2010-13613
FR Doc 2010-13613[Federal Register: June 11, 2010 (Volume 75, Number 112)]
[Proposed Rules]
[Page 33198-33202]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11jn10-15]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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[[Page 33198]]
COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 36, 37, and 38
Co-Location/Proximity Hosting Services
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rule.
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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') proposes a rule (``Proposal'') that requires Designated
Contract Markets (DCMs), Derivatives Transaction Execution Facilities
(DTEFs), and Exempt Commercial Markets (ECMs) that list significant
price discovery contracts (SPDCs) that offer co-location and/or
proximity hosting services to market participants to have equal access
to co-location and/or proximity hosting services without artificial
barriers that act to exclude some market participants from accessing
these services or that act to bar otherwise qualified third-party
vendors from providing these services. The Proposal also addresses fees
for these services and would require that fees be equitable, uniform,
and non-discriminatory, while taking into account the different level
of services that may be required by various market participants and
requires DCMs, DTEFs, and ECMs with SPDCs, that offer co-location and/
or proximity hosting services, to disclose publicly, via their Web
sites, the longest, shortest, and average latencies for each
connectivity option. Finally, the Proposal would require DCMs, DTEFs,
and ECMs with SPDCs, that approve third-parties to provide co-location
and/or proximity hosting services to ensure they have sufficient
agreements in place to obtain all information necessary from those
third-parties to carry out their self-regulatory obligations and other
obligations under the Commodity Exchange Act (``Act'') and Commission
Regulations.
DATES: Comments must be received on or before July 12, 2010.
ADDRESSES: Comments should be sent to David Stawick, Secretary,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581. Comments may be submitted via e-mail
at [email protected]. ``Co-location/Proximity Hosting Services'' must
be in the subject field of responses submitted via e-mail, and clearly
indicated on written submissions. Comments may also be submitted at
http://www.regulations.gov. All comments must be in English, or, if
not, accompanied by an English translation.
FOR FURTHER INFORMATION CONTACT: Melissa Mitchell, Attorney-Advisor,
202-418-5448, Division of Market Oversight, Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,
DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
In 1990, the Commission issued a Policy Statement Concerning the
Oversight of Screen-Based Trading Systems (``Policy Statement'').\1\
The Policy Statement consisted of ten principles that set out broad
regulatory considerations arising from cross-border screen-based
trading. Principles 4 and 6 are relevant to this Proposal. Principle 4
states, ``From a technical perspective, the system should be designed
to operate in a manner which is equitable to all market participants
and any differences in treatment among classes of participants should
be identified.'' Principle 6 states, ``Procedures should be established
to ensure the competence, integrity, and authority of system users, to
ensure that system users are adequately supervised, and that access to
the system is not arbitrarily or discriminatorily denied.''
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\1\ 55 FR 48670 (November 21, 1990). The Policy Statement was
the Commission adopting the ``Principles for the Oversight of
Screen-Based Trading Systems for Derivatives Products'' recommended
by the International Organization of Securities Commissions
(``IOSCO'') to all member jurisdictions. The IOSCO Principles were
formulated by eight jurisdictions which comprised Working Party 7 to
the IOSCO Technical Committee, under the Chairmanship of the
Commission.
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At the time of the Commission Policy Statement, screen-based
trading of derivatives was a relatively recent development. In fact, in
issuing the Policy Statement, the Commission stated its belief that
``[T]he Principles reflect the policy considerations underlying the
Commission's recent evaluation and approval of the Chicago Mercantile
Exchange's Globex trading system and the Amex Commodities Corporation's
Amex Access system.'' The Commission noted that in issuing the Policy
Statement, it ``[W]ishes to add its support toward achieving the goal
of effective regulation of cross border systems which facilitates
international cooperation but does not impair the ability of system
providers and sponsors to develop and implement innovative
technologies.''
In the time since the Commission's 1990 Policy Statement, futures
and option trading has changed substantially as system providers and
sponsors did, in fact, develop and implement innovative technologies.
In particular, technological advances affecting futures and option
trading have been more pronounced and extensive over the last ten
years. For example, DCMs have undergone a decade-long transition from
geographically-defined trading pits to global electronic trading
platforms. From 2000 to 2009, electronic trading grew from
approximately 9 percent to approximately 81 percent of volume on U.S.
DCMs. Over the same period, the number of actively traded futures and
option contracts listed on U.S. exchanges increased more than seven
fold, from 266 contracts in 2000 to 1,866 contracts in 2009.\2\
Moreover, total DCM futures and option trading volume rose from
approximately 594.5 million contracts in 2000 to approximately 2.78
billion contracts in 2009, an increase of over 368%.\3\ In addition to
drastic changes in trading on DCMs, during that same ten year period,
ECMs were first authorized by statute,\4\ and have since gone from a
group of nascent trading facilities to, in some cases, large, global
electronic trading platforms with significant trading volume, with
[[Page 33199]]
contracts that rival DCM contracts, and with contracts that serve a
significant price discovery function.
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\2\ Commodity Futures Trading Commission, FY 2009 Performance
and Accountability Report, p.14.
\3\ In addition, futures and option trading volume reached a
peak of approximately 3.37 billion contracts in 2008, an increase of
over 466% over the trading volume in 2000.
\4\ ECMs were first authorized in the Commodity Futures
Modernization Act of 2000 (``CFMA''). DTEFs were also first
authorized in the CFMA; however there are not, and have never been,
any active DTEFs.
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A primary driver of these drastic changes in futures and option
trading has been the continual evolution of technologies for generating
and executing orders. These technologies have dramatically improved the
speed, capacity, and sophistication of the trading functions that are
available to market participants.
Many trading firms have trading strategies that are highly
dependent upon speed in a number of areas: Speed of market data
delivery from exchange servers to the firms' servers; speed of
processing of firms' trading engines; speed of access to exchange
servers by firms' servers; and, speed of order execution and response
by exchanges. For some trading firms, speed is now measured in
microseconds, and any latency or delay in order arrival or execution
can adversely affect their trading strategy. These trading firms are
typically referred to as ``high frequency'' and/or ``algorithmic''
traders.\5\ High frequency traders are professional traders that use
sophisticated computer systems to engage in strategies that generate a
large number of trades on a daily basis. Competition among high
frequency traders has led to extensive use of co-location and/or
proximity hosting services.\6\
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\5\ Rosenblatt Securities recently estimated that high frequency
trading amounts to approximately 35% of U.S. future markets volume.
See Futures Industry, January 2010. at p. 21. Similarly, the Tabb
Group forecasts that total U.S. futures volume executed on an
automated basis will increase 60% by the close of 2010. Tabb
believes this is largely through high frequency trading. See ``US
Futures Markets in the Crosshairs of Algorithmic Revolution,''
published on Hedgeweek at http://www.hedgeweek.com dated November
16, 2009.
\6\ Other characteristics of high frequency trading may also
include: (1) The use of sophisticated computer systems to generate,
route and execute orders, (2) short time-frames for establishing and
liquidating positions, (3) submission of numerous orders that are
cancelled shortly thereafter, and/or (4) ending the trading day in a
neutral overall position.
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In response to the emphasis on speed by trading firms, DCMs and
ECMs have adopted highly automated trading systems that can offer
extremely high-speed order entry and execution. In addition, to further
reduce latency in transmitting market data and order messages, many
trading markets offer co-location and/or proximity hosting services
that enable market participants to place their servers in close
proximity to the trading market's matching engine. Accordingly, the
growth of co-location and/or proximity hosting services is largely
related to the development of high frequency trading in the futures and
option markets.
Co-location and proximity services refer to trading market and/or
certain third-party facility space that is made available to market
participants for the purpose of locating their network and computing
hardware closer to the trading market's matching engine. Along with
space, co-location and proximity hosting services usually involve
providing various levels of power, telecommunications, and other
ancillary products and services necessary to maintain the trading
firms' trading systems.
Co-location and proximity services are typically offered by trading
markets that operate their own data centers or by third-party providers
that host or connect to the computer systems of the trading markets.
These services may permit: (1) Market participant servers to be located
within the trading market's dedicated space in a data center; (2)
market participant servers to be located in their own dedicated space
within the same data center as the trading market; (3) market
participant servers to be located in a separate data center on the same
floor or in the same building as the trading market's data center; and/
or (4) approved third-party vendors to manage a market participant's
connectivity arrangements through proximity hosting services located in
various data centers near the trading market's data center. During the
Division's review of co-location and proximity hosting services, the
Division learned that entities that utilize co-location and/or
proximity hosting services include clearing firms, proprietary trading
groups, market makers, algorithmic traders, hedge funds, introducing
brokers, data centers, and quote vendors. Some firms directly co-
locate, while others do so indirectly by trading through a firm that
directly co-locates.
While there are multiple co-location and proximity hosting service
options available to market participants depending on the trading
market involved and the needs of the particular client, it has become
clear to the Commission that trading volumes from firms that utilize
co-location and/or proximity hosting services is significant. In its
review of co-location and proximity hosting services undertaken prior
to this Proposal, the Commission learned that volumes from market
participants that utilize co-location and/or proximity hosting services
varied a great deal. Some regulated trading markets have little to no
volume generated thru the use of such services, while others have
significant volume. One regulated trading market reported that 29
percent of its traders utilized such services, representing 68 percent
of its trading volume, while another reported that well over 100 market
participants utilized the service, representing 39 percent of its
trading volume, just to name a few. Moreover, the Commission learned
that some regulated trading markets plan on expanding co-location and
proximity hosting services in the very near future.
In light of the fundamental changes in the technology, products,
and platforms of U.S. futures and option trading since the Commission's
1990 Policy Statement, and the significant volume generated by market
participants utilizing co-location and/or proximity hosting services,
the Commission believes it is necessary to re-address some of the
issues raised in the Policy Statement in the form of a proposed rule to
deter and prevent potential disruptions to market integrity. Moreover,
given the differences in co-location and proximity hosting services
offered to market participants, the Commission believes that consistent
standards applicable to all regulated trading markets--DCMs, DTEFs, and
ECMs with SPDCs--will ensure that co-location and proximity hosting
services are offered and administered in an equitable, fair, and
transparent manner that will protect all market participants.\7\
Ensuring that Commission-regulated markets, and trading on those
markets, are equitable, fair, and transparent are critical functions of
the Commission and any activity that negatively impacts equitable,
fair, and transparent trading on those markets could constitute a
disruption to market integrity, for which it is a specific purpose of
the Act to detect and prevent.\8\
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\7\ While this Proposal only sets forth requirements for co-
location and third-party proximity hosting services, the Commission
is actively considering an appropriate regulatory response to the
proliferation of high-frequency and algorithmic traders to ensure
that these traders do not have a negative impact on the stability of
Commission-regulated futures and option markets or on the critical
price discovery and risk management functions of these markets. The
Commission notes that similar developments in the U.S. equity
markets have been identified by the Securities and Exchange
Commission (``SEC''). On January 13, 2010, the SEC issued a concept
release requesting public comment on various equity market structure
developments, including, among other things, co-location and high
frequency trading. See SEC, Concept Release on Equity Market
Structure, Securities Exchange Act Release No. 61358 (January 13,
2010), 75 FR 3594 (January 21, 2010).
\8\ Section 3(b), 7 U.S.C. 5(c). Congress gave the Commission
broad authority in Section 8a(5) of the Act, 7 U.S.C. 12a(5), to
make and promulgate rules, such as those contained in this Proposal,
reasonably necessary to prevent disruptions to market integrity.
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[[Page 33200]]
II. The Proposal
Commission Regulation Part 36 generally sets forth the provisions
governing exempt markets (including ECMs), Part 37 generally sets forth
the provisions governing DTEFs, and Part 38 generally sets forth the
provisions governing DCMs. The Proposal would add language to Parts 36,
37, and 38 to impose identical requirements relating to co-location and
proximity hosting services offered by ECMs with SPDCs, DTEFs, and DCMs.
For purposes of the Proposal the term ``Co-Location/Proximity
Hosting Services'' is defined as trading market and certain third-party
facility space, power, telecommunications, and other ancillary products
and services that are made available to market participants for the
purpose of locating their computer systems/servers in close proximity
to the trading market's trade and execution system. These services help
to minimize network and other trading latencies, which is essential for
high frequency traders.
The provision relating to ``Equal access'' would require that co-
location and proximity hosting services be available to all qualified
market participants willing to pay for the services. Consequently, co-
location and proximity hosting services could not be offered on a
discriminatory basis to only select market participants or to select
categories of market participants. The Commission's view is that access
should be equitable, open and fair, and that view is expressed in the
Act and Commission Regulations.\9\ As a component of open and fair, the
Commission believes that DCMs, DTEFs, and ECMs with SPDCs, that offer
co-location and/or proximity hosting services must ensure that there is
sufficient availability of such services for any and all willing and
qualified market participants. For example, if the availability of a
service became limited, thereby leaving some market participants or
third-party hosting providers without adequate access, the Commission
would not view access to those services as open and fair. In addition,
the provision relating to ``Equal access'' would require that fair and
open access be available to third-party hosting service providers
seeking to provide proximity hosting services to market participants.
By this provision, the Commission is seeking to ensure that DCMs,
DTEFs, and ECMs with SPDCs, are not the ``only game in town'' when it
comes to co-location and proximity hosting services. Currently, there
are third-parties that provide proximity hosting services. If market
participants choose not to co-locate directly with the DCM, DTEF, or
ECM, they should still have the opportunity to utilize qualified and
approved third-party proximity hosting services to decrease their
network and other trading latencies.
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\9\ See e.g. Sections 5(b)(3), 7 U.S.C. 7(b)(3); Section
5(d)(9), 7 U.S.C. 7(d)(9); Commission Regulation Part 38, Appendix
B, Core Principle 9; Sections 5a(c)(2) and (3), 7 U.S.C. 7(a)(c)(2)
and (3); and Commission Regulation Part 37, Appendix A, Registration
Criteria 2 and 3.
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The provision relating to ``Fees'' would ensure that fees are not
used as a means to deny access to some market participants by ``pricing
them out of the market.'' The Commission recognizes that offering co-
location and proximity hosting services involves costs to the trading
market and third-party host, such as floor/rack space, power, data
connections, and technical support, to name just a few. However, the
Commission seeks to ensure that the fees charged to market participants
and third-party proximity hosting services remain equitable and do not
become an artificial barrier to effective market access. Moreover, the
Commission's view is that an equitable fee would be a uniform, non-
discriminatory set of fees for the various services provided, including
but not limited to fees for cabinet space usage, installation and
related power provided to market participants, connectivity
requirements, and maintenance and other ancillary services. The
Commission would not view preferential pricing for certain market
participants or certain classes of market participants as equitable
pricing.
The provision relating to ``Latency transparency'' would ensure
that general information concerning the longest, shortest, and average
latencies for all connectivity options are separately detailed and
readily available to the public on regulated trading markets' Web
sites. Alternatively, the Commission is studying an alternate approach
for disclosing latency information that would be based on the
percentile of speed rather than longest, shortest and average
latencies.\10\ The Commission requests comment on this issue and asks
commenters to detail how they believe latency information should best
be disclosed so market participants can make fully informed decisions
about whether the benefits to be obtained from co-location and/or
proximity hosting services are worth the cost.
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\10\ The Commission is considering whether it would be more
useful for trading markets to detail latency information in
percentiles of speed, for instance the 1% and 99% percentiles of
speed rather than high low, or the percentage of transactions at no
worse than a given speed (i.e. 99% of all transactions had latencies
of ``x'' milliseconds or less).
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Specific and separate detail should be set forth for options where
a market participant is directly co-located with a trading market;
where a market participant is indirectly co-located through a clearing
firm, futures commission merchant, introducing broker, or some other
entity or market participant; where a market participant is connected
via the services of a third-party proximity hosting provider; and all
other manners by which market participants connect to the trading
markets' electronic trading system(s). This would ensure that any
market participant considering co-location or proximity hosting
services could easily assess whether incurring the cost is worth the
benefit, and would ensure that market participants utilizing co-
location or proximity hosting services could regularly assess whether
the continued cost of the services is worth the benefits obtained. The
Commission believes regulated trading markets should on a monthly basis
update latency information on their Web sites. The Commission invites
the public to comment on whether the proposed monthly disclosure of
latency information is appropriate, or whether an alternative frequency
parameter should be adopted. Commenters are specifically instructed to
provide information on how such latency frequency disclosure would
benefit markets, market participants, and the public.
Finally, the provision relating to ``Third-party providers'' would
ensure that DCMs, DTEFs, and ECMs with SPDCs obtain all information
about market participants, their systems, and their transactions from
third-party providers necessary to carry out self-regulatory
obligations and other obligations under the Act and Commission
Regulations. In connection with this obligation, the Commission
believes that DCMs, DTEFs, and ECMs with SPDCs should enter into
contractual agreements with such third-party providers on terms
consistent with the Act and Commission Regulations. In this manner,
DCMs, DTEFs, and ECMs with SPDCs will be able to adequately perform
their regulatory responsibilities. The Commission further notes that
the proposed requirements would better prevent third-party proximity
hosting service providers from improperly shielding the identities of
market participants from the regulatory oversight of DCMs, DTEFs, ECMs,
or the Commission. In addition, the provision relating to ``Third-party
providers''
[[Page 33201]]
(along with the provision relating to ``Equal access'' as discussed
above) would ensure that DCMs, DTEFs, and ECMs with SPDCs do not bar
otherwise qualified third-parties from being providing co-location or
proximity hosting services to market participants trading on that
trading market.
III. Related Matters
A. Cost-Benefit Analysis
Section 15(a) of the Act requires the Commission to consider the
costs and benefits of its actions before issuing a new regulation or
order under the Act.\11\ By its terms, Section 15(a) requires the
Commission to ``consider the costs and benefits'' of a subject rule or
order, without requiring it to quantify the costs and benefits of its
action or to determine whether the benefits of the action outweigh its
costs. Section 15(a) requires that the costs and benefits of proposed
rules be evaluated in light of five broad areas of market and public
concern: (1) Protection of market participants and the public; (2)
efficiency, competitiveness, and financial integrity of futures
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations. In concluding its analysis,
the Commission may, in its discretion, give greater weight to any one
of the five enumerated areas of concern and may determine that
notwithstanding its costs, a particular rule is necessary or
appropriate to protect the public interest or to effectuate any
provisions or to accomplish any of the purposes of the Act.\12\
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\11\ 7 U.S.C. 19(a).
\12\ E.g. Fisherman's Dock Co-op., Inc. v. Brown, 75 F3d 164
(4th Cir. 1996); Center for Auto Safety v. Peck, 751 F2d 1336 (DC
Cir. 1985) (agency has discretion to weigh factors in undertaking
cost benefit analyses).
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The proposed regulations will ensure that all market participants
have access to co-location and/or proximity hosting services on similar
terms. An important goal of this rulemaking is to establish regulations
for open and fair access and public disclosure of general latency
information for each connectivity option offered by DCMs, DTEFs, and
ECMs with SPDCs. The proposed regulations will not require entities to
begin offering co-location and/or proximity hosting services, but only
apply to those entities that choose to offer such services. The only
costs that might be incurred by an entity complying with the proposed
regulations (triggered only after an entity decides to offer co-
location and/or proximity hosting services) include ensuring the public
disclosure of latency information. The Commission believes such costs
would be minimal and that the benefits, particularly the benefits to
the efficiency, competitiveness and financial integrity of the futures
markets and the protection of market participants will outweigh the
costs to entities. The Commission also notes that many entities already
offer co-location and/or proximity hosting services to their market
participants. This means that many of the entities have already
incurred costs relating to technology and infrastructure, unrelated to
this proposed rule. As such, costs have already been incurred, and
would continue to be incurred with or without the requirement to comply
with this proposed rule.
After considering the above mentioned factors and issues, the
Commission has determined to propose these rules for co-location and/or
proximity hosting services for DCMs, DTEFs and ECMs with SPDCs. The
Commission specifically invites public comment on its application of
the criteria contained in Section 15(a) of the Act and further invites
interested parties to submit any quantifiable data that they may have
concerning the costs and benefits of the proposed rules.
B. Paperwork Reduction Act of 1995
The proposed rules would require DCMs, DTEFs and ECMs with SPDCs
that offer co-location and/or proximity hosting services to make
information about the latencies for each connectivity option available
to the public via their Web sites. This is information that most of
those entities already have access to or keep in the normal course of
business and can generally make available to the public via their Web
site. Therefore, the Commission believes that the proposed rules will
not impose new recordkeeping or information collection requirements, or
other collections of information that require approval of the Office of
Management and Budget under 44 U.S.C. 3501, et seq. Accordingly, the
Paperwork Reduction Act does not apply. The Commission solicits comment
on its estimate that no additional recordkeeping or information
collection requirements or changes to existing collection requirements
would result from the proposed rules.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires federal agencies, in promulgating rules, to consider the
impact of those rules on small entities. The rules proposed herein will
affect DCMs, DTEFs, and ECMs with SPDCs. The Commission has previously
determined that the foregoing entities are not small entities for
purposes of the RFA.\13\ Accordingly, the Chairman, on behalf of the
Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the
proposed rules will not have a significant economic impact on a
substantial number of small entities.
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\13\ 47 FR 18618, 18619 (April 30, 1982) discussing contract
markets; 66 FR 42256, 42268 (August 10, 2001) discussing exempt
commercial markets and derivatives transaction execution facilities.
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List of Subjects
17 CFR Part 36
Commodity futures, Exempt commercial markets, Significant price
discovery contracts.
17 CFR Part 37
Commodity futures, Derivates transaction execution facilities.
17 CFR Part 38
Commodity futures, Designated contract markets.
In consideration of the foregoing and pursuant to the authority
contained in the Commodity Exchange Act, the Commission hereby proposes
to amend 17 CFR Parts 36, 37, 38 as follows:
PART 36--EXEMPT MARKETS
1. The authority citation for Part 36 continues to read as follows:
Authority: 7 U.S.C. 2, 2(h)(7), 6, 6c and 12a, as amended by
Title XIII of the Food, Conservation and Energy Act of 2008, Public
Law 110-246, 122 Stat. 1624 (June 18, 2008).
2. Amend Sec. 36.3 by adding paragraph (e) to read as follows:
Sec. 36.3 Exempt commercial markets.
* * * * *
(e) Co-location/Proximity Hosting Services.
(1) Definition. The term ``co-location/proximity hosting services''
means space, power, telecommunications, and other ancillary products
and services made available to market participants for the purpose of
enabling them to position their computer systems/servers in close
proximity to the exempt commercial market's trade and execution
systems.
(2) Equal Access. An exempt commercial market that lists a
significant price discovery contract and offers co-location services to
market participants shall allow access to such services to all market
participants and third-party proximity hosting service providers
otherwise eligible and qualified to use the services.
(3) Fees. An exempt commercial market that lists a significant
price
[[Page 33202]]
discovery contract and offers co-location services to market
participants shall ensure that the fees to market participants are
imposed in a uniform, non-discriminatory manner. Fees shall not be used
as an artificial barrier to access by any market participants. An
exempt commercial market that lists a significant price discovery
contract shall not offer preferential connectivity pricing arrangements
to any market participant on any basis, including user profile, payment
for order flow, or any other specialized pricing scheme.
(4) Latency transparency. An exempt commercial market that lists a
significant price discovery contract and offers co-location services to
market participants shall disclose monthly to the public on its Web
site the longest, shortest, and average latencies for each connectivity
option provided by the exempt commercial market.
(5) Third-party providers. An exempt commercial market that lists a
significant price discovery contract and approves specific third-
parties to provide proximity hosting services to market participants
shall ensure it obtains on an ongoing basis all information necessary
from those third-parties to carry out its self regulatory obligations
and other obligations under the Commodity Exchange Act and Commission
Regulations. An exempt commercial market that lists a significant price
discovery contract and offers co-location services to market
participants shall not act to bar otherwise eligible and qualified
third-parties from providing co-location or proximity hosting services
to market participants.
PART 37--DERIVATIVES TRANSACTION EXECUTION FACILITIES
3. The authority citation for Part 37 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6, 6c, 6(c), 7a and 12a, as amended
by Appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.
4. Add Sec. 37.10 to read as follows:
Sec. 37.10 Co-location/Proximity Hosting Services.
(a) Definition. The term ``co-location/proximity hosting services''
means space, power, telecommunications, and other ancillary products
and services made available to market participants for the purpose of
enabling them to position their computer systems/servers in close
proximity to the derivatives transaction execution facility's trade and
execution systems.
(b) Equal Access. A derivatives transaction execution facility that
offers co-location services to market participants shall allow access
to such services to all market participants and third-party proximity
hosting service providers eligible to use the services.
(c) Fees. A derivatives transaction execution facility that offers
co-location services to market participants shall ensure that the fees
to market participants are imposed in a uniform, non-discriminatory
manner. Fees shall not be used as an artificial barrier to access by
any market participants. A derivatives transaction execution facility
shall not offer preferential connectivity pricing arrangements to any
market participant on any basis, including user profile, payment for
order flow, or any other specialized pricing scheme.
(d) Latency transparency. A derivatives transaction execution
facility that offers co-location services to market participants shall
disclose monthly to the public on its Web site the longest, shortest,
and average latencies for each connectivity option provided by the
derivatives transaction execution facility.
(e) Third-party providers. A derivatives transaction execution
facility that approves specific third-parties to provide proximity
hosting services to market participants shall ensure it obtains on an
ongoing basis all information necessary from those third-parties to
carry out its self regulatory obligations and other obligations under
the Commodity Exchange Act and Commission Regulations. A derivatives
transaction execution facility that offers co-location services to
market participants shall not act to bar otherwise eligible and
qualified third-parties from providing co-location or proximity hosting
services to market participants.
PART 38--DESIGNATED CONTRACT MARKETS
5. The authority citation for Part 38 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6, 6c, 7, 7a-2 and 12a, as amended by
Appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.
6. Add Sec. 38.7 to read as follows:
Sec. 38.7 Co-location/Proximity Hosting Services.
(a) Definition. The term ``co-location/proximity hosting services''
means space, power, telecommunications, and other ancillary products
and services made available to market participants for the purpose of
enabling them to position their computer systems/servers in close
proximity to the designated contract market's trade and execution
systems.
(b) Equal Access. A designated contract market that offers co-
location services to market participants shall allow access to such
services to all market participants and third-party proximity hosting
service providers eligible to use the services.
(c) Fees. A designated contract market that offers co-location
services to market participants shall ensure that the fees to market
participants are imposed in a uniform, non-discriminatory manner. Fees
shall not be used as an artificial barrier to access by any market
participants. A designated contract market shall not offer preferential
connectivity pricing arrangements to any market participant on any
basis, including user profile, payment for order flow, or any other
specialized pricing scheme.
(d) Latency transparency. A designated contract market that offers
co-location services to market participants shall disclose monthly to
the public on its Web site the longest, shortest, and average latencies
for each connectivity option provided by the designated contract
market.
(e) Third-party providers. A designated contract market that
approves specific third-parties to provide proximity hosting services
to market participants shall ensure it obtains on an ongoing basis all
information necessary from those third-parties to effectively carry out
its self regulatory obligations and other obligations under the
Commodity Exchange Act and Commission Regulations. A designated
contract market that offers co-location services to market participants
shall not act to bar otherwise eligible and qualified third-parties
from providing co-location or proximity hosting services to market
participants.
Issued in Washington, DC on June 1, 2010 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2010-13613 Filed 6-10-10; 8:45 am]
BILLING CODE P