Technical and Clarifying Amendments to Rules for Exempt Markets, Derivatives Transaction Execution Facilities and Designated Contract Markets, and Procedural Changes for Derivatives Clearing Organization Registration Applications, 1953-1971 [06-242]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 71, Number 8 (Thursday, January 12, 2006)]
[Rules and Regulations]
[Pages 1953-1971]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-242]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 36, 37, 38, 39 and 40

RIN 3038-AC23


Technical and Clarifying Amendments to Rules for Exempt Markets, 
Derivatives Transaction Execution Facilities and Designated Contract 
Markets, and Procedural Changes for Derivatives Clearing Organization 
Registration Applications

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rulemaking.

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SUMMARY: On August 10, 2001, the Commodity Futures Trading Commission 
(``Commission'') published final rules implementing the provisions of 
the Commodity Futures Modernization Act of 2000 (``CFMA'') relating to 
trading facilities.\1\ These amendments are intended to clarify and 
codify acceptable practices under the rules for trading facilities, 
based on the Commission's experience over the intervening four years in 
applying those rules, including the adoption of several amendments to 
the original rules over the same period. The amendments also include 
various technical corrections and conforming amendments to the rules.

[[Page 1954]]

    In addition, these amendments revise the application and review 
process for registration as a derivatives clearing organization 
(``DCO'') by eliminating the presumption of automatic fast-track review 
of applications and replacing it with the presumption that all 
applications will be reviewed pursuant to the 180-day timeframe and 
procedures specified in Section 6(a) of the Commodity Exchange Act 
(``CEA'' or ``Act''). In lieu of the current 60-day automatic fast-
track review, the Commission will permit applicants to request 
expedited review and to be registered as a DCO by affirmative 
Commission action not later than 90 days after the Commission receives 
the application.
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    \1\ 66 FR 42256, August 10, 2001.

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DATES: Effective Date: February 13, 2006.

FOR FURTHER INFORMATION CONTACT: Donald Heitman, Senior Special Counsel 
(telephone 202-418-5041, e-mail dheitman@cftc.gov), Division of Market 
Oversight, or Lois Gregory, Special Counsel (telephone 202-418-5521, e-
mail lgregory@cftc.gov), Division of Clearing and Intermediary 
Oversight, Commodity Futures Trading Commission, Three Lafayette 
Center, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

    The CFMA amended the Commodity Exchange Act to profoundly alter 
Federal regulation of commodity futures and option markets. The new 
statutory framework created by the CFMA established two categories of 
markets subject to Commission regulatory oversight, designated contract 
markets (``DCMs'') and registered derivatives transaction execution 
facilities (``DTEFs''), and two categories of exempt markets, exempt 
boards of trade (``EBOTs'') and exempt commercial markets (``ECMs''). 
The original rules applicable to these trading facilities \2\ 
established administrative procedures necessary to implement the CFMA, 
interpreted certain of the CFMA's provisions, and provided guidance on 
compliance with various of the CFMA's requirements. In addition, the 
Commission, under the general exemptive authority of Section 4(c) of 
the Act, in a limited number of instances provided relief from, or 
greater flexibility than, the CFMA's provisions.
    In addition, over the four years during which these new rules for 
trading facilities have been in effect, they have been amended several 
times.\3\ These amendments are intended to clarify and codify 
acceptable practices under the Commission's rules for trading 
facilities, as amended, based on the Commission's experience in 
applying those rules over the last four years. The amendments also 
include a number of technical and clarifying corrections and conforming 
amendments to enhance the consistency and clarity of the rules.
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    \2\ Id.
    \3\ See, for example: Regulation To Restrict Dual Trading in 
Security Futures Products, 67 FR 11223 (March 15, 2002); Changes in 
Divisional Structure and Delegations of Authority, 67 FR 62350 
(October 7, 2002); Amendments to New Regulatory Framework for 
Trading Facilities and Clearing Organizations, 67 FR 62873 (October 
9, 2002); Exempt Commercial Markets, 69 FR 43285 (July 20, 2004); 
Confidential Information and Commission Records and Information, 69 
FR 67503 (November 18, 2004); and Application Procedures for 
Registration as a Derivatives Transaction Execution Facility or 
Designation as a Contract Market, 69 FR 67811 (November 22, 2004).
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    It should also be noted that the Commission has provided 
information that may be helpful to those subject to the rules for 
trading facilities on its Web site at https://www.cftc.gov. In 
particular, the Web site includes charts setting out information that 
may be helpful in: (1) Complying with the registration criteria as a 
DTEF (see Appendix A to Part 37); (2) complying with the designation 
criteria as a DCM (see Appendix A to Part 38); and (3) complying with 
the requirements for designation of physical delivery futures contracts 
(see Appendix A to Part 40--Guideline No. 1). While these charts are 
not intended to be used as mandatory checklists, they may provide 
helpful guidance to those subject to the regulations governing trading 
facilities.
    In addition, these amendments revise the application and review 
procedures for registration as a DCO. Specifically, 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 180-day timeframe and procedures 
specified in Section 6(a) of the Act. In lieu of the automatic fast-
track review (under which applicants were deemed to be registered as 
DCOs 60 days after receipt of an application), the amendments permit 
applicants to request expedited review and to be registered as a DCO by 
the Commission not later than 90 days after the date of receipt of the 
application. The amendments also 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. The amendments 
are based upon the Commission's experience in processing applications, 
including administrative practices that have been implemented since the 
rules were first adopted. These amendments establish procedures 
substantially similar, where appropriate, to those recently amended in 
Parts 37 and 38 for processing applications for registration of 
derivatives transaction execution facilities and contract market 
designation, respectively.\4\
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    \4\ 69 FR 67811, November 22, 2004.
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II. The Comments

    The Commission received a total of five comments, all from entities 
that are designated contract markets and/or derivatives clearing 
organizations, including the U.S. Futures Exchange, L.L.C.--Eurex U.S. 
(``Eurex''), the Minneapolis Grain Exchange (``MGEX''), the Chicago 
Mercantile Exchange (``CME''), the New York Mercantile Exchange 
(``NYMEX'') and the Chicago Board of Trade (``CBOT''). All of the 
commenters supported the Commission's efforts to clarify and update the 
Part 36-40 rules. However, the comments included various questions and 
suggestions regarding the interpretation and application of certain of 
the proposed amendments. In view of the limited number of comments, as 
well as the overlapping nature of some of the comments, and for the 
convenience of the reader, all of the comments and the Commission's 
responses will be discussed below in this section of the preamble.
    NYMEX expressed concern about the proposed amendment to rule 38.2 
to make clear that the references therein to the reserved provisions of 
the regulations applicable to DCMs ``also include related definitions 
and cross-referenced sections cited in those reserved provisions.'' 
NYMEX suggests that the provision could ``have the unintended effect of 
bringing back into force overly prescriptive regulations of the kind 
the CFMA was appropriately intended to eliminate.'' In particular, 
NYMEX notes that applying the definitions in Sec.  1.63(a) to reserved 
Sec.  1.63(c) would include the definition of ``disciplinary offense.'' 
That definition specifies that violations of SRO reporting or 
recordkeeping rules that result in fines aggregating more than $5,000 
in any calendar year will be included among the disciplinary offenses 
that would disqualify a person from service on SRO governing boards, 
disciplinary committees and arbitration

[[Page 1955]]

or oversight panels. NYMEX points out that in January 2002, it 
submitted a self-certified rule, which the Commission did not 
disapprove, deleting a provision modeled after the $5,000 threshold 
approach set forth in Sec.  1.63(a) and replacing it with a policy of 
reviewing potential disqualifications based on reporting/recordkeeping 
fines or settlements on a case-by-case basis. On July 12, 2005, NYMEX 
self-certified further amendments ``codifying the procedure by which 
reporting and recordkeeping violations resulting in cumulative fines of 
over $5,000 in a calendar year would be considered with regard to Board 
and disciplinary committee service.''
    NYMEX contends that its procedures satisfy Core Principle 14, which 
requires DCMs to establish and enforce appropriate fitness standards 
for directors and disciplinary committee members. NYMEX argues that 
reimposing the $5,000 limit would deprive DCMs of the self-regulatory 
flexibility intended by the CFMA, affect NYMEX (which has ``greater 
representation from the floor community than some other DCMs'' on its 
board) unequally, and have a chilling effect on DCMs setting sanction 
levels high enough to promote compliance for fear of triggering 
consequences that would disrupt exchange governance. If the Commission 
does reimpose the $5,000 standard, NYMEX asks that it be applied only 
prospectively.
    The Commission believes that the $5,000 limit in Sec.  1.63(a) 
continues appropriately to reflect conduct that ``demonstrates a lack 
of respect for SRO rules sufficient to warrant [a] bar from service on 
SRO committees.'' \5\ Therefore, the amendment to Sec.  38.2 will be 
implemented as proposed. The Commission acknowledges, however, that it 
did not object to NYMEX's adoption of rules implementing a case-by-case 
review of reporting/recordkeeping disciplinary actions in lieu of the 
fine schedule in Sec.  1.63(a). The Commission agrees that applying the 
Sec.  1.63(a) fine schedule could be unfair to persons who, in agreeing 
to settle exchange disciplinary actions, acted in reliance on exchange 
rules that were at variance with that schedule. Therefore, the 
Commission will not bring action for violating Sec.  1.63(a) against 
any NYMEX board, committee or arbitration panel member elected while a 
rule at variance with Sec.  1.63(a) was in effect, in reliance on such 
rule, during the remainder of that person's current term of office, 
provided that the Sec.  1.63(a) fine schedule will apply prospectively 
to all such individuals.
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    \5\ 55 FR 7884 at 7885 (March 6, 1990).
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    Two of the commenters expressed concern over proposed new Sec.  
38.5(c), which would delegate to staff the Commission's authority under 
revised Sec.  38.5(b) to request additional information from a DCM 
demonstrating that it is in compliance with one or more designation 
criteria or core principles or that is requested by the Commission to 
satisfy its obligations under the Act. Eurex contends that regulation 
38.5(b) and its permitting of compliance demonstration requests is 
patterned after former Commission regulation 1.50 and would be 
``anything but a routine request.'' \6\ Eurex suggests that responding 
to such a request ``is likely to place a very heavy (and costly) burden 
on an exchange.'' Thus, this authority should be reserved to the 
Commission. MGEX expressed concern that the proposed amendment 
indicates that exchanges ``can expect more frequent requests for 
information outside the routine [rule enforcement] review process,'' 
which could become an ``unnecessary regulatory burden.''
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    \6\ Regulation 1.50, ``Demonstration of continued compliance 
with the requirements for contract market designation,'' was used 
only in cases of significant issues of exchange compliance and the 
authority to invoke it was never delegated to the staff.
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    The amendments to Sec. Sec.  38.5(b) and (c) are not intended to 
impose regulatory burdens on the exchanges, but rather to relieve 
administrative burdens on the Commission. The matters described in 
Sec.  38.5(b) potentially cover a wide variety of possible written 
requests, from a routine request for details concerning a new exchange 
policy to a comprehensive inquiry regarding a potential exchange 
violation of designation criteria or core principles. In the case of 
the former, such routine requests are appropriately delegated to staff. 
In the case of the latter more significant requests, it should be noted 
that new Sec.  38.5(c) both allows the Director of DMO to submit any 
matter delegated thereunder to the Commission and allows the Commission 
to exercise the authority directly. Accordingly, the Commission has 
determined to implement the amendments to Sec. Sec.  38.5(b) and (c) as 
proposed.
    In response to a comment by Eurex, the Commission wishes to make 
clear that in amending Appendix B to Part 38, Core Principle 2, to make 
clear that trade practice surveillance programs may be carried out by 
contracting-out to a third party (subject to appropriate supervision by 
the DCM), the Commission does not intend to preclude out-sourcing in 
other contexts, such as IT services, or even a trade matching platform. 
Of course, the DCM remains ultimately liable for compliance with the 
Act and Commission regulations. Thus, as noted above, it must retain 
appropriate supervisory authority in all such cases.
    With respect to the proposed amendment to Appendix B, Part 38, Core 
Principle 7, regarding availability of general information to the 
public, CBOT states that it generally supports posting important 
information on its Web site promptly. However, CBOT expresses concern 
that the proposed requirement that the rulebook posted on the Web site 
must be current to within one day of implementation of a new or amended 
rule does not allow for staffing or system issues that could delay 
posting of a new rule. The CBOT suggests that, provided substantive 
rule changes are posted on the Web site within one day of 
implementation, through a press release, newsletter or notice, the 
Commission should allow five days for rule changes (including non-
substantive, housekeeping changes) to be incorporated into the 
exchange's online rulebook. The Commission agrees with this point and 
has revised the relevant provision accordingly.
    Three of the five commenters express opinions concerning the 
amendments to Part 39. CME and CBOT both support the revisions. CME 
states it believes the revisions will positively impact the futures 
markets by ensuring that the Commission and interested parties not only 
have access to all relevant information, but an ample opportunity to 
consider the implications of complex or novel issues. CBOT supports 
treating the time frames for review of DCO applications consistent with 
the time frames for review of DCM and DTEF applications.
    Eurex expresses its concern that the amendments will result in 
unnecessary barriers to entry and adversely affect competition and 
innovation. Specifically, Eurex is concerned that a new entrant will 
lose flexibility if required to provide executed or executable 
contracts as part of its application. The language of the rule, which 
requires the submission of contracts entered or to be entered into, 
does not mean that contracts must be in force such that contract costs 
are being incurred before DCO registration or before the service for 
which the costs are incurred is supplied. Nevertheless, in light of 
this comment, the Commission has further clarified what is required in 
the language of the rule itself. The amended rule requires an applicant 
to submit agreements entered into or to be entered into between or

[[Page 1956]]

among the applicant, its operator/service provider or its participants 
that identify the services that will be provided that will enable the 
applicant to comply or demonstrate the applicant's ability to comply 
with the core principles specified in Section 5b(c)(2) of the Act. When 
the arrangement submitted is not final and executed, the rule also 
requires evidence that provides reasonable assurance that the agreed 
upon services will be provided when the operations that require the 
services begin. This may include evidence that the service provider is 
prepared to provide the services when they are needed and, to the 
extent not otherwise obvious, that the applicant has the financial 
resources to pay the fees required under the agreement.
    Eurex also contends that procedural fairness requires a mechanism 
to hold staff accountable for a decision to terminate expedited review. 
The Commission notes that the Act does not establish any timeframe for 
review of DCO applicants. However, under Part 39, the Commission 
voluntarily committed itself to the timeframe under Section 6(a) and 
pursuant to Sec.  39.3(g)(3), the Commission retains supervisory 
authority over staff decisions in this area.
    NYMEX suggests that the definition of ``emergency'' in Sec.  40.1 
should be amended to make clear that the authority to declare an 
emergency is vested not only in a DCM's governing board, but also in 
``a subcommittee or exchange official that is duly authorized under a 
DCM's rules to act with the governing board's authority in such 
circumstances.'' While the existing language may possibly be read to 
permit such an interpretation, the Commission believes that such an 
amendment may have merit in avoiding uncertainty. However, because 
nothing in the original Part 36-40 notice of proposed rulemaking 
provided notice that such an amendment was contemplated, the public was 
not given the opportunity to comment on it. Therefore, it would not be 
appropriate to include such an amendment in these final rules. However, 
the Commission may consider including such an amendment in a future 
rulemaking proposal.
    Several exchanges commented on Sec. Sec.  40.2(b), 40.3(a)(9) and 
40.6(a)(4), all of which would make clear that registered entities 
shall provide, if requested by Commission staff, additional evidence, 
information or data relating to whether new products, rules or rule 
amendments meet the requirements of the Act or Commission regulations 
or policies thereunder. The preamble to the proposed rules noted that 
such evidence may be beneficial to the Commission in conducting due 
diligence assessments of such products and rules.
    Eurex suggests that requests to demonstrate compliance with the Act 
should be more formally treated, pursuant to Rule 38.5, than requests 
for information related to routine due diligence reviews. Eurex notes 
that, ``the authority to request information, if misused, can 
constitute a significant burden on registered entities.'' MGEX 
expresses concern that staff requests for additional evidence, 
information or data under Sec. Sec.  40.2(b) or 40.6(a) might have a 
``chilling effect'' on the self-certification process. However, rather 
than oppose the amendments, the exchange urges the Commission staff to 
use this authority ``reasonably and judiciously.'' CBOT likewise 
expresses concern that routine requests for ``sometimes voluminous 
supporting data'' regarding self-certified contracts could have a 
``chilling effect'' on listing products immediately after certification 
because an exchange may be hesitant to begin trading until it knows the 
Commission has requested any additional data and completed its review. 
CBOT asks the Commission to make clear that any requests for additional 
information under Sec. Sec.  40.2(b) or 40.6(a), and any due diligence 
assessment by the Commission, ``is not intended implicitly or 
explicitly to operate as a stay'' with respect to listing self-
certified products or implementing self-certified rules.
    All of these comments reflect the need to balance the flexibility 
the CFMA gives a DCM in being able to self-certify new products and 
rules quickly against the obligations of both the DCM and the 
Commission to assure themselves that the certification is accurate--
i.e., that the product or rule does indeed comply with applicable 
designation criteria and core principles. It is certainly not the 
intention of the Commission or its staff to inject a chilling effect 
into the self-certification process or to conduct the required due 
diligence oversight of that process in anything less than a reasonable 
and judicious manner. Nor are such information requests intended to 
operate as a stay with regard to immediately listing new products or 
implementing new rules. The listing of a new product or implementation 
of a new rule may be stayed only during the pendency of a Commission 
proceeding for filing a false certification or to alter or supplement 
the contract terms or the rule under Section 8a(7) of the Act. Further, 
pursuant to Sec. Sec.  40.2(c) and 40.6(b), respectively, the decision 
to impose such a stay rests with the Commission alone and cannot be 
delegated to the staff.
    However, the fact remains that under the Act DCMs are responsible 
in the first instance, and the Commission is ultimately responsible in 
its oversight role, for assuring that DCM products and rules comply 
with applicable designation criteria and core principles. When a DCM 
self-certifies a product or rule it is, in effect, pledging that the 
product or rule does meet those standards. Assuming the DCM is acting 
in good faith, it must have some reasonable basis for making that 
pledge. Therefore, when reasonable questions arise, it should not be 
burdensome for the DCM to share information regarding the reasonable 
basis underlying the new product or rule with the Commission or its 
staff. Therefore, Sec. Sec.  40.2(b), 40.3(a)(9) and 40.6(a)(4) will be 
implemented as proposed.
    CBOT expressed concern about the proposed amendment to conform the 
review periods in Sec.  40.3 (voluntary submission of new products for 
Commission review and approval) and Sec.  40.5 (voluntary submission of 
rules for Commission review and approval). Both sections establish an 
initial review period of 45 days, with a possible additional extension. 
The proposed amendments provide for an extension of 45 days under Sec.  
40.5 (as opposed to the 30-day extension allowed under the current 
rules) to conform it to the 45-day extension period under Sec.  40.3. 
CBOT points out that, when the proposed Part 40 rules were published in 
2001, the Commission initially proposed a 45-day extension under Sec.  
40.5. In the final rules, however, the Commission lowered the period to 
the current 30 days after the CBOT commented that a 45-day extension 
period for rule reviews would have resulted in a potentially longer 
review process than that allowed under the pre-CFMA fast-track rule 
review procedure. CBOT argues that the reasons it expressed in favor of 
a 30-day extension period in 2001, and the reasons the Commission 
relied on in adopting such period, remain valid and recommends that the 
current 30-day extension period in Sec.  40.5 should not be amended.
    The Commission notes that new products generally include 
accompanying rule amendments. These new rules can raise questions just 
as complex, and requiring just as much additional review, as the new 
products to which they apply. Therefore, the review periods for both 
products and rules should be identical. It should also be noted that, 
based on actual experience, the effect of equalizing the review periods 
for products and rules

[[Page 1957]]

should be negligible since the extended review period is rarely invoked 
(only six times since the regulations were adopted in 2001). Therefore, 
the Commission has determined to implement the amendment to Sec.  40.5 
as proposed.

III. The Amendments

A. Part 36--Exempt Markets

    Sections 36.2(b) and 36.3(a) are amended by deleting the reference 
to ``hard copy'' in the provisions requiring trading facilities 
operating as EBOTs and ECMs, respectively, to notify the Commission. In 
order to simplify and modernize the notification process, the amended 
rules require that such notifications be filed electronically. Similar 
amendments are made in other sections requiring notifications or 
filings with the Commission, so that under the amended rules, all 
formal filings from ECMs, EBOTs, DTEFs, DCMs and DCOs must be filed 
electronically.
    Section 36.2(c)(2), relating to market data dissemination for 
EBOTs, is revised to implement price discovery/price dissemination 
rules for EBOTs that closely parallel those currently applicable to 
ECMs. The wording of the Act's price discovery/price dissemination 
provision for EBOTs is substantially similar to the provision 
applicable to ECMs and both provisions are identical in their ultimate 
purpose. Also, parallel provisions will be easier for the industry to 
apply, since the price discovery/price dissemination rules will be 
essentially identical for both types of exempt markets.
    The amendments also add new Sec. Sec.  36.2(c)(3) and 36.3(c)(4) 
requiring EBOTs and ECMs, respectively, to annually file a notice with 
the Commission, no later than the end of each calendar year. The notice 
must include a statement that the entity continues to operate under the 
exemption and a certification that the information in its original 
notification of operation is still correct. Annual notification of 
operation by the facility will allow the Commission to track whether 
facilities that notified the Commission of their intent to operate 
actually commenced operations and will allow the Commission to 
eliminate inactive facilities from any listing of active EBOTs or ECMs 
maintained on its Web site.

B. Part 37--Derivatives Transaction Execution Facilities

    Section 37.1(a) is amended to make clear that the provisions of 
Part 37 apply not only to boards of trade operating as registered 
DTEFs, but also to applicants for registration as DTEFs.
    Section 37.2 is revised to identify certain reserved provisions of 
the Commission's regulations that specifically and comprehensively 
reference DTEFs separately from other reserved provisions that do not. 
The revisions also make clear that all the references in Sec.  37.2 to 
reserved provisions of the regulations applicable to DTEFs also include 
related definitions and cross-referenced sections cited in those 
reserved provisions. Finally, Sec.  1.60 is added to the list of 
reserved provisions of the regulations applicable to DTEFs under Sec.  
37.2 to make clear that DTEFs need to notify the Commission of any 
material legal proceeding to which the DTEF is a party or to which its 
property or assets are subject.
    In Sec.  37.3, subparagraph (a)(5) is renumbered as subparagraph 
(b) and the remaining subparagraphs are renumbered accordingly.
    Section 37.6, Compliance with Core Principles, is revised to 
harmonize DTEF core principle compliance with the previously noted new 
application procedures for DCMs and DTEFs.\7\
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    \7\ 69 FR 67811 (November 22, 2004).
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    New Sec.  37.6(c)(2) is added delegating to the Division of Market 
Oversight (the ``Division'') the authority under Sec.  37.6(c)(1) to 
request additional information in reviewing a DTEF's continued 
compliance with one or more core principles, or to enable the 
Commission to satisfy its obligations under the Act. The delegation 
provides that the Commission, at its election, may exercise the 
delegated authority directly. A similar delegation is made in new Sec.  
38.5(c) to allow the Division to request additional information in 
reviewing a DCM's continued compliance with designation criteria and 
core principles, or to enable the Commission to satisfy its obligations 
under the Act. The foregoing delegated authority also extends to other 
requests by Commission staff to DTEFs or DCMs for additional 
information: (1) Under new Sec.  40.2(b), regarding compliance with 
respect to new products listed by certification; (2) under Sec.  
40.3(a)(9), regarding voluntary submission of new products for 
Commission review and approval; and (3) under new Sec.  40.6(a)(4), 
regarding compliance with respect to self-certified rules. This 
delegated authority will aid the staff in reviewing DTEF and DCM 
compliance with the requirements of the Act or Commission regulations 
or policies thereunder without involving the Commission in day-to-day 
oversight of trading facilities.
    In addition, the guidance in current Sec.  37.6(d) is deleted as 
duplicative of ``Appendix B to Part 37--Guidance on Compliance with 
Core Principles'' and replaced with a reference to Appendix B.
    Section 37.8(b), regarding special calls for information, is 
amended to make clear that the section applies not only to futures 
commission merchants, but to foreign brokers (as defined in Sec.  
15.00) as well.
    The title of Appendix A to Part 37 is reworded to read, ``Appendix 
A to Part 37--Guidance on Compliance with Registration Criteria,'' to 
be consistent with the wording of the titles of the other appendices to 
Parts 37 and 38. The introductory paragraph of the appendix also is 
revised to make clear that registration criteria guidance applies both 
to new registrants that register by application and to DTEFs operated 
by DCMs, which do not need to file an application, but can become 
registered by notification/certification. The revised language also is 
consistent with the requirement that the registration criteria must be 
met initially and on an ongoing basis, rather than just upon 
application.
    In Appendix B to Part 37, subsection 1 of the appendix is revised 
to make clear that the guidance therein applies to all registered 
DTEFs, whether they come in by notification under Sec.  37.5(a) or by 
application. Subsection 3 of the appendix is revised to make clear 
that, consistent with Sec.  37.6(b)(2), the guidance therein applies to 
applicants for registration, rather than registered DTEFs.
    Core Principle 5 of Appendix B to Part 37, ``Daily Publication of 
Trading Information,'' is revised in a manner consistent with the price 
discovery/price dissemination provisions applicable to EBOTs and ECMs, 
which are not as comprehensive as those applicable to DCMs. This 
reflects the fact that DTEFs are subject to a different informational 
standard than DCMs. DCMs are subject to a blanket requirement, under 
Core Principle 8 of Appendix B to Part 38, to publish daily trading 
information for all actively traded contracts. DTEFs, however, are 
subject to Core Principle 5 (Section 5a(d)(5) of the Act), which 
includes language similar to that applicable to EBOTs and ECMs (under 
Sections 5d(d) and 2(h)(4)(D) of the Act, respectively) requiring DTEFs 
to make public certain daily trading information only if the Commission 
determines that contracts traded on the facility perform a significant 
price discovery function for transactions in the cash market for the 
commodity underlying the contracts.

[[Page 1958]]

Thus, the revised core principle explanatory language applies to DTEFs 
the same standards that apply to EBOTs and ECMs (see Sec. Sec.  
36.2(b)(2) and 36.3(c)(2), respectively) whereby a DTEF performs a 
significant price discovery function if: (1) 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 
(2) 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. If the 
Commission has reason to believe that a DTEF may meet either of these 
standards, or if the facility holds itself out to the public as 
performing a price discovery function, the Commission will notify the 
DTEF and provide it with an opportunity for a hearing through the 
submission of written data, views and arguments. If, after considering 
all relevant matters, the Commission finds that the DTEF meets the 
price discovery standards, it will direct the DTEF to publish daily 
trading information in accordance with the core principle. The 
information could be published by providing it to a financial 
information service or by placing it on the facility's Web site. The 
information should be made available to the public without charge no 
later than the business day following the day to which the information 
pertains.

C. Part 38--Designated Contract Markets

    In Sec.  38.1, language is added to make clear that the provisions 
of Part 38 apply to applicants for designation as well as to already 
designated contract markets, and redundant and inapplicable references 
are deleted.
    In Sec.  38.2, language is added to make clear that the references 
therein to reserved provisions of the regulations applicable to DCMs 
also include related definitions and cross-referenced sections cited in 
those reserved provisions. Similar clarifying amendments, reserving the 
applicability of related definitions and cross-referenced sections, 
appear in other sections of these final rules. Also, Sec.  1.60 is 
added to the list of reserved provisions of the regulations applicable 
to DCMs under Sec.  38.2 to make clear that DCMs need to notify the 
Commission of any material legal proceeding to which the DCM is a party 
or to which its property or assets are subject.
    In Sec.  38.5, subparagraph (b) is amended to make clear that DCMs 
are required to comply with the designation criteria and the core 
principles both initially and on an ongoing basis, and to conform its 
language to Sec.  37.6(c)(1). As noted in the discussion of new Sec.  
37.6(c)(2) above, new Sec.  38.5(c) is added, delegating to the 
Division of Market Oversight the authority under Sec.  38.5(b) to 
request additional information in reviewing a DCM's continued 
compliance with designation criteria or core principles, or to enable 
the Commission to satisfy its obligations under the Act.
    The title of Appendix A to Part 38 is revised to refer to 
``Guidance on Compliance with Designation Criteria,'' and the 
introductory paragraph of the appendix is revised in conformity with 
the revisions to the introductory paragraph of Appendix A to Part 37, 
to make clear that the obligation to comply with the designation 
criteria applies not just to applicants, but is ongoing.
    Designation Criterion 7 under Appendix A to Part 38 is updated to 
provide, consistent with the wording of other provisions regarding 
designation criteria and core principles, that a DCM ``should'' (rather 
than ``may'') provide information to the public by placing the 
information on its Web site.
    In Appendix B to Part 38, language is added in subparagraph (1) to 
harmonize Part 38, Appendices A and B, with Part 37, Appendices A and 
B, consistent with the idea that the obligation to comply with the core 
principles applies both initially and on an ongoing basis. In 
subparagraph (2), a reference to ``selected'' requirements of the core 
principles is added to make clear that the enumerated acceptable 
practices under each core principle are neither the complete nor the 
exclusive requirements for meeting that core principle. With respect to 
the completeness issue, the selected requirements in the acceptable 
practices section of a particular core principle may not address all 
the requirements necessary for compliance with the core principle. With 
respect to the exclusivity issue, the acceptable practices that are 
listed for a particular core principle requirement are for illustrative 
purposes only and do not state the only means of satisfying the 
particular requirement they address. There may be other ways of 
complying with that requirement of the core principle that would also 
be acceptable.
    Under Core Principle 2 of Appendix B to Part 38, a reference is 
added in subparagraph (a)(1) to clarify that a DCM may carry out trade 
practice surveillance programs through delegation or ``contracting 
out.'' A delegation confers upon the delegee/third party contractor the 
authority to act on behalf of the delegating authority. A third party 
contractor would not act in the DCM's name, but the DCM will be 
required to maintain sufficient control over the contractor because it 
remains the DCM's responsibility to assure that its obligations under 
the Act are met.\8\
---------------------------------------------------------------------------

    \8\ See the discussion in 66 FR 42256, at 42266 (August 10, 
2001).
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    Under Core Principle 6 of Appendix B, ``Emergency Authority,'' the 
language now appearing under subparagraph (b), ``Acceptable 
Practices,'' is moved to subparagraph (a), ``Application Guidance.'' 
This amendment reflects that the language moved to subparagraph (a) 
more accurately describes guidance on establishing rules to exercise 
emergency authority in the first instance, rather than acceptable 
practices in implementing such rules.
    Under Core Principle 7 of Appendix B, guidance is added in 
subparagraph (b) as to what constitutes ``timely placement'' of 
information on a DCM's Web site. In noting that the DCM's rulebook 
should be ``available to the public,'' the intent of the subparagraph 
is that the rulebook should be freely accessible to anyone who visits 
the Web site without the need to register, log in, provide a user name 
or obtain a password.
    Core Principle 8 of Appendix B requires that a DCM shall make 
public daily information on settlement prices, volume, open interest, 
and opening and closing ranges for actively traded contracts. New 
language is added to subparagraph (b), Acceptable Practices, whereby 
compliance with Sec.  16.01 of the Commission's regulations, which is 
mandatory since Sec.  16.01 is one of the sections reserved under Sec.  
38.2, constitutes an acceptable practice under Core Principle 8. All 
currently designated DCMs are in compliance with Sec.  16.01.
    Under Core Principle 16 of Appendix B, paragraph (a) is revised to 
refer to a contract market's board (rather than the contract market as 
a whole) in conformity with the language of the core principle.

D. Part 39--Derivatives Clearing Organizations

    The Commission adopted the application procedures specified in 
Commission Regulation 39.3 \9\ for entities applying to be registered 
as DCOs in 2001 when it first implemented the CFMA.\10\ The Commission 
is modifying the application procedures in a number of respects. Most 
of these

[[Page 1959]]

modifications mirror changes recently made to Parts 37 and 38 
regarding, among other things, the review and processing of 
applications for registration of DTEFs and DCMs.\11\ With respect to 
the review period for applications generally, it is establishing, as it 
has under Parts 37 and 38, the presumption that all applications are 
submitted for review under the 180-day timeframe specified in Section 
6(a) of the Act for DCMs and DTEFs.\12\ An expedited 90-day review can 
be requested by the applicant, in which case the Commission will 
register the applicant as a DCO during or by the end of the 90-day 
period unless the Commission, or staff under delegated authority, 
terminates the expedited review for certain specifically identified 
reasons. In comparison to the former rules, the Commission is 
lengthening the expedited review period for DCO applications by 30 
days. The Commission believes, based upon its experience in processing 
DCO applications and in light of certain administrative practices that 
have developed since these rules were first adopted, that this 
potentially longer review period is necessary to ensure a comprehensive 
review of applications and to meet other public policy objectives.
---------------------------------------------------------------------------

    \9\ 17 CFR 39.3 (2001).
    \10\ See 66 FR 45604 (August 29, 2001). The CFMA, Appendix E of 
Pub. L. 106-554, 114 Stat. 2763, substantially revised the Commodity 
Exchange Act (Act or CEA), 7 U.S.C. 1 et seq.
    \11\ 69 FR 67811 (November 22, 2004).
    \12\ Under the former rules, DCO applications were routinely 
reviewed under the fast-track procedures unless the applicant were 
to instruct the Commission in writing at the time of the 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.
---------------------------------------------------------------------------

    The Commission has reviewed nine DCO applications since passage of 
the CFMA. The applications were large and complex and contained 
technical documents describing operations and operational outsourcing 
agreements. The applications frequently generated a series of requests 
for information by Commission staff responsible for reviewing the 
applications. In addition, a new Commission policy to promote 
transparency in Commission operations, implemented in August of 2003, 
provides for the posting of all such applications on the Commission's 
Web site for a period of at least 15 days for public review and 
comment.\13\ This lengthens the review process. The 90-day review 
period is intended to provide the Commission with sufficient time to 
review these substantial applications, to consider any public comments, 
and to take informed action. The Commission notes that the new 90-day 
``fast-track'' review period, while longer than the former fast-track 
review period, would continue to be substantially shorter than the 180-
day review period set forth in Section 6(a) for DCMs and DTEFs.
---------------------------------------------------------------------------

    \13\ The Commission has proposed revisions to Commission 
Regulation 40.8 to specify which portions of an application for 
registration as a DTEF or designation as a DCO will be made public. 
See 69 FR 44981 (July 28, 2004).
---------------------------------------------------------------------------

    The Commission also is modifying its internal processing procedures 
under which an applicant would be registered as a DCO. An applicant 
shall no longer be deemed to be registered based upon the passage of 
time. If an applicant requests expedited review, the Commission will 
take affirmative action to register or designate the applicant as a 
DCO, subject to conditions if appropriate, not later than 90 days after 
receipt of the application, unless the Commission (or staff under 
delegated authority) terminates the expedited review. Thus, 
registration as a DCO will involve affirmative action by the 
Commission, which will normally be in the form of issuance of a 
Commission order. It should be noted that it remains possible, under 
the procedures, for applicants who submit applications that are 
complete and not amended or supplemented during the review period to be 
designated as a DCO in less than 90 days.
    The expedited review period will be terminated if: (1) The 
application is materially incomplete; (ii) the application's form or 
substance fails to meet the requirements of Part 39; or (iii) the 
application undergoes major amendment or supplementation. The 
Commission also is providing for termination of expedited review if an 
application raises novel or complex issues that require additional time 
for review. This is responsive to the public interest that the 
Commission has witnessed to date with respect to the DCO applications 
and is substantially the same as it now is for DCMs and DTEFs. Fast-
track review also may be terminated upon written instruction of the 
applicant during the review period.
    With respect to the additional information that would be required 
to be submitted as part of the application, the rule requires that 
applicants demonstrate how they are able to satisfy each of the core 
principles specified in Section 5b of the Act. As amended, the rule 
eliminates the proviso, ``to the extent it is not self-evident from the 
applicant's rules.'' Based upon experience in reviewing DCO 
applications, the Commission recognizes that this additional 
information is necessary for Commission review of the application when 
determining whether the applicant satisfies the core principles. The 
amended rule eliminates 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.
    The Commission continues to encourage applicants to consult with 
Commission staff prior to formally submitting an application for DCO 
registration to help ensure that an application, once submitted, will 
be able to be reviewed in a timely manner.

E. Part 40--Provisions Common to Contract Markets, Derivatives 
Transaction Execution Facilities and Derivatives Clearing Organizations

    In Sec.  40.1, the definitions therein are redesignated as numbered 
subparagraphs, beginning with subparagraph (a). In redesignated 
subparagraphs 40.1(b)-(e), the definitions of dormant contract/product, 
dormant contract market, dormant derivatives clearing organization and 
dormant derivatives transaction execution facility, respectively, the 
length of time during which no trading (or clearing) has occurred 
before dormancy can be declared is extended from six to twelve calendar 
months. Also, in Sec.  40.1(b), in the proviso granting a 36-month 
grace period after initial certification or Commission approval before 
a contract/product can be considered dormant, language is added to make 
clear that, if the DCM or DTEF itself becomes dormant prior to the 
running of the 36-month period, the contract/product will likewise be 
considered dormant. Finally, language is added to Sec.  40.1(b) to 
allow a board of trade to self-declare a contract/product to be dormant 
at any time after initial certification or Commission approval.
    Under new Sec.  40.1(f), a definition of ``dormant rule'' is added 
whereby a new rule or rule amendment that is not made effective and 
implemented within twelve months of initial certification or Commission 
approval will be considered dormant and will have to be resubmitted, 
either by certification or for approval, before it may be implemented.
    Sections 40.2, 40.3, 40.5 and 40.6 are revised for internal 
consistency between sections. In addition, in Sec.  40.2, relating to 
listing new products for trading by certification, new subparagraph 
40.2(b) makes clear that a registered entity shall provide, if 
requested by Commission staff, additional evidence, information

[[Page 1960]]

or data relating to whether the contract meets, initially or on a 
continuing basis, any of the requirements of the Act or Commission 
regulations or policies thereunder. Such evidence may be beneficial to 
the Commission in conducting a due diligence assessment of the product 
and the registered entity's compliance with these requirements, 
including the obligation that the registered entity must have reason to 
believe the certification is proper. This language is consistent with 
the Commission's obligation to assure that the Act and Commission 
regulations and policies thereunder are not being violated. Similar 
language is added in Sec.  40.3(a)(9) with respect to voluntary 
submission of new products for approval, and in Sec.  40.6(a)(4) with 
respect to self-certification of rules by DCMs and DTEFs. DCMs and 
DTEFs should be aware that, in conducting routine due diligence reviews 
of self-certified new product listings and new rules or rule amendments 
under Sec.  40.2(b) and Sec.  40.6(a)(4), respectively, the staff gives 
special consideration to particular requirements. For DTEFs, the key 
requirements are: Sec.  5a(b)(2) of the Act (requirements for 
underlying commodities); Core Principle 3 (monitoring trading to assure 
an orderly market); and Core Principle 4 (disclosure of general 
information). For DCMs, the key requirements are: Core Principle 3 
(listing contracts that are not readily susceptible to manipulation); 
Core Principle 4 (monitoring trading to prevent manipulation, price 
distortion or disruptions of the delivery or cash-settlement process); 
and Core Principle 5 (adopting position limits or position 
accountability rules to reduce the threat of market manipulation or 
distortion, especially in the delivery month). To the extent that a DCM 
or DTEF includes with its initial submission, data, research reports, 
trade interview reports, exchange or third party analyses, or other 
background information demonstrating compliance with these 
requirements, a DTEF or DCM can minimize the prospect of requests for 
additional information under Sec.  40.2(b) or Sec.  40.6(a)(4), 
respectively.
    The revisions to Sec.  40.3 set forth with greater particularity 
the information Commission staff needs to make a determination on 
whether to approve a new product voluntarily submitted for Commission 
review and approval.
    Section 5c(c)(2)(B) of the Act and Sec.  40.4 of the regulations 
require prior Commission approval of DCM rule amendments that, for a 
delivery month having open interest, would materially change a term or 
condition of a contract for future delivery of an enumerated 
agricultural commodity, or an option on such a contract or 
commodity.\14\ These amendments add new subsection 40.4(b)(8) to 
include fees or fee changes that are $1.00 or more per contract and are 
established by an independent third party or are unrelated to delivery, 
trading, clearing or dispute resolution to the types of rule changes 
for which a materiality determination is not required. The amendments 
also make clear that the non-material changes described in Sec.  
40.4(b), subparagraphs (1)-(8), fall within the provisions of revised 
Sec.  40.6(c) and will be subject to the weekly notification procedures 
set out therein. Also, in Sec.  40.4(b)(9) under subparagraph (i), the 
deadline for Commission review of ``non-material agricultural rule 
changes'' is changed from 10 calendar days to 10 business days to 
provide for a consistent review period for all submissions and to allow 
for more time for review. Under subparagraph (ii), the DCM will be 
required to provide an explanation of why the DCM believes the proposed 
rule change is non-material. Similarly, in Sec.  40.5(c)(1), the review 
period for rules that are voluntarily submitted by DCMs or DTEFs for 
approval is extended from 30 days to 45 days, to be consistent with 
Sec.  40.3.
---------------------------------------------------------------------------

    \14\ The ``enumerated commodities'' are those agricultural 
commodities listed in Sec.  1a(4) of the Act.
---------------------------------------------------------------------------

    Under Sec.  40.6, current Sec.  40.6(a) sets out the conditions 
under which a DCM or DCO may implement new rules by certifying them to 
the Commission. Subparagraph 40.6(a)(1) provides that the certification 
procedure does not apply to rules of a DCM that materially change a 
term or condition of a futures or option contract on an enumerated 
agricultural commodity in a delivery month with open interest. 
Subparagraphs 40.6(a)(2) and (3) set out the filing requirements for 
rule certifications and the information to be provided in such 
certifications. Section 40.6(c) establishes an exception to the rule 
certification requirements of Sec. Sec.  40.6 (a)(2) and (3) whereby 
DCMs and DCOs may place certain rules and rule amendments into effect 
without certification, provided that certain conditions are met. The 
conditions are that: (1) The DCM or DCO provide to the Commission a 
weekly summary of rule changes made effective pursuant to this 
paragraph; and (2) the rule change governs such routine matters as 
nonmaterial revisions, changes to delivery standards made by third 
parties that do not affect deliverable supplies or the pricing basis 
for the product, changes in the composition of an index (other than a 
stock index) that do not affect the pricing basis of the index, routine 
changes to option contract terms, and certain fee changes established 
by independent third parties. These amendments add a reference to Sec.  
40.6(a)(1) to the exception established in Sec.  40.6(c). The effect is 
to make clear that, while material rule changes involving contract 
months with open interest in enumerated agricultural commodities may 
not be certified to the Commission, the type of routine changes 
described in Sec.  40.6(c)(2), as well as the partially overlapping 
list of non-material changes in Sec. Sec.  40.4(b)(1)-(8), do not 
constitute material changes within the meaning of the Act or Commission 
regulations. Therefore, DCMs may inform the Commission of such rule 
changes on a weekly basis under the provisions of Sec.  40.6(c). Also, 
new Sec.  40.6(c)(2)(vi) adds to the list of items that may be reported 
weekly under Sec.  40.6(c)(1), changes in survey lists of banks, 
brokers or dealers that provide market information to an independent 
third party and that are incorporated by reference as product terms. 
Finally, new Sec.  40.6(c)(3)(ii)(F) adds minor changes to security 
indexes to the list of information the Commission does not require to 
be certified or reported weekly by a DCM or DCO.
    Under Sec.  40.7, Delegations, new Sec.  40.7(a)(3) delegates to 
the Division, with the concurrence of the Office of the General 
Counsel, the authority to determine whether a rule change submitted by 
a DCM for a materiality determination under Sec.  40.4(b)(9) is not 
material (in which case it may be reported pursuant to the provisions 
of Sec.  40.6(c)), or is material and, therefore, must be submitted for 
Commission prior approval. Finally, new Sec.  40.7(b)(3) will increase 
the Division of Market Oversight's delegated authority to allow it, 
with the concurrence of the Office of the General Counsel, to approve 
rules regarding speculative limits or position accountability.

IV. 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 or order under the Act. By its 
terms, Sec.  15(a) does not require the Commission to quantify the 
costs and benefits of its action or to determine whether the benefits 
of the action outweigh its costs. Rather, Sec.  15(a) simply requires 
the Commission to ``consider the costs and benefits'' of the subject 
rule or order.
    Section 15(a) further specifies that the costs and benefits of the 
proposed rule

[[Page 1961]]

or order shall be evaluated in light of five broad areas of market and 
public concern: (1) Protection of market participants and the public; 
(2) efficiency, competitiveness, and financial integrity of 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 or order 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.
    These amendments are intended to clarify and codify acceptable 
practices under the rules for trading facilities, based on the 
Commission's experience over the past four years in applying those 
rules, including the adoption of several amendments to the original 
rules over the same period. The amendments also make various technical 
corrections and conforming amendments to the rules.
    In addition, the amendments revise the application and review 
process for registration as a DCO by eliminating the presumption of 
automatic fast-track review of applications and replacing it with the 
presumption that all applications will be reviewed pursuant to the 180-
day timeframe and procedures specified in Section 6(a) of the Act. In 
lieu of the current 60-day automatic fast-track review, the amendments 
permit applicants to request expedited review and to be registered as a 
DCO not later than 90 days after the Commission receives the 
application.
    The Commission's proposal contained an analysis of its 
consideration of theses costs and benefits and solicited public comment 
thereon. 70 FR at 39678. The Commission specifically invited commenters 
to submit any data that they had quantifying the costs and benefits of 
the proposed amendments with their comment letters. Id. The Commission 
has considered all the comment letters received, some of which 
contained narrative discussion of the costs and benefits of specific 
provisions of the proposed amendments, but none of which set forth any 
data that quantified such costs and benefits.
    The Commission has considered the costs and benefits of these 
amendments in light of the specific areas of concern identified in 
Sec.  15. The Commission has endeavored in these amendments to impose 
the minimum requirements necessary to enable the Commission to perform 
its oversight functions, to carry out its mandate of assuring the 
continued existence of competitive and efficient markets and to protect 
the public interest in markets free of fraud and abuse. After 
considering their costs and benefits, the Commission has decided to 
adopt these amendments as discussed above.

V. Related Matters

A. 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 rule amendments adopted 
herein will affect exempt commercial markets, exempt boards of trade, 
derivatives transaction execution facilities, designated contract 
markets and designated clearing organizations. The Commission has 
previously determined that the foregoing entities are not small 
entities for purposes of the RFA.\15\ Accordingly, the Chairman, on 
behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) 
that the rule amendments will not have a significant economic impact on 
a substantial number of small entities.
---------------------------------------------------------------------------

    \15\ 47 FR 18618, 18619 (April 30, 1982) discussing contract 
markets; 66 FR 42256, 42268 (August 10, 2001) discussing exempt 
boards of trade, exempt commercial markets and derivatives 
transaction execution facilities; 66 FR 45605, 45609 (August 29, 
2001) discussing derivatives clearing organizations.
---------------------------------------------------------------------------

B. Paperwork Reduction Act of 1995

    This rulemaking contains information collection requirements. As 
required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), 
the Commission submitted a copy of this section to the Office of 
Management and Budget (OMB) for its review. No comments were received 
in response to the Commission's invitation in the notice of proposed 
rulemaking to comment on any potential paperwork burden associated with 
these rules.

List of Subjects

17 CFR Part 36

    Commodity futures, Commodity Futures Trading Commission.

17 CFR Part 37

    Commodity futures, Commodity Futures Trading Commission.

17 CFR Part 38

    Commodity futures, Commodity Futures Trading Commission.

17 CFR Part 39

    Commodity futures, Consumer Protection.

17 CFR Part 40

    Commodity futures, Contract markets, Designation application, 
Reporting and recordkeeping requirements.


0
In consideration of the foregoing, and pursuant to the authority in the 
Commodity Exchange Act and, in particular, Sections 1a, 2, 3, 4, 4c, 
4i, 5, 5a, 5b, 5c, 5d, 6 and 8a of the Act, the Commission hereby 
amends Chapter I of Title 17 of the Code of Federal Regulations as 
follows:

PART 36--EXEMPT MARKETS

0
1. The authority citation for part 36 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6, 6c 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. Section 36.2 is amended by revising paragraphs (b) and (c) to read 
as follows:


Sec.  36.2  Exempt boards of trade.

* * * * *
    (b) Notification. Boards of trade operating under Section 5d of the 
Act as exempt boards of trade shall so notify the Commission. This 
notification shall be filed with the Secretary of the Commission at its 
Washington, DC headquarters, in electronic form, shall be labeled as 
``Notification of Operation as an Exempt Board of Trade,'' and 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 of Section 
5d of the Act and elects to operate 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.

[[Page 1962]]

    (ii) Notification. An exempt board of trade operating a market in 
reliance on the 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