[Code of Federal Regulations]
[Title 17, Volume 1]
[Revised as of April 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR1.39]

[Page 89-90]
 
              TITLE 17--COMMODITY AND SECURITIES EXCHANGES
 
             CHAPTER I--COMMODITY FUTURES TRADING COMMISSION
 
PART 1_GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT--Table 
of Contents
 
Sec.  1.39  Simultaneous buying and selling orders of different 
principals; execution of, for and between principals.

    (a) Conditions and requirements. A member of a contract market who 
shall have in hand at the same time both buying and selling orders of 
different principals for the same commodity for future delivery in the 
same delivery month or the same option (both puts or both calls, with 
the same underlying contract for future delivery or the same underlying 
physical, expiration date and strike price) may execute such orders for 
and directly between such principals at the market price, if in 
conformity with written rules of such contract market which have been 
approved by the Commission, and:
    (1)(i) When trading is conducted in a trading pit or ring, such 
orders are first offered openly and competitively by open outcry in such 
trading pit or ring (A) by both bidding and offering at the same price, 
and neither such bid nor offer is accepted, or (B) by bidding and 
offering to a point where such offer is higher than such bid by not more 
than the minimum permissible price fluctuation applicable to such 
futures contract or commodity option on such contract market, and 
neither such bid nor offer is accepted; or
    (ii) When in nonpit trading in contracts of sale for future 
delivery, bids and offers are posted on a board, such member (A) 
pursuant to such buying order posts a bid on the board and, incident to 
the execution of such selling order, accepts such bid and all other bids 
posted at prices equal to or higher than the bid posted by him, or (B) 
pursuant to such selling order posts an offer on the board and, incident 
to the execution of such buying order, accepts such offer and all other 
offers posted at prices equal to or lower than the offer posted by him;
    (2) Such member executes such orders in the presence of an official 
representative of such contract market designated to observe such 
transactions and, by appropriate descriptive words or symbol, clearly 
identifies all such transactions on his trading card or other similar 
record, made at the time of execution, and notes thereon the exact time 
of execution and promptly presents said record to such official 
representative for verification and initialing;
    (3) Such contract market keeps a record in permanent form of each 
such transaction showing the transaction date, by whom executed, the 
exact time of execution, quantity, and, as applicable, underlying 
commodity, contract for future delivery or physical, price or premium, 
whether a put or a call, and strike price; and
    (4) Neither the futures commission merchant receiving nor the member 
executing such orders has any interest therein, directly or indirectly, 
except as a fiduciary.
    (b) Large Order Execution Procedures. A member of a contract market 
may execute simultaneous buying and selling orders of different 
principals directly between the principals in compliance with large 
order execution procedures established by written rules of the contract 
market that have been approved by the Commission: Provided, That, to the 
extent such large order execution procedures do not meet the conditions 
and requirements of paragraph (a) of this section, the contract market 
has petitioned the Commission for, and the Commission has granted, an 
exemption from the conditions and requirements of paragraph (a) of this 
section. Any such petition must be accompanied by proposed contract 
market rules to implement the large order execution procedures. The 
petition shall include:
    (1) An explanation of why the proposed large order execution rules 
do not comply with paragraph (a) of this section; and
    (2) A description of a special surveillance program that would be 
followed by the contract market in monitoring the large order execution 
procedures.

The Commission may, in its discretion and upon such terms and conditions 
as it deems appropriate, grant such petition for exemption if it finds 
that the exemption is not contrary to the public interest and the 
purposes of the provision from which exemption is sought. The petition 
shall be considered concurrently with the proposed large order execution 
rules.
    (c) Not deemed filling orders by offset nor cross trades. The 
execution of orders

[[Page 90]]

in compliance with the conditions herein set forth will not be deemed to 
constitute the filling of orders by offset within the meaning of 
paragraph (iv) of section 4b(a) of the Act, nor to constitute cross 
trades within the meaning of paragraph (A) of section 4c(a) of the Act.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

[41 FR 3194, Jan. 21, 1976, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57008, Dec. 22, 1982; 56 FR 12344, Mar. 25, 1991; 59 FR 5525, Feb. 7, 
1994]

                              Miscellaneous