[Federal Register: September 1, 2004 (Volume 69, Number 169)]
[Proposed Rules]
[Page 53367-53373]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01se04-20]
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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: Proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is proposing to revise the application and review procedures for
registration as a Derivatives Transaction Execution Facility (DTEF) or
designation as a Contract Market (DCM). Specifically, the Commission is
proposing to 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 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
Commission is proposing to 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 Commission is also proposing, among other things, to
more completely identify application content requirements; to 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; to reorganize the paragraphs being revised; and to eliminate
duplication. The Commission is proposing these amendments based upon
its experience in processing applications and in light of
administrative practices that have been implemented since the rules
were first adopted.
DATES: Comments must be received by October 1, 2004.
ADDRESSES: Comments should be sent to the Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,
DC 20581, attention: Office of the Secretariat. Comments may be sent by
facsimile to (202) 418-5521, or by e-mail to secretary@cftc.gov.
Reference should be made to ``Application Procedures.'' Comments may
also be submitted to the Federal eRulemaking Portal: http://www.regulations.gov
.
FOR FURTHER INFORMATION CONTACT: Duane C. Andresen, Special Counsel,
(telephone (202) 418-5492, e-mail dandresen@cftc.gov), 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: 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 (Act or CEA), 7 U.S.C. Sec. 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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The Commission is proposing to modify the application procedures in
a number of respects. With respect to the timeliness of the review of
applications generally, it is proposing to establish the presumption
that all applications are submitted for review under the 180-day
timeframe specified in Section 6(a) of the Act.\15\ 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. In comparison to the current rules, the Commission
is proposing to lengthen the expedited review periods for DCM
applications by 30 days and for DTEF applications by 60 days. The
Commission believes, based upon its extensive experience in processing
DCM applications and in light of certain administrative practices that
have developed since these rules were first adopted, that these
potentially longer review periods are necessary to ensure a
comprehensive review of applications and to meet other public policy
objectives.
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\15\ 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).
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Specifically, the Commission has reviewed seven DCM applications
under the fast-track review procedures and none of these reviews has
been completed within the current fast-track 60-day review period. The
applications
[[Page 53368]]
themselves are large and often contain a number of regulatory and
operational outsourcing agreements, as well as the technical documents
describing electronic order matching systems.\16\ The applications
frequently need to be substantially amended or supplemented in various
ways and unfailingly generate a series of questions 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.\17\ This has also lengthened the
review process. The proposed 90-day review period should provide the
Commission with sufficient time to review these substantial
applications and to respond to any public comments. The Commission
notes that the proposed 90-day review period, while longer than the
current fast-track review periods, would continue to be substantially
shorter than the 180-day review period established under the Act.\18\
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\16\ In this regard, the initial application of one DCM
applicant included over 1300 pages of supporting documents and
thereafter the applicant submitted hundreds of additional pages
before designation.
\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
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 also be sizeable
and require a similar amount of time to review. Accordingly, the
Commission is proposing to conform the DTEF expedited review period
to that applicable to DCMs.
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The Commission also is proposing to modify its 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 should be
noted that it would be possible, under the proposed procedures, for
applicants who submit 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. Based upon its experience in reviewing
applications submitted to date and in light of its new practice of
posting all such applications on the Commission's Web site for public
review and comment, the Commission is proposing to clarify and expand
the rationale for terminating expedited review. In addition to the
reasons for termination cited above, the Commission is proposing that
the expedited review period be terminated if the application is
materially incomplete or, as more fully described below, undergoes
major amendment or supplementation. The Commission is also proposing to
provide for termination of expedited review if an application raises
novel or complex issues that require additional time for review. This
proposal is responsive to the substantial public interest that the
Commission has witnessed to date with respect to DCM applications.
The Commission is further proposing to 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\ Finally, the Commission is proposing to
amend the expedited review procedures to expressly provide that
expedited review would be terminated if an applicant so requests in
writing. The Commission stresses that 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.
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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 Commission
is proposing to 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 clarifies
that the rules required to be included in all applications are those
rules as defined in Commission Regulation 40.1 and more clearly
identifies 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 application
also must include a copy of any documents describing the applicant's
legal status and governance structure.
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The proposal 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 generally 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 proposal requires
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 proposal would require that the applicant
submit a copy of any manual or other document describing the
[[Page 53369]]
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 proposal 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 provides that the information must be included in an
application. In fact, this information has been requested as part of
each of the DCM applications that have been reviewed to date.
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Under the proposal, the items required to be included in an
application to be reviewed under the statutory 180-day review
procedures are 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 procedure: (1) An
applicant must request expedited review, and (2) an application
submitted for expedited review 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 provides 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 Commission is also proposing to modify 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. The
Commission is proposing to modify and standardize the delegation of
authority as it applies to DTEF and DCM applicants. Thus, under the
proposal, 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 Commission is proposing to 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 Commission is also proposing to delete certain guidance regarding
applications for designation as that information 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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The Commission continues to encourage applicants to consult with
Commission staff prior to formally submitting a DTEF or DCM application
to help ensure that an application, once submitted, will be reviewed in
a timely manner. The Commission encourages interested parties,
particularly prior applicants, to comment upon these proposals.
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.\23\ In its previous determinations, the Commission has
concluded that DCMs and DTEFs are not small entities for the purpose of
the RFA.\24\
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\23\ 47 FR 18618, 18618-21 (Apr. 30, 1982).
\24\ 47 FR 18618, 18619 (Apr. 30, 1982) (discussing DCMs); 66 FR
42256, 42268 (Aug. 10, 2001) (discussing DTEFs).
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Accordingly, the Commission does not expect the rules, as proposed
herein, to have a significant economic impact on a substantial number
of small entities. Therefore, the 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. The Commission invites the public
to comment on this finding and on its proposed determination that the
trading facilities covered by these rules would not be small entities
for purposes of the RFA.
B. The Paperwork Reduction Act
This proposed rulemaking affects information-collection
requirements. As required by the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)), the Commission has submitted a copy of this section to
the Office of Management and Budget (OMB) for its review.
Collection of Information: Rules Relating to part 37, Establishing
Procedures for Entities to be Registered as Derivatives Transaction
Execution Facilities, OMB Control Number 3038-0053. The proposed rules
will not change the burden previously approved by OMB. The estimated
burden was calculated as follows:
Estimated number of respondents: 10.
Annual responses by each respondent: 1.
Total annual responses: 10.
Estimated average hours per response: 200.
Annual reporting burden: 2,000.
Collection of Information: Rules Relating to part 38, Establishing
Procedures for Entities to Become Designated as Contract Markets, OMB
Control Number 3038-0052. The proposed rules will not change the burden
previously approved by OMB. The estimated burden was calculated as
follows:
Estimated number of respondents: 10.
Annual responses by each respondent: 1.
Total annual responses: 10.
Estimated average hours per response: 300.
Annual reporting burden: 3,000.
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, Office of Management and Budget,
Room 10202, New Executive Office Building, 725 17th Street, NW.,
Washington, DC 20503; Attention: Desk Officer for the Commodity Futures
Trading Commission.
The Commission considers comments by the public on this proposed
collection of information in:
Evaluating whether the proposed collection of information is
necessary for the proper performance of the functions of the
Commission, including whether the information will have a practical
use;
Evaluating the accuracy of the Commission's estimate of the burden
of the proposed collection of information, including the validity of
the methodology and assumptions used;
[[Page 53370]]
Enhancing the quality, usefulness, and clarity of the information
to be collected; and
Minimizing the burden of collecting information on those who are to
respond, including through the use of appropriate automated electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
responses.
OMB is required to make a decision concerning the collection of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication. This does not affect
the deadline for the public to comment to the Commission on the
proposed regulations.
Copies of the information collection submission to OMB are
available from the CFTC Clearance Officer, 1155 21st Street, NW.,
Washington, DC 20581, (202) 418-5160.
C. Cost Benefit Analysis
Section 15(a) of the Act 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) requires the Commission to ``consider the costs
and benefits'' of the subject rule.
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) 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 proposed amendments are based upon past experience in reviewing
DCM applications, and in light of the Commission's intention to post
all such applications on its Web site for public review and comment,
and are intended to facilitate increased flexibility, consistency and
increased public input. The proposed amendments impose limited new
submission obligations on entities seeking designation as DCMs or
registration as DTEFs with the Commission. The proposed amendments
establish the premise that all designation and registration
applications are to be reviewed under the statutory 180-day review
process unless otherwise requested and set new parameters for the
expedited review of such applications and for the termination of such
expedited review. These parameters create a useful and forward-looking
expedited review process. Under the proposed rules, the Commission will
review and take affirmative action upon designation and registration
applications in an abbreviated time frame that adequately protects the
interests of all market participants and the public. The proposed rules
establish flexible expedited review procedures that allow the
Commission to efficiently terminate expedited review when requested to
do so by the applicant, or when necessary because of the submission of
materially incomplete, novel or complex, or substantially amended or
supplemented applications.
After considering these factors, the Commission has determined to
propose the revisions to parts 37 and 38 set forth below. The
Commission specifically invites public comment on its application of
the criteria contained in section 15(a) of the Act for consideration.
Commenters are also invited to submit any quantifiable data that they
may have concerning the costs and benefits of the proposed rule with
their comment letters.
List of Subjects
17 CFR Part 37
Commodity futures, Commodity Futures Trading Commission.
17 CFR Part 38
Commodity futures, Commodity Futures Trading Commission.
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 proposes to amend chapter I of
title 17 of the Code of Federal Regulations as follows:
PART 37--DERIVATIVES TRANSACTION EXECUTION FACILITIES
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).
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
Section 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 Section 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);
[[Page 53371]]
(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)-(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)-
(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 Sections
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 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 Section 37.5(b)(2)(iii) above.
The Commission shall also terminate review under this section if
requested in writing to do so by the applicant.
(2) 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)
above.
(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 paragraphs (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
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).
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
[[Page 53372]]
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 Section 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 Section 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 the
business hours defined in Section 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. 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) above. The Commission shall also terminate
review under this section if requested in writing to do so by the
applicant.
(2) 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)
above.
(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 paragraphs (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
[[Page 53373]]
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, this 26th day of August, 2004, by the
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 04-19946 Filed 8-31-04; 8:45 am]
BILLING CODE 6351-01-P