[Federal Register: November 22, 2004 (Volume 69, Number 224)]
[Rules and Regulations]
[Page 67811-67817]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22no04-5]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 37 and 38
RIN 3038-AC14
Application Procedures for Registration as a Derivatives
Transaction Execution Facility or Designation as a Contract Market
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rules.
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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is amending its regulations to revise the application and review
procedures for registration as a Derivatives Transaction Execution
Facility (DTEF) or designation as a Contract Market (DCM). The
amendments eliminate the presumption of automatic fast-track review of
applications and replace it with the presumption that all applications
will be reviewed pursuant to the statutory 180-day timeframe and
procedures
[[Page 67812]]
specified in Section 6(a) of the Commodity Exchange Act (CEA or Act).
In lieu of the automatic fast-track review (under which applicants were
deemed to be registered as DTEFs 30 days, or designated as DCMs 60
days, after receipt of an application), the amendments permit
applicants to request expedited review and to be registered as a DTEF
or designated as a DCM by the Commission not later than 90 days after
the date of receipt of the application. The amendments also, among
other things, more completely identify application content
requirements; provide that review under the expedited review procedures
may be terminated if it appears that the application is materially
incomplete, raises novel or complex issues that require additional time
for review, or has undergone substantive amendment or supplementation
during the review period; reorganize the paragraphs being revised; and
eliminate duplication. The amendments are responsive to the
Commission's experience in processing applications and reflect
administrative practices that have been implemented since the rules
were first adopted.
DATES: Effective December 22, 2004.
FOR FURTHER INFORMATION CONTACT: Duane C. Andresen, Special Counsel,
(telephone 202-418-5492, e-mail [email protected]), Division of Market
Oversight, Three Lafayette Centre, 1155 21st Street, NW., Washington,
DC 20581. This document is also available at http://www.regulations.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. Overview
The Commission adopted the application procedures specified in
Commission Regulations 37.5 \1\ and 38.3 \2\ for boards of trade
applying to be registered as DTEFs or designated as DCMs in 2001 when
it first implemented the Commodity Futures Modernization Act of 2000
(CFMA).\3\ These procedures presume that an application will be
submitted and reviewed pursuant to a fast-track procedure under which a
board of trade is deemed to be designated as a DCM 60 days after
submitting its application,\4\ or registered as a DTEF 30 days after
submitting its application,\5\ unless notified otherwise during the
respective review period. These fast-track review periods are
substantially shorter than the 180-day review period specified in
Section 6(a) of the Act for reviewing DCM and DTEF applications.\6\ The
rules provide procedures for terminating the fast-track review,
including termination by the Commission if it appears that the
application's form or substance fails to meet the requirements of the
Commission's regulations.\7\
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\1\ 17 CFR 37.5.
\2\ 17 CFR 38.3.
\3\ See 66 FR 42256 (August 10, 2001). The CFMA, Appendix E of
Pub. L. 106-554, 114 Stat. 2763, substantially revised the Commodity
Exchange Act, 7 U.S.C. 1 et seq.
\4\ 17 CFR 38.3(a)(1).
\5\ 17 CFR 37.5(b).
\6\ See 7 U.S.C. 8(a).
\7\ 17 CFR 37.5(d), 38.3(c).
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Among other things, the application procedures also generally
identify information required to be included in applications for
registration as a DTEF \8\ or designation as a DCM,\9\ require that the
applicant support requests for confidential treatment of information
included in the application with reasonable justification,\10\ and
identify where additional guidance for applicants can be found.\11\ The
rules also provide procedures for the withdrawal of an application for
registration or vacation of registration as a DTEF \12\ and for the
withdrawal of an application for designation or vacation of designation
as a DCM,\13\ and specify the extent of the delegation of authority
from the Commission to the Director of the Division of Market
Oversight, with the concurrence of the General Counsel, with respect to
the termination of expedited review procedures.\14\
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\8\ 17 CFR 37.5(b)(1)(iii).
\9\ 17 CFR 38.3(a)(1)(iii).
\10\ 17 CFR 37.5(b)(1)(v); 38.3(a)(1)(v).
\11\ 17 CFR 37.5(c); 38.3(b).
\12\ 17 CFR 37.5(e).
\13\ 17 CFR 38.3(d).
\14\ 17 CFR 37.5(f); 38.3(e).
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B. The Proposed Amendments
On September 1, 2004, the Commission published proposed amendments
to its part 37 and 38 regulations governing application procedures.\15\
The proposed amendments would modify the application procedures in a
number of respects. With respect to the timeliness of the review of
applications generally, the proposed amendments would establish the
presumption that all applications are submitted for review under the
180-day timeframe specified in section 6(a) of the Act.\16\ An
expedited 90-day review could be requested by the applicant, in which
case the Commission would register the applicant as a DTEF or designate
the applicant as a DCM during or by the end of the 90-day period unless
the Commission terminated the expedited review for certain specifically
identified reasons. The proposed amendments would lengthen the
expedited review periods for DCM applications by 30 days and for DTEF
applications by 60 days. The longer time periods were believed to be
necessary, based upon the Commission's review of eight DCM applications
under the current DCM expedited review period, to ensure a
comprehensive review of applications and to meet other public policy
objectives, including the Commission's policy to promote transparency
in Commission operations, implemented in August of 2003, by providing
for the posting of all such applications on the Commission's website
for a period of at least 15 days for public review and comment.\17\ The
proposed 90-day review period should provide sufficient time to review
applications and to respond to any public comments. While longer than
the current fast-track review periods, the 90-day review period would
be substantially shorter than the 180-day review period established
under the Act.\18\
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\15\ 69 FR 53367 (September 1, 2004).
\16\ Under the current rules, DCM and DTEF applications are
routinely reviewed under the fast-track procedures unless the
applicant instructs the Commission in writing at the time of
submission of the application or during the review period to review
the application pursuant to the time provisions of and procedures
under section 6 of the Act. See 17 CFR 37.5(b)(1)(vi);
38.3(a)(1)(vi).
\17\ The Commission has recently proposed revisions to
Commission Regulation 40.8 to specify which portions of an
application for registration as a DTEF or designation as a DCM will
routinely be made public. See 69 FR 44981 (July 28, 2004).
\18\ Although the Commission has not yet reviewed an application
to become registered as a DTEF under the fast track procedure, it
anticipates that such an application would likely require a review
period similar to that experienced in the review of DCM
applications. Accordingly, the Commission proposed to conform the
DTEF expedited review period to that applicable to DCMs.
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The proposed amendments would also modify the Commission's internal
processing procedures under which an applicant would be registered as a
DTEF or designated as a DCM. Under the proposal, an applicant would no
longer be deemed to be registered or designated based upon the passage
of time (30 days for DTEFs, 60 days for DCMs). If the applicant
requested expedited review, the Commission would take affirmative
action to register or designate the applicant as a DTEF or DCM,
respectively, subject to conditions if appropriate, not later than 90
days after receipt of the application, unless the Commission terminated
the expedited review. Thus, registration as a DTEF or designation as a
DCM would involve affirmative action by the Commission, which would
normally be in the form of issuance of a Commission order. It would be
possible, under the proposed procedures, for applicants who submit
[[Page 67813]]
applications that are complete and not amended or supplemented during
the review period to be registered as a DTEF or designated as a DCM in
less than 90 days.
With respect to the termination of expedited review, the rules
provide that fast-track review may be terminated because the
application's form or substance fails to meet the requirements of Part
37 or 38, as appropriate, or upon written instruction of the applicant
during the review period. The proposed amendments would clarify and
expand the rationale for terminating expedited review and would provide
that the expedited review period also could be terminated if the
application is materially incomplete, raises novel or complex issues
that require additional time for review or, as more fully described
below, undergoes major amendment or supplementation. If expedited
review were terminated for any of the reasons cited above, the
application would continue to be reviewed pursuant to the 180-day
statutory procedure. Finally, the proposed amendments would delete the
provision of the rules that would require the Commission, upon
terminating fast-track review, to commence a proceeding to deny a DCM
or DTEF application upon the request of the applicant. This procedure
has proved to be unnecessary to date, and an analogous procedure is
available under the statutory review procedure.\19\
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\19\ See 7 U.S.C. 8(a).
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In order to further enhance the application process, the proposed
amendments would more completely identify and expand the information
required to be provided by an applicant under both the statutory 180-
day and the expedited 90-day review procedures. The proposal would
clarify that the rules required to be included in all applications are
those rules as defined in Commission Regulation 40.1 and would more
clearly identify the documents required to be provided pertaining to
the applicant's legal status and governance structure. The Commission
anticipates that such documents would include copies of corporate
charters, limited liability corporation or partnership agreements, and
the like.\20\
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\20\ The proposal adds the requirement that DTEF applications
also must include a copy of any documents describing the applicant's
legal status and governance structure.
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The proposed amendments would make it clear that all applicants
would be required to submit for review an executed or executable copy
of any agreements or contracts entered into or to be entered into by
the applicant that enable the applicant to comply with a requirement
for trading or registration criterion (DTEFs) or a designation
criterion or core principle (DCMs) and that final, signed copies of
such documents would be required to be submitted prior to registration
or designation. The initial application would be required to include
something more than a letter of intent or draft contract or agreement,
such as a final contract or agreement signed by at least one of the
parties. While the Commission is cognizant that applicants may prefer
to defer the finalization of contracts in order to defer associated
costs until registration or designation, it must balance that
preference against the assurance that a contract or agreement will
actually be executed prior to registration or designation.
With respect to the additional information that would be required
to be submitted as part of the application,\21\ the proposed amendments
would require that applicants submit a ``regulatory chart'' that
describes the manner in which the items included in the application
enable the applicant to comply with each requirement for trading and
registration criterion (DTEFs) or with each designation criterion and
core principle (DCMs). The proposal would also require that the
applicant identify any item included in the application that raises
novel issues and explain how that item satisfies the requirements for
trading or the registration criteria (DTEFs) or the designation
criteria or the core principles (DCMs). In addition, the proposed
amendments would require that the applicant submit a copy of any manual
or other document describing the manner in which the applicant will
conduct trade practice, market, and financial surveillance. Based upon
experience in reviewing DCM applications, the Commission recognizes
that this additional information is necessary for Commission review of
the application when determining whether the applicant satisfies the
requirements for trading and registration criteria (DTEFs) or the
designation criteria and core principles (DCMs). Finally, the proposed
amendments would eliminate the requirement that the applicant support
requests for confidential treatment of information included in the
application with reasonable justification. The Commission believes that
the procedures provided in Commission Regulation 145.9, Petition for
confidential treatment of information submitted to the Commission,
should be followed by all applicants.
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\21\ It should be noted that the ``additional information''
referred to herein is additional only in the sense that the proposal
specifically codifies the information that must be included in an
application. In fact, Commission staff has been requesting this type
of information from each of the DCM applicants that have applied.
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Under the proposed amendments, the items required to be included in
an application to be reviewed under the statutory 180-day review
procedures would be identical to those required to be included in an
application to be reviewed under the expedited review procedures with
the following exceptions for the expedited review applicants and
applications: (1) The applicant must request expedited review; and (2)
the application must not be amended or supplemented by the applicant,
except as requested by the Commission or for correction of
typographical errors, renumbering or other nonsubstantive revisions.
The proposal would provide that amending or supplementing an
application in a manner that is inconsistent with the above provision
would result in termination of the expedited review.
The proposed amendments would also modify and standardize the
delegation of authority provisions applicable to applications for
registration as a DTEF and for designation as a DCM. Currently, the
rules provide for the delegation of authority to the Director of the
Division of Market Oversight, with the concurrence of the General
Counsel, (1) to terminate the fast-track review of both types of
applications and (2) to designate an applicant as a DCM subject to
conditions. Under the proposed amendment, the Commission would also
delegate to the Director of the Division of Market Oversight, with the
concurrence of the General Counsel, the authority to stay the running
of the 180-day statutory review period for both types of applications
if they are materially incomplete, as is provided under section 6(a) of
the Act. Because one result of the proposed amendments would be that
registration as a DTEF and designation as a DCM would involve
affirmative action on the part of the Commission, the proposal would
rescind the delegation of the authority to designate the applicant as a
DCM subject to conditions.
Finally, the proposed amendments would reorganize the sequence of
paragraphs in the rules where appropriate and to make minor word
changes and deletions in order to clarify the application requirements.
The proposal would also delete certain guidance regarding applications
for designation as that information
[[Page 67814]]
duplicates information available elsewhere in Part 38.\22\
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\22\ The guidance provided in 17 CFR 38.3(b) is discussed more
completely in Appendices A and B to Part 38.
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C. Comments and Final Rule
In response to the proposed amendments, the Commission received
comment letters from the Chicago Mercantile Exchange and the Chicago
Board of Trade (CBOT), both of which voiced support for the proposed
amendments. With respect to the proposed application content
requirements, however, the CBOT, suggested that the Commission should
also require submission of documents detailing the applicant's plans to
offer payment for order flow, or other incentives that could encourage
wash trading or compromise the fiduciary responsibilities of
intermediaries, as well as documentation of plans to allow or encourage
trading off the centralized market. The Commission has carefully
considered this suggestion, but does not believe that the application
content requirements need to be expanded to include this information.
If an applicant's plans regarding payment for order flow \23\ or
other incentive plans are established at the time of the application,
it is expected that they would be included in the application because
they would be considered to be rules and the applicant's proposed rules
are required to be submitted as part of the application. The same is
true with respect to plans to allow or encourage trading off the
centralized market, such as block trading. Of course, any proposal to
implement incentive and/or off-centralized market trading plans after
DCM designation or DTEF registration would have to be submitted to the
Commission by the registrant as rule changes, either seeking Commission
approval or certifying compliance with designation criteria and core
principles (DCM) or with core principles (DTEF) as required under the
Act.
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\23\ The term ``payment for order flow'' is more commonly used
to describe incentives offered by securities exchanges or market
makers to securities brokers to direct orders to a particular
exchange or an over-the-counter (OTC) dealer. Commission staff
generally views these plans as volume discount programs because
their primary purpose is to enhance volume by discounting
transaction costs.
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Although the Commission expects that an application represents the
applicant's actual business plan at the time of its submission, the
Commission has never required an applicant to reveal all of its
potential future plans, which may be in various stages of development
and indeed may never be adopted, when considering whether the
application satisfies the designation criteria and core principles.
Commission staff appropriately considers the materials filed and
representations made by an applicant in drawing conclusions as to
whether designation or registration is warranted. Subsequent to
designation or registration, the DCM or DTEF may adopt changes to its
rules and procedures; however, under the Act, DCMs and DTEFs must, on a
continuing basis, comply with all designation criteria and core
principles (DCMs) and core principles (DTEFs). In implementing changes
to their business plans, DCMs and DTEFs seek Commission approval or
certify compliance with the designation criteria and core principles,
as applicable, as required under the Act. The Commission considers
whether to approve new rules or rule amendments or whether to take
action concerning certifications when a DCM or DTEF proposes to
implement its revised plans.\24\
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\24\ For instance, when reviewing an incentive program proposed
to be adopted by a DCM, Commission staff's regulatory analysis of
the proposed rule would focus on the manner of implementation and
the potential for distorting open, competitive, and efficient
trading by facilitating illegal trading practices, such as wash or
fictitious trading. DCMs are obligated by Core Principle 2 to
monitor trading for trade practice abuses. Staff would also analyze
a plan's potential for eroding fiduciary obligations owed by futures
brokers to customers. Core Principle 12 requires that DCMs establish
and enforce rules that protect market participants from abusive
trading practices committed by any party acting as an agent for a
participant, and in a situation where a broker handles an order that
could be executed at more than one exchange, Commission staff would
want to ensure that an incentive plan does not compromise the
broker's fiduciary obligations.
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For the reasons cited above, the Commission does not believe that
the application content requirements need to be expanded to include
documents detailing the applicant's incentive plans or documentation of
plans to allow or encourage trading off the centralized market. After
careful review and consideration of the comments received, the
Commission has determined to adopt the proposed amendments to the
application procedures as written. The Commission continues to
encourage would-be applicants to consult with Commission staff prior to
formally submitting a DTEF or DCM application to help ensure that an
application, once formally submitted, will be reviewed in a timely
manner.
Related Matters
A. The 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 adopted herein would
affect DCMs and DTEFs. The Commission has previously established
certain definitions of small entities to be used by the Commission in
evaluating the impact of its rules on small entities in accordance with
the RFA.\25\ In its previous determinations, the Commission has
concluded that DCMs and DTEFs are not small entities for the purpose of
the RFA.\26\
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\25\ 47 FR 18618, 18618-21 (April 30, 1982).
\26\ 47 FR 18618, 18619 (April 30, 1982) (discussing DCMs); 66
FR 42256, 42268 (August 10, 2001) (discussing DTEFs).
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In the proposed rules, the Commission solicited comment on whether
the proposed amendments would have a significant impact on a
substantial number of small entities. The Commission received no
comments in response to this request. Accordingly, the Commission
hereby determines that the rules, as adopted herein, will not have a
significant economic impact on a substantial number of small entities.
Therefore, the Acting Chairman, on behalf of the Commission, hereby
certifies, pursuant to 5 U.S.C. 605(b), that the proposed amendments
will not have a significant economic impact on a substantial number of
small entities.
B. The Paperwork Reduction Act
As required by the Paperwork Reduction Act of 1995, 44 U.S.C.
3507(d), the Commission submitted a copy of the proposed rule
amendments to the Office of Management and Budget for its review. The
Commission did not receive any public comments relative to its analysis
of paperwork burdens associated with this rulemaking.
C. Cost Benefit Analysis
Section 15(a) of the Act, as amended by section 119 of the CFMA,
requires the Commission to consider the costs and benefits of its
action before issuing a new regulation under the Act. By its terms,
section 15(a) does not require the Commission to quantify the costs and
benefits of a new regulation or to determine whether the benefits of
the proposed regulation outweigh its costs. Rather, section 15(a)
simply requires the Commission to ``consider the costs and benefits''
of its action.
Section 15(a) further specifies that the costs and benefits of the
proposed rule shall be evaluated in light of five broad areas of market
and public concern: (1)
[[Page 67815]]
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. The Commission may, in its discretion, give
greater weight to any one of the five enumerated areas of concern and
may, in its discretion, determine that, notwithstanding its costs, a
particular rule is necessary or appropriate to protect the public
interest or to effectuate any of the provisions or to accomplish any of
the purposes of the Act.
The Commission published an analysis of costs and benefits when it
proposed the rule amendments that have now been adopted.\27\ The
Commission did not receive any public comments pertaining to the
analysis.
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\27\ 69 FR 53367, 53370 (September 1, 2004).
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List of Subjects
17 CFR Part 37
Commodity futures, Commodity Futures Trading Commission.
17 CFR Part 38
Commodity futures, Commodity Futures Trading Commission.
0
In consideration of the foregoing, and pursuant to the authority
contained in the Act, and, in particular, sections 2, 3, 4, 4c, 5, 5a
and 8a of the Act, the Commission hereby amends Chapter I of Title 17
of the Code of Federal Regulations as follows:
PART 37--DERIVATIVES TRANSACTION EXECUTION FACILITIES
0
1. The authority citation for Part 37 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6, 6c, 7a and 12a, as amended by the
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L.
106-554, 114 Stat. 2763 (2000).
0
2. Revise Sec. 37.5 to read as follows:
Sec. 37.5 Procedures for registration.
(a) Notification by contract markets. (1) To operate as a
registered derivatives transaction execution facility pursuant to
section 5a of the Act, a board of trade that is designated as a
contract market, which is not a dormant contract market as defined in
Sec. 40.1 of this chapter, must:
(i) Notify the Commission of its intent to so operate by filing
with the Secretary of the Commission at its Washington, DC,
headquarters a copy of the facility's rules (as defined in Sec. 40.1
of this chapter) or a list of the designated contract market's rules
that apply to the operation of the derivatives transaction execution
facility, and a certification by the contract market that it meets:
(A) The requirements for trading of section 5a(b) of the Act; and
(B) The criteria for registration under section 5a(c) of the Act.
(ii) Comply with the core principles for operation under section
5a(d) of the Act and the provisions of this part 37.
(2) Before using the notification procedure of paragraph (a)(1)(i)
of this section for registration as a derivatives transaction execution
facility, a dormant contract market, as defined in Sec. 40.1 of this
chapter, must reinstate its designation under Sec. 38.3(a)(3) of this
chapter.
(b) Application Procedures. (1) Statutory (180-day) review
procedures. A board of trade desiring to be registered as a derivatives
transaction execution facility shall file an application for
registration with the Secretary of the Commission at its Washington,
DC, headquarters. Except as provided under the 90-day review procedures
described in paragraph (b)(2) of this section, the Commission will
review the application for registration as a derivatives transaction
execution facility pursuant to the 180-day timeframe and procedures
specified in section 6(a) of the Act. The Commission shall approve or
deny the application or, if deemed appropriate, register the applicant
as a derivatives transaction execution facility subject to conditions.
(i) The applicant must demonstrate that it satisfies the
requirements for trading and the criteria for registration of sections
5a(b) and 5a(c) of the Act, respectively, and the provisions of this
part 37.
(ii) The application must include the following:
(A) The derivatives transaction execution facility's rules (as
defined in Sec. 40.1 of this chapter);
(B) Any technical manuals and other guides or instructions for
users of such facility, descriptions of any system test procedures,
tests conducted or test results, descriptions of the trading mechanism
or algorithm used or to be used by such facility, and contingency or
disaster recovery plans;
(C) A copy of any documents describing the applicant's legal status
and governance structure;
(D) An executed or executable copy of any agreements or contracts
entered into or to be entered into by the applicant, including
partnership or limited liability company, third-party regulatory
service, or member or user agreements, that enable or empower the
applicant to comply with a requirement for trading or a registration
criterion (final, executed copies of such documents must be submitted
prior to registration);
(E) A copy of any manual or other document describing, with
specificity, the manner in which the applicant will conduct trade
practice, market and financial surveillance;
(F) A document that describes the manner in which the applicable
items in Sec. 37.5(b)(1)(ii)(A) through (E) enable or empower the
applicant to comply with each requirement for trading and registration
criterion (a regulatory chart); and
(G) To the extent that any of the items in Sec. 37.5(b)(1)(ii)(A)
through (E) raise issues that are novel, or for which compliance with a
requirement for trading or condition for registration is not self-
evident, an explanation of how that item and the application satisfy
the requirements for trading and registration criteria.
(iii) The applicant must identify with particularity information in
the application that will be subject to a request for confidential
treatment pursuant to Sec. 145.9 of this chapter.
(2) Ninety-day review procedures. A board of trade desiring to be
registered as a derivatives transaction execution facility may request
that its application be reviewed on an expedited basis and that the
applicant be registered as a derivatives transaction execution facility
not later than 90 days after the date of receipt of the application for
registration by the Secretary of the Commission. The 90-day period
shall begin on the first business day (during the business hours
defined in Sec. 40.1 of this chapter) that the Commission is in
receipt of the application. Unless the Commission notifies the
applicant during the 90-day period that the expedited review has been
terminated pursuant to Sec. 37.5(c), the Commission will register the
applicant as a derivatives transaction execution facility during the
90-day period. If deemed appropriate by the Commission, the
registration may be subject to such conditions as the Commission may
stipulate.
(i) The applicant must demonstrate that it satisfies the
requirements for trading and the criteria for registration of sections
5a(b) and 5a(c) of the Act, respectively, and the provisions of this
part 37;
(ii) The application must include the items described in Sec.
37.5(b)(1)(ii) and (iii); and
(iii) The applicant must not amend or supplement the application,
except as requested by the Commission or for correction of
typographical errors, renumbering or other nonsubstantive
[[Page 67816]]
revisions, during the 90-day review period.
(c) Termination of 90-day review. (1) During the 90-day period for
review pursuant to paragraph (b)(2) of this section, the Commission
shall notify the applicant seeking registration that the Commission is
terminating review under this section, and will review the application
under the 180-day time period and procedures of section 6(a) of the
Act, if it appears to the Commission that the application:
(i) Is materially incomplete;
(ii) Fails in form or substance to meet the requirements of this
part;
(iii) Raises novel or complex issues that require additional time
for review; or
(iv) Is amended or supplemented in a manner that is inconsistent
with Sec. 37.5(b)(2)(iii).
(2) The Commission shall also terminate review under this section
if requested in writing to do so by the applicant.
(3) The termination notification shall identify the deficiencies in
the application that render it incomplete, the manner in which the
application fails to meet the requirements of this part, the novel or
complex issues that require additional time for review, or the
amendment or supplement that is inconsistent with Sec.
37.5(b)(2)(iii).
(d) Reinstatement of dormant registration. Before listing products
for trading, a dormant derivatives transaction execution facility as
defined in Sec. 40.1 must reinstate its registration under the
procedures of paragraphs (a)(1), (b)(1) or (b)(2) of this section;
provided, however, that an application for reinstatement may rely upon
previously submitted materials that still pertain to, and accurately
describe, current conditions.
(e) Delegation of authority. (1) The Commission hereby delegates,
until it orders otherwise, to the Director of the Division of Market
Oversight or such other employee or employees as the Director may
designate from time to time, with the concurrence of the General
Counsel or the General Counsel's delegate, authority to notify the
applicant seeking registration under section 6(a) of the Act that the
application is materially incomplete and the running of the 180-day
period is stayed or that the 90-day review under paragraph (b)(2) of
this section is terminated.
(2) The Director may submit to the Commission for its consideration
any matter that has been delegated in this paragraph.
(3) Nothing in this paragraph prohibits the Commission, at its
election, from exercising the authority delegated in paragraph (e)(1)
of this section.
(f) Request for withdrawal of application for registration. An
applicant for registration may withdraw its application submitted
pursuant to paragraph (b)(1) or (b)(2) of this section by filing such a
request with the Commission at its Washington, DC, headquarters.
Withdrawal of an application for registration shall not affect any
action taken or to be taken by the Commission based upon actions,
activities or events occurring during the time that the application for
registration was pending with the Commission.
(g) Request for vacation of registration. A registered derivatives
transaction execution facility may vacate its registration under
section 7 of the Act by filing such a request with the Commission at
its Washington, DC, headquarters. Vacation of registration shall not
affect any action taken or to be taken by the Commission based upon
actions, activities or events occurring during the time that the
facility was registered by the Commission.
(h) Guidance for applicants. Appendix A to this part provides
guidance on how the registration criteria in section 5a(c) of the Act
can be satisfied.
PART 38--DESIGNATED CONTRACT MARKETS
0
1. The authority citation for Part 38 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6, 6c, 7 and 12a, as amended by the
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L.
106-554, 114 Stat. 2763 (2000).
0
2. Revise Sec. 38.3 to read as follows:
Sec. 38.3 Procedures for designation.
(a) Application procedures. (1) Statutory (180-day) review
procedures. A board of trade desiring to be designated as a contract
market shall file an application for designation with the Secretary of
the Commission at its Washington, DC, headquarters. Except as provided
under the 90-day review procedures described in paragraph (a)(2) of
this section, the Commission will review the application for
designation as a contract market pursuant to the 180-day timeframe and
procedures specified in section 6(a) of the Act. The Commission shall
approve or deny the application or, if deemed appropriate, designate
the applicant as a contract market subject to conditions.
(i) The applicant must demonstrate compliance with the criteria for
designation of section 5(b) of the Act, the core principles for
operation of section 5(d) of the Act and the provisions of this part
38.
(ii) The application must include the following:
(A) A copy of the applicant's rules (as defined in Sec. 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;
(B) 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;
(C) A copy of any documents describing the applicant's legal status
and governance structure, including governance fitness information;
(D) An executed or executable copy of any agreements or contracts
entered into or to be entered into by the applicant, including
partnership or limited liability company, third-party regulatory
service, or member or user agreements, that enable or empower the
applicant to comply with a designation criterion or core principle
(final, executed copies of such documents must be submitted prior to
designation);
(E) A copy of any manual or other document describing, with
specificity, the manner in which the applicant will conduct trade
practice, market and financial surveillance;
(F) A document that describes the manner in which the applicable
items in Sec. 38.3(a)(1)(ii)(A) through (E) enable or empower the
applicant to comply with each designation criterion and core principle
(a regulatory chart); and
(G) To the extent that any of the items in Sec. 38.3(a)(1)(ii)(A)
through (E) raise issues that are novel, or for which compliance with a
designation criterion or a core principle is not self-evident, an
explanation of how that item and the application satisfy the
designation criteria or the core principles.
(iii) The applicant must identify with particularity information in
the application that will be subject to a request for confidential
treatment pursuant to Sec. 145.9 of this chapter.
(2) Ninety-day review procedures. A board of trade desiring to be
designated as a contract market may request that its application be
reviewed on an expedited basis and that the applicant be designated as
a contract market not later than 90 days after the date of receipt of
the application for designation by the Secretary of the Commission. The
90-day period shall begin on the first business day (during
[[Page 67817]]
the business hours defined in Sec. 40.1 of this chapter) that the
Commission is in receipt of the application. Unless the Commission
notifies the applicant during the 90-day period that the expedited
review has been terminated pursuant to Sec. 38.3(b), the Commission
will designate the applicant as a contract market during the 90-day
period. If deemed appropriate by the Commission, the designation may be
subject to such conditions as the Commission may stipulate.
(i) The applicant must demonstrate compliance with the criteria for
designation of section 5(b) of the Act, the core principles for
operation of section 5(d) of the Act and the provisions of this part
38;
(ii) The application must include the items described in Sec.
38.3(a)(1)(ii) and (iii); and
(iii) The applicant must not amend or supplement the application,
except as requested by the Commission or for correction of
typographical errors, renumbering or other nonsubstantive revisions,
during the 90-day review period.
(b) Termination of 90-day review. (1) During the 90-day period for
review pursuant to paragraph (a)(2) of this section, the Commission
shall notify the applicant seeking designation that the Commission is
terminating review under this section, and will review the application
under the 180-day time period and procedures of section 6(a) of the
Act, if it appears to the Commission that the application:
(i) Is materially incomplete;
(ii) Fails in form or substance to meet the requirements of this
part;
(iii) Raises novel or complex issues that require additional time
for review; or
(iv) Is amended or supplemented in a manner that is inconsistent
with Sec. 38.3(a)(2)(iii).
(2) The Commission shall also terminate review under this section
if requested in writing to do so by the applicant.
(3) The termination notification shall identify the deficiencies in
the application that render it incomplete, the manner in which the
application fails to meet the requirements of this part, the novel or
complex issues that require additional time for review, or the
amendment or supplement that is inconsistent with Sec.
38.3(a)(2)(iii).
(c) Reinstatement of dormant designation. Before listing or
relisting products for trading, a dormant designated contract market as
defined in Sec. 40.1 of this chapter must reinstate its designation
under the procedures of paragraph (a)(1) or (a)(2) of this section;
provided, however, that an application for reinstatement may rely upon
previously submitted materials that still pertain to, and accurately
describe, current conditions.
(d) Delegation of authority. (1) The Commission hereby delegates,
until it orders otherwise, to the Director of the Division of Market
Oversight or such other employee or employees as the Director may
designate from time to time, with the concurrence of the General
Counsel or the General Counsel's delegate, authority to notify the
applicant seeking designation under section 6(a) of the Act that the
application is materially incomplete and the running of the 180-day
period is stayed or that the 90-day review under paragraph (a)(2) of
this section is terminated.
(2) The Director may submit to the Commission for its consideration
any matter that has been delegated in this paragraph.
(3) Nothing in this paragraph prohibits the Commission, at its
election, from exercising the authority delegated in paragraph (d)(1)
of this section.
(e) Request for withdrawal of application for designation. An
applicant for designation may withdraw its application submitted
pursuant to paragraph (a)(1) or (a)(2) of this section by filing such a
request with the Commission at its Washington, DC, headquarters.
Withdrawal of an application for designation shall not affect any
action taken or to be taken by the Commission based upon actions,
activities or events occurring during the time that the application for
designation was pending with the Commission.
(f) Request for vacation of designation. A designated contract
market may vacate its designation under section 7 of the Act by filing
such a request with the Commission at its Washington, DC, headquarters.
Vacation of designation shall not affect any action taken or to be
taken by the Commission based upon actions, activities or events
occurring during the time that the facility was designated by the
Commission.
(g) Guidance for applicants. Appendix A to this part provides
guidance on how the criteria for designation under section 5(b) of the
Act can be satisfied. Appendix B to this part provides guidance on how
the core principles of section 5(d) of the Act can be satisfied.
Issued in Washington, DC, on November 12, 2004, by the
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 04-25614 Filed 11-19-04; 8:45 am]
BILLING CODE 6351-01-P