have the 

customer's funds separately accounted for and segregated, in accordance with §1.68, shall keep a 

record in permanent form that indicates such customer's election. The record of such a customer 

election may be indicated on the record required by paragraph (a)(1) of this section.

(b) As of the close of the market each day, each futures commission merchant which carries an 

account for another futures commission merchant, foreign broker (as defined in §15.00 of this 

chapter), member of a contract market, or other person, on an omnibus basis shall maintain a 

daily record for each such omnibus account of the total open long contracts and the total open 

short contracts in each future and in each swap and, for commodity option transactions , the total 

open put options purchased, the total open put options granted, the total open call options 

purchased, and the total open call options granted for each commodity option expiration date. 

(c) Each designated contract market and swap execution facility shall keep a record in permanent 

form, which shall show the true name, address, and principal occupation or business of any 

foreign trader executing transactions on the facility or exchange. In addition, upon request, a 

designated contract market or swap execution facility shall provide to the Commission 

information regarding the name of any person guaranteeing such transactions or exercising any 

control over the trading of such foreign trader. 

(d) Paragraph (c) of this section shall not apply to a designated contract market or swap 

execution facility on which transactions in futures, swaps or options (other than swaps) contracts 

of foreign traders are executed through, or the resulting transactions are maintained in, accounts 

carried by a registered futures commission merchant or introduced by a registered introducing 

broker subject to the provisions of paragraph (a) of this section.

§ 1.39 Simultaneous buying and selling orders of different principals; execution of, for 

and between principals. 

(a) Conditions and requirements. A member of a contract market or a swap execution facility 

who shall have in hand at the same time both buying and selling orders of different principals for 

the same swap, commodity for future delivery in the same delivery month or the same option 

(both puts or both calls, with the same underlying contract for future delivery or the same 
44 

underlying physical, expiration date and strike price) may execute such orders for and directly 

between such principals at the market price, if in conformity with written rules of such contract 

market or swap execution facility which have been approved by or self-certified to the 

Commission, and: 

(1)(i) When trading is conducted in a trading pit or ring, such orders are first offered openly and 

competitively by open outcry in such trading pit or ring (A) by both bidding and offering at the 

same price, and neither such bid nor offer is accepted, or (B) by bidding and offering to a point 

where such offer is higher than such bid by not more than the minimum permissible price 

fluctuation applicable to such futures contract or commodity option on such contract market, and 

neither such bid nor offer is accepted; or 

(ii) When in nonpitnon-pit trading in swaps or contracts of sale for future delivery, bids and 

offers are posted on a board, such member (A) pursuant to such buying order posts a bid on the 

board and, incident to the execution of such selling order, accepts such bid and all other bids 

posted at prices equal to or higher than the bid posted by him, or (B) pursuant to such selling 

order posts an offer on the board and, incident to the execution of such buying order, accepts 

such offer and all other offers posted at prices equal to or lower than the offer posted by him; 

(2) Such member executes such orders in the presence of an official representative of such 

contract market designated to observe such transactions or on a system or platform accessible by 

an official representative of such swap execution facility and, by appropriate descriptive words 

or symbol, clearly identifies all such transactions on his trading card or other similar record, 

made at the time of execution, and notes thereon the exact time of execution and promptly 

presents or makes available said record to such official representative for verification and 

initialing, as appropriate; 

(3) Such swap execution facility or contract market keeps a record in permanent form of each 

such transaction showing theall transaction date,details required to be captured by whom 

executed, the exact time of execution, quantity,the Act, Commission rule or regulation; and, as 

applicable, underlying commodity, contract for future delivery or physical, price or premium, 

whether a put or a call, and strike price; and

(4) Neither the futures commission merchant, other registrant receiving nor the member 

executing such orders has any interest therein, directly or indirectly, except as a fiduciary. 

(b) Large Order Execution Procedures. A member of a contract market or a swap execution 

facility may execute simultaneous buying and selling orders of different principals directly 

between the principals in compliance with Commission regulations and large order execution 

procedures established by written rules of the contract market or swap execution facility that 

have been approved by or self-certified to the Commission: Provided, ThatProvided, that, to the 

extent such large order execution procedures do not meet the conditions and requirements of 

paragraph (a) of this section, the contract market or swap execution facility has petitioned the 

Commission for, and the Commission has granted, an exemption from the conditions and 

requirements of paragraph (a) of this section. Any such petition must be accompanied by 
45 

proposed contract market or swap execution facility rules to implement the large order execution 

procedures. The petition shall include: 

(1) An explanation of why the proposed large order execution rules do not comply with 

paragraph (a) of this section; and 

(2) A description of a special surveillance program that would be followed by the contract 

market or swap execution facility in monitoring the large order execution procedures. 

The Commission may, in its discretion and upon such terms and conditions as it deems 

appropriate, grant such petition for exemption if it finds that the exemption is not contrary to the 

public interest and the purposes of the provision from which exemption is sought. The petition 

shall be considered concurrently with the proposed large order execution rules. 

(c) Not deemed filling orders by offset nor cross trades.. The execution of orders in compliance 

with the conditions herein set forth will not be deemed to constitute the filling of orders by offset 

within the meaning of paragraph (iv) of section 4b(a) of the Act, nor to constitute cross trades 

within the meaning of paragraph (A) of section 4csection 4b(a) of the Act. 

§ 1.40 Crop, market information letters, reports; copies required. 

Each futures commission merchant, each retail foreign exchange dealer, each introducing broker,

and each member of a contract market and each eligible contract participant with trading

privileges on a swap execution facility shall, upon request, furnish or cause to be furnished to the 

Commission a true copy of any letter, circular, telegramtelecommunication, or report published 

or given general circulation by such futures commission merchant, retail foreign exchange 

dealer, introducing broker, or member or eligible contract participant which concerns crop or 

market information or conditions that affect or tend to affect the price of any commodity,

including anyor exchange rate, and the true source of or authority for the information contained 

therein. 

§1.44 [Reserved]. Records and reports of warehouses, depositories, and other similar 

entities; visitation of premises. 

Each contract market shall require the operators of warehouses, depositories and other similar 

entities whose receipts are deliverable in satisfaction of commodity futures contracts or options 

on physicals made on or subject to the rules of such contract market: 

 (a) To keep records showing the stocks of each commodity traded for future delivery or upon 

which option contracts are traded on such contract market in store in such warehouses, 

depositories and other similar entities by kinds, by classes, and by grades, if stored under 

conditions requiring such designation or identification, and including also lots and parcels stored 
46 

specially or separately or in specially leased space of the warehouse, depository or other similar 

entity;

 (b) Upon call from the Commission, to report the stocks of commodities in such warehouses, 

depositories and other similar entities and to furnish information concerning stocks of each 

commodity traded for future delivery or upon which option contracts are traded on such contract 

market about to be transferred or in the process of being transferred or otherwise moved into or 

out of such warehouses, depositories and other similar entities, as well as any other 

information concerning commodities stored in such warehouse, depositories and other similar 

entities and which are or may be available for delivery on futures contracts or options on 

physicals; and

 (c) To permit visitation of the premises and inspection of the books and records of such 

warehouses, depositories and other similar entities by duly authorized representatives of the 

Commission or the Department of Justice, and to keep all books, records, papers, and 

memoranda relating to the storage and warehousing of commodities in such warehouse, 

depository or other similar entity for a period of 5 years from the date thereof.

§ 1.46 Application and closing out of offsetting long and short positions. 

(a) Application of purchases and sales. (1) Except with respect to purchases or sales which are 

for omnibus accounts, or where the customer or account controller has instructed otherwise, any 

futures commission merchant who, on or subject to the rules of a designated contract market or 

registered derivatives transaction execution facility: 

(i) Purchases any commodity for future delivery for the account of any customer when the 

account of such customer at the time of such purchase has a short position in the same future of 

the same commodity on the same market; 

(ii) Sells any commodity for future delivery for the account of any customer when the account of 

such customer at the time of such sale has a long position in the same future of the same 

commodity on the same market; 

(iii) Purchases a put or call option for the account of any option customer when the account of 

such option customer at the time of such purchase has a short put or call option position with the 

same underlying futures contract or same underlying physical, strike price, expiration date and 

contract market as that purchased; or 

(iv) Sells a put or call option for the account of any option customer when the account of such 

option customer at the time of such sale has a long put or call option position with the same 

underlying futures contract or same underlying physical, strike price, expiration date and contract 

market as that sold—shall on the same day apply such purchase or sale against such previously 

held short or long futures or option position, as the case may be, and shall, for futures 

transactions, promptly furnish such customer a statement showing the financial result of the 

transactions involved and, if applicable, that the account was introduced to the futures 

commission merchant by an introducing broker and the names of the futures commission 

merchant and introducing broker. 
47 

(2) Any futures commission merchant or retail foreign exchange dealer who: 

(i) Engages in a retail forex transaction involving the purchase of any currency for the account of 

any retail forex customer when the account of such retail forex customer at the time of such 

purchase has an open retail forex transaction for the sale of the same currency; 

(ii) Engages in a retail forex transaction involving the sale of any currency for the account of any 

retail forex customer when the account of such retail forex customer at the time of such sale has 

an open retail forex transaction for the purchase of the same currency; 

(iii) Purchases a put or call option involving foreign currency for the account of any option 

customer when the account of such option customer at the time of such purchase has a short put 

or call option position with the same underlying currency, strike price, and expiration date as that 

purchased; or 

(iv) Sells a put or call option involving foreign currency for the account of any option customer 

when the account of such option customer at the time of such sale has a long put or call option 

position with the same underlying currency, strike price, and expiration date as that sold—shall 

immediately apply such purchase or sale against such previously held opposite transaction, and 

shall promptly furnish such retail forex customer a statement showing the financial result of the 

transactions involved and, if applicable, that the account was introduced to the futures 

commission merchant or retail foreign exchange dealer by an introducing broker and the names 

of the futures commission merchant or retail foreign exchange dealer, and the introducing 

broker. 

(b) Close-out against oldest open position. In all instances wherein the short or long futures, 

retail forex transaction or option position in such customer's, or retail forex customer's or option 

customer's account immediately prior to such offsetting purchase or sale is greater than the 

quantity purchased or sold, the futures commission merchant or retail foreign exchange dealer 

shall apply such offsetting purchase or sale to the oldest portion of the previously held short or 

long position: Provided, That upon specific instructions from the customer or option customer 

the offsetting transaction shall be applied as specified by the customer or option customer 

without regard to the date of acquisition of the previously held position; and Provided, further, 

that a futures commission merchant or retail foreign exchange dealer, if permitted by the rules of 

a registered futures association, may offset, at the customer's request, retail forex transactions of 

the same size, even if the customer holds other transactions of a different size, but in each case 

must offset the transaction against the oldest transaction of the same size. Such instructions may 

also be accepted from any person who, by power of attorney or otherwise, actually directs 

trading in the customer's, or retail forex customer's or option customer's account unless the 

person directing the trading is the futures commission merchant or retail foreign exchange dealer 

(including any partner thereof), or is an officer, employee, or agent of the futures commission 

merchant or retail foreign exchange dealer. With respect to every such offsetting transaction that, 

in accordance with such specific instructions, is not applied to the oldest portion of the 

previously held position, the futures commission merchant or retail foreign exchange dealer shall 

clearly show on the statement issued to the customer, or retail forex customer or option 

customer in connection with the transaction, that because of the specific instructions given by or 
48 

on behalf of the customer, or retail forex customer or option customer the transaction was not 

applied in the usual manner, i.e., against the oldest portion of the previously held position. 

However, no such showing need be made if the futures commission merchant or retail foreign 

exchange dealer has received such specific instructions in writing from the customer, or retail 

forex customer or option customer for whom such account is carried. 

(c) In-and-out trades; day trades. Notwithstanding the provisions of paragraphs (a) and (b) of 

this section shall not be deemed to require the application of purchases or sales closed out during 

the same day (commonly known as “in-and-out trades” or “day trades”) against short or long 

positions carried forward from a prior date. 

(d) Exceptions. The provisions of this section shall not apply to: 

(1) Purchases or sales of commodity options constituting “bona fide hedging transactions” 

pursuant to rules of the contract market which have been adopted in accordance with the 

requirements of §1.61(b) and approved by the Commission pursuant to; section 5a(a)(12)(A) of 

the Act Provided, That no contract market or futures commission merchant shall permit such 

option positions to be offset other than by open and competitive execution in the trading pit or 

ring provided by the contract market, during the regular hours prescribed by the contract market 

for trading in such commodity option. 

(2) Purchases or sales constituting “bona fide hedging transactions” as defined in §1.3(z); nor 

(3) Sales during a delivery period for the purpose of making delivery during such delivery period 

if such sales are accompanied by instructions to make delivery thereon, together with warehouse 

receipts or other documents necessary to effectuate such delivery. 

(4)–(7) [Reserved] 

(8) Purchases or sales held in error accounts, including but not limited to floor broker error 

accounts, and purchases or sales identified as errors at the time they are assigned to an account 

that contains other purchases or sales not identified as errors and held in that account (“error 

trades”), provided that: 

(i) Each error trade does not offset another error trade held in the same account; 

(ii) Each error trade is offset by open and competitive means on or subject to the rules of a 

contract market by not later than the close of business on the business day following the day the 

error trade is discovered and assigned to an error account or identified as an error trade, unless at 

the close of business on the business day following the discovery of the error trade, the relevant 

market has reached a daily price fluctuation limit and the trader is unable to offset the error trade, 

in which case the error trade must be offset as soon as practicable thereafter; and 

(iii) No error trade is closed out by transferring such an open position to another account also 

controlled by that same trader. 
49 

(e) The statements required by paragraph (a) of this section may be furnished to the customer or 

the person described in §1.33(d) by means of electronic transmission, in accordance with 

§1.33(g). 

§ 1.49 Denomination of customer funds and location of depositories. 

(b) Permissible denominations of obligations. 

***** 

(iii) In a currency in which funds have accrued to the customer as a result of trading conducted 

on a designated contract market or registered derivatives transaction execution facility, to the 

extent of such accruals. 

§ 1.53 [Reserved]Enforcement of contract market bylaws, rules, regulations, and 

resolutions.

Each contract market shall enforce each bylaw, rule, regulation, and resolution, made or issued 

by it or by the governing board thereof or any committee thereof, which is in effect as of July 18, 

1975, and which relates to terms and conditions in contracts of sale to be executed on or subject 

to the rules of such contract market or relates to other trading requirements, unless such bylaw, 

rule, regulation, or resolution has been disapproved by the Commission pursuant to section 

5a(a)(12)(A) of the Act, or the amendment or revocation of such bylaw, rule, regulation or 

resolution has been approved by the Commission pursuant to section 5a(a)(12)(A) of the Act.

§ 1.57 Operations and activities of introducing brokers. 

 (a) Each introducing broker must: 

(1) Open and carry each customer's and option customer's account with a carrying futures 

commission merchant on a fully-disclosed basis: Provided, however, That an introducing broker 

which has entered into a guarantee agreement with a futures commission merchant in accordance 

with the provisions of §1.10(j) of this part must open and carry such customer's and option 

customer's account with such guarantor futures commission merchant on a fully-disclosed basis; 

and 

(2) Transmit promptly for execution all customer and option customer orders to: 

(i) A carrying futures commission merchant; or 
50 

(ii) a floor broker, if the introducing broker identifies its carrying futures commission merchant 

and that carrying futures commission merchant is also the clearing member with respect to the 

customer's or option customer's order. 

(b) An introducing broker may not carry proprietary accounts, nor may an introducing broker 

carry accounts in foreign futures. 

(c) An introducing broker may not accept any money, securities or property (or extend credit in 

lieu thereof) to margin, guarantee or secure any trades or contracts of customers or option 

customers, or any money, securities or property accruing as a result of such trades or contracts: 

Provided, however, That an introducing broker may deposit a check in a qualifying account or 

forward a check drawn by a customer or option customer if: 

(1) The futures commission merchant carrying the customer's or option customer's account 

authorizes the introducing broker, in writing, to receive a check in the name of the futures 

commission merchant, and the introducing broker retains such written authorization in its files in 

accordance with §1.31; 

(2) The check is payable to the futures commission merchant carrying the customer's or option 

customer's account; 

(3) The check is deposited by the introducing broker, on the same day upon which it is received, 

in a bank or trust company located in the United States in a qualifying account, or the check is 

mailed or otherwise transmitted by the introducing broker to the futures commission merchant on 

the same day upon which it is received; 

(4) For purposes of this paragraph (c), a qualifying account shall be deemed to be an account: 

(i) Which is maintained in an account name which clearly identifies the funds therein as 

belonging to commodity or option customers of the futures commission merchant carrying the 

customer's or option customer's account; 

(ii) For which the bank or trust company restricts withdrawals to withdrawals by the carrying 

futures commission merchant; 

(iii) For which the bank or trust company prohibits the introducing broker or anyone acting upon 

its behalf from withdrawing funds; and 

(iv) For which the bank or trust company provides the futures commission merchant carrying the 

customer's or option customer's account with a written acknowledgment, which the futures 

commission merchant must retain in its files in accordance with §1.31, that it was informed that 

the funds deposited therein are those of commodity or option customers and are being held in 

accordance with the provisions of the Act and these regulations. 
51 

§1.59 Activities of self-regulatory organization employees, governing board members, 

committee members and consultants 

(a) Definitions. For purposes of this section: 

(1) Self-regulatory organization means "self-regulatory organization," as defined in Commission 

regulation 1.3(ee), and includes the term "clearing organization," as defined in Commission 

regulation 1.3(d). 

(2) Governing board member means a member, or functional equivalent thereof, of the board of 

governors of a self-regulatory organization. 

(3) Committee member means a member, or functional equivalent thereof, of any committee of a 

self-regulatory organization. 

(4) Employee means any person hired or otherwise employed on a salaried or contract basis by a 

self-regulatory organization, but does not include: 

(i) Any governing board member compensated by a self-regulatory organization solely for 

governing board activities; or 

(ii) Any committee member compensated by a self-regulatory organization solely for committee 

activities; or 

(iii) Any consultant hired by a self-regulatory organization. 

(5) Material information means information which, if such information were publicly known, 

would be considered important by a reasonable person in deciding whether to trade a particular 

commodity interest on a contract market or a swap execution facility, or to clear a swap contract 

through a derivatives clearing organization. As used in this section, "material information" 

includes, but is not limited to, information relating to present or anticipated cash positions,

commodity interests, futures, or option positions, trading strategies, the financial condition of 

members of self-regulatory organizations or members of linked exchanges or their customers or 

option customers, or the regulatory actions or proposed regulatory actions of a self-regulatory 

organization or a linked exchange. 

(6) Non-public information means information which has not been disseminated in a manner 

which makes it generally available to the trading public. 

(7) Linked exchange means: (i) any board of trade, exchange or market outside the United States, 

its territories or possessions, which has an agreement with a contract market or swap execution 

facility in the United States that permits positions in a commodity interest which have been 

established on one of the two markets to be liquidated on the other market; (ii) any board of 

trade, exchange or market outside the United States, its territories or possessions, the products of 

which are listed on a United States contract market, swap execution facility, or a trading facility 

thereof; (iii) any securities exchange, the products of which are held as margin in a commodity 
52 

account or cleared by a securities clearing organization pursuant to a cross-margining 

arrangement with a futures clearing organization; or (iv) any clearing organization which clears 

the products of any of the foregoing markets. 

(8) Commodity interest means any commodity futures, or commodity option or swap contract 

traded on or subject to the rules of a contract market, a swap execution facility or linked 

exchange, or cleared by a derivatives clearing organization, or cash commodities traded on or 

subject to the rules of a board of trade which has been designated as a contract market. 

(9) Related commodity interest means any commodity interest which is traded on or subject to 

the rules of a contract market, swap execution facility, linked exchange, or other board of trade, 

exchange or market, or cleared by a derivatives clearing organization, other than the selfregulatory organization by which a person is employed, and with respect to which: 

(i) Such employing self-regulatory organization has recognized or established intermarket spread 

margins or other special margin treatment between that other commodity interest and a 

commodity interest which is traded on or subject to the rules of the employing self-regulatory 

organization; or 

(ii) Such other self-regulatory organization has recognized or established intermarket spread 

margins or other special margin treatment with another commodity interest as to which the 

person has access to material, nonpublic information. 

(10) Pooled investment vehicle means a trading vehicle organized and operated as a commodity 

pool within the meaning of regulation §4.10(d), and whose units of participation have been 

registered under the Securities Act of 1933, or a trading vehicle for which regulation §4.5 makes 

available relief from regulation as a commodity pool operator, i.e., registered investment 

companies, insurance company separate accounts, bank trust funds, and certain pension plans. 

(b) Employees of self-regulatory organizations; Self-regulatory organization rules. (1) Each selfregulatory organization must maintain in effect rules which have been submitted to the 

Commission pursuant to Section section 5c(c)a(a)(12)(A) of the Act and Sec. 1.41 and part 40 of 

this chapter (or, pursuant to section 17(j) of the Act in the case of a registered futures 

association) that, at a minimum, prohibit: 

(i) Employees of the self-regulatory organization from: 

(A) Trading, directly or indirectly, in any commodity interest traded on or cleared by the 

employing contract market, swap execution facility or clearing organization; 

(B) Trading, directly or indirectly, in any related commodity interest; 

(C) Trading, directly or indirectly, in a commodity interest traded on or cleared by contract 

markets, swap execution facilities or clearing organizationscontract markets or swap execution 

facilities or cleared by derivatives clearing organizations other than the employing self-
53 

regulatory organization if the employee has access to material, non-public information 

concerning such commodity interest; 

(D) Trading, directly or indirectly, in a commodity interest traded on or cleared by a linked 

exchange if the employee has access to material, non-public information concerning such 

commodity interest; and 

*** 

(c) Governing board members, committee members, and consultants; Self-regulatory 

organization Registered futures association rules. Each self-regulatory organization registered 

futures association must maintain in effect rules which have been submitted to the Commission 

pursuant to Section 5a(a)(12)(A) of the Act and Sec. 1.41 (or, pursuant to Section section 17(j) of 

the Act in the case of a registered futures association) which provide that no governing board 

member, committee member, or consultant shall use or disclose—for any purpose other than the 

performance of official duties as a governing board member, committee member, or consultant—

material, non-public information obtained as a result of the performance of such person's official 

duties. 

(d) Prohibited conduct. (1) No employee, governing board member, committee member, or 

consultant shall: 

(i) Trade for such person's own account, or for or on behalf of any other account, in any 

commodity interest, on the basis of any material, non-public information obtained through 

special access related to the performance of such person's official duties as an employee, 

governing board member, committee member, or consultant; or 

(ii) Disclose for any purpose inconsistent with the performance of such person's official duties as 

an employee, governing board member, committee member, or consultant any material, nonpublic information obtained through special access related to the performance of such duties. 

(2) No person shall trade for such person's own account, or for or on behalf of any other account, 

in any commodity interest, on the basis of any material, non-public information that such person 

knows was obtained in violation of paragraph (d)(1) of this section from an employee, governing 

board member, committee member, or consultant. 

§ 1.62 [Reserved]Contract market requirement for floor broker and floor trader 

registration.

(a)(1) Each contract market shall adopt, maintain in effect, and enforce rules which have 

become effective pursuant to section 5a(a)(12)(A) of the Act and §1.41 and which provide that 

no person in or surrounding any pit, ring, post, or other place provided by such contract market 

for the meeting of persons similarly engaged may:
54 

(i) Purchase or sell for any other person any commodity for future delivery, or any commodity 

option, on or subject to the rules of that contract market, unless such person is registered or has 

been granted a temporary license as a floor broker; or

(ii) Purchase or sell solely for such person's own account, any commodity for future delivery, or 

any commodity option, on or subject to the rules of that contract market, unless such person is 

registered or has been granted a temporary license as a floor trader, or has been granted a 

temporary license as a floor broker to act as a floor trader, in accordance with section 4f of the 

Act and §3.11 or §3.40 of this chapter, and such temporary license or registration has not been 

terminated, revoked or withdrawn: Provided, however, That such contract market rules must 

provide that a floor broker or floor trader will be prohibited from engaging in activities requiring 

registration under the Act or from representing himself to be a registrant under the Act or the 

representative or agent of any registrant during the pendency of any suspension of such person's 

registration or the suspension by a contract market of access of such person to any pit, ring, post 

or other place provided by such contract market for the meeting of persons engaged in 

purchasing and selling any commodity for future delivery or commodity option on or subject to 

the rules of that contract market.

(2) Each contract market shall also adopt, maintain in effect and enforce rules which have 

become effective pursuant to section 5a(a)(12)(A) of the Act and §1.41 which provide for 

requests for withdrawal of floor broker or floor trader registration using Form 8–W in 

accordance with §3.33 of this chapter, which require training of floor brokers and floor traders in 

accordance with §3.34 of this chapter and which require review of registration information by 

floor brokers and by floor traders every three years in accordance with §3.11(d) of this chapter.

(b) Each contract market must notify the Commission of any facts regarding a floor broker or 

floor trader or an applicant for registration as a floor broker or floor trader, or a floor trader 

whose name appears on a list submitted in accordance with §1.66 in order to qualify for a 

temporary no-action position thereunder, who has been granted trading privileges at the contract 

market, which are set forth as statutory disqualifications in section 8a(2) of the Act (unless such 

facts result from an enforcement action filed by the Commission or a disciplinary action taken by 

another contract market) or which are terminations of floor trading privileges for cause under 

§9.11(c) of this chapter within ten business days of the date upon which the contract market first 

knows of such facts. Notice to the Commission shall be sufficient if the contract market gives 

notice to the Director of the Division of Clearing and Intermediary Oversight or the Director's 

designee by facsimile transmission and/or first class mail or equivalent means to the Commission 

at its Washington, DC office (Attn: Division of Clearing and Intermediary Oversight, 

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581).

§ 1.63 Service on self-regulatory organization governing boards or committees by persons 

with disciplinary histories.

 (a) Definitions. For purposes of this section: 
55 

(1) Self-regulatory organization means a “self-regulatory organization” as defined in 

Commission Rregulation 1.3(ee), and includes a “clearing organization” as defined in 

Commission regulation Regulation 1.3(d) , except as defined in paragraph (b)(6) of this section. 

(2) Disciplinary committee means any person or committee of persons, or any subcommittee 

thereof, that is authorized by a self-regulatory organization to issue disciplinary charges, to 

conduct disciplinary proceedings, to settle disciplinary charges, to impose disciplinary sanctions 

or to hear appeals thereof. 

(3) Arbitration panel means any person or panel empowered by a self-regulatory organization to 

arbitrate disputes involving such organization's members or their customers. 

(4) Oversight panel means any panel authorized by a self-regulatory organization to review, 

recommend or establish policies or procedures with respect to the self-regulatory organization's 

surveillance, compliance, rule enforcement or disciplinary responsibilities. 

(5) Final decision means: 

(i) A decision of a self-regulatory organization which cannot be further appealed within the selfregulatory organization, is not subject to the stay of the Commission or a court of competent 

jurisdiction, and has not been reversed by the Commission or any court of competent 

jurisdiction; or, 

(ii) Any decision by an administrative law judge, a court of competent jurisdiction or the 

Commission which has not been stayed or reversed. 

(6) Disciplinary offense means: 

(i) Any violation of the rules of a self-regulatory organization except those rules related to 

(A) Decorum or attire, 

(B) Financial requirements, or 

(C) Reporting or recordkeeping unless resulting in fines aggregating more than $5,000 within 

any calendar year; 

(ii) Any rule violation described in subparagraphs (a)(6)(i) (A) through (C) of this regulation 

which involves fraud, deceit or conversion or results in a suspension or expulsion; 

(iii) Any violation of the Act or the regulations promulgated thereunder; or, 

(iv) Any failure to exercise supervisory responsibility with respect to acts described in 

paragraphs (a)(6) (i) through (iii) of this section when such failure is itself a violation of either 

the rules of a self-regulatory organization, the Act or the regulations promulgated thereunder. 

(v) A disciplinary offense must arise out of a proceeding or action which is brought by a selfregulatory organization, the Commission, any federal or state agency, or other governmental 

body. 

(7) Settlement agreement means any agreement consenting to the imposition of sanctions by a 

self-regulatory organization, a court of competent jurisdiction or the Commission. 

(b) Each self-regulatory organization must maintain in effect rules which have been submitted to 

the Commission pursuant to section 5ca(ca)(12)(A) of the Act and §1.41 and part 40 of this 

chapter or, in the case of a registered futures association, pursuant to section 17(j) of the Act, that 

render a person ineligible to serve on its disciplinary committees, arbitration panels, oversight 

panels or governing board who: 

(1) Was found within the prior three years by a final decision of a self-regulatory organization, 

an administrative law judge, a court of competent jurisdiction or the Commission to have 

committed a disciplinary offense; 

(2) Entered into a settlement agreement within the prior three years in which any of the findings 

or, in the absence of such findings, any of the acts charged included a disciplinary offense; 
56 

(3) Currently is suspended from trading on any contract market, is suspended or expelled from 

membership with any self-regulatory organization, is serving any sentence of probation or owes 

any portion of a fine imposed pursuant to either: 

(i) A finding by a final decision of a self-regulatory organization, an administrative law judge, a 

court of competent jurisdiction or the Commission that such person committed a disciplinary 

offense; or, 

(ii) A settlement agreement in which any of the findings or, in the absence of such findings, any 

of the acts charged included a disciplinary offense. 

(4) Currently is subject to an agreement with the Commission or any self-regulatory organization 

not to apply for registration with the Commission or membership in any self-regulatory 

organization; 

(5) Currently is subject to or has had imposed on him within the prior three years a Commission 

registration revocation or suspension in any capacity for any reason, or has been convicted 

within the prior three years of any of the felonies listed in section 8a(2)(D) (ii) through (iv) of the 

Act; 

(6) Currently is subject to a denial, suspension or disqualification from serving on the 

disciplinary committee, arbitration panel or governing board of any self-regulatory organization 

as that term is defined in section 3(a)(26) of the Securities Exchange Act of 1934. 

(c) No person may serve on a disciplinary committee, arbitration panel, oversight panel or 

governing board of a self-regulatory organization if such person is subject to any of the 

conditions listed in paragraphs (b) (1) through (6) of this section. 

(d) Each self-regulatory organization shall submit to the Commission a schedule listing all those 

rule violations which constitute disciplinary offenses as defined in paragraph (a)(6) (i) of this 

section and to the extent necessary to reflect revisions shall submit an amended schedule within 

thirty days of the end of each calendar year. Each self-regulatory organization must maintain and 

keep current the schedule required by this section, , and post the schedule on the self-regulatory 

organization’s website so that it is in a public place designed to provide notice to members and 

otherwise ensure its availability to the general public. 

(e) Each self-regulatory organization shall submit to the Commission within thirty days of the 

end of each calendar year a certified list of any persons who have been removed from its 

disciplinary committees, arbitration panels, oversight panels or governing board pursuant to the 

requirements of this regulation during the prior year. 

(f) Whenever a self-regulatory organization finds by final decision that a person has committed a 

disciplinary offense and such finding makes such person ineligible to serve on that selfregulatory organization's disciplinary committees, arbitration panels, oversight panels or 

governing board, the self-regulatory organization shall inform the Commission of that finding 

and the length of the ineligibility in any notice it is required to provide to the Commission 

pursuant to either section 17(h)(1) of the Act or Commission regulation 9.11. 

§ 1.67 Notification of final disciplinary action involving financial harm to a customer. 

 (a) Definitions. For purposes of this section: 
57 

(1) Final disciplinary action means any decision by or settlement with a contract market or swap 

execution facility in a disciplinary matter which cannot be further appealed at the contract market

or swap execution facility, is not subject to the stay of the Commission or a court of competent 

jurisdiction, and has not been reversed by the Commission or any court of competent 

jurisdiction. 

(2) [Reserved] 

(b) Upon any final disciplinary action in which a contract market or swap execution facility finds 

that a member has committed a rule violation that involved a transaction for a customer, whether 

executed or not, and that resulted in financial harm to the customer: 

(1)(i) the contract market or swap execution facility shall promptly provide written notice of the 

disciplinary action to the futures commission merchant or other registrant that cleared the 

transaction; and, 

(ii) a futures commission merchant or other registrant that receives a notice, under paragraph 

(b)(1)(i) of this section shall promptly provide written notice of the disciplinary action to the 

customer as disclosed on its books and records. If the customer is another futures commission 

merchant or other registrant, such futures commission merchant or other registrant shall 

promptly provide the notice to the customer. 

(2) A written notice required by paragraph (b)(1) of this section must include the principal facts 

of the disciplinary action and a statement that the contract market or swap execution facility has 

found that the member has committed a rule violation that involved a transaction for the 

customer, whether executed or not, and that resulted in financial harm to the customer. For the 

purposes of this paragraph, a notice which includes the information listed in §9.11(b) shall be 

deemed to include the principal facts of the disciplinary action thereof. 

§ 1.68 [Reserved] Customer election not to have funds, carried by a futures commission 

merchant for trading on a registered derivatives transaction execution facility, separately 

accounted for and segregated.

(a) A futures commission merchant shall not separately account for and segregate, in accordance 

with the provisions of section 4d of the Act and Sec. Sec. 1.20-1.30, 1.32 and 1.36, funds 

received from a customer if:

(1) The customer is an eligible contract participant as defined in section 1a(12) of the Act;

(2) The customer's funds are being carried by the futures commission merchant for the purpose 

of trading on or through the facilities of a derivatives transaction execution facility registered 

under section 5a(c) of the Act; 
58 

(3) The registered derivatives transaction execution facility has authorized, in accordance with 

Sec. 37.7 of this chapter, futures commission merchants to offer eligible contract participants the 

right to elect not to have funds that are being carried for purposes of trading on or through the 

facilities of the registered derivatives transaction execution facility, separately accounted for and 

segregated by the futures commission merchant; and 

(4) The futures commission merchant and the customer have entered into a written agreement, 

signed by a person with the authority to bind the customer, in which the customer: 

(i) Represents and warrants that the customer is an eligible contract participant as defined in 

section 1a(12) of the Act; 

(ii) Elects not to have its funds separately accounted for and segregated in accordance with the 

provisions of section 4d of the Act and Sec. Sec. 1.20-1.30, 1.32 and 1.36 with respect to 

agreements, contracts or transactions traded on or subject to the rules of any registered 

derivatives transaction execution facility that has authorized such treatment in accordance with 

Sec. 37.7 of this chapter; 

(iii) Acknowledges that it has been informed, and by making this election agrees that: 

(A) The customer's funds, related to agreements, contracts or transactions on any registered 

derivatives transaction execution facility that authorizes the opting out of segregation will not be 

segregated from the funds of the futures commission merchant in accordance with the provisions 

of section 4d of the Act and Sec. Sec. 1.20-1.30, 1.32 and 1.36; 

(B) The futures commission merchant may use such funds in the course of the futures 

commission merchant's business without the prior consent of the customer or any third party; 

(C) In the event the futures commission merchant files, or has a petition filed against it, for 

bankruptcy, the customer, as to those funds that the customer has elected not to have separately 

accounted for and segregated by the futures commission merchant in accordance with the 

provisions of section 4d of the Act and Sec. Sec. 1.20-1.30, 1.32 and 1.36, will not be entitled to 

the priority for customer claims provided for under the Bankruptcy Code and part 190 of this 

chapter;

(D) The customer may not retain a security interest in assets excluded from segregation in 

accordance with this section; 

(E) The customer may not enter into any agreement or other understanding with the futures 

commission merchant relating to the manner in which the customer's assets will be held at the 

futures commission merchant, that directly or indirectly gives the customer a priority in 

bankruptcy that is equal or superior to the priority afforded public customers under the 

Bankruptcy Code and part 190 of this chapter; and 

(iv) Acknowledges that the agreement shall remain in effect unless and until the customer 

abrogates the agreement in accordance with paragraph (c) of this section. 
59 

(b) In no event may money, securities or property representing those funds that customers have 

elected not to have separately accounted for and segregated by the futures commission merchant, 

in accordance with this section, be held or commingled and deposited with customer funds in the 

same account or accounts required to be separately accounted for and segregated pursuant to 

section 4d of the Act and Sec. Sec. 1.20-1.30, 1.32 and 1.36.

(c)(1) A customer that has entered into an agreement in accordance with paragraph (a)(4) of this 

section may abrogate that agreement by so informing the futures commission merchant in 

writing, signed by a person with the authority to bind the customer. The effective date of the 

abrogation shall not exceed five business days from the futures commission merchant's receipt of 

the customer's abrogation. The abrogation shall not become effective if the futures commission 

merchant files, or has had filed against it, a petition for bankruptcy prior to the effective date of 

the abrogation.

(2) Upon the effective date of the abrogation, permitted under paragraph (c)(1) of this section, 

provided that the customer's positions in the non-segregated account are fully margined and the 

customer is not in default with respect to any of its obligations to the futures commission 

merchant arising out of agreements, contracts or transactions entered on, or subject to the rules 

of, a registered entity, as defined in section 1a(29) of the Act, the futures commission merchant 

shall transfer to a customer segregated account: 

(i) All trades or positions of the customer with respect to which the customer had previously 

elected to opt out of segregation; and 

(ii) All money, securities, or property held in such account to margin, guarantee or secure such 

trades or positions. 

(d) Each futures commission merchant shall maintain any agreements entered into with 

customers pursuant to paragraph (a) of this section and any abrogations of such agreements, 

made pursuant to paragraph (c) of this section, in accordance with Sec. 1.31.

Appendix B – Fees for Contract Market Rule Enforcement Reviews and Financial Reviews. 

(a) Within 60 days of the effective date of a final fee schedule for each fiscal year, each board of 

trade which has been designated as a contract market for at least one actively trading contract 

shall submit a check or money order, made payable to the Commodity Futures Trading 

Commission, to cover the Commission's actual costs in conducting contract market rule 

enforcement reviews and financial reviews. 

(b) The Commission determines fees changed fees charged to exchanges based upon a formula 

which that considers both actual costs and trading volume. 

(c) Checks should be sent to the attention of the Office of the Secretariat, Commodity Futures 

Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. 
60 

Appendix C - Bunched Orders and Account Identification. [Reserved].

PART 5- OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS 

§5.1 Definitions. 

(k) Retail forex customer means a person, other than an eligible contract participant as defined in 

section 1a(1218) of the Act, acting on its own behalf and trading in any account, agreement, 

contract or transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the Act. 

(m) Retail forex transaction means any account, agreement, contract or transaction described in 

section 2(c)(2)(B) or 2(c)(2)(C) of the Act. A retail forex transaction does not include an 

account, agreement, contract or transaction in foreign currency that is a contract of sale of a 

commodity for future delivery (or an option thereon) that is executed, traded on or otherwise 

subject to the rules of a contract market designated pursuant to section 5(a) of the Act or a 

derivatives transaction execution facility registered pursuant to section 5a(c) of the Act. 

PART 7--CONTRACT MARKETREGISTERED ENTITY RULES ALTERED OR 

SUPPLEMENTED BY THE COMMISSION

Subpart A—General Provisions

§7.1 Scope of rules. 

This part sets forth contract marketregistered entity rules altered or supplemented by the 

Commission pursuant to section 8a(7) of the Act. 

Subpart B--[RESERVED]

§§7.100-7.101 [Reserved]

Subpart C--[RESERVED]

§7.200-7.201 [Reserved]

Part 8--EXCHANGE PROCEDURES FOR DISCIPLINARY, SUMMARY, AND 

MEMBERSHIP DENIAL ACTIONS [Reserved]
61 

PART 15- REPORTS-GENERAL PROVISIONS 

§ 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 section § 

36.3(bc)(1)(i) traded on an electronic trading facility operating in reliance on the exemption set 

forth in §36.3 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 (including all agreements, contracts and transactions that are treated by a 

clearing organization as fungible with such contracts); 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 (including all agreements, 

contracts and transactions that are treated by a clearing organization as fungible with such 

contracts); 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.

***** 

(e) Any designated contract market or registered derivatives transaction execution facility that 

permits a foreign broker to intermediate contracts, agreements or transactions, or permits a 

foreign trader to effect contracts, agreements or transactions on the facility or exchange, shall be 

deemed to be the agent of the foreign broker and any of its customers for whom the transactions 

were executed, or the foreign trader, for purposes of accepting delivery and service of any 

communication issued by or on behalf of the Commission to the foreign broker, any of its 

customers or the foreign trader with respect to any contracts, agreements or transactions executed 

by the foreign broker or the foreign trader on the designated contract market or registered 

derivatives transaction execution facility. Service or delivery of any communication issued by or 

on behalf of the Commission to a designated contract market or registered derivatives transaction 

execution facility shall constitute valid and effective service upon the foreign broker, any of its 

customers, or the foreign trader. A designated contract market or registered derivatives 

transaction execution facility 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 broker, any of its 

customers, or a 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 broker, any of its customers or the foreign trader. 

(f) It shall be unlawful for any designated contract market or registered derivatives transaction 

execution facility to permit a foreign broker, any of its customers or a foreign trader to effect 

contracts, agreements or transactions on the facility unless the designated contract market or 

registered derivatives transaction execution facility prior thereto informs the foreign broker, any 
62 

of its customers or the foreign trader, in any reasonable manner the facility deems to be 

appropriate, of the requirements of this section. 

(g) The requirements of paragraphs (e) and (f) of this section shall not apply to any contracts, 

transactions or agreements traded on any designated contract market or registered derivatives 

transaction execution facility if the foreign broker, any of its customers or the 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 designated contract market or registered derivatives transaction execution facility prior to 

effecting any contract, agreement or transaction on the facility. This agreement must authorize 

the person domiciled in the United States to serve as the agent of the foreign broker, any of its 

customers or the foreign trader for purposes of accepting delivery and service of all 

communications issued by or on behalf of the Commission to the foreign broker, any of its 

customers 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 designated contract market or registered derivatives 

transaction execution facility prior to permitting the foreign broker, any of its customers or the 

foreign trader to 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. A foreign broker, any of its customers 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 designated contract market or registered derivatives transaction execution facility 

knows or should know that the agreement has expired, been terminated, or is no longer in effect, 

the designated contract market or registered derivatives transaction execution facility shall notify 

the Secretary of the Commission immediately. If the written agency agreement expires, 

terminates, or is not in effect, the designated contract market or registered derivatives transaction 

execution facility and the foreign broker, any of its customers or the foreign trader are subject to 

the provisions of paragraphs (e) and (f) of this section. 

(h) The provisions of paragraphs (e), (f) and (g) of this section shall not apply to a designated 

contract market or registered derivatives transaction execution facility on which all transactions 

of foreign brokers, their customers or foreign traders in futures or option contracts are executed 

through, or the resulting transactions are maintained in, accounts carried by a registered futures 

commission merchant or introduced by a registered introducing broker subject to the provisions 

of paragraphs (a), (b), (c) and (d) of this section. 

PART 18—REPORTS BY TRADERS 

§ 18.05 Maintenance of books and records. 

(a) Every trader who holds or controls a reportable futures or option position shall keep books 

and records showing all details concerning all positions and transactions in the commodity: 
63 

(1) On all reporting markets; 

(2) Executed oOver 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 under a Commission grandfather relief order 

issued pursuant to Section 723(c)(2)(B) of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Public Law 111-203, 124 Stat. 1376 (2010))pursuant to sections 2(h)(3)–(5) of 

the Act; 

(4) On exempt boards of trade operating under a Commission grandfather relief order issued 

pursuant to Section 734(c)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection 

Act (Public Law 111-203, 124 Stat. 1376 (2010))pursuant to section 5d of the Act; and 

(5) On foreign boards of trade. 

***** 

PART 21- SPECIAL CALLS 

§ 21.03 Selected special calls-duties of foreign brokers, domestic and foreign traders, 

futures commission merchants, clearing members, introducing brokers, and reporting 

markets. 

***** 

(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(2940)(EF) of the Act, to cause to open an account, or to cause transactions to be effected

transactions, in a contract traded in reliance on a Commission grandfather relief order issued 

pursuant to Section 723(c)(2)(B) of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Public Law 111-203, 124 Stat. 1376 (2010)), 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 deems appropriate, the provisions of this section. 

***** 
64 

PART 36- EXEMPT MARKETS 

§ 36.1 Scope. 

The provisions of this part apply to any board of trade or electronic trading facility that operates 

as:

(a) An exempt commercial market operating under a grandfather relief order issued by the 

Commission pursuant to Section 723(c)(2)(B) of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Public Law 111-203, 124 Stat. 1376 (2010)), or

(b) An exempt board of trade operating under a grandfather relief order issued by the 

Commission pursuant to Section 734(c)(2) of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Public Law 111-203, 124 Stat. 1376 (2010)).

receiving an eligible for exemption under Commission orders issued pursuant to Section 723 and 

734 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 

124 Stat. 1376 (2010).sections 5d and 2(h)(3) through (5) of the Act, respectively.

§ 36.2 Exempt boards of trade. 

(a) Eligible commodities. Commodities eligible under section 5d(b)(1) of the Act to be traded by 

an exempt board of trade are: 

(1) Commodities having— 

(i) A nearly inexhaustible deliverable supply; 

(ii) A deliverable supply that is sufficiently large, and a cash market sufficiently liquid, to render 

any contract traded on the commodity highly unlikely to be susceptible to the threat of 

manipulation; or 

(iii)No cash market. 

(2) The commodities that meet the criteria of paragraph (a)(1) of this section are: 

(i) The commodities defined in section 1a(1319) of the Act as “excluded commodities” (other 

than a security, including any group or index thereof or any interest in, or based on the value of, 

any security or group or index of securities); and 

(ii) Such other commodity or commodities as the Commission may determine by rule, regulation 

or order.

(3) Such contracts must be entered into only between persons that are eligible contract 

participants, as defined in section 1a(18) of the Act and as further defined by the Commission, at 

the time at which the persons entered into the contract.
65 

(b) Notification. Boards of trade operating under Section 5d of the Act as exempt boards of trade 

shall maintain on fileso notify the Commission. This notification shall be filed with the Secretary 

of the Commission at the Commission’sits Washington, DC headquarters, in electronic form, 

shall be labeled as a “Notification of Operation as an Exempt Board of Trade,” and it shall 

include: 

(1) The name and address of the exempt board of trade; and 

(2) The name and telephone number of a contact person. 

(c) Additional requirements —(1) Prohibited representation. A board of trade notifying the 

Commission that it meets the criteria set forth in this section of Section 5d of the Act and elects 

to operates as an exempt board of trade shall not represent to any person that it is registered with, 

designated, recognized, licensed or approved by the Commission. 

(2) Market data dissemination. (i) Criteria for price discovery determination. An exempt board 

of trade operating a market in reliance on the exemption in Section 5d 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 when: 

(A) Cash market bids, offers or transactions are directly based on, or quoted at a differential to, 

the prices generated on the market on a more than occasional basis; or 

(B) The market's prices are routinely disseminated in a widely distributed industry publication 

and are routinely consulted by industry participants in pricing cash market transactions. 

(ii) Notification. An exempt board of trade operating a market in reliance on the criteria set forth 

in this section exemption in Section 5d of the Act shall notify the Commission when: 

(A) It has reason to believe 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 more than occasional basis; 

(B) It has reason to believe that the market's prices are routinely disseminated in a widely 

distributed industry publication and are routinely consulted by industry participants in pricing 

cash market transactions; or 

(C) The exempt board of trade holds out the market to the public as performing a price discovery 

function for the cash market for the commodity. 

(iii) Price discovery determination. Following receipt of a notice under paragraph (c)(2)(ii) of 

this section, or on its own initiative, the Commission may notify an exempt board of trade 

operating a market in reliance on the exemption in Section 5d of the Act that the facility appears 

to meet the criteria for performing a significant price discovery function under paragraph 

(c)(2)(i)(A) or (B) of this section. Before making a final price discovery determination under this 

paragraph, the Commission shall provide the exempt board of trade with an opportunity for a 

hearing through the submission of written data, views and arguments. Any such written data, 
66 

views and arguments shall be filed with the Secretary of the Commission in the form and manner 

and within the time specified by the Commission. After consideration of all relevant matters, the 

Commission shall issue an order containing its determination whether the facility performs a 

significant price discovery function under the criteria of paragraph (c)(2)(i)(A) or (B) of this 

section. 

(iv) Price dissemination. (A) An exempt board of trade that the Commission has determined 

performs a significant price discovery function under paragraph (c)(2)(iii) of this section shall 

disseminate publicly, and on a daily basis, all of the following information with respect to 

transactions executed in reliance on the criteria set forth in this sectionexemption in Section 5d 

of the Act: 

( 1 ) Contract terms and conditions, or a product description, and trading conventions, 

mechanisms and practices; 

( 2 ) Trading volume by commodity and, if available, open interest; and 

( 3 ) The opening and closing prices or price ranges, the daily high and low prices, a volumeweighted average price that is representative of trading on the board of trade, or such other daily 

price information as proposed by the board of trade and approved by the Commission. 

(B) The exempt board of trade shall make such information readily available to the news media 

and the general public without charge no later than the business day following the day to which 

the information pertains. 

(v) Modification of price discovery determination. An exempt board of trade that the 

Commission has determined performs a significant price discovery function under paragraph 

(c)(2)(iii) of this section may petition the Commission at any time to modify or vacate that 

determination. The petition shall contain an appropriate justification for the request. The 

Commission, after notice and opportunity for a hearing through the submission of written data, 

views and arguments, shall by order grant, grant subject to conditions, or deny such request. 

(3) Annual Certification. A board of trade operating under Section 5d of the Act as an exempt 

board of trade shall file with the Commission annually, no later than the end of each calendar 

year, a notice that includes: (i) A statement that it continues to operate under the exemption; and 

(ii) a A certification that the information contained in the previous Notification of Operation as 

an Exempt Board of Trade is still correct. 

§ 36.3 Exempt commercial markets. 

(a) Eligible Transactions. Agreements, contracts or transactions in an exempt commodity 

eligible to be entered into on an exempt commercial market must be:

(1) entered into on a principal-to-principal basis solely between persons that are eligible 

commercial entities, as that term is defined in section 1a(17) of the Act, at the time the persons 

enter into the agreement, contract or transaction; and
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(2) executed or traded on an electronic trading facility.

(ab) Notification. An electronic trading facility relying upon the exemption set forth in this 

section in Section 2(h)(3) of the Act shall maintain on filenotify the Commission of its intention 

to do so. This notification, and subsequent notification of any material changes in the 

information initially provided, shall be filed with the Secretary of the Commission at the 

Commission’sits Washington, DC headquarters, in electronic form, ashall be labeled as

“Notification of Operation as an Exempt Commercial Market,” and it shall include the 

information and certifications specified in this sectionin Section 2(h)(5)(A) of the Act. 

(bc) Required information —(1) All electronic trading facilities. A facility operating in reliance 

on the exemption set forth in this section in section 2(h)(3) of the Act, initially and on an ongoing basis, must: 

(i) Provide the Commission with the terms and conditions, as defined in §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 this section 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(3351) 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(1117) 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. 
68 

(2) Electronic trading facilities trading or executing agreements, contracts or transactions other 

than significant price discovery contracts. In addition to the requirements of paragraph (bc)(1) of 

this section, a facility operating in reliance on the exemption set forth in this section in section 

2(h)(3) of the Act, with respect to agreements, contracts or transactions that have not been 

determined to perform significant 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 

set forth in this section 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. 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, 

and shall show 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; or 

(B) 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 set forth in this section 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 describedset forth in paragraph (bc)(2)(i)(A) of this section and create a 

permanent record thereof. 

(ii) 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 this section 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; 

(iii) 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 (bc)(2)(ii) of this section that 
69 

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 rules, such copy shall be provided to the Commission within three business days 

after the complaint is received; and 

(iv) 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 this section 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 (bc)(1) of this section, if the Commission determines 

that a facility operating in reliance on the exemption set forth in this section 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 (bc)(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) Such information shall include: information related to the facility’s business as an exempt 

electronic trading facility in reliance on the exemption set forth in this section, including 

information relating to data entry and transaction details in respect of transactions entered into in 

reliance on the exemption, as the Commission may determine appropriate--

(A) to enforce the antifraud and anti- manipulation provisions in the Act and Commission 

regulations, and 

(B) to evaluate a systemic market event; or

(C) to obtain information requested by a Federal financial regulatory authority in order to enable 

the regulator to fulfill its regulatory or supervisory responsibilities.

(iii) 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 

Divisions of Market Oversight, the Division of Clearing and Intermediary Oversight, and the 
70 

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 set forth

in this section 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. 

(cd) 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 set forth in this section 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, or a significant price discovery contract traded on an 

electronic trading 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 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 
71 

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 set forth in this section 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 the exemption set forth in this section 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 prompt consideration of all relevant information, the 

Commission shall, within a reasonable period of time after the close of the comment period, 

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 paragraph (cd)(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 set 

forth in this section 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 one of the electronic 

trading facility's agreements, contracts or transactions 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 each subsequent 

determination 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 
72 

submit a written demonstration of compliance with the Core Principles within 30 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, thirdparty 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 (cd)(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 
73 

and uncleared significant price discovery contracts when establishing the manner in which it 

complies with the Core Principles. 

(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 set forth in this sectionof 

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 (cd)(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 (cd)(1), 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 for any individual contract. 

(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 
74 

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 30 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. 

(de) 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 set forth in this section provided in section 2(h)(3) of the Act to determine 

whether they serve a significant price discovery function as describedset forth in 

§paragraph(d)(1) above. 

Appendix A to Part 36—Guidance on Significant Price Discovery Contracts 

1. Section 2(h)(7) of the CEA specifies There are 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. 
75 

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 set forth in this sectionin 

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, 

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 
76 

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, or a significant price discovery contract traded on 

an electronic trading 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. 

4. 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 
77 

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. 

(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 five 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 

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. 
78 

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 contract being traded on the electronic trading facilitysection 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 contract being traded on the 

electronic trading facilitysection 2(h)(3) contract when, for instance, they are arrived at after 

adding to, or subtracting from the contract being traded on the electronic trading facilitysection 

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 contract being traded on the 

electronic trading facilitysection 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 

contract being traded on the electronic trading facilitysection 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 
79 

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. 

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 set forth in 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(cd)(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(cd)(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. 
80 

(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(cd)(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 30 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 or submitted to the Commission for review and 

approval pursuant to §40.5.

(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 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 
81 

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 cashsettled 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 describedset forth 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 
82 

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 rule 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 rule 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 for uncleared trades [Reserved] 

(c) Acceptable practices for cleared trades —(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 set forth

in this section in section 2(h)(3) should adopt rules that set position limits or accountability 
83 

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 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 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 off-facility 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 are traded on a cleared basis, the electronic 

trading facility should apply position limits to cleared transactions in the contract. 

(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 spot-month 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 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. In the 

case where a significant price discovery contract has a cash settlement provision, the spot-month 

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. 
84 

(4) Position accountability for non-spot-month positions. The electronic trading facility should 

establish for its significant price discovery contracts non-spot individual month position 

accountability levels and all-months-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 inquiry 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 may 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 non-spot individual month and all-months-combined 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 all-months-combined position limits, 

the electronic trading facility should set non-spot month position limits and all-months-combined 

position limits for its significant price discovery contract at the same (or lower) levels as those 

specified for the economically-equivalent contract. 
85 

(5) 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. 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. 

(6) 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 30 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 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. 

(7) 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 and all-months-combined position 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 
86 

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. 

(8) Violation of Commission rules. A violation of position limits for significant price discovery 

contracts that have been self-certified by an electronic trading facility is 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 decision-making 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 decisionmaking 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. 
87 

(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 that satisfies the requirements of 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. 
88 

(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; 

(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 
89 

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 41- SECURITY FUTURES PRODUCTS 

§ 41.2 Required records. 

A designated contract market or registered derivatives transaction execution facility that trades a 

security index or security futures product shall maintain in accordance with the requirements of 

§1.31 books and records of all activities related to the trading of such products, including: 

Records related to any determination under subpart B of this part whether or not a futures 

contract on a security index is a narrow-based security index or a broad-based security index. 

§ 41.12 Indexes underlying futures contracts trading for fewer than 30 days. 

(a) An index on which a contract of sale for future delivery is trading on a designated contract 

market, registered derivatives transaction execution facility, or foreign board of trade is not a 

narrow-based security index under Section section 1a(25) of the Act (7 U.S.C. 1a(25)) for the 

first 30 days of trading, if: 

(1) Such index would not have been a narrow-based security index on each trading day of the 

preceding 6 full calendar months with respect to a date no earlier than 30 days prior to the 

commencement of trading of such contract; 

***** 

§ 41.13 Futures contracts on security indexes trading on or subject to the rules of a 

foreign board of trade. 

When a contract of sale for future delivery on a security index is traded on or subject to the rules 

of a foreign board of trade, such index shall not be a narrow-based security index if it would not 

be a narrow-based security index if a futures contract on such index were traded on a designated 

contract market. or registered derivatives transaction execution facility.
90 

§ 41.21 Requirements for underlying securities. 

 (a) Security futures products based on a single security. A futures contract on a single security is 

eligible to be traded as a security futures product only if: 

(1) The underlying security is registered pursuant to Section section 12 of the Securities 

Exchange Act of 1934; 

(2) The underlying security is: 

(i) Common stock, 

(ii) Such other equity security as the Commission and the SEC jointly deem appropriate, or 

(iii) A note, bond, debenture, or evidence of indebtedness; and 

(3) The underlying security conforms with the listing standards for the security futures product 

that the designated contract market or registered derivatives transaction execution facility has 

filed with the SEC under Section section 19(b) of the Securities Exchange Act of 1934. 

(b) Security futures product based on two or more securities. A futures contract on an index of 

two or more securities is eligible to be traded as a security futures product only if: 

(1) The index is a narrow-based security index as defined in Section section 1a(25) of the Act; 

(2) The securities in the index are registered pursuant to Section section 12 of the Securities 

Exchange Act of 1934; 

(3) The securities in the index are: 

(i) Common stock, 

(ii) Such other equity securities as the Commission and the SEC jointly deem appropriate, or 

(iii) A note, bond, debenture, or evidence of indebtedness; and 

(4) The index conforms with the listing standards for the security futures product that the 

designated contract market or registered derivatives transaction execution facility has filed with 

the SEC under Section section 19(b) of the Securities Exchange Act of 1934. 

§ 41.22 Required certifications. 

It shall be unlawful for a designated contract market or registered derivatives transaction 

execution facility to list for trading or execution a security futures product unless the designated 

contract market or registered derivatives transaction execution facility has provided the 

Commission with a certification that the specific security futures product or products and the 
91 

designated contract market or registered derivatives transaction execution facility meet, as 

applicable, the following criteria: 

(a) The underlying security or securities satisfy the requirements of §41.21; 

(b) If the security futures product is not cash settled, arrangements are in place with a clearing 

agency registered pursuant to section 17A of the Securities Exchange Act of 1934 for the 

payment and delivery of the securities underlying the security futures product; 

(c) Common clearing. [Reserved] 

(d) Only futures commission merchants, introducing brokers, commodity trading advisors, 

commodity pool operators or associated persons subject to suitability rules comparable to those 

of a national securities association registered pursuant to section 15A(a) of the Securities 

Exchange Act of 1934 and the rules and regulations thereunder, except to the extent otherwise 

permitted under the Securities Exchange Act of 1934 and the rules and regulations thereunder, 

may solicit, accept any order for, or otherwise deal in any transaction in or in connection with 

security futures products; 

(e) If the board of trade is a designated contract market pursuant to section 5 of the Act or is a 

registered derivatives transaction execution facility pursuant to section 5a of the Act, dual trading 

in these security futures products is restricted in accordance with §41.27; 

(f) Trading in the security futures products is not readily susceptible to manipulation of the price 

of such security futures product, nor to causing or being used in the manipulation of the price of 

any underlying security, option on such security, or option on a group or index including such 

securities, consistent with the conditions for trading of §41.25; 

***** 

§ 41.23 Listing of security futures products for trading. 

 (a) Initial listing of products for trading. To list new security futures products for trading, a 

designated contract market or registered derivatives transaction execution facility shall submit to 

the Commission at its Washington, DC headquarters, either in electronic or hard-copy form, to 

be received by the Commission no later than the day prior to the initiation of trading, a filing 

that: 

(1) Is labeled “Listing of Security Futures Product;” 

(2) Includes a copy of the product's rules, including its terms and conditions; 

(3) Includes the certifications required by §41.22; 

(4) Includes a certification that the terms and conditions of the contract comply with the 

additional conditions for trading of §41.25; 
92 

(5) If the board of trade is a designated contract market pursuant to section 5 of the Act or a 

registered derivatives transaction execution facility pursuant to section 5a of the Act, it includes 

a certification that the security futures product complies with the Act and rules thereunder; and 

(6) Includes a copy of the submission cover sheet in accordance with the instructions in appendix 

D of part 40. 

(7) Includes a request for confidential treatment as permitted under the procedures of §40.8. 

(b) Voluntary submission of security futures products for Commission approval. A designated 

contract market or registered derivatives transaction execution facility may request that the 

Commission approve any security futures product under the procedures of §40.5 of this chapter, 

provided however that the registered entity shall include the certification required by §41.22 with 

its submission under §40.5 of this chapter. Notice designated contract markets may not request 

Commission approval of security futures products. 

§ 41.24 Rule amendments to security futures products. 

 (a) Self-certification of rules and rule amendments by designated contract markets and 

registered derivatives clearing organizations. A designated contract market or registered 

derivatives clearing organization may implement any new rule or rule amendment relating to a 

security futures product by submitting to the Commission at its Washington, DC headquarters, 

either in electronic or hard-copy form, to be received by the Commission no later than the day 

prior to the implementation of the rule or rule amendment, a filing that: 

(1) Is labeled “Security Futures Product Rule Submission;' 

(2) Includes a copy of the new rule or rule amendment; 

(3) Includes a certification that the designated contract market or registered derivatives clearing 

organization has filed the rule or rule amendment with the Securities and Exchange Commission, 

if such a filing is required; 

(4) If the board of trade is a designated contract market pursuant to section 5 of the Act or is a 

registered derivatives clearing organization pursuant to section 5b of the Act, it includes the 

documents and certifications required to be filed with the Commission pursuant to §40.6 of this 

chapter, including a certification that the security futures product complies with the Act and rules 

thereunder; and 

(5) Includes a copy of the submission cover sheet in accordance with the instructions in appendix 

D of part 40. 

(6) Includes a request for confidential treatment as permitted under the procedures of §40.8. 

(b) Self-certification of rules by registered derivatives transaction execution facilities. 

Notwithstanding §37.7 of this chapter, a registered derivatives transaction execution facility may 
93 

only implement a new rule or rule amendment relating to a security futures product if the 

registered derivatives transaction execution facility has certified the rule or rule amendment 

pursuant to the procedures of paragraph (a) of this section.

(cb) Voluntary submission of rules for Commission review and approval. A designated contract 

market, registered derivatives transaction execution facility, or a registered derivatives clearing 

organization clearing security futures products may request that the Commission approve any 

rule or proposed rule or rule amendment relating to a security futures product under the 

procedures of §40.5 of this chapter, provided however that the registered entity shall include the 

certifications required by §41.22 with its submission under §40.5 of this chapter. Notice 

designated contract markets may not request Commission approval of rules. 

§ 41.25 Additional conditions for trading for security futures products. 

 (a) Common provisions —(1) Reporting of data. The designated contract market or registered 

derivatives transaction execution facility shall comply with chapter 16 of this title requiring the 

daily reporting of market data. 

(2) Regulatory trading halts. The rules of a designated contract market or registered derivatives 

transaction execution facility that lists or trades one or more security futures products must 

include the following provisions: 

(i) Trading of a security futures product based on a single security shall be halted at all times that 

a regulatory halt has been instituted for the underlying security; and 

(ii) Trading of a security futures product based on a narrow-based security index shall be halted 

at all times that a regulatory halt has been instituted for one or more underlying securities that 

constitute 50 percent or more of the market capitalization of the narrow-based security index. 

(3) Speculative position limits. The designated contract market or registered derivatives 

transaction execution facility shall have rules in place establishing position limits or position 

accountability procedures for the expiring futures contract month. The designated contract 

market or registered derivatives transaction execution facility shall, 

(i) Adopt a net position limit no greater than 13,500 (100-share) contracts applicable to positions 

held during the last five trading days of an expiring contract month; except where, 

(A) For security futures products where the average daily trading volume in the underlying 

security exceeds 20 million shares, or exceeds 15 million shares and there are more than 40 

million shares of the underlying security outstanding, the designated contract market or 

registered derivatives transaction execution facility may adopt a net position limit no greater than 

22,500 (100-share) contracts applicable to positions held during the last five trading days of an 

expiring contract month; or 

(B) For security futures products where the average daily trading volume in the underlying 

security exceeds 20 million shares and there are more than 40 million shares of the underlying 
94 

security outstanding, the designated contract market or registered derivatives transaction 

execution facility may adopt a position accountability rule. Upon request by the designated 

contract market or registered derivatives transaction execution facility, traders who hold net 

positions greater than 22,500 (100-share) contracts, or such lower level specified by exchange 

rules, must provide information to the exchange and consent to halt increasing their positions 

when so ordered by the exchange. 

(ii) For a security futures product comprised of more than one security, the criteria in paragraphs 

(a)(3)(i)(A) and (a)(3)(i)(B) of this section must apply to the security in the index with the lowest 

average daily trading volume. 

(iii) Exchanges may approve exemptions from these position limits pursuant to rules that are 

consistent with §150.3 of this chapter. 

(iv) For purposes of this section, average daily trading volume shall be calculated monthly, using 

data for the most recent six-month period. If the data justify a higher or lower speculative limit 

for a security future, the designated contract market or registered derivatives transaction 

execution facility may raise or lower the position limit for that security future effective no earlier 

than the day after it has provided notification to the Commission and to the public under the 

submission requirements of §41.24. If the data require imposition of a reduced position limit for 

a security future, the designated contract market or registered derivatives transaction execution 

facility may permit any trader holding a position in compliance with the previous position limit, 

but in excess of the reduced limit, to maintain such position through the expiration of the security 

futures contract; provided that the designated contract market or registered derivatives 

transaction execution facility does not find that the position poses a threat to the orderly 

expiration of such contract. 

(b) Final settlement prices for security futures products. (1) The final settlement price of a cashsettled security futures product must fairly reflect the opening price of the underlying security or 

securities; 

(2) Notwithstanding paragraph (b)(1) of this section, if an opening price for one or more 

securities underlying a security futures product is not readily available, the final settlement price 

of the security futures product shall fairly reflect: 

(i) The price of the underlying security or securities during the most recent regular trading 

session for such security or securities; or 

(ii) The next available opening price of the underlying security or securities. 

(3) Notwithstanding paragraphs (b)(1) or (b)(2) of this section, if a derivatives clearing 

organization registered under Section 5b of the Act or a clearing agency exempt from registration 

pursuant to Section 5b(a)(2) of the Act, to which the final settlement price of a security futures 

product is or would be reported determines, pursuant to its rules, that such final settlement price 

is not consistent with the protection of customers and the public interest, taking into account such 

factors as fairness to buyers and sellers of the affected security futures product, the maintenance 
95 

of a fair and orderly market in such security futures product, and consistency of interpretation 

and practice, the clearing organization shall have the authority to determine, under its rules, a 

final settlement price for such security futures product. 

(c) Special requirements for physical delivery contracts. For security futures products settled by 

actual delivery of the underlying security or securities, payment and delivery of the underlying 

security or securities must be effected through a clearing agency that is registered pursuant to 

section 17A of the Securities Exchange Act of 1934. 

(d) The Commission may exempt a designated contract market from the provisions of paragraphs 

(a)(2) and (b) of this section, either unconditionally or on specified terms and conditions, any 

designated contract market or registered derivatives transaction execution facility, if the 

Commission determines that such exemption is consistent with the public interest and the 

protection of customers. An exemption granted pursuant to this paragraph shall not operate as an 

exemption from any Securities and Exchange Commission rules. Any exemption that may be 

required from such rules must be obtained separately from the Securities and Exchange 

Commission. 

§ 41.27 Prohibition of dual trading in security futures products by floor brokers. 

 (a) Definitions. For purposes of this section: 

(1) Trading session means hours during which a designated contract market or registered 

derivatives transaction execution facility is scheduled to trade continuously during a trading day, 

as set forth in its rules, including any related post settlement trading session. A designated 

contract market or registered derivatives transaction execution facility may have more than one 

trading session during a trading day. 

(2) Member shall have the meaning set forth in section 1a(24) of the Act. 

(3) Broker association includes two or more designated contract market or registered derivatives 

transaction execution facility members with floor trading privileges of whom at least one is 

acting as a floor broker who: 

(i) Engage in floor brokerage activity on behalf of the same employer; 

(ii) Have an employer and employee relationship which relates to floor brokerage activity; 

(iii) Share profits and losses associated with their brokerage or trading activity; or 

(iv) Regularly share a deck of orders. 

(4) Customer means an account owner for which a trade is executed other than: 

(i) An account in which such floor broker has any interest; 
96 

(ii) An account for which a floor broker has discretion; 

(iii) An account controlled by a person with whom a floor broker has a relationship through 

membership in a broker association; 

(iv) A house account of the floor broker's clearing member; or 

(v) An account for another member present on the floor of a designated contract market or 

registered derivatives transaction execution facility or an account controlled by such other 

member. 

(5) Dual trading means the execution of customer orders by a floor broker through open outcry 

during the same trading session in which the floor broker executes directly or by initiating and 

passing to another member, either through open outcry or through a trading system that 

electronically matches bids and offers pursuant to a predetermined algorithm, a transaction for 

the same security futures product on the same designated contract market or registered 

derivatives transaction execution facility for an account described in paragraphs (a)(4)(i)–(v) of 

this section. 

(b) Dual Trading Prohibition. (1) No floor broker shall engage in dual trading in a security 

futures product on a designated contract market or registered derivatives transaction execution 

facility, except as otherwise provided under paragraphs (d), (e), and (f) of this section. 

(2) A designated contract market or a registered derivatives transaction execution facility 

operating an electronic market or electronic trading system that provides market participants with 

a time or place advantage or the ability to override a predetermined algorithm must submit an 

appropriate rule proposal to the Commission consistent with the procedures set forth in §40.5. 

The proposed rule must prohibit electronic market participants with a time or place advantage or 

the ability to override a predetermined algorithm from trading a security futures product for 

accounts in which these same participants have any interest during the same trading session that 

they also trade the same security futures product for other accounts. This paragraph, however, is 

not applicable with respect to execution priorities or quantity guarantees granted to market 

makers who perform that function, or to market participants who receive execution priorities 

based on price improvement activity, in accordance with the rules governing the designated 

contract market or registered derivatives transaction execution facility. 

(c) Rules Prohibiting Dual Trading —(1) Designated contract markets. Prior to listing a security 

futures product for trading on a trading floor where bids and offers are executed through open 

outcry, a designated contract market: 

(i) Must submit to the Commission in accordance with §40.6, a rule prohibiting dual trading, 

together with a written certification that the rule complies with the Act and the regulations 

thereunder, including this section; or 

(ii) Must obtain Commission approval of such rule pursuant to §40.5. 
97 

(2) Registered derivatives transaction execution facilities. Prior to listing a security futures 

product for trading on a trading floor where bids and offers are executed through open outcry, a 

registered derivatives transaction execution facility:

(i) Must notify the Commission in accordance with §37.7(b) that it has adopted a rule prohibiting 

dual trading; or

(ii) Must obtain Commission approval of such rule pursuant to §37.7(c).

(d) Specific Permitted Exceptions. Notwithstanding the applicability of a dual trading prohibition 

under paragraph (b) of this section, dual trading may be permitted on a designated contract 

market or a registered derivatives transaction execution facility pursuant to one or more of the 

following specific exceptions: 

(1) Correction of errors. To offset trading errors resulting from the execution of customer orders, 

provided, that the floor broker must liquidate the position in his or her personal error account 

resulting from that error through open outcry or through a trading system that electronically 

matches bids and offers as soon as practicable, but, except as provided herein, not later than the 

close of business on the business day following the discovery of error. In the event that a floor 

broker is unable to offset the error trade because the daily price fluctuation limit is reached, a 

trading halt is imposed by the designated contract market or registered derivatives transaction 

execution facility, or an emergency is declared pursuant to the rules of the designated contract 

market or registered derivatives transaction execution facility, the floor broker must liquidate the 

position in his or her personal error account resulting from that error as soon as practicable 

thereafter. 

(2) Customer consent. To permit a customer to designate in writing not less than once annually a 

specifically identified floor broker to dual trade while executing orders for such customer's 

account. An account controller acting pursuant to a power of attorney may designate a dual 

trading broker on behalf of its customer, provided, that the customer explicitly grants in writing 

to the individual account controller the authority to select a dual trading broker. 

(3) Spread transactions. To permit a broker who unsuccessfully attempts to leg into a spread 

transaction for a customer to take the executed leg into his or her personal account and to offset 

such position, provided, that a record is prepared and maintained to demonstrate that the 

customer order was for a spread. 

(4) Market emergencies. To address emergency market conditions resulting in a temporary 

emergency action as determined by a designated contract market or registered derivatives 

transaction execution facility. 

(e) Rules Permitting Specific Exceptions —(1) Designated contract markets. Prior to permitting 

dual trading under any of the exceptions provided in paragraphs (d)(1)–(4) of this section, a 

designated contract market: 
98 

(i) Must submit to the Commission in accordance with §40.6, a rule permitting the exception(s), 

together with a written certification that the rule complies with the Act and the regulations 

thereunder, including this section; or 

(ii) Must obtain Commission approval of such rule pursuant to §40.5. 

(2) Registered derivatives transaction execution facilities. Prior to permitting dual trading under 

any of the exceptions provided in paragraphs (d)(1)–(4) of this section, a registered derivatives 

transaction execution facility:

(i) Must notify the Commission in accordance with §37.7(b) that it has adopted a rule permitting 

the exception(s); or

(ii) Must obtain Commission approval of such rule pursuant to §37.7(c).

(f) Unique or Special Characteristics of Agreements, Contracts, or Transactions, or of 

Designated Contract Markets or Registered Derivatives Transaction Execution Facilities. 

Notwithstanding the applicability of a dual trading prohibition under paragraph (b) of this 

section, dual trading may be permitted on a designated contract market or registered derivatives 

transaction execution facility to address unique or special characteristics of agreements, 

contracts, or transactions, or of the designated contract market or registered derivatives 

transaction execution facility as provided herein. Any rule of a designated contract market or 

registered derivatives transaction execution facility that would permit dual trading when it would 

otherwise be prohibited, based on a unique or special characteristic of agreements, contracts, or 

transactions, or of the designated contract market or registered derivatives transaction execution 

facility must be submitted to the Commission for prior approval under the procedures set forth in 

§40.5. The rule submission must include a detailed demonstration of why an exception is 

warranted. 

§41.43 Definitions. 

***** 

(30) Self-regulatory authority means a national securities exchange registered under section 6 of 

the Exchange Act, a national securities association registered under section 15A of the Exchange 

Act, or a contract market registered under section 5 of the Act or section 5f of the Act., or a 

derivatives transaction execution facility registered under section 5a of the Act

***** 

§ 41.49 Filing proposed margin rule changes with the Commission. 

 (a) Notification requirement for notice-designated contract markets. Any self-regulatory 

authority that is registered with the Commission as a designated contract market under section 5f 

of the Act shall, when filing a proposed rule change regarding customer margin for security 

futures with the SEC for approval in accordance with section 19(b)(2) of the Exchange Act, 
99 

concurrently provide to the Commission a copy of such proposed rule change and any 

accompanying documentation filed with the SEC. 

(b) Filing requirements under the Act. Any self-regulatory authority that is registered with the 

Commission as a designated contract market under section 5 of the Act or a derivatives 

transaction execution facility under section 5a of the Act shall, when filing a proposed rule 

change regarding customer margin for security futures with the SEC for approval in accordance 

with section 19(b)(2) of the Exchange Act, submit such proposed rule change to the Commission 

as follows: 

(1) If the self-regulatory authority elects to request the Commission's prior approval for the 

proposed rule change pursuant to section 5c(c)(2) of the Act, it shall concurrently file the 

proposed rule change with the Commission in accordance with §40.5 of this chapter. 

(2) If the self-regulatory authority elects to implement a proposed rule change by written 

certification pursuant to section 5c(c)(1) of the Act, it shall concurrently provide to the 

Commission a copy of the proposed rule change and any accompanying documentation filed 

with the SEC. Promptly after obtaining SEC approval for the proposed rule change, such selfregulatory authority shall file its written certification with the Commission in accordance with 

§40.6 of this chapter. 

PART 140- ORGANIZATIONS, FUNCTIONS, AND PROCEDURES OF THE 

COMMISSION 

§ 140.72 Delegation of authority to disclose confidential information to a contract market, 

swap execution facility, swap data repository, registered futures association or selfregulatory organization. 

 (a) Pursuant to the authority granted under sections 2(a)(11), 8a(5) and 8a(6) of the Act, the 

Commission hereby delegates, until such time as the Commission orders otherwise, to the 

Executive Director, the Deputy Executive Director, the Special Assistant to the Executive 

Director, the Director of the Division of Clearing and Intermediary Oversight, each Deputy 

Director of the Division of Clearing and Intermediary Oversight, the Chief Accountant, the 

General Counsel, each Deputy General Counsel, the Director of the Division of Market 

Oversight, each Deputy Director of the Division of Market Oversight, the Director of the Market 

Surveillance Section, the Director of the Division of Enforcement, each Deputy Director of the 

Division of Enforcement, each Associate Director of the Division of Enforcement, the Chief 

Counsel of the Division of Enforcement, each Regional Counsel of the Division of Enforcement, 

each of the Regional Administrators, each of the Directors of the Market Surveillance Branches, 

the Chief Economist of the Office of the Chief Economist, the Deputy Chief Economist of the 

Office of the Chief Economist, the Director of the Office of International Affairs, and the Deputy 

Director of the Office of International Affairs, the authority to disclose to an official of any 
100 

contract market, swap execution facility, swap data repository, registered futures association, or 

self-regulatory organization as defined in section 3(a)(26) of the Securities Exchange Act of 

1934, any information necessary or appropriate to effectuate the purposes of the Act, including, 

but not limited to, the full facts concerning any transaction or market operation, including the 

names of the parties thereto. This authority to disclose shall be based on a determination that the 

transaction or market operation disrupts or tends to disrupt any market or is otherwise harmful or 

against the best interests of producers, consumers, or investors or that disclosure is necessary or 

appropriate to effectuate the purposes of the Act. The authority to make such a determination is 

also delegated by the Commission to the Commission employees identified in this section. A 

Commission employee delegated authority under this section may exercise that authority on his 

or her own initiative or in response to a request by an official of a contract market, swap 

execution facility, swap data repository, registered futures association or self-regulatory 

organization. 

(b) Disclosure under this section shall only be made to a contract market, swap execution 

facility, swap data repository, registered futures association or self-regulatory organization 

official who is named in a list filed with the Commission by the chief executive officer of the 

contract market, swap execution facility, swap data repository, registered futures association or 

self-regulatory organization, which sets forth the official's name, business address and telephone 

number. The chief executive officer shall thereafter notify the Commission of any deletions or 

additions to the list of officials authorized to receive disclosures under this section. The original 

list and any supplemental list required by this paragraph shall be filed with the Secretary of the 

Commission, and a copy thereof shall also be filed with the Regional Coordinator for the region 

in which the contract market, swap execution facility, or swap data repository, is located or in 

which the registered futures association or self-regulatory organization has its principal office. 

(c) Notwithstanding the provisions of paragraph (a) of this section, in any case in which a 

Commission employee delegated authority under this section believes it appropriate, he or she 

may submit to the Commission for its consideration the question of whether disclosure of 

information should be made. 

(d) For purposes of this section, the term “official” shall mean any officer or member of a 

committee of a contract market, swap execution facility, swap data repository, registered futures 

association or self-regulatory organization who is specifically charged with market surveillance 

or audit or investigative responsibilities, or their duly authorized representative or agent, who is 

named on the list filed pursuant to paragraph (b) of this section or any supplement thereto. 

(e) For the purposes of this section, the term “self-regulatory organization” shall mean the same 

as that defined in section 3(a) (26) of the Securities Exchange Act of 1934. 

(f) Any contract market, swap execution facility, swap data repository, registered futures 

association or self-regulatory organization receiving information from the Commission under 

these provisions shall not disclose such information except that disclosure may be made in any 

self-regulatory action or proceeding. 
101 

§ 140.77 Delegation of authority to determine that applications for contract market 

designation, swap execution facility registration, or swap data repository registration are 

materially incomplete. 

 (a) The Commodity Futures Trading Commission hereby delegates, until such time as the 

Commission orders otherwise, to the Director of the Division of Market Oversight or the 

Director's designees, the authority to determine that an application for contract market 

designation, swap execution facility registration, or swap data repository registration is 

materially incomplete under section 6 of the Commodity Exchange Act and to so notify the 

applicant. 

(b) The Director of the Division of Market Oversight may submit any matter which has been 

delegated to the director under paragraph (a) of this section to the Commission for its 

consideration. 

(c) Nothing in this section may prohibit the Commission, at its election, from exercising the 

authority delegated to the Director of the Division of Market Oversight under paragraph (a) of 

this section. 

§ 140.96 Delegation of authority to publish in the Federal Register. 

 (a) The Commodity Futures Trading Commission hereby delegates, until such time as the 

Commission orders otherwise, to the Director of the Division of Market Oversight or the 

Director's designee, with the concurrence of the General Counsel or the General Counsel's 

designee, the authority to publish in the Federal Register notice of the availability for comment 

of the proposed terms and conditions of applications for contract market designation, swap 

execution facility and swap data repository registration, and to determine to publish, and to 

publish, requests for public comment on proposed exchange, swap execution facility or swap 

data repository rules, and rule amendments, when there exists novel or complex issues that

require additional time to analyze, an inadequate explanation by the submitting registered entity, 

or a potential inconsistency with the Act, including regulations under the Actof major economic 

significance. 

(b) The Commodity Futures Trading Commission hereby delegates, until such time as the 

Commission orders otherwise, to the Director of the Division of Market Oversight or the 

Director's designee, and to the Director of the Division of Clearing and Intermediary Oversight 

or the Director's designee, with the concurrence of the General Counsel or the General Counsel's 

designee, the authority to determine to publish, and to publish, in the Federal Register, requests 

for public comment on proposed exchange and self-regulatory organization rule amendments 

when publication of the proposed rule amendment is in the public interest and will assist the 

Commission in considering the views of interested persons. 
102 

(c) The Director of the Division of Market Oversight or the Director of the Division of Clearing 

and Intermediary Oversight may submit any matter which has been delegated to such Director 

under paragraphs (a) or (b) of this section to the Commission for its consideration. 

(d) Nothing in this section may prohibit the Commission, at its election, from exercising the 

authority delegated to the Director of the Division of Market Oversight and to the Director of the 

Division of Clearing and Intermediary Oversight under paragraphs (a) and (b) of this section. 

§ 140.99 Requests for exemptive, no-action and interpretative letters. 

*** 

(d) Filing requirements. Each request for a Letter must comply with the following filing 

requirements: 

(1) The request must be in writing and signed. 

(2) A request for a Letter relating to the provisions of the Act or the Commission's rules, 

regulations or orders governing designated contract markets, registered swap execution facilities, 

registered swap data repositories, registered derivatives transaction execution facilities, exempt 

commercial markets, exempt boards of trade, the nature of particular transactions and whether 

they are exempt or excluded from being required to be traded on one of the foregoing entities, 

foreign trading terminals, hedging exemptions, and the reporting of market positions shall be 

filed with the Director, Division of Market Oversight, Commodity Futures Trading Commission, 

Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. A request for a Letter 

relating to all other provisions of the Act or Commission rules shall be filed with the Director, 

Division of Clearing and Intermediary Oversight Commodity Futures Trading Commission, 

Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. A request for a Letter 

relating to all other provisions of the Act or Commission rules shall be filed with the Director, 

Division of Clearing and Intermediary Oversight, Commodity Futures Trading Commission, 

Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. The request must be 

submitted electronically using the e-mail address dmoletters@cftc.gov (for requests filed with the 

Division of Market Oversight), or dcioletters@cftc.gov (for requests filed with the Division of 

Clearing and Intermediary Oversight), as appropriate, and a properly signed paper copy of the 

request must be provided to the Division of Market Oversight or the Division of Clearing and 

Intermediary Oversight, as appropriate, within ten days for purposes of verification of the 

electronic submission. 

*** 

§ 140.735-2 Prohibited transactions. 

 (a) Application. This section applies to all transactions effected by or on behalf of a Commission 

member or employee of the Commission, including transactions for the account of other persons 
103 

effected by the member or employee, directly or indirectly under a power of attorney or 

otherwise. A member or employee shall be deemed to have a sufficient interest in the 

transactions of his or her spouse, minor child, or other relative who is a resident of the immediate 

household of the member or employee so that such transactions must be reported and are subject 

to all the terms of this section. 

(b) Prohibitions. Except as otherwise provided in this subsection, no member or employee of the 

Commission shall: 

(1) Participate, directly or indirectly, in any transaction: 

(i) In swaps;

(ii) In commodity futures;

(iii) In retail forex transactions, as that term is defined in §5.1(m);

(iiiv) Involving any commodity that is of the character of or which is commonly known to the 

trade as an option, privilege, indemnity, bid, offer, put, call, advance guaranty, or decline 

guaranty; or 

(iv) For the delivery of any commodity under a standardized contract commonly known to the 

trade as a margin account, margin contract, leverage account, or leverage contract, or under any 

contract, account, arrangement, scheme, or device that the Commission determines serves the 

same function or functions as such a standardized contract, or is marketed or managed in 

substantially the same manner as such a standardized contract; 

(2) Effect any purchase or sale of an commodity option, futures contract, or swap, or option on a 

futures contract involving a security or group of securities; 

(3) Sell a security which he or she does not own or consummate a sale by the delivery of a 

security borrowed by or for his or her account; 

(4) Participate, directly or indirectly, in any investment transaction in an actual commodity if: 

(i) Nonpublic information is used in the investment transaction; 

(ii) It is prohibited by rule or regulation of the Commission; or 

(iii) It is effected by means of any instrument regulated by the Commission and is not otherwise 

permitted by an exception under this section; 

(5) Purchase or sell any securities of a company which, to his or her knowledge, is involved in 

any: 

(i) Pending investigation by the Commission; 
104 

(ii) Proceeding before the Commission or to which the Commission is a party; 

(iii) Other matter under consideration by the Commission that could have a direct and predictable 

effect upon the company; or 

(6) Recommend or suggest to another person any transaction in which the member or employee 

is not permitted to participate in any circumstance where the member or employee could 

reasonably expect to benefit or where the member or employee has or may have control or 

substantial influence over such person. 

(c) Exception for farming, ranching, and natural resource operations. The prohibitions in 

paragraphs (b)(1)(i) and (ii) of this section shall not apply to a transaction in connection with any 

farming, ranching, oil and gas, mineral rights, or other natural resource operation in which the 

member or employee has a financial interest, if he or she is not involved in the decision to 

engage in, and does not have prior knowledge of, the actual futures, or commodity options, or

swap transaction and has previously notified the General Counsel2 in writing of the nature of the 

operation, the extent of the member's or employee's interest, the types of transactions in which 

the operation may engage, and the identity of the person or persons who will make trading 

decisions for the operation;3 

2

 As used in this subpart, “General Counsel” refers to the General Counsel in his or her capacity 

as counselor for the Commission and designated agency ethics official for the Commission, and 

includes his or her designee and the alternate designated agency ethics official appointed by the 

agency head pursuant to 5 CFR 2638.202. 

3

 Although not required, if they choose to do so, members or employees may use powers of 

attorney or other arrangements in order to meet the notice requirements of, and to assure that 

they have no control or knowledge of, futures or options transactions permitted under paragraph 

(c) of this section. A member or employee considering such arrangements should consult with 

the Office of General Counsel in advance for approval. Should a member or employee gain 

knowledge of an actual futures, or commodity option, or swap transaction entered into by an 

operation described in paragraph (c) of this section that has already taken place and the market 

position represented by that transaction remains open, he or she should promptly report that fact 

and all other details to the General Counsel and seek advice as to what action, including recusal 

from any particular matter that will have a direct and predictable effect on the financial interest 

in question, may be appropriate. 

*** 

§ 140.735-2a Prohibited interests. 

 (a) Application. This section applies to all financial interests of a Commission member or 

employee of the Commission, including financial interests held by the member or employee for 

the account of other persons. A member or employee shall be deemed to have a sufficient 

interest in the financial interests of his or her spouse, minor child, or other relative who is a 
105 

resident of the immediate household of the member or employee, so that such financial interests 

must be reported and are subject to all the terms of this section. 

(b) Prohibitions. Except as otherwise provided in this subsection, no member or employee of the 

Commission shall: 

(1) Have a financial interest, through ownership of securities or otherwise, in any person5

registered with the Commission (including futures commission merchants, associated persons 

and agents of futures commission merchants, floor brokers, commodity trading advisors and 

commodity pool operators, and any other persons required to be registered in a fashion similar to 

any of the above under the Commodity Exchange Act or pursuant to any rule or regulation 

promulgated by the Commission), or any contract market, swap execution facility, swap data 

repository, board of trade, or other trading facility, or any clearing organization subject to 

regulation or oversight by the Commission; or 

[Footnote 5 to (b)(1)] As defined in section 1a(16 38) of the Commodity Exchange Act and 17 

CFR 1.3(u) thereunder, a “person” includes an individual, association, partnership, corporation 

and a trust. 

[Footnote 6 to (b)(1)] 6

 Attention is directed to 18 U.S.C. 208. 

***

§ 140.735-3 Non-governmental employment and other outside activity. 

A Commission member or employee shall not accept employment or compensation from any 

person, exchange, swap execution facility, swap data repository, or clearinghouse subject to 

regulation by the Commission. For purposes of this section, a person subject to regulation by the 

Commission includes but is not limited to a contract market, swap execution facility, swap data 

repository, or clearinghouse or member thereof, a registered futures commission merchant, any 

person associated with a futures commission merchant or with any agent of a futures commission 

merchant, floor broker, commodity trading advisor, commodity pool operator or any person 

required to be registered in a fashion similar to any of the above or file reports under the Act or 

pursuant to any rule or regulation promulgated by the Commission.11 

11 Attention is directed to section 2(a)(78) of the Commodity Exchange Act, which provides, 

among other things, that no Commission member or employee shall accept employment or 

compensation from any person, exchange or clearinghouse subject to regulation by the 

Commission, or participate, directly or indirectly, in any contract market operations or 

transactions of a character subject to regulation by the Commission. 

PART 145 – COMMISSION RECORDS AND INFORMATION 

§ 145.9 Petition for confidential treatment of information submitted to the Commission. 
106 

 (a) Purpose. This section provides a procedure by which persons submitting information in any 

form to the Commission can request that the information not be disclosed pursuant to a request 

under the Freedom of Information Act, 5 U.S.C. 552. This section does not affect the 

Commission's right, authority, or obligation to disclose information in any other context. 

(b) Scope. The provisions of this section shall apply only where the Commission has not 

specified that an alternative procedure be utilized in connection with a particular study, report, 

investigation, or other matter. See 40.8 for procedures to be utilized in connection with filing 

information required to be filed pursuant to 17 CFR parts 40 and 41. 

(c) Definitions. The following definitions apply to this section: 

(1) Submitter. A “submitter” is any person who submits any information or material to the 

Commission or who permits any information or material to be submitted to the Commission. For 

purposes of paragraph (d)(1)(ii) of this section only, “submitter” includes any person whose 

information has been submitted to a designated contract market, derivatives clearing 

organization, swap execution facility, swap data repository, or registered futures association that 

in turn has submitted the information to the Commission. 

(2) FOIA requester. A “FOIA requester” is any person who files with the Commission a request 

to inspect or copy Commission records or documents pursuant to the Freedom of Information 

Act, 5 U.S.C. 552. 

(d) Written request for confidential treatment. (1) Any submitter may request in writing that the 

Commission afford confidential treatment under the Freedom of Information Act to any 

information that he or she submits to the Commission. Except as provided in paragraph (d)(4) of 

this section, no oral requests for confidential treatment will be accepted by the Commission. The 

submitter shall specify the grounds on which confidential treatment is being requested but need 

not provide a detailed written justification of the request unless required to do so under 

paragraph (e) of this section. Confidential treatment may be requested only on the grounds that 

disclosure: 

(i) Is specifically exempted by a statute that either requires that the matters be withheld from the 

public in such manner as to leave no discretion on the issue or establishes particular criteria for 

withholding or refers to particular types of matters to be withheld. 

(ii) Would reveal the submitter's trade secrets or confidential commercial or financial 

information. 

(iii) Would constitute a clearly unwarranted invasion of the submitter's personal privacy. 

(iv) Would reveal investigatory records compiled for law enforcement purposes whose 

disclosure would deprive the submitter of a right to a fair trial or an impartial adjudication. 

(v) Would reveal investigatory records compiled for law enforcement purposes whose disclosure 

would constitute an unwarranted invasion of the personal privacy of the submitter. 
107 

(vi) Would reveal investigatory records compiled for law enforcement purposes when disclosure 

would interfere with enforcement proceedings or disclose investigative techniques and 

procedures, provided that the claim may be made only by a designated contract market, 

derivatives clearing organization, swap execution facility, swap data repository, or registered 

futures association with regard to its own investigatory records. 

*** 

Appendix A to Part 145—Compilation of Commission Records Available to the Public 

The following documents are available, upon request, directly from the office indicated. Unless 

otherwise noted, the mailing address for the Commission offices listed below is Three Lafayette 

Centre, 1155 21st Street, NW., Washington, DC 20581. 

(a) Office of External Affairs. (1) Commitments of Traders Reports. 

(2) Weekly Advisory (solely available on the Commission's Web site at 

http://www.cftc.gov/cftc/cftcpressoffice.htm). 

(3) Studies Prepared by Commission staff. 

(4) Educational material ( e.g., newsletters, brochures, annual reports, conference or advisory 

meetings, technical information about specific markets or contracts). 

(5) Press releases. 

(6) Rule enforcement and finanicial reviews (public version). 

(7) CFTC litigation documents ( e.g. administrative and civil complaints, injunctions, initial 

decisions, opinions and orders). 

(8) Commission rules and regulations, Federal Register notices, interpretative letters. 

*** 

 (13) Publicly available portions of applications to become a registered entity including the 

transmittal letter, application form, proposed rules, proposed bylaws, corporate documents, any 

overview or similar summary provided by the applicant, any documents pertaining to the 

applicant's legal status and governance structure, including governance fitness information, and 

any other part of the application not covered by a request for confidential treatment. 

*** 

PART 155- TRADING STANDARDS 
108 

§ 155.2 Trading standards for floor brokers. 

 Each contract market shall adopt and submit to the Commission for 

approval pursuant to section 5a(a)(12)(A) of the Act and Sec. 1.41 of 

this chapter, a set of rules which shall, at a minimum, with respect to each member of 

the contract market acting as a floor broker: 

 (a) Prohibit such member from purchasing any commodity for future 

delivery, purchasing any call option, or selling any put option, for his 

own account or for any account in which he has an interest, while 

holding an order of another person for the (1) purchase of any future, 

(2) purchase of any call option, or (3) sale of any put option, in the 

same commodity which is executable at the market price or at the price 

at which such purchase or sale can be made for the member's own account 

or any account in which he has an interest. 

 (b) Prohibit such member from selling any commodity for future 

delivery, selling any call option, or purchasing any put option, for his 

own account or for any account in which he has an interest, while 

holding an order of another person for the (1) sale of any future, (2) 

sale of any call option, or (3) purchase of any put option, in the same 

commodity which is executable at the market price or at the price at 

which such sale or purchase can be made for the member's own account or 

any account in which he has an interest. 

***** 

§ 155.3 Trading standards for futures commission merchants. 

 (a) Each futures commission merchant shall, at a minimum, establish 

and enforce internal rules, procedures and controls to: 

 (1) Insure, to the extent possible, that each order received from a 

customer or from an option customer which is executable at or near the 

market price is transmitted to the floor of the appropriate contract 

market before any order in any future or in any commodity option in the 

same commodity for any proprietary account, any other account in which an 

affiliated person has an interest, or any account for which an 

affiliated person may originate orders without the prior specific 

consent of the account owner, if the affiliated person has gained 

knowledge of the customer's or option customer's order prior to the 

transmission to the floor of the appropriate contract market of the 

order for a proprietary account, an account in which the affiliated 

person has an interest, or an account in which the affiliated person may 

originate orders without the prior specific consent of the account 

owner; and 

 (2) Prevent affiliated persons from placing orders, directly or 
109 

indirectly, with another futures commission merchant in a manner 

designed to circumvent the provisions of paragraph (a)(1) of this 

section. 

 (b) No futures commission merchant or any of its affiliated persons 

shall: 

 (1) Disclose that an order of another person is being held by the 

futures commission merchant or any of its affiliated persons, unless 

such disclosure is necessary to the effective execution of such order or 

is made at the request of an authorized representative of the 

Commission, the contract market on which such order is to be executed, 

or a futures association registered with the Commission pursuant to 

section 17 of the Act; or 

 (2)(i) Knowingly take, directly or indirectly, the other side of any 

order of another person revealed to the futures commission merchant or 

any of its affiliated persons by reason of their relationship to such 

other person, except with such other person's prior consent and in 

conformity with contract market rules approved by or certified to the 

Commission. 

 (ii) In the case of a customer who does not qualify as an 

``institutional customer'' as defined in Sec.§ 1.3(g) of this chapter, a 

futures commission merchant must obtain the customer's prior consent 

through a signed acknowledgment, which may be accomplished in accordance 

with Sec.§ 1.55(d) of this chapter. 

 (c) No futures commission merchant shall knowingly handle the 

account of any affiliated person of another futures commission merchant 

or of an introducing broker unless the futures commission merchant: 

 (1) Receives written authorization from a person designated by such 

other futures commission merchant or introducing broker with 

responsibility for the surveillance over such account pursuant to 

paragraph (a)(2) of this section or Sec.§ 155.4 (a)(2), respectively; 

 (2) Prepares immediately upon receipt of an order for such account a 

written record of such order, including the account identification and 

order number, and records thereon, by time-stamp or other timing device, 

the date and time, to the nearest minute, the order is received; and 

 (3) Transmits on a regular basis to such other futures commission 

merchant or introducing broker copies of all statements for such account 

and of all written records prepared upon the receipt of orders for such 

account pursuant to paragraph (c)(2) of this section. 

 (d) No affiliated person of a futures commission merchant shall have 

an account, directly or indirectly, with another futures commission 

merchant unless: 

 (1) Such affiliated person receives written authorization to 

maintain such an account from a person designated by the futures 

commission merchant with which such person is affiliated with 
110 

responsibility for the surveillance over such account pursuant to 

paragraph (a)(2) of this section; and 

 (2) Copies of all statements for such account and of all written 

records prepared by such other futures commission merchant upon receipt 

of orders for such account pursuant to paragraph (c)(2) of this section 

are transmitted on a regular basis to the future commission merchant 

with which such person is affiliated. 

§ 155.4 Trading standards for introducing brokers. 

 (a) Each introducing broker shall, at a minimum, establish and 

enforce internal rules, procedures and controls to: 

 (1) Insure, to the extent possible, that each order received from a 

customer or from an option customer which is executable at or near the 

market price is transmitted to the futures commission merchant carrying 

the account of the customer or option customer before any order in any 

future or in any commodity option in the same commodity for any 

proprietary account, any other account in which an affiliated person has 

an interest, or any account for which an affiliated person may originate 

orders without the prior specific consent of the account owner, if the 

affiliated person has gained knowledge of the customer's or option 

customer's order prior to the transmission to the floor of the 

appropriate contract market of the order for a proprietary account, an 

account in which the affiliated person has an interest, or an account in 

which the affiliated person may originate orders without the prior 

specific consent of the account owner; and 

 (2) Prevent affiliated persons from placing orders, directly or 

indirectly, with any futures commission merchant in a manner designed to 

circumvent the provisions of paragraph (a)(1) of this section. 

 (b) No introducing broker or any of its affiliated persons shall: 

 (1) Disclose that an order of another person is being held by the 

introducing broker or any of its affiliated persons, unless such 

disclosure is necessary to the effective execution of such order or is 

made at the request of an authorized representative of the Commission, 

the contract market on which such order is to be executed, or a futures 

association registered with the Commission pursuant to section 17 of the 

Act; or 

 (2)(i) Knowingly take, directly or indirectly, the other side of any 

order of another person revealed to the introducing broker or any of its 

affiliated persons by reason of their relationship to such other person, 

except with such other persons's prior consent and in conformity with 

contract market rules approved by or certified to the Commission. 

 (ii) In the case of a customer who does not qualify as an 

``institutional customer'' as defined in Sec.§ 1.3(g) of this chapter, 

an introducing broker must obtain the customer's prior consent through a 
111 

signed acknowledgment, which may be accomplished in accordance with 

Sec.§ 1.55(d) of this chapter. 

 (c) No affiliated person of an introducing broker shall have an 

account, directly or indirectly, with any futures commission merchant 

unless: 

 (1) Such affiliated person receives written authorization to 

maintain such an account from a person designated by the introducing 

broker with which such person is affiliated with responsibility for the 

surveillance over such account pursuant to paragraph (a)(2) of this 

section; and 

 (2) Copies of all statements for such account and of all written 

records prepared by such futures commission merchant upon receipt of 

orders for such account pursuant to Sec.§ 155.3(c)(2) are transmitted on 

a regular basis to the introducing broker with which such person is affiliated. 

§ 155.6 [Reserved] Trading standards for the transaction of business on

registered derivatives transaction execution facilities.

 (a) A futures commission merchant, or affiliated person thereof, 

transacting business on behalf of a customer who does not qualify as an 

``institutional customer'' as defined in Sec. 1.3(g) of this chapter on 

a registered derivatives transaction execution facility shall comply 

with the provisions of Sec. 155.3.

 (b) No futures commission merchant, introducing broker or affiliated 

person thereof shall misuse knowledge of any institutional customer's 

order for execution on a registered derivatives transaction execution 

facility.

PART 166- CUSTOMER PROTECTION RULES 

§ 166.2 Authorization to trade. 

No futures commission merchant, retail foreign exchange dealer, introducing broker or any of 

their associated persons may directly or indirectly effect a transaction in a commodity interest for 

the account of any customer unless before the transaction the customer, or person designated by 

the customer to control the account: 

(a) With respect to a commodity interest as defined in any paragraph of the commodity interest 

definition in §1.3(yy) of this chapter, specifically authorized the futures commission merchant, 

retail foreign exchange dealer, introducing broker or any of their associated persons to effect the 

transaction (a transaction is “specifically authorized” if the customer or person designated by the 

customer to control the account specifies— 

(1) The precise commodity interest to be purchased or sold; and 
112 

(2) The exact amount of the commodity interest to be purchased or sold); or 

(b) With respect to a commodity interest as defined in paragraph (1) or (2) of the commodity 

interest definition in §1.3(yy) of this chapter, aAuthorized in writing the futures commission 

merchant, introducing broker or any of their associated persons to effect transactions in 

commodity interests for the account without the customer's specific authorization; Provided, 

however, That if any such futures commission merchant, introducing broker or any of their 

associated persons is also authorized to effect transactions in foreign futures or foreign options 

without the customer's specific authorization, such authorization must be expressly documented. 

§ 166.5 Dispute settlement procedures. 

 (a) Definitions. (1) The term claim or grievance as used in this section shall mean any dispute 

that: 

 (i) Arises out of any transaction executed on or subject to the 

rules of a designated contract market, 

 (ii) Is executed or effected through a member of such facility, a 

participant transacting on or through such facility or an employee of 

such facility, and 

 (iii) Does not require for adjudication the presence of essential 

witnesses or third parties over whom the facility does not have 

jurisdiction and who are not otherwise available. 

 (iv) The term claim or grievance does not include disputes arising from cash market 

transactions that are not a part of or directly 

connected with any transaction for the purchase or sale of any commodity 

for future delivery or commodity option. 

 (2) The term customer as used in this section includes an option 

customer (as defined in Sec. 1.3(jj) of this chapter) and any person 

for or on behalf of whom a member of a designated contract market, or a 

participant transacting on or through such designated contract market, 

effects a transaction on such contract market, except another member of 

or participant in such designated contract market. Provided, however, a 

person who is an ``eligible contract participant'' as defined in section 

1a(12) (18) of the Act shall not be deemed to be a customer within the 

meaning of this section. 

 (3) The term Commission registrant as used in this section means a 

person registered under the Act as a futures commission merchant, 

introducing broker, floor broker, commodity pool operator, commodity 

trading advisor, or associated person. 

 (b) Voluntariness. The use by customers of dispute settlement 

procedures shall be voluntary as provided in paragraphs (c) and (g) of 

this section. 

***